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




 
 DEVELOPING BIOMASS POTENTIAL: TURNING HAZARDOUS FUELS INTO VALUABLE 
                               PRODUCTS

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

                           OVERSIGHT HEARING

                               before the

                      SUBCOMMITTEE ON FORESTS AND
                             FOREST HEALTH

                                 of the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                        Wednesday, June 23, 2004

                               __________

                           Serial No. 108-99

                               __________

           Printed for the use of the Committee on Resources



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


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
94-533                      WASHINGTON : 2004
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                         COMMITTEE ON RESOURCES

                 RICHARD W. POMBO, California, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska                    Dale E. Kildee, Michigan
W.J. ``Billy'' Tauzin, Louisiana     Eni F.H. Faleomavaega, American 
Jim Saxton, New Jersey                   Samoa
Elton Gallegly, California           Neil Abercrombie, Hawaii
John J. Duncan, Jr., Tennessee       Solomon P. Ortiz, Texas
Wayne T. Gilchrest, Maryland         Frank Pallone, Jr., New Jersey
Ken Calvert, California              Calvin M. Dooley, California
Scott McInnis, Colorado              Donna M. Christensen, Virgin 
Barbara Cubin, Wyoming                   Islands
George Radanovich, California        Ron Kind, Wisconsin
Walter B. Jones, Jr., North          Jay Inslee, Washington
    Carolina                         Grace F. Napolitano, California
Chris Cannon, Utah                   Tom Udall, New Mexico
John E. Peterson, Pennsylvania       Mark Udall, Colorado
Jim Gibbons, Nevada,                 Anibal Acevedo-Vila, Puerto Rico
  Vice Chairman                      Brad Carson, Oklahoma
Mark E. Souder, Indiana              Raul M. Grijalva, Arizona
Greg Walden, Oregon                  Dennis A. Cardoza, California
Thomas G. Tancredo, Colorado         Madeleine Z. Bordallo, Guam
J.D. Hayworth, Arizona               Stephanie Herseth, South Dakota
Tom Osborne, Nebraska                George Miller, California
Jeff Flake, Arizona                  Edward J. Markey, Massachusetts
Dennis R. Rehberg, Montana           Ruben Hinojosa, Texas
Rick Renzi, Arizona                  Ciro D. Rodriguez, Texas
Tom Cole, Oklahoma                   Joe Baca, California
Stevan Pearce, New Mexico
Rob Bishop, Utah
Devin Nunes, California
Randy Neugebauer, Texas

                     Steven J. Ding, Chief of Staff
                      Lisa Pittman, Chief Counsel
                 James H. Zoia, Democrat Staff Director
               Jeffrey P. Petrich, Democrat Chief Counsel
                                 ------                                

               SUBCOMMITTEE ON FORESTS AND FOREST HEALTH

                     GREG WALDEN, Oregon, Chairman
            JAY INSLEE, Washington, Ranking Democrat Member

John J. Duncan, Jr., Tennessee       Dale E. Kildee, Michigan
Scott McInnis, Colorado              Tom Udall, New Mexico
Walter B. Jones, Jr., North          Mark Udall, Colorado
    Carolina                         Anibal Acevedo-Vila, Puerto Rico
John E. Peterson, Pennsylvania       Brad Carson, Oklahoma
Thomas G. Tancredo, Colorado         Stephanie Herseth, South Dakota
J.D. Hayworth, Arizona               VACANCY
Jeff Flake, Arizona                  VACANCY
Rick Renzi, Arizona                  Nick J. Rahall II, West Virginia, 
Stevan Pearce, New Mexico                ex officio
Richard W. Pombo, California, ex 
    officio


                                 ------                                
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on Wednesday, June 23, 2004.........................     1

Statement of Members:
    Walden, Hon. Greg, a Representative in Congress from the 
      State of Oregon............................................     1
        Prepared statement of....................................     2

Statement of Witnesses:
    Akhtar, Masood, President, Center for Technology Transfer, 
      Inc........................................................    35
        Prepared statement of....................................    36
    Carlson, William H., Vice President, Business Development, 
      Wheelabrator Technologies, and Chairman, USA Biomass Power 
      Producers Alliance.........................................    16
        Prepared statement of....................................    18
    Coston, Tom, Fuels for Schools Coordinator, Bitter Root 
      Resource Conservation and Development Area, Inc............    42
        Prepared statement of....................................    44
    Drew, Jason, District Manager, Nevada Tahoe Conservation 
      District, on behalf of the National Association of 
      Conservation Districts.....................................    52
        Prepared statement of....................................    54
    Johnston, Dr. Peter, Manager for Technology Development, 
      Arizona Public Service Company.............................    24
        Prepared statement of....................................    25
    Jungwirth, Lynn, Executive Director, The Watershed Research 
      and Training Center........................................    46
        Prepared statement of....................................    48
    Risbrudt, Chris, Ph.D., Director, Forests Products 
      Laboratory, Forest Service, U.S. Department of Agriculture.     3
        Prepared statement of....................................     5
    Tilotta, Dr. David C., President, Coalition for Advanced 
      Housing and Forest Products Research, and Associate 
      Professor, Wood & Paper Science, North Carolina State 
      University.................................................    20
        Prepared statement of....................................    22

Additional materials supplied:
    Barrow, Sherry, Sherry Barrow Strategies, Statement submitted 
      for the record.............................................    59
    Brinkmeyer, Todd, President and Owner, Plummer Forest 
      Products, Inc., Statement submitted for the record.........    64
    Leightley, Dr. Liam E., Department of Forest Products, Forest 
      and Wildlife Research Center, Mississippi State University, 
      Statement submitted for the record.........................    65
    Western Governors' Association, Letter submitted for the 
      record by The Honorable Janet Napolitano, Governor, State 
      of Arizona, and The Honorable Dirk Kempthorne, Governor, 
      State of Idaho.............................................    71


 OVERSIGHT HEARING ON DEVELOPING BIOMASS POTENTIAL: TURNING HAZARDOUS 
                      FUELS INTO VALUABLE PRODUCTS

                              ----------                              


                        Wednesday, June 23, 2004

                     U.S. House of Representatives

               Subcommittee on Forests and Forest Health

                         Committee on Resources

                            Washington, D.C.

                              ----------                              

    The Subcommittee met, pursuant to notice, at 2:00 p.m., in 
Room 1334, Longworth House Office Building, Hon. Greg Walden 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Walden, Rehberg, Renzi, Inslee, 
Tom Udall, and Herseth.

  STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF OREGON

    Mr. Walden. The Subcommittee on Forests and Forest Health 
will come to order. The Subcommittee is meeting today to hear 
testimony on ``Developing Biomass Potential: Turning Hazardous 
Fuels into Valuable Products.''
    Under Committee Rule 4(g), the Chairman and Ranking 
Minority Member can make opening statements, and if any other 
Members have statements, they can be included in the hearing 
record under unanimous consent.
    As hundreds of sawmills closed in recent years due to the 
shutdown of the Federal timber sale program, many lamented, 
including myself, at the loss of jobs and the debilitating 
impact to the economies of local communities. As early as the 
1980s, some scientists and forest managers began warning of 
another impending crisis resulting from these closures. That 
would be the loss of infrastructure and markets for treating 
and funding the treatment of millions of acres of hazardous 
fuels. This admonition has already turned into reality, as many 
in this room know.
    Many regions, as a consequence of losing local sawmills, 
also lost a well-trained and experienced workforce--equipment 
operators, loggers, truckers, and mill workers, not to mention 
the technology and infrastructure that these workers operated 
and managed. It has been lost. Now many communities have no 
alternative but to landfill or burn the timber and brush that 
they are removing in order to protect their communities, 
materials that could otherwise have been sold to help them 
offset the costs of treating local forests. With 190 million 
acres of Federal lands at high risk of catastrophic fire, this 
is a very serious concern.
    The primary purpose of today's hearing is to discuss issues 
surrounding the rebuilding of a viable infrastructure and to 
address a number of questions, such as what technologies and 
markets currently exist for the use of woody biomass and are 
they commercially viable? Have State or local governments 
promoted the use of biomass through subsidies, tax deductions 
or credits, loan guarantees, or other means, and how effective 
have they been? What technological, geographic, economic, or 
other obstacles exist for use and expansion of biomass? And 
what steps are Federal agencies taking to expand the use of 
biomass?
    With the recent passage of the Healthy Forests Restoration 
Act and the vast amounts of woody material that are likely to 
be generated, the answers to these questions are even more 
urgent. Ultimately, the successful implementation of HFRA will 
require broad development of new industries and a rebuilding of 
traditional ones if our forests and communities are to remain 
viable and healthy.
    To help us address this important issue, we are fortunate 
today to have a number of expert witnesses. With their insight, 
I hope we can begin to lay the groundwork for bipartisan 
Congressional action on biomass utilization.
    [The prepared statement of Mr. Walden follows:]

 Statement of The Honorable Greg Walden, a Representative in Congress 
                        from the State of Oregon

    As hundreds of sawmills closed in recent years due to the shut down 
of the federal timber sale program, many lamented, including myself, at 
the loss of jobs and the debilitating impacts to the economies of local 
communities. As early as the 1980's, some scientists and forest 
managers began warning of another impending crisis resulting from these 
closures---the loss of infrastructure and markets for treating, and 
funding the treatment of, millions of acres of hazardous fuels. This 
admonition has already turned into reality. Many regions, as a 
consequence of losing local sawmills also lost a well-trained and 
experienced workforce; equipment operators, loggers, truckers and 
millworkers, not to mention the technology and infrastructure that 
these workers operated and managed. Now, many communities have no 
alternative but to landfill or burn the timber and brush that they are 
removing in order to protect their communities---materials that could 
otherwise have been sold to help them offset the costs of treating 
local forests. With 190 million acres of federal lands at high risk of 
catastrophic fire, this is a serious concern.
    The primary purpose of today's hearing is to discuss issues 
surrounding the rebuilding of a viable infrastructure, and to address a 
number of questions, such as:
      What technologies and markets currently exist for the use 
of woody biomass and are they commercially viable?
      Have state or local governments promoted the use of 
biomass through subsidies, tax deductions or credits, loan guarantees, 
or other means, and how effective have they been?
      What technological, geographic, economic or other 
obstacles exist for use and expansion of biomass?
      What steps are federal agencies taking to expand the use 
of biomass?
    With the recent passage of the Healthy Forests Restoration Act, and 
the vast amounts of woody material that are likely to be generated, the 
answers to these questions are even more urgent. Ultimately, the 
successful implementation of HFRA will require broad development of new 
industries and a rebuilding of traditional ones, if our forests and 
communities are to remain viable and healthy.
    To help us address this important issue, we are fortunate today to 
have a number of expert witnesses. With their insight, I hope we can 
begin to the lay the groundwork for bipartisan Congressional action on 
biomass utilization.
                                 ______
                                 
    Mr. Walden. I would like to introduce our witnesses today. 
On panel one, we have Chris Risbrudt, Director of the Forest 
Products Lab for the Forest Service, and if you want to come on 
up. I would normally turn to my Ranking Member when he arrives 
or someone on their side. They will have an opportunity to make 
an opening statement, but we will move ahead at this point.
    So let me remind the witness that under our Committee 
Rules, you must limit your oral statement to 5 minutes, but 
your entire statement, of course, will appear in the record.
    I now recognize you for your statement and we appreciate 
your coming here today to share your insights on your work in 
the lab, a very important part of our process. Thank you.

    STATEMENT OF CHRIS RISBRUDT, DIRECTOR, FOREST PRODUCTS 
   LABORATORY, FOREST SERVICE, U.S. DEPARTMENT OF AGRICULTURE

    Dr. Risbrudt. Thank you, Mr. Chairman, and thank you for 
the opportunity to meet with your committee today. I am Dr. 
Chris Risbrudt, Director of the Forest Products Laboratory in 
Madison, Wisconsin. The lab specializes in finding new and 
improved uses for wood and you have asked all of us today to 
speak about ``Developing Biomass Potential: Turning Hazardous 
Fuels into Valuable Products.''
    The Healthy Forests Restoration Act signed into law last 
December by President Bush marks a clear and decisive change in 
direction to address the causes of catastrophic wildfires and 
insect and disease infestation by implementing hazardous fuel 
reduction projects in priority areas. I know you, Mr. Chairman, 
and the Subcommittee members recognize the scope of the threat 
to our forests and our communities.
    The authorities in HFRA will help us to accomplish our 
mission. The one potential hurdle is the marketability of the 
millions of tons of woody biomass we will need to remove from 
the landscape. The lack of markets will lead to continued 
outlays of funds to remove material and then dispose of it.
    We are here today to tell you about the new processes and 
products Forest Service researchers have been developing that 
will help overcome this hurdle. But before talking about some 
of these props I have got ready here, let me try to take the 
acres, condition classes, and stand densities that have been 
the focus of Congressional debate regarding the Healthy Forests 
Restoration Act and translate them into volumes of biomass and 
timber to give the Committee a greater appreciation of the 
immense stream of woody materials that will need to be disposed 
of after necessary thinning operations have taken place.
    We have a report issued in April of 2003 entitled ``A 
Strategic Assessment of Forest Biomass and Fuel Reduction 
Treatments in Western States'' that was a joint effort 
involving a team of Forest Service researchers in cooperation 
with the Western Forestry Leadership Council, and that is a 
good source of information.
    Let me state that healthy forests is not solely an issue in 
the West, but one for our entire country. But for our purposes 
today, I am concentrating somewhat on the West, where our 
greatest challenges lie.
    The objective of the assessment was to characterize the 
amount of forest biomass that could potentially be removed to 
implement the objectives of the National Fire Plan. The 
assessment covers forests on both public and private ownerships 
and describes all standing tree volume, including stems, limbs, 
and tops.
    First, the assessment noted that 15 Western States 
encompass almost a billion acres of land, of which 236 acres 
are forested. Slightly more than half of that forested area is 
classified as timberland. This acreage was further refined by 
fire regime condition classes, which is the measure of how much 
a forest has departed from its natural wildland fire condition. 
The scientists also employed plot data from 37,000 permanent 
FIA field plots, that is the Forest Inventory and Analysis 
plots, and they were summarized by forest type and ecoregion.
    Let me make an important point. While removal of sub-
merchantable seedlings and saplings is important to reduce 
ladder fuels, there is ample research that indicates that there 
is a range of stand condition where thinning only small-
diameter material does little to reduce crown fire spread. 
There is also research indicating that a comprehensive 
treatment, that is one that removes some trees from all 
diameter classes, has a more significant effect on reducing 
fire risk than removing only small trees in many stand 
conditions, although that certainly helps.
    The assessment provides several scenarios of the 
merchantable wood and biomass that could be produced. I will 
limit this discussion to two. Under one scenario, needed 
mechanical treatments done on 60 percent of fire regime 
Condition Class III lands would result in West-wide annual 
removals over 30 years of eight million bone dry tons of 
merchantable wood and 3.5 million tons of non-merchantable 
wood. The other scenarios where treatments would be done on 
both Condition Class I and II lands, and that results in 21 
million bone dry tons of merchantable wood and 8.7 million tons 
of non-merchantable wood.
    To put those figures into context, in 1999, the Western 
forestry industry processed about 28 million bone dry tons of 
roundwood for lumber and 2.2 million bone dry tons for 
pulpwood. We are currently estimating that we are removing 32 
million tons of annual growing stock. So you can see that these 
two scenarios either represent one-third of the harvest or 
nearly equal the harvest of what we currently have.
    Now, we have a number of efforts throughout the Forest 
Service, many being conducted jointly by research and 
development and State and private forestry that focus on three 
key areas for using large volumes of biomass--pulp and paper, 
energy and fuel, and engineered wood products and composites. 
But I would like to invite you, Mr. Chairman, and members of 
this committee to come out to the Forest Products Laboratory 
and see what we are working on. A member of this committee, 
Congressman Peterson, made the trip to Madison during one of 
our entrepreneurs tours, and I think he was excited about what 
he saw.
    Thank you, Mr. Chairman, for your time, and I will be 
pleased to answer any questions you have about the assessment 
or about our programs at the Forest Products Lab.
    Mr. Walden. Thank you. We appreciate your testimony today.
    [The prepared statement of Dr. Risbrudt follows:]

             Statement of Chris Risbrudt, Ph.D., Director, 
            USDA Forest Service, Forest Products Laboratory

    Mr. Chairman, thank you for the opportunity to meet with your 
committee today. I am Dr. Chris Risbrudt, Director of the USDA Forest 
Service's Forest Products Laboratory in Madison, Wisconsin. The Lab 
specializes in finding new and improved uses for wood. You have asked 
me to speak about Developing Biomass Potential: Turning Hazardous Fuels 
into Valuable Products.
    The Healthy Forests Restoration Act (HFRA) signed into law last 
December by President Bush marks a clear and decisive change in 
direction to address the causes of catastrophic wildfires and insect 
and disease infestations, by implementing hazardous fuel reduction 
projects in priority areas. This is a laudable and necessary goal.
    I know you, Mr. Chairman, and the Subcommittee members recognize 
the scope of the threat to our forests and communities. The authorities 
in HFRA will help us accomplish our mission, but one potential hurdle 
is the marketability of the millions of tons of woody biomass we will 
need to remove from these landscapes. The lack of markets will lead to 
continued outlays of funds to remove material, and then to dispose of 
it. We are here today to tell you about the new processes and products 
Forest Service researchers have been developing that will help overcome 
this hurdle.
    Before talking about that, I will try to take the acres, condition 
classes and stand densities that have been the focus of the 
Congressional debate regarding HFRA and translate them into volumes of 
biomass and timber to give you a greater appreciation of the immense 
stream of woody materials that will need to be disposed of after 
necessary thinning operations have taken place.
    The April 2003 report entitled ``A Strategic Assessment of Forest 
Biomass and Fuel Reduction Treatments in Western States'' that was a 
joint effort involving a team of Forest Service researchers in 
cooperation with the Western Forestry Leadership Coalition is a good 
source. Let me state that healthy forests is not solely an issue for 
the West, but one for our entire country. But for purposes of this 
testimony today, I am concentrating somewhat on the West where our 
greatest challenges lie.
    The objective of the assessment was to characterize on a regional 
scale the amount of forest biomass that could potentially be removed to 
implement the fuel reduction and ecosystem restoration objectives of 
the National Fire Plan for the Western United States. The assessment 
covers forests on both public and private ownerships and describes all 
standing tree volume including stems, limbs, and tops. The assessment 
includes analysis of treatment areas and potential removals, as well as 
the operational systems necessary to effect the treatments, the 
potential environmental impacts, and utilization opportunities for 
removed material.
    First, the assessment found the 15 western states encompass almost 
1 billion acres of land, of which 236 million acres are forested. 
Slightly more than half of the forested area (130 million acres) is 
classified as timberland according to the standard definition (i.e., 
capable of growing at least 20 cubic feet per acre per year and not 
reserved by law or administrative action from timber harvest). This 
acreage was further refined by Fire Regime Condition Class--which is a 
measure of how much a forest has departed from natural wild land fire 
conditions.
    The scientists then estimated current forest conditions for areas 
needing hazardous fuel reduction treatments based on the combination of 
Forest Inventory and Analysis (FIA) data and a well accepted course-
scale fire regime assessment. Plot data from 37,000 permanent FIA field 
plots were summarized by forest type and ecoregion. Computer modeling 
then applied selective removal prescriptions to that inventory using 
Stand Density Index (SDI) criteria. SDI is a long-established, science-
based forest stocking guide that can be adapted to uneven-aged forests 
using data available from broad-scale inventories. This approach 
allowed for prescriptions across a wide range of ecosystems to reduce 
stand density to a healthy condition, determined in the assessment to 
be 30 percent of maximum SDI for any given stand. Trees assumed to be 
removed generally were small to mid-size trees. However, larger trees 
could also be removed if needed to reach an overall healthy condition 
for the forest and provide for regeneration of desired species.
    This is important. While removal of sub-merchantable seedlings and 
saplings is important to reduce ladder fuels, there is ample research 
that indicates that there is a range of stand condition where thinning 
only small material does little to reduce crown fire spread. There is 
also research indicating that a comprehensive treatment, that is, one 
that removes some trees from all diameter classes, has a more 
significant effect on reducing fire risk than removing only small trees 
in many stand conditions. It also greatly improves the regeneration of 
desired species and reduces treatment costs to taxpayers.
    The assessment excluded reserved forests and low-productivity 
forests and made reductions for operational limitations such as steep 
slopes, and sensitive sites. According to a global analysis, about 60 
percent of the North American temperate forest is considered accessible 
(not reserved or high elevation and within 15 miles of major 
transportation infrastructure). A survey of National Forest land and 
resource management plans from 1995 also found that about 60 percent of 
the western National Forest timberland base is considered ``suitable'' 
for timber production operations (this is only 37 percent of the 
forestland base). The determination of ``suitable'' indicates that 
current forest operations technology would not produce irreversible 
damage to soil or water resources.
    Applying the selective removal prescriptions to the identified 
inventory across the West, the assessment projected that the vast 
majority (86%) of the trees that could be removed would be less than 10 
inches in diameter. There are nearly 2 billion trees in the 2-inch 
diameter class alone. While most of the trees that could be removed 
would be less than 10 inches, most of the associated volume would come 
from the 14 percent of the trees that are greater than 9 inches in 
diameter. In fact, under the assessment's projections, half of the 
volume would come from trees greater than 13 inches in diameter.
    The assessment provides several scenarios of the merchantable wood 
and biomass that could be produced. I will limit this discussion to 
two: under one scenario, needed mechanical treatments done on 60 % of 
Fire Regime Condition Class III lands would result in West wide annual 
removals over 30 years of: 8 million bone dry tons (bdt) of 
merchantable wood and 3.4 million bdt of non merchantable wood, for a 
total of 11.4 million bdt. The other scenario is where treatments would 
be done on 60% of both Condition Class II and III lands. That could be 
project to result in West wide annual removals over 30 years of 21 
million bdt of merchantable wood and 8.7 million bdt of non 
merchantable wood, for a total of 30 million bdt.
    Put those figures into context. In 1999, the western forest 
industry processed about 28 million bdt of roundwood for lumber and 2.2 
million bdt for pulpwood. Of the portion going to lumber mills, more 
than half the volume went as residues to pulp and particleboard mills. 
Current estimates indicate 32 million bdt of annual growing stock 
removals in the West are currently going to all products including 
medium-density fiberboard (MDF) plants, particle board plants, pulpwood 
and hog fuel. The scenario above involving only Condition Class III 
lands could represent about 36% of the current level of annual harvest 
in Western States (32 million bdt). Treatments of condition class II 
and III lands results in removals that are about 94% of the current 
level of annual harvest in Western States. Volume from thinning 
treatments could either replace current sources of raw material within 
the existing manufacturing infrastructure; or it could require private 
sector investment in new facilities.
    The market price impacts from the fuels reduction program could 
range from practically nothing to very large. For example, a program 
that mechanically reduces fuels on Condition Class II and III 
forestlands and that simply added to current harvests could result in 
total region harvests of more than 60 million bdt and large aggregate 
price reductions. Price reductions arising from such a program might 
also negatively impact non-participating forestland owners through 
lower timber prices. A program that only addressed fuels on the 
Condition Class III lands but that replaced 8 million bdt of existing 
harvests would have much less aggregate price impact, although some 
local effects could be experienced.
    The potential size of the manufacturing infrastructure needed to 
process material from fuel reduction treatments is large. Whether there 
would be expansion at existing facilities, restarted mills, or new 
construction would depend on many factors.
    The economics of establishing a large number of processing 
facilities is highly uncertain. Attracting investment to new processing 
infrastructure involves analysis of long-term supply and market 
forecasts. Today's forest products markets are global and western 
production will have to compete with material from other wood producing 
regions. There are considerable challenges associated with establishing 
new processing plants in the West that go well beyond implementation of 
the fuel reduction treatments.
    A complete analysis of the market effects as well as program costs 
will be conducted under a separate Joint Fire Science Program study, 
``A national study of the economic impacts of biomass removals to 
mitigate wildfire damages on federal, state, and private lands.'' This 
study seeks to evaluate market price and other economic effects of 
alternative scales of fuel reduction programs, with emphasis on 
Wildland-Urban-Interface zones. The study will also evaluate the 
differential effects of fuel reduction harvests that produce 
merchantable materials that substitute for or add to existing regional 
harvests.
    So there is a challenge to find, grow or create markets and 
facility infrastructure sufficient to accommodate this volume of 
materials, much of which will come from small-diameter material for 
which there is not substantial market opportunities.
    Congress did not ignore that pressing need in HFRA. Title II of the 
law provides authority to obtain information that will help overcome 
barriers to the production and use of biomass and help communities and 
businesses create economic opportunity. Three programs will help 
achieve these goals.
    Section 201 of HFRA amends the Biomass Research and Development Act 
of 2000 to authorize research focus on overcoming barriers to the use 
of small diameter biomass. Many of the more than 120 proposals now 
being considered for funding under that Act by the Department of 
Agriculture and the Department of Energy relate to forestry and small 
diameter material. In all, some $22 million will be available this 
year. Forest Service Research and Development also has a comprehensive 
research program in the major areas of forest biomass assessment, 
management, harvesting, utilization, processing, and marketing.
    Section 202 of HFRA, Rural Revitalization through Forestry, is 
aimed at helping communities and businesses create economic opportunity 
through the sustainable use of the nation's forest resources. While the 
key to this will be the actions of the private sector, the likelihood 
of success can be increased through the participation of State 
Foresters; Forest Service Technology Marketing specialists, such as at 
the Forest Products Lab; and federal and state economic development 
assistance agencies in collective efforts with local non-profit and 
for-profit businesses to build community-based forest enterprises. On-
going efforts of the unit at the lab and S&PF resource specialists 
across the country provide this support.
    Section 203 of HFRA authorizes grants to persons who own or operate 
a facility that uses biomass as a raw material for specific processes 
and products. The Forest Service has authority to provide grants for 
businesses, units of state and local government, non-governmental 
organizations (NGOs), and other entities with legal status. This Title 
expands authority to persons owning or operating facilities that use 
biomass as a raw material in producing energy, sensible heat, 
transportation fuels, and biobased products. Grants are limited to 
costs related to the purchase of biomass.
    There are a number of efforts throughout the Forest Service, many 
being conducted jointly by R&D and State & Private Forestry that focus 
on three key areas for using large volumes of biomass: pulp and paper, 
energy and fuel, and engineered wood products and composites.
    This hearing is focused on the third area. While I will discuss 
those programs at the Forest Products Laboratory which I know best, 
there are other important programs for forest products utilization in 
Forest Service Research and Development and State and Private Forestry 
which could focus on underutilized biomass.
    The performance of new composite materials is determined primarily 
by the properties of the wood particles, the polymer binder, and the 
interfacial region that is established between the two distinct phases. 
Forest Service research at Pineville, Louisiana, is exploring the 
relationship between wood surface properties and interfacial 
characteristics, and addressing thermosetting and thermoplastic polymer 
systems to develop superior wood-based composite products.
    Forest Service researchers in Blacksburg, Virginia, are developing 
and using expert systems and vision systems to support computer-aided 
and automated hardwood sawmill edging and trimming; developing a 
scanner/computer system to identify defects on rough lumber; supporting 
the development of a prototype vision system to automatically grade and 
upgrade rough lumber; developing products or better processes to 
improve the use of low-grade and small diameter hardwoods; and 
developing and evaluate automated production systems to grade pallet 
parts.
    In Portland, Oregon, the program characterizes the forest resources 
and evaluates their uses by assessing the technical feasibility of 
producing primary and value-added wood products through empirical 
studies and simulation of western species. Projects such as 
establishing a database of western hemlock wood product recovery and 
lumber recovery from young-growth western hemlock and Sitka spruce in 
Alaska are the types of biomass work done by this program
    The use of small diameter ponderosa pine that results from fuel 
reduction treatments is the focus of research in Flagstaff, AZ. This 
project is assessing the economic costs and benefits associated with 
different harvesting practices and regionally based utilization 
opportunities in fuel reduction treatments. This information will 
provide Federal land managers, contractors, and the public with an 
assessment of whether treatments can meet fuels reduction objectives at 
lower costs.
    At the Forest Products Laboratory, we are working on a number of 
innovative engineered wood and composite products that could penetrate 
our nation's huge home building market.
    For instance, this I-Beam, similar to those used extensively to 
support the floors in your home, is made out of tiny glulam beams 
sandwiched around a piece of oriented strandboard, or OSB. If you are 
not familiar with OSB, it is now used more commonly than plywood to 
sheath the homes in this country. Glulam beams are the large beams 
you'll find in many homes supporting the roof. Picture this one I'm 
holding here, only about 100 times larger.
    The great thing about engineered wood products is that they can be 
made with virtually any fiber, including small-diameter timber. 
Builders love them because they are engineered and designed for a 
particular use. Because they are comprised of small pieces of fibers, 
they do not have knots and other flaws commonly found in solid wood. 
The strength in them is much more consistent. And they are much less 
likely to twist, bend, or warp.
    Composites are another growth market that we are very excited 
about. Take a look at this shingle. It is made from recycled milk jugs 
and juniper. For those of you from the Southwest, you know some areas 
have an overabundance of juniper. It has taken over the landscape, 
crowding out other vital species and voraciously soaking up precious 
water. There is not much of a market for juniper--until now.
    These shingles, which can be molded to look like Spanish tiles, 
cedar shakes, or whatever else you'd like, are just one example. They 
have a ``class A'' fire rating and an expected service life of 40 
years. We are also working with a company in Mountainaire, New Mexico, 
to make signs out of juniper and plastic, such as this one that you 
might see on one of our National Forests. One of the biggest problems 
we've had with our signs is that porcupines love to eat them. However, 
they don't have an appetite for these. And they are much more resistant 
to a vandal's bullet than the old wooden ones. Although it sounds 
funny, these signs have proven to be very successful, and the little 
company in Ruidoso is now employing over 20 people, with plans to 
expand into other areas.
    Another great idea our researchers have come up with is filtering 
contaminants from water with juniper. Filtering water is big business. 
These filters are very cheap to make, and very effective at removing 
contaminants such as acid mine waste, oils, pesticides, and 
agricultural and parking lot run-off. We also think they have great 
potential as erosion control mats. And you can use a variety of fibers. 
One possibility is using the slash from thinnings or the debris left 
after a fire to make erosion control mats to stabilize an area.
    Energy is another high volume usage area. We are currently working 
with the DOE's National Renewable Energy Laboratory on a nationwide 
demonstration project using portable distributed energy systems. 
Distributed energy systems are decentralized energy production systems 
capable of grid connection. Basically, picture a large portable 
generator that you take with you to the woods, rather than bringing the 
woods to the generator.
    The largest of the systems we will be demonstrating is 50 Kw in 
size, or about enough power to run about 10 residential homes. We feel 
that the results of these demonstration projects will then allow us to 
create a one-megawatt unit. A one-megawatt system would use about 
12,000 tons of wood per year and produce enough electricity to power 
about 200 homes. And similar to what we've stated before, if you burn 
the unusable logs for power, sell the merchantable logs, and sell the 
power to the grid, you can actually make a profit while doing forest 
thinning. Other Forest Service research stations are developing 
management systems to ensure efficient and effective treatments; 
product development, utilization, and evaluation; and sustainability of 
the wood and bioenergy resource.
    I could go on and on about our products, but I've got a lot of 
other people who are patiently waiting to tell their story. I'd like to 
invite everyone from this committee to come out to the Forest Products 
Laboratory to see what we're working on. Congressman Peterson, made the 
trip to Madison during one of our entrepreneur tours, and I think he 
was excited about what he saw.
    For the past several months we have jointly hosted with Evergreen 
Magazine a series of tours for small business owners throughout the 
West to show them some of our small-diameter utilization technologies.
    There are numerous specialty markets for small-diameter material 
such as post-and-rail, rustic furniture, firewood, animal bedding, and 
composts. Many of the witnesses today have success stories to share 
with you in these markets. We see opportunities both for large, volume 
driven businesses and for small, niche market driven businesses. Both 
sides will play a part in helping us solve the small-diameter problem.
    Many people who would like to start a small forestry based business 
of some sort are doing it for the first time. They do not have the 
experience to pull things together like a business plan that will allow 
them to go to a bank and get a loan. That is where the Forest Service 
can help. We can help them decide what business makes sense for their 
given resources and market, and outline a specific course of action. 
Efforts like these are the key to restoring that lost infrastructure we 
talked about earlier.
    Thank you, Mr. Chairman and committee members, for your time. I 
would be pleased to answer any questions you have about the assessment 
or our programs at the Forest Products Laboratory.
                                 ______
                                 
    Mr. Walden. Let me go back to part of what you said about 
this research indicating a comprehensive treatment, that is one 
that removes some trees from all diameter classes, has a more 
significant effect on reducing fire risk than removing only 
small trees in many stand conditions--
    Dr. Risbrudt. Yes.
    Mr. Walden.--because during the discussion on the Healthy 
Forests Restoration Act, we heard a lot about fuel treatment 
programs and spent a lot of time focused on ladder fuels and 
brushy understory. Can you be more specific as to the types of 
stands where the regiment you are talking about is more 
effective?
    Dr. Risbrudt. I think it is more effective in all stands 
that need that kind of treatment, which as you know is a very 
large acreage, something like 90 million acres or more. And so 
it depends on the density and composition of the stand.
    It is just common sense when you think about it that the 
more fuel is there and how it is distributed, you get a bigger 
fire. And if you remove some of that fuel, it is less intense. 
I know there was some question about that, but we now have 
compiled a fair amount of research that shows that common sense 
does, in fact, apply in this situation.
    Mr. Walden. To the extent to which you can share that with 
the Committee in addition to what you already have, that would 
be helpful.
    You indicated you brought some, quote-unquote, props with 
you.
    Dr. Risbrudt. Yes.
    Mr. Walden. Do you want to talk to us about that? Before 
you do, though, let me welcome the newest Member of Congress 
and the newest member of our committee and the newest member of 
our Subcommittee, Stephanie Herseth from South Dakota. We are 
delighted to have you join us on this panel and I know there 
are certainly issues in South Dakota revolving around forests 
and so we are glad to have you on board.
    Dr. Risbrudt. OK, thank you.
    Mr. Walden. Let us go to the props.
    Dr. Risbrudt. All right.
    Mr. Walden. What are you finding? What are you doing with 
all this wood product, because a lot of what we focus on is 
biomass for energy--
    Dr. Risbrudt. Yes.
    Mr. Walden.--but clearly, we need to do more than that. So 
tell us what your lab has found and how we can be of help.
    Dr. Risbrudt. Here is an example of a laminated beam. The 
upper and lower portions of it are made like plywood with one 
exception. The grain always runs in the same direction. So this 
is about a dozen laminates glued together, top and bottom, and 
so you can make this out of pretty small material. Then the 
webbing in the middle that holds these two apart is made out 
of--this is a wafer board, and so you make that out of a very 
small diameter material and it makes a very good I-joist for 
floors. In fact, floors are stiffer with this material than 
they are when you build them out of--
    Mr. Walden. We are going to grab those props and circulate 
them around the Subcommittee here, if that is all right.
    Dr. Risbrudt. Here is an example of a similar product with 
a plywood web in the middle.
    Some of the things we are excited about are sort of non-
traditional wood products. These are water filters made out of 
juniper, and as you are probably well aware, juniper is an 
invasive species across the West on our grazing lands, and so 
this is effective for taking--treating acid mine drainage. It 
takes the heavy metals out of acid mine drainage. And you also 
have to change the pH, but it takes oil, petroleum products out 
of parking lot runoff. We are taking pesticides out of 
cranberry bogs in Wisconsin and Massachusetts because those 
farmers have to treat for weeds and insects. It is also good 
for sediment, but you don't need--
    Mr. Walden. Does the water taste like gin when you are 
done, or--
    [Laughter.]
    Dr. Risbrudt. I haven't personally tried that, but I will 
do that.
    Mr. Walden. Always a new use.
    Dr. Risbrudt. Yes.
    [Laughter.]
    Mr. Walden. We have a lot of juniper out there. What else 
do you have?
    Dr. Risbrudt. Here is an example of the water filter in the 
small scale of the current configuration, where we put it in a 
mesh, a wire mesh like this, and we do this for research 
purposes so right now it is kind of an expensive process, but 
we hope to go to this style where we just grind up the wood, 
particularly the bark, because of the chemical composition of 
the bark is very good at extracting ions and cations from 
water, and so we are hoping we can get to the stage where we 
just throw a bag of this material in the acid mine drainage, 
for example--
    Mr. Walden. And so you can actually get rid of pesticides 
and oil products and acids with the juniper--
    Dr. Risbrudt. Yes. Now, the efficiency varies depending on 
the pollutant. But we are looking at treating the wood so it is 
even better at taking out certain materials.
    Another product--and, of course, you can use extremely 
small-diameter material in these kinds of things where you are 
grinding them up. Another use we are looking at right now, this 
is made out of recycled milk jugs or plastics and this is 
pineflower--
    Mr. Walden. It is what?
    Dr. Risbrudt. Pineflower.
    Mr. Walden. OK.
    Dr. Risbrudt. Softwoods. We are also looking at doing this 
with juniper. Although the BLM has promised me a ton of juniper 
material, they haven't delivered yet for testing. We think it 
will make very durable siding. We have got samples of this for 
committee members.
    We have got a company in Mountain Air, New Mexico, that is 
making signs out of ground up juniper and plastic. One of the 
problems the Forest Service and the BLM have with traditional 
plywood signs is the porcupines like to chew them up. They 
don't like plastic and juniper, so they are longer lasting.
    So this is just an example of some of the products we are 
working on at the Forest Products Laboratory.
    Mr. Walden. How economically feasible is the use of 
juniper, because, I mean, in my district, it is a noxious weed, 
and in fact a big one, but--
    Dr. Risbrudt. Well, for these specialty products, like 
water filters, that is a very large market. You can imagine 
just in the farming community where they have runoff from their 
fields with fertilizers, if we could develop these filters for 
that, the advantage there is once the filter gets loaded with 
pollutants, which is really fertilizer, you take it back out 
and throw it on top of the hill in the field and recycle it 
right into the field.
    Mr. Walden. I will be darned.
    Dr. Risbrudt. So for these kinds of products, like siding, 
water filters, the material is the small cost of the final 
product.
    Mr. Walden. Are you finding that there is enough of a 
market for that, for what you are coming up with for practical 
uses of these waste products? Do we need to do incentives, or 
will the market catch on? What makes this work?
    Dr. Risbrudt. Let me say there that if we are going to 
handle the volume of material that we know is available, you 
have to have a very large use for it and the largest use that I 
see that is feasible is turning it into energy. These are all 
valuable products. They will generate employment in 
communities. They will solve problems for the environment. But 
to handle the amount of volume we need, energy is the one we 
are going to have to develop and that takes incentives.
    Mr. Walden. My time has expired. I will turn to the 
gentleman from New Mexico, Mr. Udall.
    Mr. Tom Udall of New Mexico. Thank you, Mr. Chairman.
    In your testimony, you highlighted the importance of the 
biomass title of the Healthy Forests bill, at least the part of 
it I read here. Can you explain why the Forest Service did not 
request the authorized level of funding for the two grant 
programs authorized in the bill?
    Dr. Risbrudt. Yes. You will recall that the Healthy Forests 
Restoration Act was signed in December of just last year and so 
far, we are out of sync with the budgeting process and so we 
haven't had an opportunity to request those funds.
    Mr. Tom Udall of New Mexico. I thought that is when the 
budget process starts. That is right when you all start putting 
in--
    Dr. Risbrudt. We start three--
    Mr. Tom Udall of New Mexico.--requests and back and forth. 
There is still time to slip it in, isn't there? The budget 
doesn't come out until February, the President's budget, and 
then we are still looking at 2005 right now. You can change 
your mind right here and say that you are for it, that you want 
$5 million in each of those accounts.
    [Laughter.]
    Mr. Walden. That may be a question better for Mr. Ray to 
answer.
    Mr. Tom Udall of New Mexico. OK. Well, I just--I am trying 
to get him. Greg, I am trying to get him on the book here. He 
is the only one we have so far. I know he is a good guy--
    [Laughter.]
    Mr. Tom Udall of New Mexico.--but the Department right now 
doesn't have a position on the two $5 million accounts, right, 
the two grant accounts?
    Dr. Risbrudt. They have not put anything as far as I know 
into the 2005 budget request.
    Mr. Tom Udall of New Mexico. OK.
    Dr. Risbrudt. They are still working on 2006.
    Mr. Tom Udall of New Mexico. Well, I hope you spread the 
word, at least from me, that I would like to see that we put 
funding into those accounts, and I am sure my colleague, the 
Chairman here, is going to be looking at that in the 
appropriations process.
    A good deal of your testimony focused on the new wood 
products technology that utilizes small-diameter trees and 
fiber, and you passed some of these around to us up here. This 
is incredibly encouraging and points to a future where we can 
potentially leave behind the forest wars of the past. What type 
of outreach is the Forest Products Laboratory doing with 
industry and interest groups? How long do you think it will 
take for these products to be in the market? Is this technology 
also being developed globally or does it have the potential to 
give the American forest products industry a leg up in other 
countries?
    Dr. Risbrudt. We have started just this year something we 
call entrepreneurs tours, where we have contracted with Jim 
Peterson, who knows a lot of the business owners, mill owners, 
particularly the small and medium-sized companies, and we are 
inviting them to the Forest Products Laboratory for a day-and-
a-half tour. So far, we have had two of those and they have 
proven to be, by the surveys and returns, they have proven to 
be very popular.
    We are looking to do a series of them into the future. In 
fact, Congressman Peterson, who visited the lab several months 
ago, said he was going to round up his own entrepreneurs from 
Pennsylvania and bring them to the laboratory and we are 
looking forward to him doing that.
    Beyond that, we have several newsletters, Newsline that we 
send out to thousands of people. We have a website. We send out 
our list of publications quarterly, any way we can think of to 
get the word out, bring people to the lab, let them learn about 
the products that are becoming available. We try our best and 
are anxious to try any new ideas that you may have for us.
    As far as moving the products into commercial activity, it 
depends on, of course, the product, whether we can find 
entrepreneurs available, whether we can have grants available 
to help that process. I think we know what it takes to start 
businesses based on the technology at the Forest Products 
Laboratory. It takes an entrepreneur, it takes technical 
assistance, and it is not just the one visit, here, read this 
publication. It is a series of visits as they design and build 
their mill. It is business planning, market planning, and small 
grants to help them get started. If we can put those five 
things together, which we have at times in the past, we know 
how to get businesses started.
    Mr. Tom Udall of New Mexico. Great. Thank you. And the 
global side of this, I mean, are we way ahead on this or not?
    Dr. Risbrudt. Some of these products, I think we are, but 
the Scandinavian countries have large research programs and 
they are better integrated than we are between government, 
universities, and industry. And, in fact, with the 
globalization particularly of the pulp and paper side, we 
have--our local Wisconsin flagship company, paper company, was 
just bought by Stora-Enso, a Scandinavian-South American 
combination company. So it is difficult to tell. I like to 
think that we are in the lead on some of these things, but I 
would have a hard time justifying that if you look at the 
global scale.
    Mr. Tom Udall of New Mexico. Thank you very much. Thanks, 
Mr. Chairman.
    Mr. Walden. Thank you for your questions.
    I am informed, too, by the staff that apparently the 
Administration has received some grant applications under that 
title and they do intend to move some money to be able to deal 
with that once they receive the grants.
    Dr. Risbrudt. Yes. We had $22 million between USDA and DOE 
for those products, but they are not funded under that--it is 
to do that work--
    Mr. Walden. Yes.
    Dr. Risbrudt.--but it isn't specifically funded for that 
program.
    Mr. Walden. But under the $5 million you were talking 
about, apparently--
    Mr. Tom Udall of New Mexico. Two $5 million grant accounts.
    Mr. Walden. My understanding is they are accepting 
applications and then will determine kind of how much they need 
to fund some of the appropriate ones.
    Mr. Tom Udall of New Mexico. That is good news.
    Mr. Walden. I am sure your comments will be well heard, 
too.
    Mr. Tom Udall of New Mexico. That is good news, good news.
    Mr. Walden. Yes.
    Mr. Tom Udall of New Mexico. I am sure Mr. Renzi, he will 
have a lot of applicants from his district, and Denny will, 
too, I am sure.
    Mr. Walden. And I am now told next week, they will be 
announcing some of those grants. So if you just keep going 
here, they will have them out by this afternoon at this rate.
    [Laughter.]
    Mr. Tom Udall of New Mexico. That would be great. Good 
work. Thank you.
    Mr. Walden. Let us go now to the gentleman from Montana for 
5 minutes.
    Mr. Rehberg. Thank you, Mr. Chairman, and I want to point 
out that Mr. Peterson did, in fact, invite me on that tour and 
I wasn't able to make it, but he came back raving about what he 
had seen--
    Dr. Risbrudt. I am glad to hear it.
    Mr. Rehberg.--and so congratulations to you on that. Are 
you the only center like that in the country?
    Dr. Risbrudt. The only Forest Service research station, 
yes.
    Mr. Rehberg. OK, because, you know, you always find out 
there is more going on than you really believe. I took the time 
to go over to Sweden to look at what they had, with Bernie 
Sanders, and over there he told me, ``Oh, we have been burning 
slash and are creating energy in Maine for years.'' I hadn't 
heard that and wish I had. It would have saved us a whole lot 
of time in Montana. How many small businesses do you think you 
deal with in a calendar year?
    Dr. Risbrudt. Oh, it is probably on the order of hundreds.
    Mr. Rehberg. Hundreds?
    Dr. Risbrudt. Yes.
    Mr. Rehberg. And you are a full-service operation? They 
come to you--somebody from Montana would come up with an idea--
we have an idea called Timberwelt. I don't know if they are 
interested, but they create the great big huge beams and it is 
the same concept that I see traveling by. If they were to make 
contact with you, you would invite them out and you would talk 
about the cost-benefit--
    Dr. Risbrudt. Absolutely.
    Mr. Rehberg.--and the kind of equipment and how--
    Dr. Risbrudt. Yes. In fact, we have a publication that we 
will make available to the Committee called ``Small Diameter 
Success Stories'' that lists, oh, I don't know, 20 or so small 
businesses that have started up using the technical resources 
of the lab and the technical assistance provided by State and 
private forestry.
    Mr. Rehberg. That is always the frustration for those of us 
that--we know, like Mr. Udall says, there is a huge need in 
Montana for adding value.
    Dr. Risbrudt. Yes.
    Mr. Rehberg. That is why we created the Innovation Center 
within the farm bill for agricultural products, and perhaps we 
should have tied it more closely to Healthy Forests. It is 
always frustrating to find that things are available that our 
people could be taking advantage of and are not aware. You have 
the staffing. You have the budget. It is the grants that you 
are having difficulty with?
    Dr. Risbrudt. Yes.
    Mr. Rehberg. So you have the time to spend with people?
    Dr. Risbrudt. Yes.
    Mr. Rehberg. Great. Thank you, Mr. Chairman.
    Mr. Walden. Thank you. The Chair now recognizes the Ranking 
Member on the Subcommittee, Mr. Inslee, for questions or an 
opening statement.
    Mr. Inslee. I am going to yield. You have done such a great 
job so far, Mr. Chair.
    Mr. Walden. Thank you. We will now go to Mr. Renzi.
    Mr. Renzi. Thank you, Mr. Chairman.
    Sir, I appreciate you coming today and your testimony. I 
had an opportunity to go down and visit an OSB plant down in 
Carthage, Texas. I had an opportunity to visit in my own 
district a biomass plant producing, I think it is three 
kilowatts of electricity onto the grid--megawatts, kilowatts--
    Dr. Risbrudt. Megawatts.
    Mr. Renzi.--megawatts, and a good opportunity to go around 
and look at some of the other uses for biomass, including 
pellets for the furnaces, the saw logs that you buy in the 
grocery store, or the wood logs that you have in your 
fireplace.
    During my recent trip to the OSB plant, I was told that one 
of the inconsistencies that commercial industry is looking at 
in the stewardship contracts that we are getting ready to let, 
one of them that is getting ready to come out in Arizona on the 
border between my district and Mr. Udall's, is 150,000 acres. 
It is 15,000 acres over 10 years. It is not enough to lure 
commercial industry into making an investment of $10, $15 
million into an OSB plan or, I think you described it as a 
wafer board, similar product.
    Dr. Risbrudt. Yes.
    Mr. Renzi. And yet we hear that there is an abundance of 
resources out there, particularly small diameter wood--
    Dr. Risbrudt. Yes.
    Mr. Renzi.--and that there needs to be more done as far as 
the number of stewardship contracts that are put forward, the 
guarantees essentially that we need to put in place in order 
for commercial industry to have a reasonable return on their 
investment, to be able to lure them in. Can you expand on that 
a little bit, teach me a little bit about how it is that when 
you are letting a 150,000 acre contract people think it is a 
solution. It really isn't. We need to be up in the 300,000, 
450,000 acre landscape which some people, of course, don't even 
want us in the woods--
    Dr. Risbrudt. Right.
    Mr. Renzi.--so there is a little dichotomy there.
    Dr. Risbrudt. There are people in the two panels following 
me that might be able to give you a better answer, but I think 
it is not the acreage limitation, it is the timeframe. If you 
are going to put in $40 million into a plant, you have got to 
have--tell your banker you have a 20-year payback period and 
the stewardship contracts only run for 10 years. So a 150,000 
acre contract may be enough for, I don't know, maybe one mill, 
but it is the timeframe that is the major restriction. You 
can't guarantee supply over 20 years, and that is where the 
bankers say, no deal.
    Mr. Renzi. OK. So that is why we need to look at being able 
to layer those kind of stewardship contracts, one after 
another.
    Dr. Risbrudt. Yes. You need sufficient volume, certainly, 
on an annual basis. But it is the timeframe that you have to 
convince--the entrepreneurs and businessmen have to convince 
their banker that they will be in business long enough to pay 
off that 20-year loan.
    Mr. Renzi. While I have got you, can you help me 
understand, is there a real issue with our being able to build 
biomass plants and them produce electricity and not be able to 
plug it into the grid? Is there some sort of a--
    Dr. Risbrudt. It depends upon the size of the plant.
    Mr. Renzi. Yes.
    Dr. Risbrudt. When you have got a, say, a regular coal-
fired plant, it is probably 500 megawatts or larger. Some of 
the big companies don't want to fool around with a smaller size 
and it is an irritation to them. I think that is kind of a 
cultural thing in the electrical industry that Congress may 
have to help them get over.
    Mr. Renzi. Exactly. So if a three megawatt plant--
    Dr. Risbrudt. Is not very large.
    Mr. Renzi.--which is not very large but which is average 
for this biomass industry, is that correct?
    Dr. Risbrudt. There are some people here who can tell you 
that better than I can.
    Mr. Renzi. All right, maybe when I get a chance, you guys 
can help me learn that.
    Mr. Chairman, thank you. Thanks so much.
    Mr. Walden. Thank you. Thank you for coming today. We have 
all enjoyed seeing these products and look forward to learning 
more about these developments, and hopefully we will get an 
opportunity to go out to the lab. I would really enjoy that. 
Mr. Peterson also spent a lot of time with me on the Floor 
talking about how impressed he was, and Jim Peterson has done 
the same from Evergreen, a real advocate, so--
    Dr. Risbrudt. We would love to have you all.
    Mr. Walden. Thank you. Thank you for being here today.
    Mr. Walden. Now I would like to introduce our second panel 
of witnesses. On panel two, we have Mr. Bill Carlson, Vice 
President for Business Development, Wheelabrator Technology; 
Dr. David Tilotta, North Carolina State University; and Mr. 
Peter Johnston, Manager for Technology Development, Arizona 
Public Service.
    Thank you, gentlemen, for coming out to Washington to share 
your views on biomass. We appreciate and look forward to your 
testimony. I would just remind you, too, under our Committee 
Rules, limit your comments, if you would, to 5 minutes. Your 
entire statement will be available to our members and in our 
official record.
    Now I would like to recognize Mr. Carlson for his 
statement. Good afternoon.

   STATEMENT OF WILLIAM H. CARLSON, VICE PRESIDENT, BUSINESS 
   DEVELOPMENT, WHEELABRATOR TECHNOLOGIES, AND CHAIRMAN, USA 
     BIOMASS POWER PRODUCERS ALLIANCE, REDDING, CALIFORNIA

    Mr. Carlson. Good afternoon. Mr. Chairman and Members, you 
have done yeoman work in recognizing the forest health crisis 
and in crafting solutions so that Federal agencies can address 
the crisis before all is lost to insects, disease, and fire. 
The new stewardship contracting authority, the National Fire 
Plan, and the HFRA have all passed before this Subcommittee.
    With these new authorities and funding, the agencies are 
gearing up to improve forest health through prescribed fire and 
mechanical thinning. With 190 million acres at risk, even a 
five million acre per year program will take 40 years. So how 
do we mount the massive campaign we need to restore our Federal 
forests and rangelands in time with limited funds?
    The agencies will find that the infrastructure of small log 
processing facilities and biomass power plants that would take 
and pay for the output of thinning does not exist outside 
Northern California. Without infrastructure, the cost will 
likely be $800 to $1,000 per acre, will run the agencies out of 
funding long before they meet their acreage goals. With 
infrastructure in place, the cost should fall to zero to $200 
per acre, an amount we can afford.
    We must create circumstances that allow infrastructure to 
be developed. Others today will discuss innovative ways to 
utilize the primarily small logs that are the product of these 
thinnings. All are needed, as well as two-by-fours and paper if 
we are to utilize the 250 million tons per year that may flow 
from a five million acre per year thinning program. Utilizing 
every last stick for higher valued uses, there will still be 40 
percent of the material that will have no value other than as 
fuel.
    This 100-plus million tons per year should go to biomass 
power plants to power 8,000 megawatts of needed domestic 
renewable energy. Getting the biomass power plants built to 
assist thinnings is no easy task, as it is moving against an 
economic current that has swept away nearly 40 percent of all 
U.S. biomass plants over the last 15 years. Low fossil fuel 
prices, utility contract buyouts, and an unusable Federal 
biomass tax credit have combined to doom many facilities.
    One example, Mr. Chairman, from your own district, that of 
the Confederated Tribes of the Warm Springs, demonstrates the 
difficulty. The tribes have had a small, stable forest products 
industry, complete with sawmill and biomass power plant, 
utilizing logs from the tribes' own forest. The tribes have 
proposed to modernize and expand their sawmill and power plant 
to focus on the smaller average log size that will come from 
thinnings and to increase capacity to accept logs and fuel from 
adjacent Federal lands. The tribes' expanded facilities could 
become the utilization center for much of the thinning activity 
proposed for the East side of the Central Oregon Cascades.
    Fortunately, the expansion decision coincided with a 
request for proposals for renewable power issued by PacifiCorp 
and the tribes submitted a proposal. The tribes and their many 
supporters are collectively holding their breath awaiting the 
outcome.
    A renewable auction like this is typically dominated by 
wind power, with a lower delivered cost partly due to use of 
the same Section 45 tax credit that biomass plants are unable 
to use. Winning bids are typically only one to one-and-a-half 
cents per kilowatt hour above bulk system power, or about five 
to five-and-a-half cents per kilowatt hour.
    If the Warm Springs bid is accepted, it will result in a 
low margin operation despite the advantages of having an 
existing plant and interconnect, a steam customer, and a low 
projected fuel cost. A new biomass operation on a new site 
would not stand a chance in this auction.
    To allow competitive biomass power bids, we must utilize 
the Section 45 wind and biomass tax credit. Plants can 
currently qualify only by combusting closed-loop biomass, which 
is grown exclusively for burning, and something that has never 
been done commercially. We have long sought to change the 
definition to include the forest thinnings we use for both new 
and existing plants. Administration budgets, both Republican 
and Democratic, have included the requested changes. Several 
bipartisan bills and the pending H.R. 6 conference report 
include the changes, but none have been adopted.
    Currently, the Section 45 changes sit in S. 1637, the 
Senate version of the FSC bill. The House version of the same 
bill, H.R. 4520, does not include an energy tax title but 
instead once again extends Section 45 without changes that 
would make it usable. If the House version prevails in 
conference, new biomass power infrastructure will not be built 
in support of thinning projects and existing plants will 
continue to close.
    Three years ago, we left this Subcommittee with our ``to-
do'' list that contained several needed policy changes to 
improve forest health. You have, to your credit, completed that 
to-do list with the exception of one item, the changes to the 
biomass tax credit just discussed. You who understand how 
biomass power facilities enhance and lower the cost of forest 
health activities must assist us in conference on the FSC bill 
by adopting the Senate energy tax provisions or by making the 
needed changes during any reauthorization of Section 45.
    Our industry stands ready to invest tens of billions of 
dollars in new biomass power infrastructure in support of 
forest health activities, but only if we have economically 
viable projects, and that means a usable biomass tax credit. 
Thank you.
    Mr. Walden. Thank you, Mr. Carlson. We will put together a 
letter to the Chairman of the Ways and Means Committee 
conveying your thoughts and our support for what you recommend.
    [The prepared statement of Mr. Carlson follows:]

Statement of William H. Carlson, Vice President, Business Development, 
 Wheelabrator Technologies, and Chairman, USA Biomass Power Producers 
                                Alliance

    This Subcommittee has done yeoman work over the last several years 
in recognizing the forest health crisis on public lands in the U.S., 
and in crafting solutions so that federal land management agencies have 
the tools to begin to address the crisis before all is lost to insects, 
disease and fire. The new stewardship contracting authority, the 
National Fire Plan and the Healthy Forest Restoration Act (HFRA) are 
all pieces of the forest health solution puzzle that have passed before 
this Subcommittee.
    So with these new authorities, and the funding that comes with 
them, the federal land management agencies are gearing up to begin a 
massive effort to improve forest health through a combination of 
prescribed fire and mechanical thinning. The effort needs to be both 
massive and sustained, as we have, by most accounts, 190 million acres 
at risk, and even a 5 million acre per year program will take nearly 40 
years to do the job; and we do not have that amount of time when you 
consider we are losing 6-7 million acres per year to catastrophic fire 
alone. So the question becomes, how do we mount the massive campaign we 
need to reclaim and restore our federal forests and rangelands to 
health in the time we have left with the limited funds available?
    In terms of the first tool, prescribed fire, I will leave to others 
the debate over potential escapes, air quality impacts and spotty 
results. I will confine my remarks to mechanical thinning, an area that 
I have participated in as a recipient and converter of the fuel 
fraction from such thinnings for nearly 20 years.
    In ramping up mechanical thinning projects throughout the West from 
their traditional base in northern California, the land management 
agencies will quickly find that the infrastructure of small log 
processing facilities and biomass power plants that would take the 
output, and pay market rates for it, simply does not exist. Without the 
infrastructure, the cost of thinning will likely be $800-$1,000 per 
acre, a cost that will run the agencies quickly out of money long 
before they have met their allotted acres to be thinned for the year. 
By contrast, with infrastructure in place, the cost should fall to $0-
$200 per acre range, an amount that could be covered by the allotted 
$760 million per year in the HFRA.
    So the question to be asked and answered by the hearing today is 
how do we create a set of circumstances that will allow the 
infrastructure to be developed in support of the needed thinning so 
that costs are reduced and viable rural economic activity is created 
and sustained? Others on the panel today will discuss innovative ways 
to utilize the primarily small logs that are the product of these 
thinnings, and thus create additional value and lower net thinning 
cost. All of these products are needed, as well as a fair amount of 2 x 
4s and paper, if we are to utilize the massive amount of material, 
perhaps 250 million tons per year, that will flow from a large scale 
thinning program of say 5 million acres per year.
    Based on our experience, try as you may to utilize every last stick 
for higher valued uses, there will still be 40% or more of the material 
that will have no value other than as fuel. That 100+ million tons per 
year, will need to go to biomass power plants where it could power 
8,000mw or more of needed domestic, clean, renewable energy.
    But getting the biomass power plant built in support of large scale 
thinning is no easy task as it is moving against an economic current 
that has swept away nearly 40% of all biomass plants in the U.S. over 
the last decade. The combination of previously low fossil fuel prices, 
utility contract buyouts and an inability to qualify for an existing 
federal biomass tax credit has doomed many facilities.
    It is in this environment that we are now looking to build new 
plants. To show the difficulty of infrastructure development, let me 
give you just one example, Mr. Chairman, from your own central Oregon 
district, that of the Confederated Tribes of the Warm Springs. For many 
years now, the Tribes have had a small, but stable, forest products 
industry, complete with sawmill and small biomass power plant, 
utilizing almost exclusively logs from the Tribe's own forests.
    The B&B complex fires of last year, of which you are painfully 
aware, burned over 90,000 acres of prime federal timber and 
recreational lands, including touching on the reservation. The fires 
filled the air of central Oregon with smoke for weeks on end. This fire 
sensitized many in the area to the need for large scale thinning, both 
on and off the tribal lands. The Tribes have proposed to modernize and 
expand their sawmill to focus on this smaller average log size that 
will come from such thinning, and to increase capacity so as to accept 
logs from adjacent federal lands in support of thinning efforts. In 
addition, the Tribes propose to modernize and expand their power plant 
to accomplish the same purpose. With the proposed expansions in place, 
the Tribes' facilities could become the utilization center for much of 
the thinning activity proposed for the east side of the Cascades in 
central Oregon.
    Fortunately for the Tribes, the decision to seek to expand the 
biomass power plant coincided with a request for proposals (RFP) for 
new renewable power issued by PacifiCorp, the Portland utility with 
which the Tribes are interconnected, and the Tribes submitted a 
proposal. A short list from that RFP has not yet been announced, and 
the Tribes and their many supporters are collectively holding their 
breath.
    Typically a renewable auction such as this is dominated by wind 
power, which typically has a lower delivered cost and, for the last 12 
years, has been able to use the same Section 45 Tax Credit that biomass 
plants have been unable to use. Wind bids typically hold winning bids 
to only 1- 1 1/2 cents/kwh above bulk system power, or about 5- 5.5 
cents/kwh, and the winning bids in this auction will likely fall in 
that range as well. If the Warm Springs bid is accepted, it will make 
for a low margin operation, despite the advantages of having an 
existing plant and interconnect, a steam customer, waste fuel for a 
portion of their needs, and a low projected fuel cost for the remainder 
of their fuel. A completely new biomass operation on a new site would 
not stand a chance in this auction.
    The missing piece of this puzzle that I referred to in my title, 
and the piece that would allow competitive biomass power bids, is the 
ability to utilize the Section 45 wind and biomass tax credit, which 
has been on the books since 1992 but unutilized by biomass power 
plants. This is because plants qualify only by combusting ``closed 
loop'' biomass, that which is grown exclusively for burning, and 
something that has never been done commercially. Waste fuels such as 
forest thinnings do not qualify. For over 5 years now, the USA Biomass 
Power Producers Alliance has sought to change the definition to include 
the waste fuels we and others use, and to make the credit available to 
existing plants as well as to new.
    The last several Administration budgets, both Republican and 
Democratic, have included the requested changes; the changes have been 
the subject of several bipartisan stand alone bills; and the pending 
HR6 Conference report includes the changes. But none have made it over 
the goal line, plants continue to struggle and close, and the Warm 
Springs bid appears vulnerable.
    Currently, an acceptable version of the Section 45 changes (except 
the in service date for new plants) sits in the Energy Tax Title of 
S1637, the Senate version of the Foreign Sales Corporation bill. The 
House version of the same bill, HR4520, which passed last Thursday, 
does not include the Energy Tax Title, but instead once again extends 
Section 45 without changes that would make it usable by such plants as 
the Warm Springs. Should the House version prevail on this point in 
Conference, the predictable result is that new biomass power 
infrastructure will not be built in support of thinning projects and 
existing plants will continue to close.
    I last spoke to the Subcommittee on behalf of the USABPPA just over 
three years ago at a hearing on somewhat the same topic. At that time I 
left you with our ``to do'' list that contained several needed policy 
changes that would dramatically enhance forest health. In that three 
years you have, to your credit, completed that--to do--list with the 
exception of only one item. That item is the changes to the biomass tax 
credit just discussed. We call upon members of the Subcommittee, who 
understand how the existence of biomass power plants enhances and 
lowers the cost of forest health activities to assist us in Conference 
on the Foreign Sales Corp bill by adding the Senate Energy Tax Title or 
by making the needed changes during the reauthorization of the Section 
45 wind and biomass tax credit.
    Our industry stands ready to invest ten of billions of dollars in 
new biomass power infrastructure in support of forest health activities 
over the next two decades. But this will only happen if we have 
economically viable projects, and the key to that viability is clearly 
the existence of a useable biomass tax credit. Those needed changes are 
in our opinion the only additional order of business for Congress 
before large scale cost effective thinning and restoration can begin.
                                 ______
                                 
    Mr. Walden. Now, I would like to recognize Dr. Tilotta for 
your statement. Thank you for being here, as well. You are 
welcome to give us your oral statement and your written 
statement will, of course, be part of our record. Good 
afternoon.

  STATEMENT OF DAVID C. TILOTTA, DEPARTMENT OF WOOD AND PAPER 
   SCIENCE, NORTH CAROLINA STATE UNIVERSITY, RALEIGH, NORTH 
                            CAROLINA

    Dr. Tilotta. Good afternoon. Thank you, Mr. Chairman and 
committee members, and thank you for providing me the 
opportunity to discuss the Coalition for Advanced Housing and 
Forest Products Research, or CAHFPR, as we call it. I am David 
Tilotta, President of CAHFPR, and also an associate professor 
of wood and paper science at North Carolina State University in 
Raleigh.
    I don't know if you noticed, but many of the props that Dr. 
Risbrudt just showed from the Forest Products Lab were housing 
related and used biomass in terms of housing. As many of you 
know, housing construction is one of the largest uses of forest 
products in the United States. In fact, according to the 
National Association of Home Builders, the NAHB, the average 
American home is about 2,100 square feet and it contains just 
over 13,000 board feet of framing lumber and more than 6,200 
square feet of sheeting, 2,300 feet of exterior siding, et 
cetera. Of course, the majority of the estimated 1.6 million 
new homes that will be built in America over the next year will 
use wood frame construction and a variety of wood engineered 
types of products like you just saw. So an increased demand for 
wood and related materials in new construction is expected to 
continue.
    I am here today to talk about CAHFPR, and CAHFPR, I think, 
is a research success story for us and it is a good partnership 
lesson. CAHFPR's university research and development extension 
of the USDA Forest Service Forest Products Laboratory, the FPL 
located in Madison, and had its genesis back in 1998.
    Before I continue, though, you may be wondering, why 
combine forest products research and housing? Well, I think the 
answer is pretty self-evident based on what we have already 
heard. It makes sense. It is one of the largest markets for 
forest products, as I said, and unquestionably, we all need 
better housing that is more affordable, durable, energy 
efficient, and disaster efficient. Of course, it is the largest 
investment, if not the largest investment most of us are going 
to make in our lifetime. So it only makes sense. It is only 
logical that the substance of that investment really be crafted 
and maintained with the same sort of good science and 
engineering principles that we use to get a spacecraft on Mars. 
So really, it is a good marriage, biomass utilization and 
housing.
    Well, CAHFPR really is a new way of doing business in the 
arena of housing research. It maximizes the results and really 
minimizes the cost to the American taxpayer. The current 
situation in housing research in the United States is not a 
promising one. The national research and scientific capacity 
across the traditional sectors have been declining. For 
example, the Forest Service in general has lost about 50 
percent of its scientists over the last 15 years. The Forest 
Products Laboratory in Madison, Wisconsin, which is really the 
only Federal wood research facility, has seen their ranks 
diminish from 700 in 1944 to about 240 or so today. Of course, 
their budgets remain flat, research funding has remained flat, 
and that translates into decreased dollars.
    So the question becomes, how can we do more with less? 
Obviously, research funding is important if we are going to 
find advanced uses for some of these materials.
    Well, the Coalition for Advanced Housing and Forest 
Products Research was formed in partnership with the Advanced 
Housing Research Center located in FPL, and many of you have 
been out there and seen them and taken a look at their house. 
The AHRC program was established in part as a response to the 
Partnership for Advanced Technology in Housing Program. But FPL 
really founded it so that they coordinate and streamline their 
wide-ranging housing research and development activities.
    CAHFPR, our organization, actively identifies, coordinates, 
and executes research and development for housing and one of 
its major themes is to conduct R&D that responds to the 
construction, financing, and marketing of housing. In general, 
the organizational home of CAHFPR is at the FPL. In addition to 
providing universities with access to their scientists, the FPL 
also provides us with technical report reviews, webpage space, 
publication assistance, and dissemination services.
    Let me see, here. The programs that we undertake are by 
invitation and the universities that we have in our masses are 
by invitation. Some of the research areas that we are looking 
at include things like termite-resistant materials, durability 
and natural disaster resistance, and both programs at the AHRC 
and CAHFPR are guided by an independently conducted national 
needs assessment, and that is very important for us, and that 
national needs assessment is being done by the NAHB research 
center located in Maryland. They are surveying the key 
stakeholders, including the academicians, the builders, the 
home owners, the insurers, and others to keep us honest, to 
make sure that we do research that is relevant, and that is 
very important.
    Let me just sort of summarize this by saying that, really, 
CAHFPR is about partnerships, partnerships among and between 
the universities, the Federal Government, and industry. And 
industry is an important, and I don't have time to explain to 
you, tie-in there. And frankly, we believe that in order to 
advance the science and engineering aspects of the house and 
the entire American home experience, we really must work 
together.
    Thank you, Mr. Chairman and committee members, for your 
time and I would be pleased to answer any questions that you 
have.
    Mr. Walden. Thank you, Doctor. We appreciate your comments, 
as well, today.
    [The prepared statement of Dr. Tilotta follows:]

   Statement of Dr. David Tilotta, President, Coalition for Advanced 
Housing and Forest Products Research (CAHFPR), and Associate Professor, 
        Wood and Paper Science, North Carolina State University

    Mr. Chairman, thank you for providing me with the opportunity to 
discuss the Coalition for Advanced Housing and Forest Products 
Research, or CAHFPR, with your committee today. I am Dr. David Tilotta, 
President of CAHFPR and an Associate Professor of Wood and Paper 
Science at North Carolina State University in Raleigh, NC.
    As many of you know, housing construction is one of the largest 
uses of forest products in the United States. According to the National 
Association of Home Builders (the NAHB), the average American home is 
about 2,100 ft2 and contains just over 13,000 board feet of framing 
lumber, more than 6,200 ft2 of sheathing, and around 2,300 ft2 of 
exterior siding. And of course, the majority of the estimated 1.6 
million new homes that will be built in America over the next year will 
use wood-frame construction and a variety of wood-based products. Thus, 
the increased demand for wood and related materials in new construction 
is expected to continue, as well as a corresponding increased demand 
for wood products in the repair, remodeling, and renovation 
construction industries.
    I am here today to discuss our Coalition for Advanced Housing and 
Forest Products Research. CAHFPR is a university research and 
development extension of the USDA Forest Service, Forest Products 
Laboratory located in Madison, Wisconsin (FPL). CAHFPR had its genesis 
in ca.1998, but before I continue, you may be wondering: Why combine 
forest products research and housing? Our answer is: because it makes 
sense! Housing is one of the largest markets for forest products. And, 
unquestionably, America needs more affordable, durable, energy 
efficient and disaster resistant housing that will only come from the 
latest technological advances. Additionally, housing is one of the 
largest, if not the largest, investments that an individual makes in 
his or her lifetime. It is only logical that the substance of that 
investment be crafted and maintained with the same good science and 
engineering principles that allowed our nation to successfully land a 
spacecraft on Mars.
    Simply, CAHFPR is a new way of doing business in the arena of 
housing research that maximizes the results and impact while minimizing 
the cost to the American taxpayer. Let me elaborate. The current 
situation in housing research in the United States is a rather dismal 
one: the national research and scientific capacity across all the 
traditional sectors (i.e., industry, university and government) have 
been declining, and international competition has been increasing. As 
an example, the Forest Service in general has lost, and not replaced, 
almost 50% of its scientists over the last 15 years. And more 
specifically, the Forest Products Laboratory in Madison, Wisconsin, the 
only Federal wood research facility, has seen their employee ranks 
diminish from 700 in 1944 to around 240 today. And of course, their 
total budget has remained approximately flat in recent years, which 
explicitly means that the amount of funding available for research has 
declined.
    The trends in research funding, obviously important to university 
research, are not likely to dramatically change any time soon. So, we 
must ask the question: ``How can we do more with less?''
    The Coalition for Advanced Housing and Forest Products Research was 
formed in partnership with the Advanced Housing Research Center, or the 
AHRC, at the FPL to respond directly to the current diminishing 
research support from Washington, DC. Although the AHRC was 
established, in part, as a response to the Partnership for Advancing 
Technology in Housing (or PATH) program, FPL founded it so that they 
could coordinate and streamline their wide-ranging housing research and 
development activities.
    CAHFPR actively identifies, coordinates and executes research and 
development (R&D) for housing, and one of its major themes is to 
conduct R&D that responds to the construction, financing, and marketing 
of housing. Universities are invited to participate in CAHFPR based on 
their expertise in a given programmatic area, e.g., termite resistant 
materials, durability and natural disaster resistance, etc. Research 
areas and programs that the AHRC and CAHFPR undertake are guided by an 
independently conducted national needs assessment. This year, that 
assessment is being done by the NAHB Research Center located in 
Maryland. They are surveying key stakeholders (e.g., academicians, 
builders, homeowners, insurers, and others) to identify and rank the 
most important research needs across the country. In general, CAHFPR 
research progress is assessed for quality and program relevance to 
ensure progress and efficiency via an external working group comprised 
of representatives from academia, industry and the government.
    As I mentioned earlier, CAHFPR is a university extension of the 
FPL, and the linkage to them is to their AHRC. We provide expertise 
that is complimentary to the scientists and engineers that are members 
of their center. This direct linkage provides for a degree of 
systematic synergy and augmentation of effort that otherwise wouldn't 
be possible.
    Organizationally, the virtual ``home'' of the coalition is at the 
FPL. In addition to providing the universities with access to their 
scientists, they also provide them with technical report reviews, web 
page space, publication assistance, and dissemination services. The 
dissemination of the research results to industry is important, and the 
vital feedback from them is handled by the FPL through their 
Residential Moisture Management Network technology transfer group. The 
Network is a government/industry association. As an aside, the FPL has 
also formed a separate group, the Federal Agency Housing Partnership, 
that coordinates housing research and technology transfer within and 
among various Federal agencies.
    The AHRC and CAHFPR believe that
      long-term partnerships based on programmatic needs is the 
most efficient and direct means of impacting the most significant 
problems, and
      research should be crosscutting and integrated in order 
to optimize efficiency and maximize the benefit to the American public.
    Current and future research areas of CAHFPR and the AHRC include:
      Moisture management and indoor air quality
      Improved use of traditional wood products
      Recycled and engineered wood composites
      Energy, sound, and environmental efficiency
      Natural disaster resistance
      Improved durability of finishes and sealants
      Better utilization of small diameter timbers and ``junk'' 
species
    A long-term research union of the FPL, industry, the member 
universities of CAHFPR, and other affiliated government agencies has 
numerous advantages:
      The university researchers are allowed to network with 
some of the world's best scientists and engineers at the FPL, thereby 
increasing productivity
      The government has the benefit of working with, and 
training, the current generation of students, who will of course be the 
next generation of problem solvers and/or consumers
      The government does not have to duplicate research 
capacity that is present at the universities
      Together, the government and the universities can work on 
complex problems that necessarily may span years or decades to unravel
      Fast response to problems because the universities are 
``on call''
    Partnerships are sometimes difficult to initiate and sustain, and 
CAHFPR has been no different. Since it's formation, some of the 
difficulties that we've had include:
      University administrators who adopt the ``Why can't we 
have it all?'' approach
      Partners who merely give lip service to partnerships
      University researchers who want funding without 
accountability
      Difficulty with existing laws that hamper the concept of 
``long-term'' relationships with the Federal Government
    But perseverance is prevailing. CAHFPR is currently stable with six 
universities as members. In FY05, we will add additional ones to our 
roster having expertise in fire-related housing issues and the 
utilization of small diameter timbers.
    Finally, let me end this Statement be referencing a report that was 
published in 2002 by the National Research Council (the NRC, Cubbage, 
et. al, National Academy Press, Washington, DC, 2002) about four years 
after the beginnings of CAHFPR. The USDA Forest Service requested that 
the NRC examine the national capacity for forestry research. And out of 
11 ``Recommendations,'' the following four are particularly relevant 
with respect to CAHFPR, and point out that we're on the right track:
      ``The Forest Service should substantially strengthen its 
research workforce over the next five years to address current and 
impending shortfalls...''
      ``As part of the increase in research personnel capacity 
and resources, the Forest Service should enhance cooperative relations 
with forestry schools and colleges.''
      ``The USDA, together with universities, should develop 
means to more effectively communicate existing and new knowledge to 
users, managers, and planners...''
      ``Centers of excellence in forestry should be established 
and administered by USDA. These programs and awarded projects should 
(1) support interdisciplinary and interorganizational activities, (2) 
focus on increasing minority student participation in education and 
research, (3) clearly justify how new forestry-research approaches and 
capacity will be enhanced, and (4) undergo initial and periodic 
review.''
    As I said before, CAHFPR is about partnerships--partnerships with 
and among universities, the Federal Government (the USDA Forest Service 
Forest Products Laboratory), and industry. We believe that in order to 
advance the science and engineering aspects of the house and the 
``American Home,'' we must work together.
    Thank you, Mr. Chairman and committee members, for your time. I 
would be pleased to answer any questions you have about CAHFPR.
                                 ______
                                 
    Mr. Walden. Now I would like to recognize Dr. Johnston for 
your testimony, 5 minutes oral, and your written testimony will 
be in the record. Good afternoon, and welcome.

      STATEMENT OF PETER JOHNSTON, MANAGER FOR TECHNOLOGY 
 DEVELOPMENT, ARIZONA PUBLIC SERVICE COMPANY, PHOENIX, ARIZONA

    Dr. Johnston. Good afternoon, Mr. Chairman. My name is 
Peter Johnston and I am the Manager for Technology Development 
for Arizona Public Service. I appreciate the opportunity to 
talk to you today.
    Arizona Public Service, or APS, is the largest electric 
utility serving the State of Arizona and we are currently 
working toward generating up to 1.1 percent of our electricity 
from renewable resources. To date, we have installed over five 
megawatts of solar photovoltaic generating plant. We have 
biomass, landfill gas, and wind projects. And we are exploring 
geothermal resource in Arizona and also the use of human and 
animal waste.
    The biomass plant that we have running, one of the three-
megawatt plants in the town of Eager, came online in February, 
and we have a second three-megawatt plant under construction 
destined for the town of Snowflake.
    The biomass resource we see in the State of Arizona we 
believe has a sustainable capacity of somewhere between 200 and 
500 megawatts. The largest renewable resource is, of course, 
solar, but biomass is a very significant resource that we would 
like to use. So we would like to extend more of these power 
plants and there are a couple of issues that have arisen that 
give us concern. One is the cost of the actual fuel we burn in 
the plants and one is the long-term availability of those fuel 
sources.
    A biomass power plant of the size we are looking at, three 
megawatts, will probably never be competitive with a natural 
gas or a coal plant. That is not the issue for APS at the 
moment. The issue is that we need these plants to be 
competitive with other forms of renewable resource generation.
    The plant at Eager, the cost of the fuel is just under $10 
a ton and the cost of the energy from that plant is between 
seven and eight cents a kilowatt hour. That is more than twice 
the cost of energy from a conventional plant. If the price of 
the fuel goes up to around $30 or $40 a ton, then the cost of 
energy will go up to over ten cents a kilowatt hour and that 
would not be competitive with other forms of renewable 
generation and could limit the rate of expansion of our biomass 
activities.
    We recognize that a great cost savings can be achieved if a 
biomass plant is installed in the same location as a wood 
product operator similar to these sort of products you have 
seen this afternoon, we can have a symbiotic type of 
relationship whereby the biomass plant actually takes the waste 
material from the wood processor, uses that as fuel in the 
electric generating part of the plant, and the generating plant 
can actually provide process heat to the wood operator. So it 
is a very neat relationship and, in fact, we are pursuing that 
type of relationship with several small diameter wood 
fabricators in the State.
    To date, the progress of those partnerships has been 
hindered by the uncertainty of the fuel supply for the wood 
product fabricator, the OSB manufacturer. So one of the issues 
we have today is that the stewardship contracts should really 
look at the long term, making the fuel available on a long-term 
basis. I believe I was told that 5 years is the norm, 10 years 
is possible, and I would stress that 10 years is an absolute 
minimum for some of these operators to get financing and 
actually come into existence.
    Until those fabricators do have viable operations, the 
biomass plants can continue if there is some form of fuel 
subsidy program. There used to be one in the State of Arizona. 
That would just give some moderation or continuity or certainty 
to the price of the fuel that we could use in the biomass power 
plants.
    APS is committed to developing clean, renewable energy 
sources today that will fuel tomorrow's economy. We see biomass 
as being one of--a viable component of the renewable energy 
portfolio. Fortunately today, APS is able to pay a small 
premium for the energy coming from biomass power plants, 
something that may not continue into the future as larger-scale 
plants are developed. But we would like to continue to pursue 
the biomass energy ventures and we look forward to the 
cooperation and support from all parties to make those ventures 
successful. Thank you.
    Mr. Walden. Thank you for your comments. We appreciate 
them.
    [The prepared statement of Dr. Johnston follows:]

  Statement of Dr Peter Johnston, Manager for Technology Development, 
                     Arizona Public Service Company

    Good afternoon Mr. Chairman. My name is Peter Johnston and I am the 
Manager for Technology Development for Arizona Public Service (APS), an 
electric utility based in Phoenix Arizona, and I appreciate the 
opportunity to testify today.
    APS is the largest electric utility serving the state of Arizona 
and is currently working to generate 1.1% of its retail electricity 
from renewable resources by the year 2007 in accordance with the 
state's Environmental Portfolio Standard (EPS). My department has been 
tasked with achieving that goal and has already completed a number of 
electricity generation projects from renewable energy sources located 
in the state.
    As part of our program, we have completed an assessment of the 
renewable resources in the state and determined that after our most 
abundant resource, solar energy, and potentially, wind energy, biomass 
is the largest resource that APS can use towards meeting the EPS 
requirement.
    We estimate that the ponderosa pine forests and pinon and juniper 
populated woodlands can support an electric generating capacity of 
between 250 and 500 MW. To that end APS has already funded the 
construction of a 3 MW biomass power plant that came on-line in 
February 2004 in Eagar, in Eastern Arizona. This plant is now 
generating electricity from the forest residues from the Wildland Urban 
Interface initiatives associated with the Apache-Sitgreaves forest. We 
are currently in the process of constructing a second 3 MW biomass 
plant that should be completed in early 2005 in Snowflake AZ and we are 
actively seeking additional plants to add to our biomass portfolio.
    The cost of electricity generated from these plants is very 
dependent on the proximity of the fuel source to the plant and we have 
identified 12 locations in the state where electric generating 
facilities of between 3 MW and 40 MW could be sensibly built with good 
access to forest residues and electrical transmission infrastructure. 
Eagar and Snowflake are two of those identified locations.
    The cost of electricity from these plants will be approximately 2 
to 3 times that of electricity generated from a more conventional 300 
MW or so natural gas fueled plant. This is due to a number of reasons 
relating to the relative size of the biomass units, however, the cost 
of the biomass fuel is a significant operating expense for a biomass 
power plant. A typical cost of biomass fuel is in the range of $10 to 
$40 per ton. In the case of the Eagar plant, for example, the fuel cost 
is just under $10 per ton and constitutes 20% of the annual Operating 
and Maintenance costs of the plant. The resulting cost of energy from 
Eagar is 7.68 c/kWh. If the fuel cost increased towards the top limit 
of $40 per ton, the energy cost would increase to more than 12 c/kWh. 
Naturally, APS would prefer the lower cost of energy to make the plant 
more competitive with other renewable resource opportunities. The cost 
of fuel can be reduced if a third party operation, which creates added 
value from the wood feedstock, can be sited at the power plant site and 
associated with the power plant operation.
    Such an operation could be a fabricator of glulam boards for 
example, which makes construction boards from small diameter forest 
thinning material. The product from this plant has its own market value 
and the waste material from the plant's operation can be disposed of as 
the fuel feedstock for the electric generating plant. Additionally, 
process heat required for the glulam operation can be provided by the 
power plant thus saving the glulam plant operator the expense of 
constructing and operating a heating system. A symbiosis of this nature 
can actually result in a negative fuel cost for the power plant and the 
combination of the two operations can make the disposal of waste 
material leaving the forest profitable and ultimately enhance the 
economic development of the predominantly rural areas where the plants 
would be located.
    APS is pursuing operating partnerships with several small diameter 
wood product companies in order to minimize the cost of electricity 
production from existing and future biomass power plants. The progress 
of these activities has been hindered by the uncertainty of a feedstock 
supply to the wood product companies. In order to finance their 
operations a feedstock availability of at least ten years is generally 
required and although recently awarded stewardship contracts can 
provide some level of that certainty, no such contracts have been 
released in Arizona to date. It is imperative for the successful 
deployment of small diameter wood product operations and additional 
biomass power plants in Arizona that the owners of these operations 
know that they will have access to a feedstock/fuel supply for at least 
ten years into the future.
    Until such wood product companies are able to commence operations, 
residues from forest health operations can be collected and hauled to 
biomass power plants for conversion into electricity. As indicated 
above, the cost of electricity generated from a biomass plant is 
sensitive to the cost of fuel. Since fuel can be produced in areas not 
necessarily close to the power plants that exist or being planned today 
a Fuel Subsidy for hauling companies, as originally made available in 
HR2646, can have a decisive influence on the success or failure of the 
power plant as such subsidies can be used to moderate the cost of fuel 
hauled to the plant.
    APS would like to continue to expand the number of biomass power 
plants in Arizona. Not only will they assist APS in meeting their EPS 
requirements but they will also provide a means of disposing of 
residues resulting from the healthy forest initiatives and provide 
economic development opportunities in the state. An added benefit 
resulting from the presence of these power plants will be a means of 
disposing of the more than 8,000 tons per month of urban green waste 
material that is currently disposed of in landfills in Arizona. Burning 
the waste in a controlled manner in a boiler will be an improvement 
over filling landfills. However, in order to achieve this expansion, 
the cost of the renewable electricity generated from these plants will 
have to be competitive with other renewably sourced electricity. The 
association or partnership of a biomass power plant with a value added 
operation will greatly facilitate this expansion.
    We recognize that there are many factors that can influence the 
development and success of biomass to energy power projects some of 
which can be instigated at the federal level. APS would therefore 
encourage the following actions:
    1.  Congress should continue to provide funding to the Forest 
Service programs as proposed in the current Forest Health bill.
    2.  Encourage the National Forest Service to continue long-term 
NEPA preparations and issue Forest Stewardship contracts as soon as 
possible.
    3.  Continue to support community involvement in the issuance and 
approval of Forest Stewardship contracts.
    4.  Until such Stewardship contracts are forthcoming re-activate 
the availability of a Fuel Subsidy program.
    APS is committed to developing clean, renewable energy sources 
today that will fuel tomorrow's economy. We see biomass as a viable 
component of our renewable energy portfolio. We also recognize that 
virtually all renewable energy projects require some form of financial 
subsidy to make their economics work. Fortunately APS is able to pay a 
premium for the electricity produced from renewable sources through the 
Environmental Portfolio Standard program. However, we are also 
cognizant of the fact that our program is open to the scrutiny of our 
regulators and our customers who expect our expenditures to be made 
prudently.
    Turning Hazardous Fuels into Valuable Products has the potential to 
provide new job opportunities, local economic development and the 
creation of healthy forests for everyone's benefit. APS will continue 
to pursue renewable biomass energy ventures and looks forward to the 
cooperation and support from all parties to make those ventures 
successful.
    This concludes my prepared testimony. Once again I appreciate the 
opportunity to speak before you today and will be glad to answer any 
questions you or the subcommittee might have.
                                 ______
                                 
    Mr. Walden. I want to follow up on one of the points you 
made about the need for long-term guaranteed supply, as in the 
stewardship contract, because I have heard that from people who 
have the biomass fuel plants as well as others looking at these 
markets.
    Dr. Johnston. Yes.
    Mr. Walden. How critical is that to getting capital to 
invest in biomass facilities and what kind of time line do they 
need?
    Dr. Johnston. It can be very critical as we found with some 
of the companies that we are trying to venture with. With APS, 
it has not been an issue. We are financing these on an expensed 
nature. We are not financing these, long-term financing for 
these power plants. We are simply expensing them.
    But for people like Louisiana Pacific, a company that makes 
oriented strandboard, obtaining financing is important to the 
setting up of a new business. I don't know their time line, 
sir. We were supposed to have a combined plant in Arizona 
sorted out by January of this year. Unfortunately, 6 months 
have slipped. That is really--the three-megawatt power plant we 
are building in Snowflake was never intended for Snowflake. It 
was intended for the Flagstaff area. But since the financing 
didn't come through for the land appropriation there, we have 
located the plant into Snowflake.
    Mr. Walden. Where is Snowflake?
    Dr. Johnston. Snowflake is a little to the northeast of 
Phoenix.
    Mr. Walden. Does Snowflake ever get snow? That was the 
question.
    [Laughter.]
    Mr. Tom Udall of New Mexico. It used to before global 
warming.
    Mr. Walden. Before global warming. Yes, all right.
    [Laughter.]
    Mr. Walden. Don't steal the Ranking Member's line there, 
Mr. Udall.
    [Laughter.]
    Mr. Walden. Mr. Carlson, could you explain more about just 
technically what we need to get changed in this biomass closed-
loop provision so that we can make that provision really 
workable for the projects and all you outlined?
    Mr. Carlson. Certainly, Mr. Chairman. That particular 
provision, as it is written, has been on the books actually 
since 1992 and it has worked extremely well for the wind power 
industry, which has been able to expand dramatically over that 
12 years. But because it was drawn so narrowly to be, as I 
mentioned, just closed-loop biomass, which is material grown 
specifically for burning, it has been unusable and there has 
never been a dime collected by any biomass power producer.
    Basically, the definition needs to be opened up, and there 
has been over the last several years a definition developed for 
basically three categories of fuel. There is fuel related to 
forestry operations, such as thinnings, mill waste materials. 
There is the category of agricultural fuels, such as orchard 
prunings, grape prunings, orchard removals, nut shells, that 
sort of thing. And then there is the urban wood category, which 
includes things like old used pallets and two-by-fours and that 
sort of thing, and everyone has become comfortable with that 
change in the definition.
    So the definition has become almost portable. It moves 
around between bills or between the President's budget and 
everybody is comfortable with that, but it just never seems to 
make it over the goal line. There never seems to be one of 
these bills that actually gets implemented. It is set for a 
couple of years now in the energy bill, but we just don't have 
an energy bill.
    Mr. Walden. All right. I appreciate that.
    Dr. Tilotta, could you speak further about the research 
being done on recycled and engineered wood composites, and 
specifically, how close are we to economical and large-scale 
production?
    Dr. Tilotta. To the engineered wood products?
    Mr. Walden. Right.
    Dr. Tilotta. That is not something that I can address.
    Mr. Walden. Really? OK. Is anyone else on the panel able to 
address that issue?
    [No response.]
    Mr. Walden. OK. All right. I don't have any further 
questions.
    Mr. Inslee?
    Mr. Inslee. Mr. Carlson and Dr. Johnston, maybe you could 
give us some thoughts about how to evaluate the impact of these 
tax benefits to these nascent industries. I mean, it is the 
same kind of issue whether it is solar or wind or biomass. It 
is the same kind of issue. How do we evaluate their 
effectiveness? Some people--and I am a big believer in them, so 
I am an advocate. But some critics have suggested, well, no, 
these are either going to happen or they are not on their own 
economics and these things are really of marginal utility in 
actually spurring investment. Give us your assessment of how we 
judge that issue, how you would judge that issue. Why don't we 
start with Mr. Carlson.
    Mr. Carlson. Thank you. Certainly. I think the best judge 
of that, quite honestly, is one that I just mentioned that we 
have a 12-year track record in, and that was that in 1992, the 
wind and biomass tax credit in Section 45 of the tax code was 
established. At that time, there was a fairly vibrant biomass 
industry based on the early what are called PURPA contracts, 
Public Utility Regulatory Policy Act that was passed in 1978, 
and there was a relatively infant wind industry because it was 
more risky from the standpoint of investment because they only 
generated when the wind blows, as opposed to biomass plants 
that generate all the time on a 24/7 basis.
    Since that time, where the wind industry could easily use 
this credit, they have probably increased their capacity in the 
U.S. by probably tenfold over that period. Biomass plants, 
conversely, with the expiration of some of those contracts and 
the fact they were above market, has continued downhill to 
where about 40 percent of the plants that were online at that 
time are now gone.
    So I think that gives you an indication. If you go back to 
some of Dr. Johnston's comments of a moment ago, talking about 
these plants having to be at market by some point, we can't ask 
the utilities to provide the above-market needs of the biomass 
plant long-term. I mean, they are in the business of generating 
electricity and selling it to customers and giving the 
customers the best deal. If we could have a usable biomass tax 
credit, the biomass plants would be able to put bids into those 
utilities that are very, very close to market and that is the 
real difference that you will see.
    Quite honestly, in my opinion, it is the difference 
between--in the situation we face today and the focus of this 
committee, which is forest health, if we have a usable biomass 
tax credit for both new and existing facilities, you will see 
all the biomass facilities built that are necessary to support 
the thinning activities as the government ramps it up. It is 
the difference between seeing those plants built and basically 
piling and burning that material and the woods for the 
foreseeable future.
    Dr. Johnston. I agree with Mr. Carlson. I think a great 
example is the wind industry today. Their 1.8 cent per kilowatt 
hour tax credit is tied up in the energy bill and it is my 
understanding that a whole bunch of wind projects have stalled 
in 2004 as a result of that bill not coming through yet.
    The amount of the subsidy is going to be important. One-
point-eight cents for wind does make wind energy in a number of 
cases competitive with more conventional forms of generation. 
One-point-eight cents supplied to solar energy would have a 
very negligible effect. The cost of solar energy today is 
around 30 cents a kilowatt hour, so you would be looking for a 
tax credit of 25 cents or more before that had a significant 
impact on utility use of solar.
    Biomass, depending on the size of the plant, 1.8 cents may 
be insufficient to encourage utilities to buy biomass energy. 
That may need to be a little more than that. So the size of the 
plant that APS is working on is not a commercial size plant, 
really. It is simply based on the limited budget we have to 
meet the portfolio standard.
    So any, I guess, tax credit that you could give to a 
biomass generation facility would assist it to sell energy to 
utilities that do have portfolio standards to meet as opposed 
to just simply buying the energy for commercial use compared to 
a natural gas plant, for instance.
    Mr. Inslee. I know solar has, although still above market, 
has experienced reductions with increasing units sold. 
Basically, there is a curve, I think.
    Dr. Johnston. Yes.
    Mr. Inslee. I am told that every time it goes up by a 
factor of ten, the price comes down by ten or 20 percent or 
some factor there. Is biomass in the same situation?
    Dr. Johnston. No, sir. I don't think so. Solar energy is 
still a very new industry and it is a declining cost industry 
as those technologies are perfected. The biomass industry is 
very much, I think, a mature industry, although there are some 
new technologies coming out to use biomass in the form of 
either gasification or pyrolysis and we are working with the 
National Renewable Energy Lab, looking at the formation of bio 
oil that is almost equivalent to petroleum crude oil but its 
feedstock is a biomass material.
    Mr. Inslee. Interesting. Thank you.
    Mr. Walden. Thank you, Mr. Inslee.
    Now I go to the gentleman from Montana for 5 minutes.
    Mr. Rehberg. Thank you, Mr. Chairman.
    Mr. Carlson, I was listening, but I am not sure I heard the 
answer, and that is the reason why it wasn't in the House bill 
is we were asleep at the switch? We just didn't get it in? Or 
is there some opposition to doing it that you sense? You had 
mentioned the President and some others. I just want to know in 
my mind, is it just we weren't paying attention? Should we have 
gotten it in?
    Mr. Carlson. To my knowledge, there is no real opposition--
there is no opposition to the provision that I know of. We have 
worked with some of the environmental groups, for instance, 
relative to the definition and everyone seems to be reasonably 
comfortable with the definition, the expanded definition. It 
was more a case of Chairman Thomas simply not wanting an energy 
tax title as part of the Foreign Sales Corporation bill but 
needing to reauthorize an existing whole bunch of tax credits 
that had expired. It really just got lumped in, and if it goes 
as it is written today, it will be reauthorized like it has 
been four or five times in the past without change.
    Mr. Rehberg. OK.
    Mr. Carlson. We are trying to avoid that. To be quite 
honest, our coalition that is working on this is getting so 
thin now because of the plants that have closed that this may 
be our last shot at correcting this at this time.
    Mr. Rehberg. OK. Dr. Johnston, you had mentioned that you 
essentially need something besides the electric generation or 
the biomass, some peripheral industry. Have you worked out 
those numbers specifically? The 1.8, you say, may help. How 
much would a peripheral, in your mind, small business, a 
Timberwelt type of a facility or whatever, some of the examples 
that we were sent, how much does that equate into a cost 
savings per kilowatt?
    Dr. Johnston. I can give you an example based on Eager, 
where I say we are paying $10 a ton for the fuel, and that 
constitutes around one cent per kilowatt hour in the cost of 
energy. If the fuel was zero cost instead of 7.6 cents a 
kilowatt hour, we would be down at 6.5 cents a kilowatt hour. 
So I don't think we could get a negative fuel cost. We might do 
it, depending on the industry we are working with, but we are 
looking at maybe reducing the cost of our energy by one or two 
cents.
    Mr. Rehberg. Is the industry that you essentially work 
with, and maybe this is a question for the rest of you, as 
well, is yours essentially reliant upon access to Federal 
properties or do you have tribal and private properties, as 
well?
    Dr. Johnston. We have all of the above. We favor private 
properties if we can.
    Mr. Rehberg. And why is that?
    Dr. Johnston. Just simplicity of contracts.
    Mr. Rehberg. Access.
    Dr. Johnston. Yes, sir.
    Mr. Rehberg. So our access laws become an impediment to 
your being able to have an additional facility or access to 
enough of the kind of product you need to create the energy 
on--
    Dr. Johnston. They have not been so far.
    Mr. Rehberg. Mr. Carlson?
    Mr. Carlson. We have about 20 years' experience in Northern 
California doing this type of thing on an integrated basis, 
where the infrastructure does exist in all cases. The small 
wood forest products industry is there, cardboard plants, paper 
mills, within a reasonable haul distance, and we find that it 
makes all the difference in the world relative to thinning 
whether it be on private lands or on public lands in that most 
of the cases in Northern California, the land owner actually 
gets a return rather than making a payment. The bids will 
actually come in that they will pay him a couple hundred 
dollars an acre for access to accomplish the thinning.
    That is one of the advantages, quite honestly, that Montana 
still has in developing biomass plants is that you still have a 
lot of that infrastructure. You still have a paper mill in 
Missoula and a hardboard plant in Missoula and several small 
family owned sawmills that make it far more economic in a place 
like Montana to complete that puzzle with a biomass plant than 
it would, say, in Arizona, where most of that infrastructure is 
now gone.
    Mr. Rehberg. And then again, that is where the 10-year 
versus the 20-year ability to amortize--
    Mr. Carlson. Well, that is right, because that just become 
cost of power. I mean, you can build it on a 10-year basis, but 
you have raised the cost of power now a penny or a penny and a 
half per kilowatt hour versus a 20-year agreement.
    Mr. Rehberg. Would it be safe to say that the 
infrastructure that is in place, let us use one of my small 
mills in Eureka, is it safe to say that they have access to the 
power grid because of the mill being there, that the facility 
is in place, or would there be technological changes necessary 
to build a grid, access to the grid so we can get it in the 
power system.
    Mr. Carlson. Well, let us use that example, and I don't 
know the specifics of the mill in Eureka, but if it is a 
typical sawmill, it will have an electrical--
    Mr. Rehberg. It is pretty strong because it is still open--
    Mr. Carlson. Yes.
    Mr. Rehberg.--amazingly so.
    Mr. Carlson. It has to be. It will have electrical load 
probably of three to five megawatts of power coming into the 
area. Well, you could easily--say it is five megawatts. You 
could easily then build a ten megawatt power plant on that same 
grid because you would displace the five megawatts the mill 
used and then turn around and send the five megawatts back out 
on the same system. So typically, if the plant doesn't get too 
large--if you are talking about a 50-megawatt plant, for 
instance, you may need a higher voltage than is available in 
Eureka, where it may only be a 12 KV system, as an example. But 
certainly something twice the size of the largest existing 
industry that is there could be accommodated.
    Mr. Rehberg. Could I ask a follow-up question?
    Mr. Walden. Certainly.
    Mr. Rehberg. Would it then be cost effective for them to do 
it the 10 year, or still impossible, they would need 20 years 
to pay--
    Mr. Carlson. It is not impossible, like I say, it is just 
that it just raises the cost of the power. I mean, we were 
fortunate to get, quite honestly, the 10-year stewardship 
contract authority, so no one is truly arguing with that at the 
moment. Would 20 years give you a more cost-effective product 
to sell to someone like Arizona Public Service? Certainly, it 
would.
    Mr. Rehberg. Thank you, Mr. Chairman.
    Mr. Walden. Thank you for your comments.
    We now turn to the gentleman from Arizona, Mr. Renzi, for 5 
minutes.
    Mr. Renzi. Thank you, Mr. Chairman.
    Mr. Carlson, I appreciate your optimism, particularly in 
your statement when you talk about the idea of possibly having 
five million acres per year on a large-scale thinning program, 
which I think you said would produce 250 million tons per year. 
How do you gain that optimism? Is that just what you see that 
we don't?
    [Laughter.]
    Mr. Carlson. Well, I guess I base that on the fact that 
certainly the people in this room, your intention is to 
actually solve the problem, and the problem is that we have 190 
million acres of overstocked Federal land that needs to be 
thinned, and we all know that we are losing six to seven 
million acres a year by fire alone, not to mention what is 
being destroyed by insects and disease.
    So if we truly intend to solve the problem in our lifetime, 
so to speak, we need a five million acre a year--and the Forest 
Service talks about programs reaching that level, of five 
million acres a year. Now, a large fraction of that in their 
case will be prescribed fire rather than mechanical thinning.
    But even to go back to the contract you are talking about 
at the Apache-Sitgreaves of 150,000 acres over 10 years, that 
15,000 acres a year will produce enough fuel--the fuel fraction 
of it alone is probably enough for 20 or 25 megawatts. So it is 
not an insignificant contract that we are talking about here. 
In fact, the Salt River Project currently has a request for 
proposal on the street for a ten megawatt biomass plant that 
may well be fueled by the residual of those thinnings in that 
particular instance.
    Mr. Renzi. We are talking about, if there are ten 
stewardship contracts out there right now and each of them are 
conducting 15,000, we are talking about 150,000 acres a year. 
So we would have to--I mean, we are talking about exponentially 
having to let many, many more contracts and layer them and 
spread out these years so that wouldn't--
    Mr. Carlson. No, that is certainly true. One of the 
concepts that we have kicked around for many years, and I have 
been working on this concept for a long time, like close to 15 
years now, was that every ranger district on every national 
forest in the West ought to have a biomass plant of 20 or 25 
megawatts. If they did, that ranger district then could thin 
their entire range district with, again, using all the other 
forest products uses that you can over a period of 20 years.
    Mr. Renzi. No, I want to get there with you. I have counted 
nine or ten stewardship contracts I think we are working on 
right now, Mr. Chairman, with your leadership, so we are taking 
150,000 total acres, and if we are looking at five million 
acres, we have got quite a lot more work to do. But I am with 
you on the optimism and we will hopefully get there together. 
It is a beginning. It is a great first step.
    Dr. Johnston, I appreciate you coming in from Arizona and 
thank you for your leadership. I had a chance to visit the 
plant in Eager and tour it. I was interested by your comments 
in following up on Mr. Inslee's line of questioning in that 
biomass is a mature industry and that the costs and driving 
down the costs are a little bit harder now. You also talked 
about the threat of costs going up because of the increase in 
material costs, is that correct?
    Dr. Johnston. Yes, sir, and that was primarily due to the 
location, I guess, of the forest thinnings and the 
transportation of those thinnings to the biomass plant. We 
would try and keep a plant and the source of fuel within a 50-
mile radius. We go above 50 miles, the cost of transportation 
gets excessively high.
    Mr. Renzi. And thus the need for more stewardship contracts 
that will have that ability to overlap and cut down on the 
transportation, I imagine.
    Dr. Johnston. Yes, sir.
    Mr. Renzi. My colleague from Montana talked a little bit 
about the grid. What is this issue that we talked about, I am 
trying to learn about up in Eager, Arizona, as it relates to 
discrimination on the grid, of being able to access the grid? 
Is it location, as Mr. Rehberg was talking about? Is it because 
you are dealing with such a small quantity that--
    Dr. Johnston. I don't think it was access to the grid. I 
think it was access to the land, was it not, that your 
colleague was addressing.
    Mr. Renzi. No, I was specifically talking about during my 
visit in Eager, Arizona, the fact that because the plant out 
there, the biomass plant is only producing three megawatts, 
that it is seen as a drop in the bucket and that--
    Dr. Johnston. Well, three megawatts is actually sufficient 
to feed the whole Town of Eager, so I guess it is all relative.
    Mr. Renzi. Well, they go to bed early at night.
    [Laughter.]
    Dr. Johnston. No, we burn wood there 24 hours a day, sir.
    [Laughter.]
    Dr. Johnston. Compared to APS's overall capacity, we have 
over 4,500 megawatts of capacity that we own.
    Mr. Renzi. I appreciate that.
    Dr. Johnston. So yes, it is a very small amount compared to 
that.
    Mr. Renzi. Let me finish with one question to Professor 
Tilotta, hopefully with some hope here and optimism. I was 
looking at helping an operation locate to Flagstaff that was 
going to be involved in laminated wood, taking a small diameter 
wood, x-raying it with a computer, cutting it the best way the 
grains need to go in order to laminate it. I was told that 
there is great profit in that product, and since we have seen 
so many products come around the room today, can you give me 
one piece of hope?
    Is laminated wood, the profit margin, is that the product 
that allows this kind of good profit margin to exist, or are we 
moving in that direction compared with maybe not as much profit 
margin in some of the sawdust logs? In some of the tours that I 
have done and some of the industries that I have seen, whether 
dealing with pellets or sawdust logs, the margins are so thin 
that there is not a whole lot of grand hope. Can you give me 
some optimism to finish up here?
    Dr. Tilotta. No, I agree. I think that application clearly 
is a high-profit one. In terms of if you look at the spectrum 
of things that you can do, all the way from wood products to 
paper and pulp sorts of applications, that is where I would go 
and put my money. But if you go all the way to the other end, 
perhaps, and I am going to look a little bit in the future, one 
application might be simply to use that--extract sort of the 
chemicals and the energy, if you will, directly from that. For 
example, extract chemicals that can be used for building blocks 
for other sorts of applications as well as ethanol and those 
sorts of things. So it is on the horizon, but I think it is 
coming.
    Mr. Renzi. Thank you, Mr. Chairman.
    Mr. Walden. Thank you, Mr. Renzi.
    I want to thank the panel. Your testimony has been most 
enlightening and helpful as we look to better techniques to use 
biomass and what we can do in the Congress to assist this 
industry. Thank you for being here and thanks for sharing your 
comments. We may get back to you with other questions.
    I would like to invite up panel three. We have Mr. Masood 
Akhtar, President, Center for Technology Transfer; Mr. Tom 
Coston, Fuels for Schools Coordinator, Bitter Root Resource 
Conservation and Development Area; Ms. Lynn Jungwirth, 
Executive Director, Watershed Research and Training Center; and 
Mr. Jason Drew, Director of the Nevada Tahoe Conservation 
District, National Association of Conservation Districts.
    I would remind our witnesses you have 5 minutes for oral 
statements. Your written comments will be put in the record. We 
are told we are going to have some votes soon, at about 3:30. 
We may be able to get through the panel and ask a few 
questions, so please go right ahead.
    Let us start with Mr. Akhtar, your statement, please, sir. 
Thank you and welcome. Would you make sure your microphone is 
turned on there.

            STATEMENT OF MASOOD AKHTAR, PRESIDENT, 
                  CENTER FOR TECHNOLOGY, INC.

    Mr. Akhtar. Thank you, Mr. Chairman. Today, my testimony 
will focus on a main outcome of the Forest Products Industry 
Technology Alliance, which we all know is part of Agenda 2020, 
which is a program, a partnership between the governments, the 
forest products industry, and academia to develop technologies 
capable of increasing energy efficiency, reducing environmental 
impact, and improving the industry economics.
    The Alliance highlighted the need to establish a proper 
technology development organization that will work very closely 
with the industry user, the funding agencies, the State, and 
the Federal regulatory agencies, and the businesses developing 
and marketing the technology. Once a technology has been 
identified, it must be presented properly to the industry.
    In addition to establishing the technology development 
organization, the concept of a biorefinery has to be further 
explored. This concept has the potential for doubling profits 
to the industry by producing value-added products from biomass 
onsite while the industry can continue making their 
conventional paper products. We need your support for these 
initiatives, a dedicated technology deployment organization and 
biorefineries.
    Today, I will share with you a Wisconsin technology 
deployment model that would easily be replicated throughout the 
U.S. with some modification, depending upon each State's need 
to improve the competitiveness of our U.S. forest products 
industry. The Wisconsin Department of Administration through 
its program called Focus on Energy created a nonprofit 
organization in 2002 called the Center for Technology 
Transfer--we call it CTT--which is basically a technology 
deployment organization. The mission of CTT is to improve the 
competitiveness of Wisconsin industry clusters, including the 
forest products industry.
    As you know, Wisconsin is still the number one paper-
producing State in the nation. In order to expedite the 
commercialization and implementation of federally funded 
technologies, the organization presents a package to the 
industry which includes the technology, funding for technology 
demonstration, energy and tax incentives for a limited period 
to early adapters.
    Governor Jim Doyle of Wisconsin and his administration are 
fully committed to help the forest products industry in 
Wisconsin. His administration has made important progress in 
reducing permitting times and reforming the way State agencies 
do business. They have negotiated and signed legislation 
creating the Green Tier program within the Department of 
Natural Resources, DNR. This voluntary program encourages 
greater environmental performance by recognizing companies with 
superior environmental performance. More importantly, it 
rewards them with the increasing flexibility and less 
regulatory risk when trying new technologies.
    He also signed legislation to create a sales tax exemption 
on energy used in manufacturing. Energy is a major cost, as you 
know, for manufacturers in the paper industry, the largest 
consumer of energy in Wisconsin. The bill will help companies 
stay competitive, stay in business, and stay in Wisconsin. This 
shows our State's serious commitment to providing a business-
friendly environment.
    Governor Jim Doyle has also announced his strong support 
for developing Wisconsin's renewable energy resources. The farm 
bill's energy title provides Federal resources that complement 
the Focus on Energy program--obviously the CTT is a part of 
that--and other efforts. With your support, the farm bill 
energy title programs can reach their full potential for our 
State and our nation. Looking into the future, we hope you will 
support an aggressive expansion of these programs in the next 
farm bill to meet the many challenges we face. With your 
support, Wisconsin can continue to lead the Nation in 
developing renewable resources and supporting rural 
communities.
    The Governor also created a Governor's Council on Forestry 
in Wisconsin. In the recent meeting on June 17, the Council 
discussed priority issues of Wisconsin woodlands, which are 
owned by 260,000 people and others. They identified invasive 
species as the top priority.
    This document provides further details on some of the 
issues I have outlined here. I hope the information provided 
here will help you make the decisions that are needed to 
improve the competitiveness of industry. My expertise is mostly 
in the area of technology transfer, which is critical for this 
committee, so I will be taking some questions at the end.
    Mr. Walden. Thank you. Thank you very much for sharing your 
comments.
    [The prepared statement of Mr. Akhtar follows:]

                Statement of Masood Akhtar, President, 
                  Center for Technology Transfer, Inc.

    My testimony will focus on a main outcome of the Forest Products 
Industry Technology Alliance. (This ``Agenda 2020'' program is a 
partnership between governments, the forest products industry and 
academia to develop technologies capable of increasing energy 
efficiency, reducing environmental impacts, and improving industry 
economics).
    The Alliance highlighted the need to establish a proper Technology 
Deployment Organization that will work very closely with the industry 
user, the funding agencies, the state and the federal regulatory 
agencies, and the business developing and marketing the technology. 
Once a technology has been identified, it must be presented properly to 
the industry. Understanding the conservative nature of this industry, 
it is very critical that the new technology be presented in one-on-one 
meetings with industry representatives at three levels: 1) Company 
executive (focus on profit potential), 2) Research executive (focus on 
technical merit), and 3) Operating personnel (focus on how risk can be 
minimized). In addition to establishing the Technology Deployment 
organization, the concept of a ``Biorefinery'' has to be further 
explored. This concept has the potential for doubling profits to the 
industry by producing value-added products from biomass on site, while 
the industry can continue making their conventional paper products. We 
need your support for these initiatives, the dedicated Technology 
Deployment Organization and Biorefineries.
    Today I will share with you a Wisconsin Technology Deployment model 
that could easily be replicated throughout the US, with some 
modifications depending upon each state's need, to improve the 
competitiveness of our U.S. Forest Products Industry. The Wisconsin 
Department of Administration through its Focus on Energy Program, 
created a non-profit organization in 2002 called the Center for 
Technology Transfer (CTT), which is basically a Technology Deployment 
Organization. The mission of CTT is to improve the competitiveness of 
Wisconsin industry clusters, including the Forest Products Industry. As 
you know, Wisconsin is still the number one paper-producing state in 
the nation. In order to expedite the commercialization and 
implementation of federally-funded technologies, this organization 
presents a package to the industry which includes the technology, 
funding for technology demonstration, energy and tax incentives for a 
limited period to early adopters, etc.
    Governor Jim Doyle of Wisconsin and his administration are fully 
committed to help the forest products industry in Wisconsin. His 
administration has made important progress in reducing permitting times 
and reforming the way state agencies do business. They have negotiated 
and signed legislation creating the ``Green Tier'' program within the 
Wisconsin Department of Natural Resources (DNR). This voluntary program 
encourages greater environmental performance by recognizing companies 
with superior environmental performance. More importantly, it rewards 
them with increased flexibility and less regulatory risk when trying 
new technologies. He also signed legislation to create a sales tax 
exemption on energy used in manufacturing. Energy is a major cost for 
manufacturers in the paper industry, the largest consumer of energy in 
Wisconsin. The bill will help companies stay competitive, stay in 
business, and stay in Wisconsin. This shows our state's serious 
commitment to providing a business-friendly environment.
    Governor Jim Doyle has announced his strong support for developing 
Wisconsin's renewable energy resources. The Farm Bill's Energy Title 
provides federal resources that complement Wisconsin's Focus on Energy 
program (CTT is part of this Program) and other efforts. With your 
support, the Farm Bill Energy Title programs can reach their full 
potential for our state and our nation. Looking to the future, we hope 
you will support an aggressive expansion of these programs in the next 
Farm Bill to meet the many challenges we face. With your support, 
Wisconsin can continue to lead the nation in developing renewable 
resources and supporting rural communities.
    The Governor also created a Governor's Council on Forestry in 
Wisconsin. In a recent meeting on June 17, 2004, the Council discussed 
priority issues for Wisconsin Woodlands which are owned by 260,000 
people and others (about 61% of the acreage total). They identified 
invasive species as the top priority. John Cutis, Wisconsin's foremost 
expert on vegetation in the state, found in the 1920-30's a healthy 
number of native species. Recent inventories of those same plots found 
a dramatic decrease in the variety of native species, and an alarming 
increase of non-native species that are destroying our natural 
ecosystems. This has the potential to do substantial damage to our 
wood-using industry and the economy of Wisconsin. Federal programs for 
forest health are important if we want to retain the vital forestry 
industry base in Wisconsin.
    This document provides further details on some of the issues I have 
outlined here. I hope the information provided here will help you make 
the decisions that are needed to improve the competitiveness of our 
Forest Products Industry.
CTT Model: A Technology Deployment Organization in Wisconsin
    The Center for Technology Transfer Inc. (CTT) is fueling 
Wisconsin's long-term economic growth by helping state researchers and 
entrepreneurs bring new energy- and cost-saving technologies to market. 
Based in Madison, WI, CTT is a one-stop-shop for commercializing new 
technologies. The private, nonprofit corporation helps established and 
early stage companies statewide move new technologies along the path 
from discovery to successful implementation in the marketplace, where 
they make state businesses more competitive and retain and create jobs.
Services to established companies
    Identify and bring industry-specific technologies. In the 
competitive global environment, retaining jobs has become as critical 
as creating them. Implementing new technologies to reduce production 
costs is one way to retain high paying manufacturing jobs in Wisconsin. 
By understanding the nature of key Wisconsin industry clusters, CTT can 
help facilitate this process by:
      Arranging one-on-one-meetings with key industry managers 
to identify their industry-specific technology needs
      Searching for available technologies, particularly those 
that are funded by federal agencies like the U.S. Department of Energy, 
which are near commercialization or have been commercialized elsewhere
      Conducting initial technology, business, and financial 
due-diligence in cooperation with an established vendor with industry 
credibility
      Presenting appropriate technologies to senior managers of 
potential customers along with the vendor and developer.
    The now prescreened technology can be evaluated by industry to 
determine if the output and investment's rate of return are acceptable. 
A plant demonstration on a pilot scale is the likely next step.
    Provide funding for technology demonstration. To minimize risk to 
the industry, CTT can provide up to $250,000 to fund technology 
demonstrations. These funds are provided to the technology developer 
either in the form of equity, loans (secured or unsecured) or a 
combination of both. CTT can also leverage its funds by bringing in 
additional funds if needed.
    Identify business and policy issues that are barriers to 
implementing technology. During one-on-one meetings with an industry 
cluster's representatives, CTT may identify barriers to implementing 
technologies. In response, CTT may prepare unbiased research reports 
comparing Wisconsin business incentives and policy issues with those of 
neighboring states and abroad. CTT will then arrange personal meetings 
with industry leaders, state agencies and others to develop strategies 
to overcome these barriers. CTT has completed such a review for the 
Forest Products cluster, and additional reviews are in progress.
    Provide education and training. CTT provides industry-specific 
technology and training through interaction with trade organizations, 
universities, and technical colleges. Our current focus is to bring 
available technologies to users through existing conferences, trade 
shows, and the like.
Services to early stage start-up companies
    CTT's assistance typically falls into one or more of the following 
areas:
    Project Funding, including secured low-interest loans, unsecured 
loans, bridge loans for repayment or conversion to equity, and equity 
investment.
    Business Mentoring, including offering a database of service 
providers, conducting due-diligence reviews, providing business 
planning advice and assistance, serving on boards of directors and 
boards of advisors, and advising on strategic negotiation with 
potential business partners.
    Grant Assistance, including identifying available grants, providing 
personalized grant writing training, writing and reviewing grant 
applications, providing grant administration assistance, conducting 
technical due-diligence reviews, helping obtain letters of support and 
collaboration for grant applications, offering matching funds, and 
arranging bridge loans to sustain clients between federal grant phases.
    Intellectual Property Assistance, including developing intellectual 
property strategies and assisting in the patenting and licensing of 
inventions, particularly for non-university inventors.
Wisconsin Forest Products Industry Challenges
    The following list of perceived challenges facing the Wisconsin 
forest products industry are based primarily on five individual 
discussions between a task force and representatives from three paper 
mills and two sawmills.
FORESTRY BUSINESSES IN GENERAL
International:
Policy
      Foreign governments absorb some of the workers 
compensation through government paid benefits like health insurance.
      Foreign entities cannot own public utility power 
generating facilities in the US.
      Global environmental regulations vary--businesses need a 
level playing field.
      International Trade Barriers affect market access.
      Disparity between tariffs levied on imports into our 
domestic market and those imposed by other countries need correcting.
Business
      All facilities surveyed face international competition. 
The forest products industry is rapidly being integrated into the 
global economy.
      Effective global marketing strategies are needed for the 
forest products industry in Wisconsin.
      Increased competition from China in furniture and 
paperboard, Canada in softwood products, Europe and others in pulp and 
paperboard, and other forest products from Chile, Scandinavia, New 
Zealand, and Russia.
      Exchange rates affect multinational company decisions on 
where to make facility/capacity investments.
Education
      Organize a national seminar broadening what Bob Seavey, 
Dept. of Wood & Paper Science, University of Minnesota set up. 
``Manufacturing Strategies for Profitability in the 21st Century: 
Surviving Globalization'' March 7, 2003.
      Develop a compilation of successful strategies used by 
companies to find niche markets and other methods to cope with 
globalization.
National:
      Present tax laws do not favor investment.
      There is a lack of available fiber from national forests 
in Wisconsin. (It has been suggested that different national forests 
are able to provide significantly different quantities of wood for use 
by industry.)
      It would be helpful to overhaul the Fair Labor Standards 
Act (FLSA) so that it allows an employer to give incentives to all 
employees without having to endure onerous calculations to adjust for 
overtime considerations each time you choose to award bonuses.
      Need to work with Department of Commerce to help solve 
policy issues.
      The Byrd amendment regarding softwood lumber needs to be 
reviewed.
      Need a study of present infrastructure to determine what 
adjustments can be made to improve it. (Need to encourage innovative 
research to support infrastructure improvements.)
      Need approval of categorical exclusions for small timber 
sales on federal lands.
State:
PERMITS:
Policy
      Permits are a major problem due to complexity and long 
time delays. Some companies believe there is no real way to cooperate 
with State of Wisconsin permitting agencies. Companies are reluctant to 
make even small changes because of the permit process.
          It takes too long to get things done. Supposedly the 
        problem is due to lack of sufficient WDNR staffing to process 
        permits.
          Timeliness for getting permits appears to be completely 
        out of line with other states.
          Policy issues at the WDNR make it very difficult to get 
        the job done, and usually result in high capital expenditures.
          Need to push proactively for fast track permitting.
          Streamline permitting to allow greater use of coal.
          Difficulty dealing with the WDNR bureaucracy in Madison.
      Regulatory framework to support the implementation of 
emerging technologies. (i.e. permit for air emission relating to new 
combustion technologies or new fuel use)
      Need standardized requirements for reporting of Volatile 
Organic Compound (VOC) emissions on raw materials and like production 
units.
      Need innovative state and federal programs that will 
establish environmental and energy goals for the industry and eliminate 
regulatory barriers to achieving them.
      Allow permit credits for innovative technology 
applications (provide motivation to change).
      Need consistent and aligned rules or regulations 
governing the environmental aspects of the industry
      Determine cost/benefit on rulings for run-off, 
environmental regulations. (Major issues are storm-water run-off and 
air emissions.)
      Establish how so called ``pollutants'' fit into the 
natural system.
      State emissions regulations should match but not exceed 
federal regulations.
      Rules should apply through life of asset.
      Need to encourage innovative research to support 
infrastructure improvements.
      Need to develop and rewrite environmental policy from a 
command and control philosophy to a policy based on accomplishment.
      The WDNR and companies need to work together to better 
understand what the real problems are with permits and try to resolve 
them. It is important to standardize the process throughout the state.
      One way to speed up the process is to have automatic 
approval in x number of days if no action is taken by WDNR.
      Develop programs that give industry ownership and 
incentives to excel in environmental issues.
      Consider a hybrid version of International Standard 
Organization (ISO) 14000 environmental certification. Such a system, if 
mutually agreed upon, stands to take industry out of a defensive 
posture with regards to their environmental track record/history and 
gives them a chance to be proactive in policy development improvement 
and implementation.
Business
      There is a disproportionate negative impact of increased 
regulations on small mills. (High labor and capital costs)
Capital
      High capital costs to meet environmental concerns.
Technical
      Benchmark the permit processes used by other states.
      Need science-based regulations: facts and data to guide 
effluent quality requirements.
      Need to determine full range of permits involved, air, 
water, VOC, wetland, etc. and see if any of the permit processes used 
are examples of success.
Education
      Promote the triple bottom line for industry accounting.
PERCEIVED WISCONSIN BUSINESS CLIMATE:
Policy
      Wisconsin doesn't give forestry the kind of attention 
that it deserves.
      Feeling by some that Wisconsin is anti-business.
      The industry has advocacy groups but no real middlemen to 
help solve the complex issues facing forestry businesses.
      Wisconsin does not see itself as a manufacturing state.
      Other states are perceived to be pro business and work to 
make business feel welcomed.
      Current regulations hinder joint co-generation projects. 
(Viewed as public utility, regulations increase exponentially.)
      The state Family Medical Leave Act (FMLA) needs to be 
standardized to the Federal Act.
Business
      Need for sharing information on technology advancements--
working together as an industry.
      Need more positive public relations and community 
support.
      It is believed that Wisconsin is less generous with 
economic polices than other states.
      Need aggressive programs to find means to implement new 
ideas.
Technical
      It is important that Wisconsin benchmark their present 
polices with other states such as Michigan, and Minnesota.
      Important for the Center for Technology Transfer (CTT) 
and the Forest Products Laboratory (FPL) to work together.
Education
      Need for a single organization in the state that could 
handle the problems and questions of the forest industry.
      Need to develop a comprehensive program to increase 
awareness of the importance of the wood industry to the state in terms 
of jobs, tax revenue, community stability, forest health, clean water, 
wildlife and recreation.
TAXATION:
Policy
      Government subsidies and tax breaks vary between states 
and countries.
      Need exemption from sales tax on fuel and electricity 
used in manufacturing.
      Need to implement a single sales factor for corporate 
income tax apportionment.
      Provide solutions to include investment and educational 
incentives.
      Provide incentives that encourage new research and 
development--& D).
      Provide incentives to phase out obsolete or inefficient 
capacity.
      Provide incentives to existing businesses--taxation, 
labor support/credits, investment/technology, tariffs / supports.
Business
      Benchmark taxes against other states.
      Benchmark taxes against other countries that compete.
Capital
      Industrial revenue bond investments to build new mills 
can negatively affect existing mills.
Education
      Complete a study and report on the use of the Wisconsin 
Forestry mil tax and its positive and negative impacts.
FOREST RESOURCES:
Policy
      Need to assure plentiful and suitable timber or other 
fiber resources for the state industry.
      Fragmentation of the forest is happening at an alarming 
rate. This affects ability of businesses to procure raw materials. Lack 
of available wood supply.
      Need to reduce concentration of excessive material in 
overstocked forests.
      Present legislation has pushed farmers to abandon 
programs that are aimed to help forestry. Farmers are once again 
allowing their cattle to graze in the timberlands. (Limited grazing may 
be helpful if properly done. Bacterial infections are one problem 
associated with grazing)
      Long time (up to 12 months) taxpayers have to wait for 
certain tax credits or payments.
Business
      Complete a study of the increase in Wisconsin growing 
stock, the limits of its availability for utilization, and options.
Technical
      Provide help to Non-Industrial Private Forest (NIPF) 
landowners in the development of forest management plans and assistance 
in working with loggers and lumber companies to meet their forest 
plans.
      Non-industrial woodland is not properly managed.
Education
      Many private woodlands are not managed because of lack of 
trained foresters to make or approve forest plans. (Continuing need to 
educate landowners)
      Need to bridge consumer/public disconnect with science/
study findings on forest management.
      Review the literature and provide a report on possible 
utilization of each species. For example the use of saw-dry-rip to 
utilize species that are hard to dry without severe defect. This would 
help industry to better utilize species that are not commonly used, but 
are in abundance.
ENERGY:
Policy
      Need for reliable energy supplies over time.
      Need to improve the electrical grid inside state and 
linking Wisconsin to other states, especially to the west. Transmission 
capacity is becoming a critical concern with deregulation.
      Need regulated pricing mechanism for fixed and 
interruptible power.
      Price volatility: Improve control of natural gas pricing.
      Need ability to access open energy markets.
      Need to open the generation market to Independent Power 
Producers.
      Need reliable sources of fuel--renewable, less fossil 
fuel dependent.
      Dam removal issues: balance environmental improvements 
versus renewable energy. Hydropower needs to be revived.
      Use of artificial wetlands for final finishing of 
wastewater treatment (low energy and tertiary treatment).
Business
      Need to replace oil and gas for steam production by wood, 
wind, solar, or other renewable energy source, for building and process 
heating.
      Ability to remain energy competitive while utilizing aged 
steam-generating systems.
      Need to review the WDNR report on good sites for district 
heating and follow-up on opportunities.
Technical
      Need clean, economical energy source to produce steam and 
electricity.
      Need to develop flexibility in fuel uses to optimize 
facility costs and environmental factors.
      Need to develop a portable cogeneration unit for 
utilization of dead and down material in fire prone forest areas. Work 
is progressing on a 1 MW unit that is portable. It should be ready in 
three years. It will take 3 semis to transport the unit.
                                 ______
                                 
    Mr. Walden. Let us go now to Mr. Coston. Sir, thank you 
for--and perhaps, Mr. Rehberg, did you want to make any opening 
comments?
    Mr. Rehberg. I would just like to welcome Tom. It is nice 
to see you again. He has been dogged in his work with the RC&D 
down in Bitter Root. As you know, the fires of 2000 were not 
particularly kind to the Bitter Root area of Montana. Thank you 
for sticking with this project as long as you have and I think 
you will be impressed with what they have been able to 
accomplish.

STATEMENT OF TOM COSTON, FUELS FOR SCHOOLS COORDINATOR, BITTER 
    ROOT RESOURCE CONSERVATION AND DEVELOPMENT AREA, INC., 
                       HAMILTON, MONTANA

    Mr. Coston. Thank you, Denny. We had the pleasure of a 
visit from Congressman Rehberg very early on in this and we 
have enjoyed his support ever since, he and his staff.
    My name is Tom Coston. I am the Coordinator for the Fuels 
for Schools program. I work for the Bitter Root RC&D. This has 
been a team effort, also, and our partners in this have been 
the Forest Service's Northern and Intermountain Region, it has 
been the Forest Products Lab, it has been the State Foresters 
of the five-State area that the Northern and Intermountain 
Regions cover, and it has also been the Biomass Energy Resource 
Center, which is located in Montpelier, Vermont.
    I kind of wondered when I first got in here if I wasn't in 
the wrong place, because everybody was talking about how to use 
the biomass to build something. All we want to do is burn it 
up, and that is what we are about, really. It is about using 
waste wood, wood chips, to fire boilers to heat public 
buildings. The emphasis is on schools and the emphasis is on 
wood coming from fire hazard reduction operations, and you have 
already talked about what those operations are.
    As Congressman Rehberg said, we got into this as a result 
of the summer of 2000. What that did, it woke up the people in 
our valley, at least, in our area, that something needed to be 
done to lessen the potential of a repeat of that type of year. 
Hazard reduction logging or thinning became the thing that we 
tried to do.
    That created a little problem on its own and that was what 
to do with all this unmerchantable material from the standpoint 
of forest products. We kind of fell back on what has been going 
on in New England and the Lake States, Eastern Canada over the 
last 20 years. There has been quite a movement toward using 
wood chips for heat. It is a plentiful, inexpensive, renewable, 
non-fossil energy source that had the promise of being able, 
for the facilities using it, to be able to cut their heating 
costs significantly.
    So the partnership was able to set up a pilot project in 
the town of Darby, Montana, about 15 miles up the road from 
where I live, and it was made possible by a grant using a 
Forest Service State and Private Forestry Economic Action 
program fund, which you folks and your colleagues over in the 
Senate made possible. Our pilot project went on line last 
November, or last October 30, and has run successfully and did 
a good job of demonstrating a forest biomass heating system 
throughout the year. I suppose the bottom line was that it 
saved Darby public schools over 50 percent in their heating 
cost.
    Our present situation is that in Montana, and I should say 
that Montana has a leg up on this because we got a couple of 
years head start over the other four States, but in Montana, we 
have two additional projects that are under construction right 
now and will be online this fall. Idaho has two projects that 
are well along in planning and design and they hope to be able 
to go to construction before the year is out, also. Nevada has 
one and North Dakota has one. Those, plus Utah being the other 
States that are in the Northern, if you aren't familiar with 
what is in the Northern Region and the Intermountain Region.
    All the States have a number of projects that are waiting 
in the wings. The biggest obstacle we have right now is the 
high up-front cost of a biomass heating system. The top line of 
equipment costs around $600,000. Our objective, our long-term 
goal in this as far as Fuels for Schools goes, is to get out of 
the grant business and let the economic benefits of biomass 
heating carry the program itself. Before we can do that, 
though, we have got to get the cost, the capital investment 
cost down, and that right now is the main plank in our 
platform.
    There are smaller, less expensive equipment out there. It 
simply hasn't been tried and tested in our area for our 
particular use. We have a contract right now with the Biomass 
Energy Resource Center where they are on a fast track to 
identify the best quality of these systems and we hope to have 
at least one in operation before the end of this year.
    I think I probably used up the majority of 5 minutes. I 
would like to just say that we appreciate being offered the 
opportunity to appear here. We are kind of meat and potatoes 
compared with most of what you are hearing, but it is a 
pleasure and we appreciate your interest.
    I think you are to be commended on the work you have done 
on getting the Healthy Forests Restoration Act into law and we 
hope that you are able to implement it completely. We also hope 
you can continue to support the Forest Service's Economic 
Action Program funds, because that is what made our program 
possible.
    I would be glad to answer any questions.
    Mr. Walden. Thank you, Mr. Coston. We appreciate your 
comments today, certainly, and they have been most intriguing 
about practical applications here.
    [The prepared statement of Mr. Coston follows:]

        Statement of Tom Coston, Fuels for Schools Coordinator, 
   Bitter Root Resource Conservation & Development Area, Inc. (RC&D)

FUELS FOR SCHOOLS PROGRAM
    My name is Tom Coston. I'm from Hamilton, Montana and I represent 
the Bitter Root Resource Conservation and Development Area, Inc. 
(RC&D). I want to talk about ``Fuels for Schools'', the name coined for 
a program which advocates using forest biomass as fuel to fire boilers 
to heat schools and other public buildings.
    As all of you know, the past three summers have been severe 
wildfire seasons, particularly in the West. In 2000, Montana was 
perhaps the hardest hit and the Bitterroot Valley was the epicenter of 
that fire activity. Over half a million acres burned, along with many 
homes and other structures. Many others had fire at their doorstep and 
were saved by tremendous effort by fire crews and at great expense to 
the taxpayer.
    This did, however, create an awakening of the need to do something 
to reduce the threat of future fires, such as removing enough of the 
fire hazardous material to make fires more manageable. We are talking 
about all land ownership, particularly those along the wildland-urban 
interface, a term we never heard before this. Many people and many land 
ownerships moved in the direction of fire hazard reduction.
    The immediate problem was what to do with the large volume of 
logged or otherwise removed material--forest biomass became the term--
most of it unmerchantable from a forest products point of view.
    In our area the U.S. Forest Service (Bitterroot National Forest) 
and the Montana State Forester assumed leadership of an effort to find 
ways of utilizing this mostly small-diameter material. They enlisted 
the aid of my organization, the Bitter Root RC&D, a non-government, 
non-profit organization, whose charter is to assist our communities and 
elected officials in affecting conscientious natural and human resource 
decisions.
    While effort was made in numerous directions to utilize this 
material, the one we are talking about today is the use of chipped 
waste wood as a fuel. We found that in New England, Eastern Canada and 
the Lake States over the past 20 years there has been an expanding 
interest in using wood chips to fire boilers to heat buildings--mostly 
schools. The technology for completely automated systems had been 
perfected and the bottom line was that heating costs could be 
significantly reduced--50 percent not being unusual.
    Waste, or cull wood, is run through a chipper to produce a usable 
fuel, then fed by automated systems to a burner and boiler to heat 
water or make steam. Beyond that point the heating systems are the same 
as other conventional ones commonly used, such as fuel oil or gas.
    The Forest Service Forest Products Laboratory (FPL) of Madison, 
Wisconsin and the Biomass Energy Resource Center (BERC) of Montpelier, 
Vermont helped set up a local pilot demonstration project. The Forest 
Service had funds available for grant assistance under the National 
Fire Plan. This ``partnership'' surveyed the local school districts and 
concluded that Darby was the best site available to demonstrate the 
operation and benefits of a biomass system for several reasons, such as 
good community support for the trial and the fact that Darby had the 
greatest potential to demonstrate savings. The fires of 2000 burned all 
around Darby, and fuel oil to heat their 3-building campus was costing 
about $60,000 per year.
    You and your colleagues in the Senate made funds available through 
the National Fire Plan using the Forest Service Economic Action 
Program. A grant (actually two grants over two years) was assured to 
fund the $870,000 construction. The agreement called for Darby to 
monitor and evaluate the operation, including all costs, for a two-year 
period, and to make the operation of the biomass heating system 
available for demonstration to the interested public.
    The system was fired up last October 30, 2003 and ran successfully 
throughout the school year. The previous year fuel oil to heat the 
Darby complex, as said before, cost about $60,000. Actual cost of 640 
tons of wood chips for the school year just concluded was $18,500, and 
about $11,000 of fuel oil was burned in September and October and as 
backup, bringing the cost to about $29,500. The school year ended two 
weeks ago and the costs are still being evaluated, but it appears 
reasonable to expect a full school year of wood chips will cost about 
$20,000. The school was able to utilize the savings for other 
priorities in their educational charter
    The State and Private Forestry program of the Forest Service has 
expanded the Fuels for Schools program to cover the 5-state Northern 
and Intermountain Region area--Montana, Idaho, Nevada, Utah and North 
Dakota. The State Foresters manage the program in their respective 
states. Interest is very high throughout the area and progress is being 
made.
    Assistance grants are available and are now being structured as 
generally covering 50% of the overall costs of converting to a biomass 
system with the school (or other facility) financing the remaining 50%. 
In Montana, low interest state-sponsored ``intercap'' loans are so far 
the preferred vehicle. Feasibility studies are done for each candidate 
with a key ingredient being the ability of the school to pay back its 
loan over a 10-year period with fuel cost savings. The idea is to make 
the conversion cash-positive the first year.
    In Montana, two other demonstration sites (Victor and Phillipsburg) 
are now under construction and will be operating this fall. A fourth, 
Eureka, is securing its funding and hopes also to begin construction.
    In Idaho, two communities are committed to going forward with the 
demonstrations and are well into planning. Ely, Nevada has made a 
decision to proceed and is also in planning and design. In Bottineau, 
North Dakota, Minot State University is committed to a demonstration 
project and is going ahead. All of the states have a number of other 
sites that are ``waiting in the wings.''
    The long-range goal of Fuels for Schools is to adequately 
demonstrate the benefits of biomass systems with the help of assistance 
grants, and after a reasonable time, to allow the economic benefits of 
conversion to provide its own momentum, with the institution and the 
private sector providing financing.
    The major obstacle right now is the high up-front cost of a fully-
automated biomass system--about $600,000. A rule of thumb has evolved 
that a school, or other facility, must be heating between 50,000 and 
100,000 square feet, and incurring a proportionately large heating bill 
in order to generate enough savings to make conversion pay out over a 
10-year period. Most schools and other facilities are under that size.
    Fuels for Schools is currently making a major effort to reduce the 
capital investment cost. Smaller ``semi-automated'' systems are 
available. They are as yet untested in our area. The major differences 
are smaller boilers, a much smaller boiler building, a ``hopper'' fuel 
storage design that must be mechanically filled periodically, and a 
cost of less than half that of the larger systems.
    We plan to identify the best quality of such systems and to install 
at least one as a demonstration yet this year.
    I think we collectively have a good program and, as with most 
worthwhile things, much work remains to be done. If all four of the 
Montana sites were presently active, we would only be using some 2,500 
tons of material annually--the annual thinnings from about 200 acres. 
Someone estimated that in our 5-state area hazard reduction treatment 
annually results in well over 2 million tons of material.
    My organization appreciates your support and lauds your effort in 
passing the Healthy Forests Restoration Act. This hearing demonstrates 
your commitment to follow through. We would like to see the Act fully 
implemented, as well as continued support for the Economic Action 
Program funds which have enabled our program to go forward.
    We are grateful for your invitation to appear here and if there is 
any way we can assist in furthering this effort, would appreciate being 
called upon.
    If you have questions, I would be pleased to respond to them.
                                 ______
                                 
    [An attachment to Mr. Coston's statement follows:]
    [GRAPHIC] [TIFF OMITTED] T4533.004
    

    Mr. Walden. Let us go now to Lynn Jungwirth. Welcome. Thank 
you. We look forward to your comments, as well.

STATEMENT OF LYNN JUNGWIRTH, EXECUTIVE DIRECTOR, THE WATERSHED 
       RESEARCH AND TRAINING CENTER, HAYFORK, CALIFORNIA

    Ms. Jungwirth. Thank you for having me here today. I think 
I represent public land communities. Most of us are distressed 
economically and most of us are surrounded by forests that are 
unhealthy.
    So in my community about 10 years ago, we raised the issue 
of fire and began working collaboratively with anybody who 
would work with us to try to figure out how to solve that 
problem. One of the things we first recognized was that it cost 
too much to bring that stuff out of the woods and there are no 
local markets for it. The definition of biomass appears to be 
whatever is not merchantable in your local area. In San 
Bernardino, it is a 30-inch log. In parts of Oregon, it is five 
inches and under.
    In our area, we had a sawmill that could still manage to 
manufacture things that were nine inches in diameter and above, 
but the smaller stuff needed to come out. So because of the 
Economic Action Program, we were able to be a local partner to 
the Forest Products Lab. They also got their funding for the 
Technology Marketing Unit through the Economic Action Program. 
And we began working on this project.
    So the first experiments we did removed this biomass at a 
cost of around $20 a ton. So that was a sunk cost. That was a 
lost cost. We hauled that down to a sort yard, sorted it for 
highest and best use, shipped some of the stuff off to the 
local mills, some of the bigger stuff, but the smaller stuff we 
began monkeying around with.
    The first thing we did was turn it into a commodity, a two-
by-four and a two-by-six. We could sell it for $200 a thousand. 
It still didn't pay its way out of the woods. We had it graded. 
We worked with the Forest Products Lab. We discovered that that 
suppressed material was of very high value, and so as 
structural lumber, the value increased up to $350 a thousand. 
But we were still making two-by-fours and two-by-sixes.
    Some of the local entrepreneurs looked at that and said, my 
goodness, this is remarkable suppressed fir. It looks like old 
growth. Let us use it for flooring and paneling. You kiln dry 
it, you mold it, and all of a sudden it is on the market for 
$1,250 a thousand. Now it has a value at the stump.
    As biomass for a biomass plant in our community, with the 
current pricing structure, that material is worth $7 a ton if 
we had a biomass plant in my community, which we no longer have 
because our mill closed down and their co-gen plant left But we 
have done the numbers and worked with industry. We could 
support a 13-megawatt plant, a 13-megawatt plant that could 
burn the residual off of the small log processors that would be 
co-located around that plant with the markets that we have 
developed, both for flooring and paneling, post and poles, 
tepee poles.
    We sold 25-foot-long, I can't call them logs, I don't know 
what they are, trees, an inch in diameter on the top, two-and-
a-half inches on the bottom. We found markets for those. There 
are markets for those.
    The sort yard with the colocated processing as a stand-
alone doesn't quite work, and the reason it doesn't quite work 
is we have that residual to get rid of, the mill waste. The 
biomass plant as a stand-alone can only pay $7 a ton. It cannot 
pay for that stuff coming out of the woods. But the small log 
plant can pay $40 a ton and it could pay for the stuff coming 
out of the woods.
    When you take the small log plant and you put that together 
with a biomass plant and you put that together with a kiln and 
somebody who could buy the downstream heat from the biomass 
plant, now you have a system that works economically in a rural 
community. We don't have natural gas available. Most of your 
mountain communities don't. People who need to manufacture 
things that need a cheap source of heat, electricity isn't it. 
They could pay a little bit back to the biomass plant. It makes 
the numbers work. That is the proposal we are moving forward 
with.
    The issue of national forest management and rural community 
vitality has to stay uppermost in your mind as you work on 
forest health. You need us in the woods. It will reduce your 
cost of suppression. You will have crews who know the 
landscape, who can respond to fire. You will have skilled 
people who can deal with this material. Everywhere across the 
West, little communities like mine are finding these value-
added solutions and really creating high-value products. They 
are not commodity products.
    I encourage you to encourage us to keep doing that 
experimentation and support the programs that have supported 
us. Thank you.
    Mr. Walden. Thank you. Your comments are most helpful.
    [The prepared statement of Ms. Jungwirth follows:]

           Statement of Lynn Jungwirth, Executive Director, 
    The Watershed Research and Training Center, Hayfork, California

    The Watershed Research and Training Center is located in a very 
small public land community in the heart of the Shasta-Trinity National 
Forest. Since 1996, we have been working with local businesses, the 
Economic Action Program of the Forest Service, and the Technology 
Marketing Unit of the National Forest Products Lab to develop 
infrastructure for the removal and use of hazardous fuels.
    This hearing is dedicated to the potential in ``bio-mass''. In our 
experience, the definition of biomass depends upon the utilization 
capacity in an area. In my county, any soft wood tree under 9'' in 
diameter is considered sub-merchantable and therefore good only for 
fuel for biomass fired electrical generation. Our goal was to find the 
highest and best use for these smaller softwoods and the underutilized 
hardwoods in our area. We saw this value-added approach as the best way 
to create jobs in our economically distressed community while taking 
care of forest.
    To that end we created a worker re-training program, developed 
specialized equipment for fuels removal and wood processing, and opened 
a business incubator for value-added wood product entrepreneurs. We 
have also collaborated with others to create strategic community-based 
fire plans in the 17 communities in our 2.1 million acre rural county.
    The Watershed Center's programs have reduced fuels on over 1500 
acres of public and private lands using hand crews, ground-based 
equipment on flatter ground, and skyline yarding on steep ground. We 
believe that skilled crews and more efficient equipment are important 
pieces to the forest health puzzle.
    The Watershed Center has been the hub of needed research and 
development for small diameter timber and under-utilized west coast 
hardwoods; our efforts have succeeded in helping local businesses 
manufacture and market tee-pee poles (a pole 25 ft. long, 1.5 inches on 
the top and 2.5 inches on the butt), fence poles, roundwood for 
furniture and fixtures, flooring, paneling, and store fixtures. By 
taking this integrated approach we have created over 25 jobs in value-
added businesses and run a 9-person fuels crew.
    Along the way we have worked with industry consultants on various 
feasibility studies for large-scale wood processing operations, sort 
yards, and bio-mass fired electrical generation plants. Some of those 
lessons are incorporated in my testimony today.
    The Watershed Center also works will many public land communities 
throughout the west, helping them create their fire plans and their 
efforts to capture social and economic benefit from fuels reduction and 
forest restoration projects. With Sustainable Northwest and Wallowa 
Resources in Oregon, we have fostered a marketing association for small 
businesses making value-added products from the by-products of forest 
restoration and fuels reduction. This association is over five years 
old and is called ``The Healthy Forests, Healthy Communities 
Partnership''.
    I would like to take this opportunity to share some of the lessons 
we have learned from our research and development programs in small 
diameter and hardwood utilization.
    I will also provide a few comments on federal programs that have 
been critical in the development of products, processes, and businesses 
that utilize hazardous fuels for value-added products.
High Value Products
Key Points in Considering Biomass Utilization
      Biomass utilization must facilitate and complement 
restoration activities, not override restoration needs with high input 
demands. The scale of biomass plants needs to be consistent with 
ecosystem capacity and tailored to restoration objectives. Maintaining 
social support is critical.
      Federal programs have been proposed to develop and 
establish biomass utilization centers and subsidize transportation 
costs. This money should be used to develop diversified forest products 
sectors (including uses beyond energy generation) at the community 
level and not to subsidize large centralized plants with little stake 
in forest-dependent communities.
      All economic opportunities for biomass utilization should 
be targets of government support, not just biomass energy generation. 
Using biomass for power should complement and diversify the approaches 
to small diameter wood utilization. Stand-alone biomass energy 
generation, while allowing for the utilization of a large volume of 
material, entails the creation of the fewest jobs of all biomass 
utilization approaches. Co-locating value-added processors with a wood 
fired electrical plant improved the economics of all the plants.
      Biomass transportation subsidies will help to offset the 
costs involved, but may also act to increase the reach of large 
facilities to the exclusion of small businesses. Encouraging small and 
micro facilities will require more focused subsidies to create the 
greatest benefits for rural communities, and to encourage 
entrepreneurialism, research and innovation. Short-term subsidies 
should help foster the development of long-term self-sustaining uses 
and new technologies.
      Local context is essential to appropriately choosing and 
siting biomass utilization facilities: what are the restoration needs 
(and biomass supply) that can drive facility development; what 
combination of technologies will add the most value to biomass and 
create the most jobs in the area; what experiments can be supported 
locally to advance regional knowledge of opportunities for innovative 
utilization?
An example
    In 1996, when we started our small diameter utilization program, 
fuel for the biomass plant had a market value of $11/ton. A truckload 
weighs roughly 25 tons. Market value was then $275/truckload delivered 
to the biomass plant which was located many miles away in the valley. 
The cost of the haul was $330 dollars. Our recent study shows a value 
of only $7 for fuel if a stand-alone biomass plant was operating in our 
town. The difference is the 7 cents per kilowatt hour the valley plant 
is paid under an old contract and the 5.5 cents per kilowatt hour the 
new plant would operate under. At those market values the cost of 
extraction and chipping and most of the transportation costs would not 
be covered. Costs to the landowner, the Federal Government in this 
case, would be about $20-$30/ton, depending on the terrain and the haul 
distance.
    We thinned a stand of suppressed Douglas Fir. It averaged 7.5 
inches in diameter and was about 110 years old. We brought the material 
to town, sorted it for best use and began to make things out of it. The 
first things we made were construction lumber, 2x4s and 2x6s. The value 
rose to $200/mbf after processing or $20/ton. We then graded the 
lumber, found it was of excellent quality, and the value rose to $350/
mbf. Since it was beautiful wood, we turned it into flooring and 
cabinet framing and the value rose to $1250/mbf. Every dollar increase 
was tied to a job. Today we can safely pay $45/ton for sub-merchantable 
hazardous fuels. Most work pays for itself.
    From a per acre cost of $700 to $1200 dollars to the taxpayer, we 
moved to a break even on most acres and an average of $300 on the 
steepest, most expensive ground. We still have waste product from the 
processing that needs to find a market. If we had a small biomass 
generating facility in our town, co-located with our small wood 
processing facility, we would greatly improve our economic picture and 
even more costs of treatment could be covered.
    Our solutions were all low tech, non-traditional, small-scale. If 
the assistance we received had not been comprehensive (FPL, demos, 
marketing) and had simply been a $20/ton subsidy for hauling biomass 
fuel, these innovative, higher value products and markets would have 
never been developed.
    Federal Programs critical to bio-mass utilization and rural 
community development:
      National Fire Plan Economic Action Program under State 
and Private Forestry in the U.S. Forest Service Budget. This program 
has been zeroed out of both the President's and the Congressional 
budget for the past two years and is zero in the proposed 2005 budget. 
It has supported most of the successful bio-mass value-added projects I 
know about in the west.
      Economic Action Program base program under State and 
Private Forestry in the U.S. Forest Service Budget. This program has 
supported many utilization development projects around the country and 
is seriously underfunded.
      The Technology Marketing Unit of the Forest Products 
Laboratory in Madison. They offer the best and the most accessible 
technical assistance to businesses and communities in this country. 
They struggle for funding every year and deserve your support.
      The Stewardship Contracting mechanism now available to 
U.S. Forest Service and BLM will allow 10 year contracts, alternative 
funding mechanisms (goods for services/retained receipts), lower costs 
(designation by prescription/description) and social processes to 
insure continued support (collaboration and multi-party monitoring). 
This approach will take time to perfect but is the most promising 
policy tool for fuels reduction.
    Utilization of hazardous fuels was and is a key to the National 
Fire Plan and other forest health efforts. Today, with the downsizing 
of the Economic Action Program (EAP) of the Forest Service and the 
elimination of the National Fire Plan EAP and the loss of community 
assistance dollars (Community and Private Lands Fire Assistance) the 
Forest Service is clearly walking away from the utilization commitment. 
BLM has no dedicated program for utilization. I urge the subcommittee 
to end this disconnect. A small investment in utilization will reap 
huge benefit to the taxpayer and rural communities.
    The high value products from hazardous fuels are not limited to 
wood products, but also include an unprecedented social agreement to 
manage public lands. This social consensus happened because of on-going 
collaboration at the local level. I urge this subcommittee to keep the 
collaboration envisioned in the National Fire Plan alive. Working 
together for the good of the forests and the good of the public land 
communities is the best strategy to insure forest health.
                                 ______
                                 

                         Sustainable Northwest

             620 SW Main, Suite 112, Portland, Oregon 97205

       503.221.6911 fax 503.221.4495 www.sustainablenorthwest.org

                COMMUNITY-BASED PERSPECTIVES ON BIOMASS
                             briefing paper
Forest Restoration and the Problem of Biomass
    Biomass refers to living, or recently living, woody material that 
cannot be economically processed through traditional means. Western 
forest restoration treatments often require the removal of large 
numbers of trees that are either too small, too decayed, or too 
misshapen to be used as sawlogs. Biomass removal is essential to the 
restoration of Western forests: small diameter wood accumulation is a 
major contributing factor to catastrophic wildfires, and thickets of 
small diameter trees often contribute to a general lack of forest 
health and resilience (including low growth rates, insufficient soil 
humidity, and outbreaks of disease).
    Biomass can be marketed to create fiber products such as paper and 
cardboard, but weak prices or fire effects on the wood can eliminate 
this possibility. Even where there is pulpwood demand, harvest and 
transport costs (in addition to facility operation costs) tend to be 
too high to allow economic returns in an unsubsidized market. Economic 
returns for biomass are significantly affected by distance: with demand 
low to begin with, long hauling distances significantly diminish 
potential profits.
    Most often, biomass is chipped, pile-burned on site, or buried in 
landfills, generating significant costs and providing nearly no social 
or ecological benefits. Due in part to the high cost of dealing with 
biomass, important restoration needs across the West have consistently 
gone unmet: ironically, the material that is often the most important 
to remove as part of restoration treatments is also the least 
commercially viable. Finding economic uses for biomass can 
significantly support the implementation of forest restoration 
activities, while providing much-needed economic benefits rural 
communities.
Biomass Utilization
    Biomass utilization entails putting this material to some kind of 
commercial use. The term often is associated with energy generation 
facilities (``biomass energy generation''), but it refers to a whole 
host of uses for small diameter wood, such as roundwood building 
materials, posts and poles, forest products such as flooring and 
paneling, and other innovative uses such as erosion control structures. 
Adding value to small diameter material through processing and 
manufacturing--whether it be into forest products or energy--may create 
sufficient economic returns to overcome the costs of biomass removal in 
forest restoration activities.
    In the past few years, ongoing population growth and increasing 
demand for electricity in Western states, along with recent swings in 
Western energy prices (e.g. California's electricity price fluctuations 
in 2001), has generated great interest among forest communities in 
linking forest restoration activities to biomass electricity 
generation. Biomass can be converted to consumable energy through 
several types of facilities. Qualifying Facilities (``QF's'') convert 
biomass to electricity through a steam process similar to coal-based 
electrical generation (biomass used on its own or with other 
combustibles to fire a steam plant that in turn drives electrical 
generators). Co-generation facilities (``co-gens'') produce electricity 
in addition to other outputs, the most common being heat or steam used 
in lumber kilns. Other classes of biomass facilities are capable of 
converting the material into fossil fuel substitutes such as ethanol or 
other transportable fuels. Biomass energy is an alternative to non-
renewable energy sources, such as fossil and nuclear fuels, and is 
generally considered ``green'' energy (though there is some debate 
given that it can generate polluting by-products).
    Recent legislation has authorized funds to help subsidize 
transportation and utilization of biomass, and to fund continuing 
research and development of biomass technologies:
      Biomass utilization is specifically encouraged by the 
National Fire Plan:
        ``Because much of the hazardous fuels in forests are excessive 
        levels of forest-based biomass--dead, diseased and down trees--
        and small diameter trees, there are several benefits of finding 
        economical uses for this material, including helping offset 
        forest restoration cost; providing economic opportunities for 
        rural, forest-dependent communities; reducing the risks from 
        catastrophic wildfires; protecting watersheds; helping restore 
        forest resiliency, and protecting the environment.'' (p. 25)
      The Biomass Research and Development Act of 2000 (Title 3 
of the Agricultural Risk Protection Act of 2000, P.L. 106-224) allows 
entities (including nonprofits) to compete for federal grants and 
contracts associated with biomass research.
      Section 9006 of the 2002 Farm Bill (P.L. 107-171) 
authorizes federal grants and loans to farmers, ranchers, and rural 
small businesses to purchase renewable energy systems, and section 9010 
authorizes payments to producers of bioenergy (biodiesel or ethanol). 
The FY2004 Farm Bill (P.L. 108-199) appropriated $23 million to fund 
these provisions.
      Section 201 of the Healthy Forests Restoration Act of 
2003 (P.L. 108-148) expands the scope of these grants to include 
research on thinning, harvesting, transportation, pricing, and 
curricula development. Section 203 of HFRA authorizes grants to owners 
and operators of biomass facilities, including wood-based product 
facilities, and authorizes funds to this end.
Scale and Adding Value
    Biomass energy generation facilities can range from very small, 
generating enough power or heat for use in a single building (such as a 
school or mill) to generating enough electricity to power tens of 
thousands of homes. ``Micro'' facilities are those generating less than 
one megawatt of power; ``small'' facilities are those producing 1-10 
MW. Establishing a biomass facility requires a dependable, sustainable 
supply of biomass within the nearby area (25 to 75 miles). When looking 
at the combined needs for forest restoration and rural economic 
development in general, maximum social and environmental benefits will 
likely result from many smaller units distributed among forest-based 
communities, rather than fewer, larger facilities.
    Supporting and siting biomass utilization facilities must be done 
with consideration of many local factors. Even at smaller scales, 
building biomass generation facilities can raise concerns about 
developing unsustainable demands for biomass materials, creating 
pressure to ``deliver material'' rather than to restore forests. 
Biomass generation facilities must also be weighed carefully against 
other potential uses of biomass that can either complement, or surpass 
generation facilities in their ability to provide rural employment 
opportunities through value-added processing. Siting and planning of 
biomass utilization facilities must be closely coordinated with local 
forest restoration goals and a community's particular economic 
circumstances. Given that the focus on biomass utilization and forest 
restoration is a recent one, every effort should be made to promote 
diversity and experimentation as a short-term path to identifying 
successful long-term utilization solutions.
Key Points in Considering Biomass Utilization
      Biomass utilization must facilitate and complement 
restoration activities, not override restoration needs with high input 
demands. The scale of biomass plants needs to be consistent with 
ecosystem capacity and tailored to restoration objectives.
      Federal funds are coming online to develop and establish 
biomass utilization centers and subsidize transportation costs. This 
money should be used to develop diversified forest products sectors 
(including uses beyond energy generation) at the community level and 
not to subsidize large centralized plants with little stake in forest-
dependent communities.
      All economic opportunities for biomass utilization should 
be targets of government support, not just biomass energy generation. 
Using biomass for power should complement and diversify the approaches 
to small diameter wood utilization. Stand-alone biomass energy 
generation, while allowing for the utilization of a large volume of 
material, entails the creation of the fewest jobs of all biomass 
utilization approaches.
      Biomass transportation subsidies will help to offset the 
most prohibitive costs involved, but may also act to increase the reach 
of large facilities. Encouraging small and micro facilities will 
require more focused subsidies to create the greatest benefits for 
rural communities, and to encourage entrepreneurialism, research and 
innovation. Short-term subsidies should help foster the development of 
long-term self-sustaining uses and technologies.
      Local context is essential to appropriately choosing and 
siting biomass utilization facilities: what are the restoration needs 
(and biomass supply) that can drive facility development; what 
combination of technologies will add the most value to biomass and 
create the most jobs in the area; what experiments can be supported 
locally to advance regional knowledge of opportunities for innovative 
utilization?
For more information contact:
Jesse Abrams, Wallowa Resources,541-737-3888;
    [email protected]
Jim Walls, Lake County Resources Initiative, 541-947-5461;
    [email protected]
Jim Jungwirth, Jefferson State Forest Products, 530-628-4206;
    [email protected]
Nils Christoffersen, Wallowa Resources, 541-426-8053;
    [email protected]
James Honey, Sustainable Northwest, 503-221-6911 x 106;
    [email protected]
                                 ______
                                 
    Mr. Walden. Let us go now to Jason Drew. Thank you and 
welcome. We are delighted to have you with us today.

    STATEMENT OF JASON DREW, DISTRICT MANAGER, NEVADA TAHOE 
  CONSERVATION DISTRICT, STATELINE, NEVADA, ON BEHALF OF THE 
         NATIONAL ASSOCIATION OF CONSERVATION DISTRICTS

    Mr. Drew. Thank you, Mr. Chairman, committee members. On 
behalf of America's conservation districts and the National 
Association of Conservation Districts, I am pleased to provide 
you with our insight on the role conservation districts play 
and can play throughout the country on hazardous fuels 
reduction, woody biomass utilization, and regulation planning.
    Hazardous fuels buildup is a serious threat nationwide. 
Conservation districts strongly support efforts to reduce 
hazardous fuels buildup, develop new and innovative 
technologies to use woody biomass, and to educate the public 
about proper forest management.
    The decline of the forest industry in the West, as we have 
heard from some of our other panelists, contributes to the 
problem by removing many business options for utilizing woody 
biomass. Distances from markets and the high cost of 
transportation make utilizing woody biomass even more 
difficult.
    Conservation districts applaud the Congress for its quick 
action on the Healthy Forests Restoration Act. Its funding and 
implementation through the National Fire Plan provide 
opportunities for local communities and organizations, 
including conservation districts, to become engaged in fuels 
reduction projects and education. Commitments from Congress and 
the Administration to this end is crucial to the success of 
this effort.
    Conservation districts and resource conservation and 
development councils, as we heard earlier, already have in 
place a number of cooperative agreements with Federal land 
management agencies to promote and improve the utilization of 
woody biomass in order to reduce catastrophic wildland fires 
and restore forest, woodland, and rangeland health.
    In my conservation district, the Nevada Tahoe Conservation 
District in Stateline, Nevada, forest conditions in areas 
surrounding Lake Tahoe are indicative of many areas in the 
Western U.S. experiencing an accumulation of excess fuels, 
leading to reduced resistance to wildfire, disease, and insect 
infestations. These large quantities of biomass are not 
merchantable as wood, often, and through other manufacturing 
industries. However, utilization of this biomass for energy 
offers a potential economic use for this material which would 
help reduce fuel loads.
    We recently completed a woody biomass resource and 
technology assessment for the Lake Tahoe Basin. The study 
quantifies the Basin's biomass resources and costs, analyzes 
biomass energy technology performance characteristics, assesses 
local opportunities for using the material, and summarizes the 
results of initial planning on a pilot project conducted in 
conjunction with the Lake Tahoe Unified School District. The 
study showed that there are opportunities for small-scale 
biomass energy systems to be deployed in the Lake Tahoe Basin, 
which is some of the most heavily regulated land in the world.
    As a result of the biomass feasibility assessment sponsored 
by my district, the Lake Tahoe Unified School District is 
pursuing further funding to purchase a co-generation boiler 
system to be deployed in the local high school, and this is a 
project separate from the one mentioned earlier. Biomass to run 
the new system will be supplied by Basin land management 
agencies from fuels management projects. I have attached a copy 
of the executive summary of this assessment to my written 
statement.
    In your Congressional district, Mr. Chairman, the Deschutes 
Soil and Water Conservation District received an $89,000 
National Fire Plan Community Assistance Grant in 2001 to 
implement an innovative project that turns woody biomass into 
compost. The grant enabled the district to implement the 
composting project for Sun River Utilities, which serves Sun 
River Lodge and Resort and about 4,000 homes in the Sun River 
development near Deschutes National Forest.
    A landowner group was concerned about wildfire and 
undertook fuels reduction efforts in the lodge pole and 
Ponderosa pine forests which produced woody biomass from the 
treatments. The organic compost after utilizing that excess 
woody biomass was then sold or spread on Sun River golf 
courses. The organic compost and building supply composition in 
the area with volcanic soils that lack organic matter make it a 
valuable soil additive.
    The district continues to focus on initiatives that turn 
woody biomass liabilities into assets. The district says it 
needs incentives and marketing capacity to demonstrate the 
value of that material.
    Conservation districts believe efforts such as those I just 
described and other innovative projects offer tremendous 
opportunities to reduce catastrophic wildland fires and restore 
forest, woodland, and rangeland health. In fact, NACD recently 
entered into a cooperative agreement with the Bureau of Land 
Management, the Forest Service, and others to develop, promote, 
and improve woody biomass utilization. Other partners in this 
effort include the Interior Department's Bureau of Indian 
Affairs, the National Park Service, and the Fish and Wildlife 
Service.
    Under this agreement, NACD is providing resource materials 
and information to local conservation districts to educate 
landowners and others on the issue. The goal of this initiative 
is to help increase public understanding of the social, 
economic, environmental, and aesthetic benefits gained by using 
woody biomass as a means of reducing fuel buildup on public 
lands. We believe more cooperative efforts such as this are 
needed. Involving local communities and landowners is an ideal 
way to ensure success of the Healthy Forest initiatives and the 
National Fire Plan and other wildland efforts.
    We appreciate the opportunity to provide the Subcommittee 
with our views and I would be happy to answer any questions.
    Mr. Walden. Thank you, Mr. Drew, and thank you, too, for 
your comments about the work being done by the conservation 
district that serves Sun River and the golf course there. I 
intend to do a personal tour of that on Saturday--
    [Laughter.]
    Mr. Walden.--to make sure that the riparian areas are 
properly treated and groomed.
    [Laughter.]
    [The prepared statement of Mr. Drew follows:]

 Statement of Jason Drew, District Manager, Nevada Tahoe Conservation 
    District, on behalf of the National Association of Conservation 
                               Districts

    The National Association of Conservation Districts is the 
nonprofit, nongovernment organization representing the nation's 3,000 
conservation districts, their 16,000 board members and 7,000 employees. 
Established under state law, conservation districts are local units of 
state government charged with carrying out programs for the protection 
and management of natural resources at the local level. Conservation 
districts work with a number of federal, state and other local 
agencies, as well as the private sector to provide technical and other 
assistance to millions of landowners and other partners to achieve this 
end. They provide the critical linkage for delivering conservation 
programs on nearly 70 percent of the private land in the contiguous 
United States.
    In carrying their mission, districts work closely with the USDA's 
Forest Service, Natural Resources Conservation Service and the Interior 
Department's Bureau of Land Management to provide the technical and 
other help private landowners need to plan and apply complex 
conservation treatments on forest, range and other working lands.
    On behalf of America's conservation districts, I am pleased to 
provide you with our insight on the role conservation districts play, 
and can play, throughout the country in hazardous fuels reduction, 
woody biomass utilization and forest planning.
    Hazardous fuels build up is a serious threat nationwide. It 
threatens the viability of national forests, private forestlands--
industrial and non-industrial and property in the wildland-urban 
interface. Excess woody biomass is exacerbated by the long-term drought 
plaguing much of the country and insect infestations, which in turn 
raises the danger of devastating wildfires that destroy wildlife 
habitat, communities and human life. Conservation districts strongly 
support efforts to reduce hazardous fuels build up, develop new and 
innovative technologies to use woody biomass and to educate the public 
about proper forest management.
    The decline of the forest industry in the West contributes to the 
problem by removing many business options for utilizing woody biomass. 
Distances from markets and the high costs of transportation make 
utilizing woody biomass even more difficult.
    Conservation districts applaud the Congress for its quick action on 
the Healthy Forests Restoration Act. Its funding and implementation 
through the National Fire Plan provide opportunities for local 
communities and organizations, including conservation districts, to 
become engaged in fuels reduction projects and education. Commitment 
from Congress and the administration to this end is crucial to the 
success of this effort.
    Conservation districts and resource conservation and development 
councils (RC&Ds) already have in place a number of cooperative 
agreements with federal land management agencies to promote, and 
improve the utilization of woody biomass in order to reduce 
catastrophic wildland fires and restore forest, woodland, and rangeland 
health.
    In my conservation district, the Nevada Tahoe Conservation District 
in Stateline, Nevada, forest conditions in areas surrounding Lake Tahoe 
are indicative of many areas in the Western U.S. experiencing an 
accumulation of excess fuels leading to reduced resistance to wildfire, 
disease and insect infestations. These large quantities of biomass are 
not merchantable as wood products or through other manufacturing 
industries. However, utilization of this biomass for energy offers a 
potential economic use for this material, which would help reduce fuel 
loads.
    We recently completed a woody biomass resource and technology 
assessment for the Lake Tahoe Basin. The study quantifies the Basin's 
biomass resources and costs, analyzes biomass energy technology 
performance characteristics, assesses local opportunities for using the 
material, and summarizes the results of initial planning on a pilot 
project conducted in conjunction with the Lake Tahoe Unified School 
District. The study showed there are opportunities for small-scale 
biomass energy systems to be deployed in the Lake Tahoe Basin.
    As a result of the Biomass Feasibility Assessment, sponsored by my 
District, the Lake Tahoe Unified School District is pursuing funding to 
purchase a co-generation boiler system to be deployed in the local high 
school. Biomass to run the new system will supplied by Basin land 
management agencies from fuels management projects. I have attached a 
copy of the executive summary of the assessment to my written 
statement.
    In your congressional district, Mr. Chairman, the Deschutes Soil 
and Water Conservation District received an $89,000 National Fire Plan 
Community Assistance grant in 2001 to implement an innovative project 
that turns woody biomass into compost. The grant enabled the district 
to implement the composting project for Sun River Utilities, which 
serves Sun River Lodge and Resort and about 4,000 homes in the Sun 
River development, near Deschutes National Forest. The landowner group 
was concerned about wildfire and undertook fuels reduction efforts in 
the lodge pole and ponderosa pine forests. That produced woody biomass 
from ladder fuels. The organic compost is then sold or spread on Sun 
River golf courses, building soil composition in an area with volcanic 
soils that lack organic matter, making it a valued soil additive.
    The district continues to focus on initiatives that turn woody 
biomass ``liabilities'' into ``assets.'' The district says it needs 
incentives and marketing capacity to demonstrate value in that 
material, process it and move it out.
    Conservation districts believe efforts such as those I just 
described and other innovative projects offer tremendous opportunities 
to reduce catastrophic wildland fires and restore forest, woodland, and 
rangeland health. In fact, NACD recently entered into a cooperative 
agreement with the Bureau of Land Management and Forest Service to 
develop, promote, and improve woody biomass utilization.
    Other partners in this effort include the Interior Department's 
Bureau of Indian Affairs, National Park Service, Fish and Wildlife 
Service, the cooperative National Fire Plan and the National 
Association of Resource Conservation & Development Councils.
    Under this agreement, NACD is providing resource materials and 
information to local conservation districts to educate landowners and 
others on the issue. The goal of this initiative is to help increase 
public understanding of the social, economic, environmental and 
aesthetic benefits gained by using woody biomass as a means of reducing 
fuel buildup on public lands.
    We believe more cooperative efforts such as this are needed. 
Involving local communities and landowners is the ideal way to ensure 
the success of the Healthy Forests Initiative, the National Fire Plan 
and other efforts in wildland fire management.
    Conservation districts also support other collaborative efforts of 
the Interior and Agriculture Departments in conducting fuel reduction 
treatments in the urban wildland interface on federal lands that are at 
risk from wildfire. To maximize their effectiveness, we believe these 
collaborative fuels hazard reduction efforts should include:
      A landscape scale approach with the support and 
involvement of local constituents;
      Cross boundary mitigation;
      Coordination of Federal, state and local government 
priorities, project design and implementation strategies to maximize 
effectiveness and minimize costs; and
      Project designs that consider restoration of ecosystem 
structure, native composition and natural fire regimes.
    The drought, which is expected to continue unabated for several 
more years--especially in the West--adds to the wildland fire issue by 
contributing to insect and disease problems national forests, BLM lands 
and private woodlands, as well. Not only is the damage costly to 
timber, but it also adds to the fuel load.
    The nation's conservation districts believe that there are yet many 
opportunities to develop biomass potential and turn hazardous fuels 
into useful and valuable products and look forward to continuing our 
partnerships with the various federal agencies that are responsible for 
managing the nation's public forests and rangelands.
    We appreciate the opportunity to provide the subcommittee with our 
views.
    NOTE: An attachment to Mr. Drew's statement entitled ``FINAL 
REPORT: Biomass Energy Opportunities In and Around the Lake Tahoe 
Basin'' has been retained in the Committee's official files.
                                 ______
                                 
    Mr. Walden. Let me start, Lynn, with you. Given the need to 
treat millions of acres and to maximize the small value-added 
facilities, how do we find a balance here between large high-
volume operators and the small value-added producers? How do we 
keep a mix? What do you suggest?
    Ms. Jungwirth. Well, I think it is relatively simple. You 
just do it deliberately. You need the mix. But right now, the 
focus is, of course, on an industrial scale, because everyone 
keeps telling me because the scale is so hard, large, that we 
need an industrial solution. Well, ladies and gentlemen, we 
have no supply. So what you have when you have limited supply 
is three-megawatt power plants, not 50-megawatt power plants.
    Mr. Walden. Yes.
    Ms. Jungwirth. So let us build on as that supply builds and 
the large-scale solutions where that is appropriate will come 
into place. But if you don't deliberately make sure, just like 
you have an SBA program now for timber, if you don't 
deliberately make sure that we keep access, if we don't have 
access, then we are not going to create those local jobs.
    So the difference between the company now that we have 
created in Hayfork that employs 26 people, that is 260 jobs per 
million board feet. The biomass plant will employ 15 people, 
but they will burn up 10 million board feet. So you have got to 
let that mix stay that way. So don't, with your subsidies, 
encourage something that is going to destroy our 
competitiveness and our access.
    Mr. Walden. How do we do that, though? Do you limit the 
amount somebody gets? Do you put a cap on it?
    Ms. Jungwirth. I don't think you need to do that. I think 
what you need to do is say that the agencies that make that 
available have to structure their contracts for the whole suite 
of the industry that is out there, not just the big stuff. And 
that is the most sustainable way to do it. If you have 30 
three-megawatt plants colocated with other wood processors, 
that is 90 megawatts. But if one of those plants goes offline, 
you don't care.
    Mr. Walden. Right.
    Ms. Jungwirth. If a 90-megawatt plant goes offline, you are 
going to care.
    Mr. Walden. OK.
    Ms. Jungwirth. So it can be done deliberately. You have 
done it before.
    Mr. Walden. I am intrigued by this notion that somebody 
mentioned earlier, perhaps on a prior panel, about each region, 
each forest region having a biomass facility. How do we cause 
that to occur? Is there a role for the Federal Government in 
that, because a lot of these regions, the communities--I think 
of my own district. You have got very remote areas in some 
cases, very small communities, and yet maybe 50 to 70 percent 
of the land around these communities is Federal forest or BLM 
lands that are going to need, clearly need, treatment. Does 
anybody have any ideas here? I am intrigued by what schools are 
doing in saving money. I mean, we all know they are pinched. 
What can we do?
    Ms. Jungwirth. Well, you know, the interesting thing about 
that is if you look at those communities, almost everyone has a 
vacant mill site--
    Mr. Walden. Right.
    Ms. Jungwirth.--and that means they have power lines going 
in there.
    Mr. Walden. Right.
    Ms. Jungwirth. They have flat ground.
    Mr. Walden. Yes.
    Ms. Jungwirth. They are on a transportation corridor or 
they wouldn't be there. The infrastructure, that part of the 
infrastructure is already there. Frankly, the issue is not do 
we know what to do with the stuff. We know what to do with this 
stuff.
    Mr. Walden. But how do you incent the capital to come in 
and make that investment, because one of the issues I hear back 
from people who are in this line of business or would like to 
be is there is just not the guarantee of supply. And some of 
these folks were in the mill business and have shut down and 
auctioned off their equipment after years of retooling down to 
get to the smallest diameter that is physically possible to 
make a two-by-two and still there wasn't an adequate supply. 
Supply is really an underlying problem.
    Ms. Jungwirth. And you have to look at the structure of the 
capital. The three-megawatt plant, you heard him. They expensed 
it out.
    Mr. Walden. Right.
    Ms. Jungwirth. The bank didn't care.
    Mr. Walden. All right.
    Ms. Jungwirth. You build a 30-megawatt plant, you can't 
expense it out in 1 day, so that is one of the pieces.
    Mr. Walden. Mr. Akhtar, did you have a comment you wanted 
to make?
    Mr. Akhtar. Yes. As I said, my experience is in the 
technology transfer. On June 17, we organized a symposium at a 
workshop called ``Biorefinery--Value Added Products Out of 
Wood,'' and there was an overwhelming response to that. One of 
the things that we do through the center is sit down with all 
parties involved, because that is very, very critical because 
we have quite a few resources that we have to capitalize on, 
and then put together an effort such as consortium where 
Federal agencies, State agencies, and the industry--
    In the case of Wisconsin, obviously, as I pointed out, is 
the number one paper producing State in the nation. Now we are 
trying to work out a deal with the paper industry where we are 
saying, you can continue making your paper, but at the same 
time, there is a lot of value that you are losing, so how to 
capture that. So we are putting together a consortium where we 
are going to go back to the U.S. Department of Energy for some 
additional funding to do a demonstration where some of the cost 
is going to be shared by the paper industry and show a 
demonstration which could be duplicated to other States, as 
well.
    So it has to be an organization that is dedicated, just 
like the one we have, that can pull all of these resources 
together and move forward.
    Mr. Walden. I see. Will you keep us posted on your 
progress?
    Mr. Akhtar. Yes, absolutely.
    Mr. Walden. There are undoubtedly other States that might 
have that interest or should have that interest.
    My 5 minutes is up. Mr. Rehberg?
    Mr. Rehberg. Yes. Mr. Akhtar, just out of curiosity, I see 
in your disclosure requirement you are involved with business 
that does biopulping. What is that, real quickly?
    Mr. Akhtar. This is a good example. I think one of the 
Subcommittee members asked this question about technology 
transfer. This is a new technology that we developed through 
this consortium effort. Actually at the Forest Products Lab, we 
started a consortium back in 1987. The technology requires take 
wood and grow a natural microorganism in about 2 weeks. The 
fungus secretes enzymes, make the wood soft. So when you make 
paper, like newspaper or magazine paper, it reduces your energy 
consumption by about 30 percent and improves the quality.
    The other added advantage of that is that it also makes the 
other chemicals easier to be extracted, and that goes back to 
the goal of the Committee that we have here. A good example, 
based on that technology, I personally formed a company called 
Biopulping International as a spin-off of the technology that 
Forest Products and the University of Wisconsin developed.
    Mr. Rehberg. Thank you. Mr. Coston, could you expand a 
little bit on your savings? Where was the savings to the school 
in Darby?
    Mr. Coston. Like someone said, most small communities are 
beyond the end of natural gas. Darby heated with oil. Their 
annual heating bill was about $60,000 for the three buildings 
they have got on their campus. The wood chips--this is a little 
bit apples and oranges, but the actual cost of their 640 tons 
of wood chips they burned in the school year just ended was 
about $18,500. So there is a wide gap between what it costs for 
wood chips and what it costs for the--
    Mr. Rehberg. And that included transportation and there 
were no changes in the structure of the building itself, so if 
you were to compare apples and oranges, you could make it work 
without having to go through what one of the prior panels went 
through, was determining what kind of a subsidy on biomass, the 
1.8 cent per kilowatt.
    Mr. Coston. When we first got into this, we deliberately 
made all our projections based on private land, some on Montana 
land, State land. We left the Federal, although most of the 
land around us is Federal, also. In order to be on the safe 
side because of the fact that everybody is concerned about it 
being tied up, we assured ourselves that there was a plentiful 
supply coming off private land.
    Mr. Rehberg. And how long have you determined you have got 
that plentiful supply?
    Mr. Coston. Well, that 640 tons represents the thinnings 
off of about 50 acres and there are thousands and thousands and 
thousands of acres out there that need thinning. Actually, you 
know, and I recognize up front it is a drop in the bucket. You 
have got to, like your power plants, you almost have to have 
every school, if you are just going to concentrate on schools, 
operating off of biomass heating systems to make any inroads at 
all into this, but we feel that it is a start.
    We chose schools, I guess, mainly because there is no 
segment of the public structure out there in our part of the 
world, at least, that is as hard pressed financially as the 
school district. In order to make--you help every taxpayer in 
the county if you are able to help out the schools. We looked 
at prisons, but we thought that maybe ``Fuels for Felons'' 
wouldn't be quite as appealing.
    [Laughter.]
    Mr. Rehberg. Has--
    Mr. Coston. But actually, hospitals and prisons, that type 
of thing, are--
    Mr. Rehberg. Kalispell is looking into nursing homes, and I 
assume that they have talked to you. If they haven't, we should 
get you all together.
    Mr. Coston. You are up and down a little bit with schools. 
You turn the thermostat down at night and turn it down on the 
weekends and you shut it off in May through September. 
Hospitals and prisons, something like that is--the harder you 
work one of these boilers, the more efficient it is.
    Mr. Rehberg. Thank you, Mr. Coston, for that.
    Mr. Walden. And Mr. Renzi waives on questions.
    Ladies and gentlemen, thank you very much for your 
testimony today. It has been quite intriguing and we look 
forward to working down the road on biomass and see what else 
we can do to be of assistance, both to our forests and to this 
emerging and new technology that is out there.
    Thank you very much. The record will stay open for 
additional comments and questions by Members.
    I want to insert into the record two statements that have 
been submitted. The first is from Sherry Barrow of Sherry 
Barrow Strategies in Ruidoso, New Mexico.
    [The prepared statement of Ms. Barrow follows:]

         Statement of Sherry Barrow, Sherry Barrow Strategies, 
                          Ruidoso, New Mexico

    The following is my effort to give you an overview of our business 
goals and objectives, our progress to date and current constraints with 
regard to Sherry Barrow Strategies (SBS Wood Shavings) Management & 
Access to Supply of small diameter timber in Southeastern New Mexico.
    The Cree and Scott Abel fires of 2000, the Trap & Skeet Fire of 
2001, the Kokopelli, 5/2 and Penasco fires of 2002, a number of Western 
``burners'' and, most recently, the 60,000-plus acre Peppin Fire have 
brought the reality of catastrophic wild fire to the forefront of 
regional public awareness.
    At SBS, we are interested in the ``wholeness of the land''--that 
is, all the land's values, including timber and other natural 
resources, wildlife habitat, watershed impacts, recreational 
opportunity, aesthetics and the results of proper ecosystem management. 
Sherry Barrow Strategies (SBS) is committed to rural economic 
development through the creation of a successful small diameter 
utilization model in Southeastern New Mexico. SBS is introducing new 
and effective practices, technologies, equipment and training in order 
to tackle existing transportation constraints to achieve sustained 
rural economic development and successful small diameter tree 
utilization.
    SBS business goals are to:
    1) Produce wood shavings bedding (SBS Wood Shavings) using small-
diameter trees from forest and watershed restoration efforts, utilizing 
byproducts to co-generate thermal/electrical energy used in the process 
2) Identify developing and emerging markets for wood waste products 3) 
Market, produce, and sell identified value-added products and 
byproducts to sustain regional economic development 4) Empower 
community partners in the establishment of sustainable rural economic 
development by providing access to successful wood waste utilization 
and value-added biomass models.
    In addition, Sherry Barrow Strategies wood utilization business is:
      Assisting in the mitigation of fire hazard by providing a 
destination point for some of the small diameter trees resulting from 
treatment of forest and watershed restoration efforts,
      Creating an ecologically sound restoration by-product 
that will be distributed from Glencoe, New Mexico, expanding to new and 
emerging markets in future growth phases,
      Reducing the burn time on pile and burn projects, thereby 
improving regional air quality,
        Did you know: ``that for every ton of shavings we put in our 
        bags, we save 3600 pounds of CO2 from going up into the 
        atmosphere.
      Removing insect and disease infested small diameter trees 
to SBS where the infestations will be heated and destroyed in the 
processing system, thereby eliminating future damage to healthy stands,
      Bringing to bear an innovative industry that will 
compliment and, in some cases, help support existing area businesses,
        Did you know:--The January 2003 report prepared by the USDA 
        Forest Service Inventory & Monitoring Institute for the New 
        Mexico EMNRD titled: The Southwest Region's forest-based 
        Community Economic Development Grant Program: Economic Effects 
        in the Apache-Sitgreaves and Lincoln Working Circles, 
        identified that our Lincoln Working Circle ``turned'' forest 
        industry dollars over 7 to 8 times. The initial economic impact 
        is significant and the secondary impact is as well. We buy 
        services and supplies like: tires, hydraulic fluid, fuel, 
        welding supplies, and services from machine shops, trucking 
        services, and so on.
      Offering technical assistance and training to employees 
and contractors through a variety of environmental, ecological, and 
industrial training sessions,
      Serving as a resource for the application of hands-on 
differentiated curricula for schools in conjunction with local land 
management agencies, animal husbandry, FFA, YCC and other youth groups, 
wildlife and watershed groups and other community organizations,
      Empowering community partners though the SBS Outreach 
Coordinator and the Ruidoso Wild Land Urban Interface Group (RWUIG) in 
the establishment of a sustainable community effort by providing access 
to successful wood utilization and value-added biomass models,
      Including media exposure on local wood utilization 
successes, semi-annual reports to regional municipal, county and 
economic development councils and, in an effort to heighten public 
awareness, established a speaker's bureau well-versed in forest and 
watershed restoration and wood utilization topics.
Federal Funding History
Total Grant funds $547,250
    Sherry Barrow Strategies is an active member of the Ruidoso Wild 
Land Urban Interface Group (RWUIG). RWUIG is a collaborative problem-
solving body (LNF, Mescalero Apache Tribe, BIA, BLM, Lincoln County, NM 
State Land Office, Ruidoso Downs, NM State Forestry, Ruidoso, wood 
utilization businesses, community groups and other interested entities) 
empowered to address the health, safety, welfare and economic security 
of communities at risk of wild fire in the urban interface while 
respecting the natural interdependence of our ecosystem. Sherry Barrow 
has served on a Community Forest Management Task Force formed to create 
fuel reduction ordinances on private property within the Village of 
Ruidoso. The resulting fire safe guidelines and ordinances from the 
process have set precedent for community planning in the wild land 
urban interface and intermix across the west.
SBS Progress to date:
    Sherry Barrow Strategies (SBS): Federal/state funding sources, 
along with personal capital have produced an innovative shavings 
manufacturing facility utilizing round wood derived from forest and 
watershed restoration efforts in the geographic region encompassing the 
Lincoln National Forest in Southeastern New Mexico. The SBS facility is 
leased from Lincoln County. The processing plant was built within a 
nine-month period. Commercial production of SBS Wood Shavings began in 
January of 2003.
    Currently, SBS regularly ships semi-truckloads of high quality 
bagged animal bedding to wholesale/retail locations to multiple states. 
SBS has a plant labor force of six employees and anticipates adding two 
more employees this year. We have contracted workers cutting small 
diameter trees in the forest and 2 truck drivers transporting to SBS 
year-round. SBS has been working closely with Sierra Contracting, Inc. 
(SCI), our local composting operation, over the past several months to 
address transportation constraints for small diameter round wood. SBS 
is currently paying SCI to transport small diameter trees from 
treatment sites to SBS Wood Shavings' wood yard in Glencoe, NM. SCI has 
been operating for several years; has proven ability for ``adaptive 
management''; and has recognized the strength gained from working 
collectively with other community partners to meet common goals. Once 
our product is made, SBS also contracts with trucking companies 
(primarily New Mexico based companies) to transport finished product to 
wholesale/retail locations in multiple states.
    At this time, SBS is using an estimated 337,500 pounds (75 cords) 
of green round wood per week or 17,550,000 pounds (3900 cords) per 
year--with the potential to increase usage in the future. SBS estimates 
that acquisition of 3900 cords will require 1000-1300 accessible acres 
per year. SBS has utilized green small diameter material from the 
following sources: LNF-Smokey Bear Ranger District, NM State Trust 
Land-Moon Mtn., Private landowners--largely projects funded by the WUI 
dollars through NM-EMNRD Forestry Division, and Municipal Lands-Village 
of Ruidoso, and the Village of Ruidoso Downs.
Renewable Energy--Co-Generation of thermal heat and electricity:
    At Sherry Barrow Strategies we are supportive of these technologies 
when appropriate economy of scale is observed. We choose to incorporate 
both thermal heat and electricity generated from wood at SBS Wood 
Shavings. First,
    Thermal: The innovative shaving process at SBS Wood Shavings 
includes a 12,000,000 Btu sawdust fired burner utilizing the sawdust 
created in processing to co-generate thermal heat. That thermal heat is 
then used to dry the wood shavings product before packaging. The 
burner/dryer system was funded, in part, by a grant (2001) from the 
Collaborative Forest Restoration Program.
    Electricity: Sherry Barrow Strategies restoration wood processing 
facility in Glencoe (formerly the Glencoe Rural Events Center and Joe 
Skeen Arena) was ranked first of six locations chosen nation-wide to 
participate in a Small-Scale Modular Biomass Power System demonstration 
project utilizing gasification of wood chips, co-sponsored by the U.S. 
Department of Energy (DOE) through the National Renewable Energy Lab 
(NREL) in Littleton, CO., Community Power Corporation, Golden, CO., and 
the USDA Forest Service, Forest Products Laboratory (FPL), Madison, WI. 
The unit was rolled out in late 2002.
    The small, modular biomass unit processes wood chips from fuel 
reduction projects creating electricity and thermal heat for the SBS 
facility in Glencoe, NM. If you have questions about the program or the 
reasons for our #1 ranking, you may contact Sue LeVan-Green at the 
Forest Products Laboratory--Program Mgr., S&PF Technology Marketing 
Unit. Her contact information is: [email protected] or you may phone her 
at (608) 231-9518.
    As for the economic impact of grants to forest based industry, 
please see the January 2003 report prepared by the USDA Forest Service 
Inventory & Monitoring Institute for the New Mexico EMNRD titled: The 
Southwest Region's forest-based Community Economic Development Grant 
Program: Economic Effects in the Apache-Sitgreaves and Lincoln Working 
Circles.
LOCAL SUPPLY/ACCESS TO SMALL DIAMETER WOOD
    Due to the threat from catastrophic wild fire in the urban 
interface and intermix, the USDA Forest Service-LNF has identified a 
need for thinning one-third of the 200,000 acres in the Sacramento 
Ranger District and 70,000 acres in the Smokey Bear Ranger District. 
Forest Service figures show the Lincoln National Forest (LNF) growing 
an average of 30 to 40 million board feet per year with a loss on 
average of 7 million board feet to insects. These figures do not 
include the potential for loss from fire and other catastrophic events. 
(reference: Dennis Watson, Timber Management Officer, LNF). In 
accordance with current funding plans, LNF estimates 2500 to 3500 acres 
per year will be made available for pre-commercial thinning. 
Restoration wood from small diameter treatments will be made available 
for wood utilization. (reference: Brian Power, Aviation and Fire 
Officer--LNF). In light of the Healthy Forests Initiative, SBS expects 
some modification of these plans may occur.
    New Mexico State Forestry--Capitan District has received National 
Fire Plan WUI funds for fuel reduction treatment (small diameter) on 
private lands. The Capitan District Forester has identified 
approximately 1500 acres for fuels reduction treatments in priority 
areas within the wild land urban interface and the work is now under 
way.
    The Village of Ruidoso--The Village has implemented a low-intensity 
thinning project in the Grindstone Lake recreation area. In the summer 
of 2002, the Village of Ruidoso began a 438 acre restoration project 
adjacent to the 3000 acre LNF--Smokey Bear Ranger District ``Eagle 
Creek'' project. The ``Eagle Creek'' project has received federal 
funding from Collaborative Forest Restoration Program. On the Village's 
438 acre project, an estimated 60 yards per acre of woody biomass 
(under 5'' dbh) and approximately 3 cords per acre of round wood (5'' 
to 12'' dbh) were slated for removal over a two year period.
    The Village of Ruidoso Downs--The Village will begin restoration of 
eighty acres in the Village watershed area this year. Sherry Barrow 
Strategies will be removing round wood to SBS Wood Shavings in Glencoe, 
NM, for utilization.
    Additional projects are pending in conjunction with: New Mexico 
State Trust Lands and the Bureau of Land Management.
Resources
    For us, the value of the Forest Products Laboratory (FPL), in 
Madison Wisconsin, the Southern Research Station (SRS) in Auburn 
Alabama, have been beyond measure. The Marketing and Technology 
resource provided by FPL and the equipment and systems research from 
the SRS have been an essential element of our innovation and success. 
Those of us working toward solutions in reducing the threat of 
catastrophic wildfire by building service capacity and rural economic 
development through wood utilization businesses rely on the expertise 
and resources provided by both Labs.
    The research component provided by Sue LeVan-Green (FPL) and Robert 
Rummer (SRS) has absolutely saved Sherry Barrow Strategies at least two 
years in mistakes and money. Without the research provided, we would 
have had to do months of ``trial and error'' research and testing. The 
staff is responsive and has performed beyond our expectations. I 
understand that Rural Development Economic Action Program (EAP) funds 
have been an integral support of the Forest Products Lab and the 
Southern Research Station and the other Research Stations. I am 
concerned that the future of these vital resources may be in jeopardy 
without the restoration of EAP funding.
    The Roswell office of the Small Business Development Center--Gene 
Simmons, Director, has assisted with business planning over the last 
three years.
    With regard to NM-Forestry Division Four Corners Sustainable 
Forests Partnership (FCSFP): The Partnership, which U.S. Senator Pete 
Domenici is given credit for fostering, quickly became our 
``clearinghouse'' for growth and development resources and mentoring. 
It is important to note that without exception, FCSFP has been the only 
program with an integrated plan from the ``Stump-to-the-Consumer''. 
Early on, the FCSFP Program Manager provided a flow-chart which helped 
us to understand funding streams, the timeframes for the paperwork, and 
the economies of scale in the forest industry. Resources were shared 
across boundaries (like the Forest Products Lab and Southern Research 
Station), as well as entrepreneurial resources and marketing expertise 
on a national and international scale. This program has focused on the 
impact of sustainable forest-based communities and fostered ``working 
circles'' of interdependent small businesses with new and emerging 
markets for round wood.
    Under the auspices of EMNRD-Forestry Division, the Four Corners 
Sustainable Forests Partnership, has provided countless hours of 
resource information, contacts, problem solving, federal funding 
sources, access to mentors and encouragement through the Partnership. 
The Partnership is evolving this year into the Southwest Sustainable 
Forests Partnership, targeting the needs of Arizona and New Mexico.
    The Collaborative Forest Restoration Program, propelled largely by 
U.S. Senator Jeff Bingaman, has also focused on the need for diverse 
collaborative stakeholders. A strong focus on environmental impacts, 
appropriate fire regimes, and preservation of old and large trees has 
garnered a new awareness of the ``wholeness'' of the land and the long-
term effects of a more balanced approach to restoration practices.
    The Technical Advisory Panel deliberation process is open to the 
public. Observing the deliberation process is a valuable educational 
experience. Program Manager, Walter Dunn has provided a rare 
opportunity for potential grantees to learn about diverse perspectives 
on forest restoration. The panelists have become resource conduits for 
our work. We now have a number of ``go-to'' resource people in 
different areas across the country. Our involvement with CFRP convinced 
us that we bear a responsibility for the treatment side of the small 
diameter trees we utilize for products.
    While the CFRP does not have the strong market-side focus that 
exists with the Southwest Sustainable Forests Partnership, its 
collaborative environmental strength on the treatment-side begets 
valuable assets for our resulting wood products in the market.
CONSTRAINTS
    In order to facilitate sustainable rural economic development, 
forest health, and complete the ``stump to consumer'' cycle, community 
partners must have tools to build infrastructure and successful 
systems. A collaborative effort toward building service capacity, 
including technical assistance and training for environmentally 
sensitive equipment and appropriate small diameter handling systems is 
the next step toward long-term sustainability. The Lincoln National 
Forest has demonstrated a willingness to explore all available 
contracting options including Stewardship contracts in order to meet 
management objectives. Long-range access to forest biomass is the next 
step toward long-term sustainability.
    Recent federal funding has planted the seeds for emerging small 
diameter wood businesses. SBS believes our community will establish 
sustainable forest-based businesses suitable for replication in other 
western states.
    This work is not for the faint at heart. We are building a 
foundation for long-term sustainable forest management. No one entity 
can do it alone. We need to have all the stakeholders involved. In the 
beginning, collaborative community groups were guarded in attempting to 
form relationships--some fell apart and regrouped and others just 
backed away from what they believed was destined to fail. First, we had 
to build tolerance, then establish a dialogue, and identify common 
ground and then work collectively within our ``zone of agreement''. So, 
it takes time.
    The SBS experience with FS, BLM, BIA, New Mexico State Trust, and 
NM Forestry Division staff has been extremely positive and we are 
making solid progress toward our goals. In the LNF region, we also have 
the ever-present threat of wild fire. Our entire community acknowledges 
the danger and we are working together toward forest and watershed 
restoration.
TRANSPORTATION
    Currently SBS is moving away from handling small diameter trees too 
many times with inappropriate equipment and systems. The results are 
encouraging. Still, transportation cost of the trees from the 
prescribed treatment site to a utilization site remains a regional 
constraint. We had hoped the transportation $20 per green ton credit in 
the Energy Bill would give some interim relief. If available, it would 
have doubled the transport range for small diameter wood. SBS is rare 
in that we are a regional small diameter processing facility with an 
established, stable, year-round outlet for green small diameter timber.
    With regard to access to supply of small diameter trees, I see 
several promising opportunities: Better management practices, more 
effective contracting instruments, new low-impact cost effective 
forestry equipment, equipment capable of accessing areas previously 
deemed inaccessible in our region, and a heightened public awareness 
resulting in strong support for fuel reduction in the WUI and 
watersheds.
    In addition to traditional products, the use of biomass and other 
waste as a renewable energy is long overdue. There are plans for 
building everything from 5kw to 35megawatt power plants to wood chip-
retrofitted community boiler systems.
    We must address the need in rural communities for economic 
diversity and appropriate scale. As for biomass power plants, SBS 
believes that 1/2 to 1 megawatt plants strategically located near the 
wood supply and an end-user seem more reasonable.
    While we believe in sustainable communities, we are concerned that 
the desire to reduce forest fuel loading could result in a push for a 
``quick-fix'' solution. I do not want to see small business diversity 
left out of the ``mix'' by the creation of an over-scaled biomass 
facility. Nor do I want unnecessary tree cutting to feed a business 
under the ``guise'' of restoration. Huge power plants are expensive to 
build and expensive to maintain. Infrastructure to deliver power is 
expensive, can be invasive, and, finally, who will buy the power? And, 
will the power be purchased at a rate that will pay for the investment?
    When faced with a choice today--and we are using both thermal and 
electric heat generated from wood at our facility--I see thermal heat 
generation as less risky to communities and less expensive to 
incorporate into existing infrastructure.
    Again, I urge caution and vigilant attention to the selection of 
appropriately scaled endeavors. Whatever solutions are realized, an 
environmentally sensitive, diverse economy driven by healthy forests is 
Sherry Barrow Strategies answer for sustainable rural communities.
    Thank you again for your diligence. I hope you find this 
information of interest. I will be pleased to take any questions you 
may have.
                                 ______
                                 
    Mr. Walden. I would also like to insert a statement 
submitted by Todd Brinkmeyer, President and Owner of Plummer 
Forest Products, Inc., in Plummer, Idaho.
    [The prepared statement of Mr. Brinkmeyer follows:]

          Statement of Todd Brinkmeyer, President and Owner, 
             Plummer Forest Products, Inc., Plummer, Idaho

    Chairman Walden and members of the subcommittee.
    I am Todd Brinkmeyer, President and owner of Plummer Forest 
Products, Inc. located in Plummer, Idaho. Plummer is a small community 
of 900 residents in the heart of the Coeur d'Alene Indian Reservation 
in the panhandle of Idaho, approximately 35 miles south of the city of 
Coeur d'Alene, Idaho.
    I started Plummer Forest Products in 2000 on the site of a former 
large log sawmill vacated by Rayonier Company in 1998.
    Plummer Forest Products is a fully integrated biomass to energy 
facility and small log sawmill producing 5 megawatts of electricity and 
eighty million board feet of lumber per year. We have 85 employees. 
After struggling for three years of start-up challenges, I can you 
proudly say that--for now ``Plummer Forest Products is a viable 
enterprise.
    I appreciate the opportunity to testify before the subcommittee 
today.
    As the written submission for the record, I am including a summary 
of a presentation I have made at the National Bio Energy and Wood 
Products Conference sponsored by the U.S. Departments of Interior, 
Agriculture and Energy in Denver, Colorado on January 21, 2004. That 
presentation provides detail on the history, current configuration and 
challenges faced by my company as we have sought a way to profitable 
convert small logs and trees into wood products and energy.
    In short, Biomass to energy works, but not as a stand-alone 
enterprise. The sawmill and energy plant must work together. The cost 
structure associated with removing woody biomass from the forest, 
hauling the material to a facility and converting the fiber into a 
product suitable for electricity production is prohibitive without 
massive subsidization.
    Plummer Forest Products has developed a program that includes 
removing the woody biomass from the forest by leaving the material 
attached to a small log segment that can be separated at our facility 
and further processed into stud lumber and other building materials. By 
leaving the material attached, the handling cost and freight can be 
reduced to a level that makes the integrated process viable.
    Thank you for your time, and I hope that we can take this model and 
others like it, refine them and develop a prescription for federal 
lands that reduces wild fire risk, promotes healthy forests, jobs in 
rural communities, and does not cost the tax payers money. All the 
pieces are in place to do that in some area

    [NOTE: An attachment to Mr. Brinkmeyer's statement has been 
retained in the Committee's official files.]
                                 ______
                                 
    Mr. Walden. If there is no further business to come before 
the Subcommittee I again want to thank the members of the 
Subcommittee who participated today and we stand adjourned.
    [Whereupon, at 3:44 p.m., the Subcommittee was adjourned.]

    [Additional information submitted for the record follows:]

 Statement of Dr. Liam E. Leightley, 1 Department of Forest 
   Products, Forest and Wildlife Research Center, Mississippi State 
                               University
---------------------------------------------------------------------------

    \1\ Chairman, Southern Alliance for the Utilization of Biomass 
Resources
---------------------------------------------------------------------------
WHY THE SOUTH EAST UNITED STATES REGION NEEDS TO PURSUE THE PRODUCTION 
        OF ENERGY AND CHEMICALS FROM WOOD BIOMASS
    Forest Biomass energy has been considered as an industry of the 
future, providing potential new markets for forest thinnings, residues 
and waste (Quick, 2003). The potential for this industry is continuing 
to increase because changes in the Global economy have caused a 
reduction in demand for timber in the United States, especially in the 
southeast where the demand for pulpwood has significantly decreased. 
This has led to local industry experiencing high inventories and lower 
prices for small diameter pinewood and thousands of acres of 
overstocked pine plantations. A biomass energy industry could utilize 
wood considered to be un-merchantable or underutilized and could 
contribute to alleviating the nation's economic, energy and 
environmental concerns. The large inventory of small trees could be 
reduced, stumpage prices could be increased and the value of forest 
assets restored. The removal of such material from the forests, as pre-
commercial thinnings would also create healthier forests that were less 
susceptible to attack by destructive insects and disease. In addition 
to the biomass obtained from thinnings, a significant volume of solid 
wood waste is produced by the wood products industry each year. This 
wood waste could also be used as a feedstock source of biomass for 
energy production.
    A recent article appeared in the South Carolina Forestry 
Association Journal (SFCA, June 2004) stating that without new uses and 
markets for our trees, there is little incentive to continue to invest 
in growing timber. The article referred to the fact that a Bio-based 
Industry Alliance was formed May 21, 2004 in Tuscaloosa, AL, to 
capitalize on the resources and strengths of the Southeast United 
States region to provide a stimulus to the rural economy, reduce our 
dependence on fossil fuels and to develop the science of extracting 
chemicals from forest and farm crops. The feedstock for the new energy 
and chemicals industry will be low-value timber, forest and farm 
residues and farm crops. The need for the Alliance was summarized by 
Gene Quick, an organizer of the Alliance and is presented here in its 
entirety. The summary clearly states the need for biomass utilization 
by a number of interests, not the least of which are small to medium 
size landowners. It is those interests which could derive direct 
benefit from the utilization of wood biomass.
    ``For over 70 years we planted trees for what we thought was a 
growing and never-ending demand. Timber prices were strong and in a 
reliable, upward trend, with only an occasional pause. For many years 
we exported chips to meet the demands of foreign markets. In the last 
few years things have changed dramatically. Some pulp mills have closed 
and others have reduced production. In some markets we can import pulp 
cheaper than we can produce it domestically. It appears unlikely that 
another pulp mill will be built in this country. And now large volumes 
of wood chips are being imported through the port of Mobile, AL, 
further reducing demand for--and prices of--our own small diameter 
timber. Without new uses and markets for our trees, there is little 
incentive to continue to invest in growing timber. Farming has been on 
the decline even longer. The creation of a bio-based energy and 
chemicals industry creates new opportunities for all those involved in 
all phases of the growing and harvesting of farm and forest products.
    The University of Alabama's Alabama Institute for Manufacturing 
Excellence (AIME) is the home of this new regional Alliance of 
industry, university, federal and state government agencies, private 
businesses, forest and farm landowners, and landowner associations 
across the southeastern United States.
    There are 29 organizations and companies, from South Carolina, 
Georgia, Alabama, Mississippi, Louisiana, and Texas, now participating 
in the Alliance.
    While there are differences in economic circumstances among states, 
the rural economies in all thirteen of the Southeastern United States 
have suffered from the closure and slowed production rates of pulp 
mills and the decrease in value of farm crops. Concurrently, the need 
for energy and the dependence on foreign oil continue to increase, 
driving up the use and cost of energy from fossil fuels.
    The Southeast, with its 214 million acres of forestland and 128 
million of the nation's 338 million acres of total farmland, has 
renewable, expandable, and sustainable sources of energy and chemical 
feedstocks. The region also has an under-utilized labor force, the 
business infrastructure, and the scientific resources needed to bring 
the concept of a bio-based industry into reality.
    With the wise use of this enormous land resource, combined with our 
technical and business capabilities, it will be possible to 
significantly reduce our dependence on fossil fuels without degrading 
air and water quality or compromising our timber and food supplies, 
while also creating jobs in our rural economy.
    The bio-based energy and chemicals industry will create a high-
volume, non-cyclical market for forest and farm crops. When well 
established, it will revive the depressed timber market and create a 
demand for agricultural crops.
    The Alliance brings together the resources, researchers, government 
agencies, and business interests necessary to make rural development in 
the Southeastern U.S. a reality. Creation of this industry will reduce 
our dependence on fossil fuels, much of which is imported, by using 
forest and farm products which are renewable, sustainable, and 
expandable. The potential positive impacts on the economy and 
environment are substantial. The Alliance will be the conduit for 
collaboration, co-ordination, communications and actions, which will 
result in bringing much needed change''.
    A roadmap for Agriculture Biomass Feedstock Supply in the United 
States was recently published in a report by the U.S. Department of 
Energy Efficiency and Renewable Energy, Biomass Program ( DOE, 2003). 
The report stated a goal that biomass will supply 5% of the nation's 
power, 20% of transportation fuels, and 25% of chemicals by 2030. A key 
concept on which the roadmap is based upon is the--Biorefinery--which 
processes biomass into value added product streams. The roadmap 
considered that it will be necessary for USDA Laboratories and the 
Nation's Universities to develop the science and technology base for 
the biorefinery as well as address the important knowledge gaps that 
have been identified. The benefits of using biomass to drive a 
biorefinery supplying domestically produced power, fuels and products 
were considered to be significant, including decreased demand for 
imported oil, revenue to a depressed agriculture industry and 
revitalized rural economies. Four high level goals were identified for 
the feedstock required for the biorefinery concept--Biomass 
Availability, Sustainability, Feedstock Infrastructure and System 
Profitability. Currently, the primary biomass resource is obtained from 
wood waste produced by forest products industries. The amount of this 
resource could be significantly increased by using thinnings material 
removed from forests for fire hazard reduction in the Western states 
and for improving the health of the forests in Southern states.
Conversion of Wood Biomass into Energy and Products
    Wood biomass can be converted into a range of products using 
several different processes. The biomass can be burnt to produce energy 
or heat, converted into fuels which can be burnt to produce heat or 
power or used to produce chemicals and materials. There are a large 
number of technologies under development which could become commercial 
and provide the needed conversion routes for the wood biomass.
The South's Industrial Forest Products Biomass
    Changes in global trade in wood products have resulted in reduced 
demand for wood pulp produced in the U.S. Numerous U.S. pulp and paper 
mills have been closed in recent years and industry experts predict no 
new capital investment for U.S. mills due to environmental concerns and 
international competition. Sawmills that previously depended on revenue 
from the sale of chips for pulp have seen chip prices dramatically 
decline in recent years. A survey of 12 sawmills located in the 
southeastern U.S. shows that chip prices have declined from about $24/
ton in 1990 to $21.50/ton in 2002 (Rountree, 2003). This 11-percent 
price decline becomes an approximate 20-percent decrease if normal 
inflation is considered.
    Solid wood waste has been classified as municipal solid waste, 
construction and demolition debris, primary timber processing mill 
residues and logging residues ( McKeever, 2003). The National volume of 
waste wood generated was estimated to be some 230 Million dry tons, 
with 125 Million tons being combusted and not used and 104 Million tons 
available for recovery. Of the 104 Million recoverable tons 52 Million 
tons was generated in the South.
    Utilization of industrial sawdust and bark for energy biomass has 
been practiced by industrial forest products companies for centuries. 
Typically, sawmill lumber dry kilns utilize the steam generated by 
burning less desirable wood waste, mainly bark and sawdust. Higher-
value wood chips from green lumber edgings and trimmings have had much 
higher value as feedstock for the production of pulp and paper than for 
energy. However, lower demand for industrial wood chips as pulp and 
paper operations have been reduced has resulted in lower prices for 
industrial wood chips. For this reason utilization of industrial wood 
chips as well as bark and sawdust for energy production may now be 
feasible.
The South's Plantation Pine Resource
    Plantation pine silvical practices have been adopted for a rapidly 
increasing share of timberlands in the South as shown by the increased 
annual acreage of trees planted over time in Figure 1. From 1952 to 
1996, 57 million acres of pines were planted in the southern U.S. 
(Smith et al. 2000). In 1994, total privately owned plantation pine 
acreage in the South was 30 million acres or about 47 percent (Siry and 
Bailey 2003) of the total forested privately owned acres. Modern 
plantation pine silvical practices call for planting of genetically 
improved seedlings that grow 16-percent faster than unimproved stock. 
Wide, between-seedling spacing followed by early thinning has resulted 
in rapidly increased growth rates (Zobel and Jett 1995). Siry and 
Bailey estimate that rate of pine growth in the south increased an 
average of 2.6 percent annually between 1987 to 1994.
[GRAPHIC] [TIFF OMITTED] T4533.001


    Thinning is a forest management practice which removes small trees 
to reduce stand density and improve the quality of merchantable stems. 
Fast-grown plantation pine thinnings frequently contain up to 80 
percent of their volume in juvenile wood (Zobel and Sprague 1998). 
Presence of a large percentage volume of juvenile wood in young 
southern pine stems results in serious problems in utilization of the 
material harvested. Juvenile wood is characterized by lower density, 
lower transverse shrinkage, higher longitudinal shrinkage, lower 
strength, thinner latewood bands, more compression wood, higher initial 
moisture content, thinner cell walls and lower cellulose to lignin 
ratio (Bendtsen 1978). Pulp yields from juvenile wood are lower and 
lumber is considerably weaker and very prone to warp (Zobel and Sprague 
1998).
    Juvenile wood is contained in approximately the first 10 growth 
rings of pine tree stems. As plantation pine trees add mature wood, 
following this initial 10-year period, the relative percentage of 
juvenile wood decreases such that utilization problems from older trees 
are reduced. For this reason, the most severe and objectionable 
utilization problems occur in trees from first and second thinnings 
rather than older sawlog-sized timber.
    The described utilization problems for fast-grown plantation pine 
are particularly severe for wood from first thinnings which typically 
contain a very high proportion of juvenile wood. A survey of 
Mississippi's wood industry found that many companies are restricting 
purchase of timber to ages above 17 years because of the high 
percentage of juvenile wood contained in younger timber (Stiglbauer, P. 
2002). This restriction has resulted in landowners encountering 
difficulty in having their timber thinned in accordance with their 
planned harvest schedule.
    Pulpwood stumpage prices have declined even more dramatically than 
industrial wood chip prices as a result of slackening demand for pulp 
feedstock. Figure 2 shows that prices declined from over $10 per green 
ton in 1997 to $6.50 per green ton in 2002 (Rountree 2003). If 
inflation is factored into these prices the value of pine pulpwood 
stumpage has declined by about 50 percent in 5 years. Siry and Bailey 
(2003) predict that increased supply and slack demand will result in 
low southern pine pulpwood stumpage prices through the year 2030.
[GRAPHIC] [TIFF OMITTED] T4533.002


Forest Energy Plantations
    Considerable research has been performed to develop short rotation 
intensive culture (SRIC) forestry plantations for energy. 
Traditionally, this research has focused on production of energy from 
fast-growing hardwood species such as eastern cottonwood, American 
sycamore, sweetgum, willow and non-native species such as the eucalypts 
(Bruce 1994). Until recent years the value of pine plantation thinnings 
for pulp and paper feedstock has been so high that utilization of this 
resource for energy has been prohibitive. However, current and future 
economic trends indicate that utilization of pine thinnings for energy 
feedstock is becoming a viable alternative.
    Lack of perceived economic viability has limited the research 
performed for utilization of pine plantation materials for biomass 
production. Eight-to-10 year rotations for plantations are typically 
applied when managing hardwood stands for biomass (Portland 1994). If 
thinned by a similar early harvest schedule the harvest of plantation 
pine at age 10 for biomass would release residual pine stems to 
increase their growth rates with the rate increase roughly proportional 
to the severity of thinning. Faster growth after 10 years of age would 
act to solve the juvenile wood problem by increasing the percentage of 
mature wood in relation to the juvenile wood core. By contrast, pine 
plantation first thinning removal for pulpwood is usually practiced on 
stands at about 15 years of age. In addition to the earlier increased 
growth of the residual stand there are increased economic benefits to 
landowners if income from thinnings occurs earlier in the rotation 
(Bullard and Straka 1998).
    Based on the silviculture applied to produce, it is probable that 
whole-tree chipping will also be the most practical and economical 
harvesting method for pines. Largest volume of biomass and the least 
amount of handling of stems would occur if needles, branches, bark and 
stems are harvested and utilized for a value-added product. As Table 1 
indicates, the inclusion of needles and top wood components will 
increase the moisture of the biomass to some degree. Branches will have 
no influence on moisture content and inclusion of bark will reduce the 
total biomass moisture content substantially. Net biomass moisture 
content will be a variable function of the volume that each component 
represents for each tree. However, a net moisture content of about 125 
percent may represent a practical working average.
[GRAPHIC] [TIFF OMITTED] T4533.003


Biomass and Energy Availability
    The volume of thinning material available from the south's 
timberlands can only be inferred from the available data. Forest 
inventory data do not provide volume information on trees less than 
5.0-inch diameter breast height (dbh). The volume of the dbh class most 
likely to be utilized for energy is the 5.0 to 6.9-inch class which is 
the minimum size for which data are available. The volume of material 
contained in this dbh class is 11.4 billion ft3 (Smith et al. 2001). A 
conservative assumption is that the available volume of material from 
smaller diameters of 2 to 4.9-inch dbh stems is equal to that contained 
in the 11.4 billion ft3 value for the 5.0 to 6.9-inch dbh class. This 
results in an estimate of available biomass from all pine stands of 
about 23 billion ft3. The volume available in plantations is 
approximately 47 percent of this value (Siry and Bailey 2003), or10.8 
billion ft3. If 20 percent of total plantation volume is thinned, the 
total biomass currently available for removal from application of these 
systems is 2.2 billion ft2.
    While considerable research has been performed to determine 
silvical and harvest volumes for hardwood species, only test sites have 
resulted. No large-scale hardwood biomass energy plantations are 
available. However, development of viable fuel markets would result in 
application of the research performed over the three decades.
    The net usable heat from combustion of one pound of dry wood is 
4300 Btu. Green wood at 100-percent moisture content provides slightly 
more than 70 percent of this value at 3020 Btu (Koch 1992).
    BioOil can be taken as an example of a potential liquid fuel 
obtained from wood biomass. The percentage yield of BioOil varies with 
the process applied but ranges from 40 to 75 percent with 60 percent 
agreed on by most practitioners as a safe estimate for systems designed 
to maximize BioOil yield.
    The heating value per pound of BioOil is 6800 Btu/lb (Bridgewater 
et al. 1999). At 20-percent moisture content wood weighs 35.9 lbs/ft3 
which results in 21.5 lbs of BioOil per ft3 of wood to give 146,200 Btu 
of energy. Therefore, the 2.2 billion ft3 of pine available would 
provide 3.2 x 1014 Btus of energy if converted to BioOil.
Acknowledgements.
    I would like to thank Mr. Gene Quick, Forest Energy Associates and 
Dr Phillip Steele, Department of forest products, Mississippi State 
University, for providing me with information and data appearing in 
this testimony.
References
Bendtsen, B. A. 1978. Properties of wood from improved and intensively 
        managed trees. Forest Prod. J. 28 (10): 61-72.
Bridgewater, A., C. Czernik, J. Diebold, D. Meir, P. Radlein. 1999. 
        Fast Pyrolysis of Biomass: a Handbook. CPL Scientific 
        Publishing Services, Ltd. Newbury, UK. 188 p.
Bruce, A. P. 1994. Short rotation forestry in Loblolly pines. In Proc. 
        Of the Short Rotation Forestry in Loblolly pines. March 1-3, 
        Mobile, AL.
Bullard, S.H. and T.J. Straka. 1998. Basic Concepts in Forest Valuation 
        and Investment. Preuda Education and Training. Auburn, AL. 270 
        p.
Roadmap for Agriculture BioMass Feedstock supply in the United States. 
        DOE, November 2003.
Koch, P. 1992. Utilization of the southern pines, Vol. II: Processing. 
        USDA Forest Service, Southern Forest Experiment Station. U.S. 
        Govt. Printing Office, Washington, DC.
McKeever, D. 2003. Taking Inventory of Woody Residuals. Biocycle. July 
        2003, 31--35
Portland, C. J. 1994. Utilization of cottonwood plantations. In Proc. 
        Of the Mechanization in Short Rotation Intensive Culture 
        Forestry Conference. March 1-3. Mobile, AL.
Quick, G. 2004. Alliance formed to Advance Wood Biomass Energy. South 
        Carolina Forestry Association Journal 24(5) and (6).
Rountree, S. 2003. Chip prices at member sawmills. Unpublished report. 
        Southeastern Lumber Manufacturers Association. Forest Park, GA. 
        1 p.
Siry, J. P. and R. L. Bailey. 2003. Increasing southern 
        pine growth and its implications for regional wood supply. 
        Forest Prod. J. 53(1): 32-37.
Smith, W. B., J. L. Vissage, D. R. Darr and R. Sheffield. 2001. Forest 
        Resources of the United States. USDA Forest Service, North 
        Central Research Station, St. Paul, MN. 190 p.
Stiglbauer, P. 2002. The status and utilization of plantation pine 
        timber in Mississippi. M. S. Thesis. Department of Forest 
        Products, Mississippi State University. 68 p.
Zobel, B. J. and J. B. Jett. 1995. Genetics of Wood Production. 
        Springer-Verlag, New York. 337 p.
Zobel, B. J. and J. R. Sprague. 1998. Juvenile wood in forest trees. 
        Springer Publications. New York. 300 p.
                                 ______
                                 
    [A letter submitted for the record by The Honorable Janet 
Napolitano, Governor, State of Arizona, and The Honorable Dirk 
Kempthorne, Governor, State of Idaho, on behalf of the Western 
Governors' Association, follows:]

[GRAPHIC] [TIFF OMITTED] T4533.005

[GRAPHIC] [TIFF OMITTED] T4533.006

