[Senate Hearing 108-649]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-649

   BIOMASS USE IN ENERGY PRODUCTION: NEW OPPORTUNITIES IN AGRICULTURE

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

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION


                               __________

                              MAY 6, 2004

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry


  Available via the World Wide Web: http://www.agriculture.senate.gov


                                 ______

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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY


                  THAD COCHRAN, Mississippi, Chairman

RICHARD G. LUGAR, Indiana            TOM HARKIN, Iowa
MITCH McCONNELL, Kentucky            PATRICK J. LEAHY, Vermont
PAT ROBERTS, Kansas                  KENT CONRAD, North Dakota
PETER G. FITZGERALD, Illinois        THOMAS A. DASCHLE, South Dakota
SAXBY CHAMBLISS, Georgia             MAX BAUCUS, Montana
NORM COLEMAN, Minnesota              BLANCHE L. LINCOLN, Arkansas
MICHEAL D. CRAPO, Idaho              ZELL MILLER, Georgia
JAMES M. TALENT, Missouri            DEBBIE A. STABENOW, Michigan
ELIZABETH DOLE, North Carolina       E. BENJAMIN NELSON, Nebraska
CHARLES E. GRASSLEY, Iowa            MARK DAYTON, Minnesota

                 Hunt Shipman, Majority Staff Director

                David L. Johnson, Majority Chief Counsel

               Lance Kotschwar, Majority General Counsel

                      Robert E. Sturm, Chief Clerk

                Mark Halverson, Minority Staff Director

                                  (ii)

  
                            C O N T E N T S

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                                                                   Page

Hearing(s):

Biomass Use in Energy Production: New Opportunities in 
  Agriculture....................................................    01

                              ----------                              

                         Thursday, May 6, 2004
                    STATEMENTS PRESENTED BY SENATORS

Cochran, Hon. Thad, a U.S. Senator from Mississippi, Chairman, 
  Committee on Agriculture, Nutrition, and Forestry..............    02
Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member, 
  Committee on Agriculture, Nutrition, and Forestry..............    14
Coleman, Hon. Norm, a U.S. Senator from Minnesota................    09
Lincoln, Hon. Blanche, a U.S. Senator from Arkansas..............    08
Lugar, Hon. Richard G., a U.S. Senator from Indiana..............    04
                              ----------                              

                               WITNESSES
                                Panel I

Ewing, Hon. Thomas, Chairman, Biomass Research and Development 
  Technical Advisory Committee, Pontiac, Illinois................    06
Garman, Hon. David, Acting Under Secretary for Energy, Science 
  and 
  Environment, United States Department of Agriculture, 
  Washington, DC.................................................    05
Rey, Hon. Mark, Undersecretary for Natural Resources and 
  Environment, United States Department of Agriculture, 
  Washington, DC.................................................    02

                                Panel II

Gray, Hon. C. Boyden, Energy Future Coalition, Washington, DC....    24
Woolsey, Hon. R. James, Former Director of Central Intelligence, 
  Mclean, Virginia...............................................    21

                               Panel III

Lynd, Lee R., Professor of Engineering and Adjunct Professor of 
  Biological Sciences, Thayer School of Engineering, Dartmouth 
  College, Hanover, New Hampshire................................    35
McLaughlin, Samuel B., Researcher, Oak Ridge National Laboratory, 
  Oak Ridge, Tennessee...........................................    37
Richard, Tom, Associate Professor, Department of Agricultural and 

  Biosystems Engineering, Iowa State University, Ames, Iowa......    33
Zappi, Mark, Director, Department of Energy Mississippi Research 
  Consortium for the Utilization of Biomass, Mississippi State 
  University, Mississippi State, Mississippi.....................    31
                              ----------                              

                                APPENDIX

Prepared Statements:
    Coleman, Hon. Norm...........................................    44
    Ewing, Hon. Thomas...........................................    60
    Garman, Hon. David...........................................    56
    Gray, Hon. C. Boyden.........................................    74
    Lynd, Lee R..................................................    92
    McLaughlin, Samuel...........................................    98
    Rey, Hon. Mark...............................................    46
    Richard, Thomas..............................................    83
    Woolsey, R. James............................................    67
    Zappi, Mark..................................................    78
Document(s) Submitted for the Record:
    C. Boyden Gray (Attachments).................................   126
    ``Defeating the Oil Weapon'' by R. James Woolsey.............   118
    ``The New Petroleum'' by Senator Richard G. Lugar and R. 
      James 
      Woolsey....................................................   108
Questions and Answers Submitted for the Record:
    Hon. Tom Harkin to Hon. Tom Ewing............................   148
    Hon. Tom Harkin to Hon. David Garman.........................   154
    Hon. Tom Harkin to Hon. Mark Rey.............................   157


 
   BIOMASS USE IN ENERGY PRODUCTION: NEW OPPORTUNITIES IN AGRICULTURE

                              ----------                              


                         THURSDAY, MAY 6, 2004

                                       U.S. Senate,
          Committee on Agriculture, Nutrition and Forestry,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:06 a.m. in 
room SD-106, Dirksen Senate Office Building, Hon. Thad Cochran, 
[Chairman of the Committee], presiding.
    Present or Submitting a Statement: Senators Cochran, Lugar, 
Coleman, Harkin, and Lincoln.

      STATEMENT OF HON. THAD COCHRAN, A U.S. SENATOR FROM 
MISSISSIPPI, CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND 
                            FORESTRY

    The Chairman. The hearing will please come to order.
    Several months ago, I was pleased to notice on my calendar 
a meeting that was scheduled to take place in my office in the 
Capitol with former Director of Central Intelligence James 
Woolsey, former counsel to President George H.W. Bush, Boyden 
Gray, and my former colleague in the House of Representatives 
from Colorado, Tim Wirth.
    My first thought was what do these guys have in common? 
Then, why do they want to come together to see me? Well, I 
found out that their interest was to discuss biomass fuels as 
an alternative to petroleum, particularly in the operation of 
automobiles and the progress that has been made in the 
scientific community. I have discovered this option as 
something that should be, as a matter of public policy, 
explored more fully and more carefully than we are currently 
doing as a government or as a society.
    Here we are today to look more carefully into their 
suggestions to me about steps that could be taken and should be 
taken by the Congress to help advance this cause. During this 
hearing, we will explore the role that agricultural and 
forestry products can play in sustaining a reliable energy 
supply for our country for the future. Congress has previously 
recognized the promise in this area of interest; for example, 
in the year 2000, we passed the Biomass Research and 
Development Act; the Farm Security and Rural Investment Act of 
2002 devotes an entire title to renewable energy; and the 
Healthy Forest Restoration Act of 2003 contains incentives for 
commercial utilization of biomass.
    The idea of using these agricultural and forestry products 
for energy production is, therefore, not a new concept, but the 
process of developing technologies for conversion of these 
feedstocks is ever changing. Today, the Committee will hear how 
current programs are contributing to research, demonstration 
and application of these emerging technologies as well as ideas 
for future utilization.
    The Department of Energy tells us that worldwide energy 
consumption is projected to grow by 54 percent by the year 
2025. I hope that today's hearing will help us uncover 
information and suggestions and new policies that will help 
U.S. agricultural producers play an important part in helping 
make sure that we meet this ever growing need.
    We appreciate very much the panel that is with us this 
morning to open our hearing: the Honorable Mark Rey, 
Undersecretary for Natural Resources and Environment at the 
Department of Agriculture; David Garman, Acting Under Secretary 
of Energy, Science and Environment at the Department of Energy; 
and Thomas Ewing, Chairman of the Biomass Research and 
Development Technical Advisory Committee.
    We welcome you, and we ask that you proceed in the order in 
which I have introduced you to make opening statements and 
provide any other information you think would be helpful to our 
understanding of these issues.
    Mr. Rey, you may begin.

    STATEMENT OF HON. MARK REY, UNDER SECRETARY FOR NATURAL 
    RESOURCES AND ENVIRONMENT, UNITED STATES DEPARTMENT OF 
                  AGRICULTURE, WASHINGTON, DC

    Mr. Rey. Thank you, Mr. Chairman, and I am pleased to 
appear before you today to discuss the Department of 
Agriculture's efforts to advance biomass energy and thereby 
contribute to the energy security of our nation.
    I want to stress the strong support of this administration, 
as documented in the President's National Energy Plan, for 
developing domestic biomass as an important way to satisfy 
America's growing energy demand. As a result, one of USDA's key 
strategic goals is to increase the use and development of 
biomass energy.
    USDA has many exciting ongoing activities in this area. We 
support research and development and precommercial work as well 
as monitoring the role of biomass energy in energy markets and 
U.S. agricultural markets. USDA biomass energy activities 
address an array of forms and innovative technology such as 
starch and cellulosic ethanol, biodiesel from agricultural oils 
and anaerobic digestion for power.
    One of our areas of focus for us is the development of 
methane digesters for the production of electricity. This 
technology has positive environmental effects and excellent 
economic potential for producers as well. More than a year ago, 
the Natural Resources Conservation Service developed practice 
standards for methane digesters. These anaerobic systems break 
down animal waste, producing methane as a fuel source for the 
generation of electricity.
    The digesters can now be funded through the NRCS 
Environmental Quality Incentive Program. The agency has had 
excellent successes in assisting producers to incorporate 
digesters as part of an overall nutrient management approach to 
their farms. In turn, if market issues can be resolved, we 
believe the future holds a bright potential for widespread 
utilization of digesters and conversion to power.
    In terms of ethanol, USDA is looking beyond the current 
successes in ethanol development to future technologies beyond 
traditional starch-based methods of production. For example, 
the Forest Service's Forest Products Laboratory is researching 
ways to derive ethanol from biomass other than corn starch. 
Currently, researchers are studying the conversion of sugars to 
ethanol. The key in converting wood to energy is converting 
five and six carbon sugars to ethanol.
    Although this process proposes many challenges, the 
laboratory is making progress in expanding capacity in this 
area, making it possible for a much wider variety of materials 
to be converted to ethanol. Researchers estimate that ethanol 
from wood can make a significant contribution to the liquid 
fuels market.
    Now, I would like to focus on what we are doing to 
implement new authorities provided in the energy title of the 
2002 Farm bill. Section 9002 requires Federal agencies to 
increase their procurement of qualifying bio-based products. 
When fully implemented, the program should stimulate the 
development of a broad range of high-performing and 
environmentally friendly bio-based products. A proposed rule 
was published in the Federal Register in December, and once we 
have considered the more than 270 public comments, a final rule 
will be published later this year.
    Section 9006 authorizes loans and other assistance to 
businesses to purchase renewable energy systems and make 
efficiency improvements. Last year, we selected 114 
applications to receive funding to develop renewable energy 
systems. I would note that yesterday, Secretary Veneman 
announced $23 million in funding for this year. We anticipate a 
lot of interest in this and will be accepting proposals under 
this initiative for the next 74 days.
    Section 9010 expands bioenergy production and supports new 
production capacity. For the 2004 program year up to $150 
million has been authorized by Congress. Energy crops are 
included as eligible feedstocks. I also want to mention that 
USDA has an ongoing program of research to improve the 
economics of biomass energy. Our goals in this program are 
twofold: one, to overcome the technical barriers to developing 
biomass energy and two, to strengthen coordination with other 
Federal agencies and with universities, private sector 
companies and environmental organizations.
    Section 9008 provided USDA with $75 million through 2007 
for research and development grants, and as you have noted, the 
Healthy Forest Restoration Act expanded the scope of this 
initiative, integrating silvacultural activities and 
authorizing an additional $20 million through fiscal year 2007. 
Through this Biomass Research and Development Initiative, 
grants are available to eligible entities to carry out 
research, development and demonstrations on bio-based products, 
bioenergy, biofuels, biopower and related processes.
    In the 2003 program, USDA received approximately 400 
proposals, where were competitively evaluated in a process that 
included a joint USDA-Department of Energy technical merit 
review. Although the solicitation stated that $21 million would 
be awarded, an addition of $2 million from the Department of 
Energy resulted in $23 million in grant awards. In the fiscal 
year 2004 program, USDA and the Department of Energy intend to 
award up to $24 million.
    We are very pleased with the outcome of this initiative, as 
it has resulted in cooperative funding for a diverse and 
innovative array of products, including anaerobic digestion, 
biorefineries, biomass-focused forest management training and 
innovative use of feedstocks. We are optimistic about the 
future of this program and look forward to continuing 
collaboration and mutual progress between the Department of 
Energy and the Department of Agriculture.
    Taken together, our efforts will help advance agriculture's 
key role in realizing its potential in meeting the demand for 
clean, affordable and renewable energy. It is our conviction 
that this process will contribute both to the vitality of rural 
communities and the energy stability of our nation.
    That concludes my summary statement, and I would be happy 
to respond to questions from the members of the Committee.
    [The prepared statement of Mr. Rey can be found in the 
appendix on page 46.]
    The Chairman. Thank you very much, Mr. Rey, for your 
statement and your participation in this hearing. Before 
proceeding to hear from David Garman from the Department of 
Energy, I am pleased to yield to my friend and colleague from 
Indiana, Senator Lugar, for any opening statement or comments 
he would like to make at this time.

  STATEMENT OF HON. RICHARD LUGAR, A U.S. SENATOR FROM INDIANA

    Senator Lugar. I thank you very much, Mr. Chairman, for 
this opportunity. I appreciate the distinguished witnesses that 
you have brought together for this important hearing. I will 
ask that my opening statement be made a part of the record but 
simply applaud the forum that this presents once again to give 
some benchmarks of progress.
    This has been an important objective, I know, for the 
Chairman and for me for many years, and we see our former 
colleague Mr. Ewing here on this panel today. He has worked 
with us throughout that period of time, a distinguished member 
of the House committee. Thank you very much for coming. I look 
forward to hearing how things are progressing and supporting 
your efforts.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Lugar.
    I might indicate that we will make a part of this record an 
article that you and Jim Woolsey wrote several years ago, 1999, 
I believe, that will illustrate the fact that this is a subject 
that you and Mr. Woolsey have been interested in for some time 
and have taken the lead in pointing the way for Government 
policies to help ensure that we do take advantage of and 
alternative energy sources. Mr. Garman, you may proceed.

         STATEMENT OF HON. DAVID GARMAN, ACTING UNDER 
 SECRETARY FOR ENERGY, SCIENCE AND ENVIRONMENT, UNITED STATES 
              DEPARTMENT OF ENERGY, WASHINGTON, DC

    Mr. Garman. Thank you, Mr. Chairman and members of the 
Committee.
    I appreciate this opportunity to discuss the Department of 
Energy's biomass R&D program. I am especially pleased to 
testify with the Undersecretary of Agriculture. Our two 
agencies have been working together in an unprecedented manner, 
and we have done so as a direct consequence of the provisions 
in the Biomass R&D Act of 2000, authored by Senator Lugar and 
other members of this Committee.
    Candidly, the law that you wrote established the framework 
through which we coordinated our activities, and I am certain 
we would not have worked together as well as we have without 
that law. I also want to thank and recognize the work of Tom 
Ewing and the entire Biomass R&D Technical Advisory Committee. 
They are performing a tremendously important task, giving us 
their time and lending us their expertise.
    Biomass is a tremendous national asset that is not widely 
recognized or appreciated beyond the members of this Committee 
and a few others. We think of biomass mainly as a source of 
liquid fuel products such as ethanol and biodiesel, but biomass 
can also be converted to a multitude of products that we use 
every day. In fact, there are very few products that we use 
today that are made from a petroleum base, including paints, 
inks, adhesives, plastics and other value-added products that 
cannot be made from biomass.
    Biomass is also a proven option for generating electricity 
through the direct combustion of wood, municipal solid waste 
and other organic materials, co-firing with coal and high-
efficiency boilers or combustion of biomass that has been 
chemically converted into fuel oil. Biopower in 2002 
contributed almost 71 percent of our nonhydroelectric renewable 
energy generation and about 1 percent of total U.S. energy 
supply.
    The Department estimates that the total available domestic 
biomass resource beyond that we use for food, feed and forest 
products is currently between 500 and 600 million dry tons per 
year. Within the Continental U.S., we think we could literally 
grow and put to use hundreds of millions of tons of additional 
plant matter each year on a sustainable basis.
    These biomass resources represent about 3 to 5 quadrillion 
BTUs of energy, or quads, or as much as 5 or 6 percent of total 
U.S. energy consumption. In terms of fuel and power, that 
translates into 60 billion gallons of fuel ethanol or 160 
gigawatts of electricity. That is enough electricity or enough 
energy to meet 30 percent of U.S. demand for gasoline or 
service 16 million households with electricity.
    The question is why do not we do it, and the major issue 
that we confront is cost. Current technologies cannot convert 
biomass resources to fuel and products for the mass market at a 
widely competitive cost, and we believe that the best way to 
produce fuel, power and product from biomass in a cost-
competitive manner is through what we call an integrated 
biorefinery, which produces a suite of products, much in the 
manner of an oil refinery.
    By producing multiple products, a biorefinery could take 
advantage of the differences in plants and other biomass 
feedstocks and maximize the productivity and value from each of 
those feedstocks. A biorefinery that produces high-value 
chemicals, for instance, could enhance the economics of 
producing higher volumes of lower value liquid transportation 
fuel, all while generating electricity and process heat for its 
own operation.
    To achieve high volumes of products and fuel, such a 
refinery would need to take advantage of the vast supplies of 
corn stover and other lignocellulosic biomass, which is really 
the ``everything else'' in biomass beyond the simple sugar, 
starch and proteins that are valuable inputs to our food 
supply.
    Working with the Biomass R&D Technical Advisory Committee 
and the Department of Agriculture and others, we have developed 
our strategic multi-year and annual program plans targeted to 
overcoming the technical barriers that stand between us and the 
achievement of the integrated biorefinery utilizing this 
cellulosic material. The Department's 2005 budget request for 
biomass activities is $81.3 million. Last year, about half of 
the biomass budget was earmarked for Congressionally-directed 
projects, and we are performing these projects as we have been 
directed to do, but the requirement to do so has resulted in 
our reducing research and work at some of the national 
laboratories.
    As a consequence, some of the work and some of our work 
plans have been delayed, and our timeframes for achieving our 
goals have slipped a little bit, but we remain very, very 
excited about the prospects for biomass and enhancing not only 
the economic prosperity of rural America but the energy 
security of the nation.
    I did not really dwell on it in the testimony, but I also 
want to highlight the potential that biomass has in the coming 
hydrogen economy, the hydrogen energy economy, both in the near 
term and the long term. One of the tremendous assets of 
hydrogen as an energy carrier is that it can be produced from 
multiple feedstocks, primary energy inputs, and biomass is 
certainly a very, very important energy input that we are 
considering as we look forward to the President's Hydrogen Fuel 
Initiative.
    I will stop there and would be happy to answer any 
questions the Committee has either today or in the future. 
Thank you, Mr. Chairman.
    [The prepared statement of Mr. Garman can be found in the 
appendix on page 56.]
    The Chairman. Thank you very much.
    We are pleased to welcome to the hearing our former 
colleague in the House of Representatives, Tom Ewing from 
Illinois, who served in the House from 1991 until his 
retirement in 2001.
    We appreciate your participation in the hearing, Tom. You 
may proceed.

STATEMENT OF HON. THOMAS EWING, CHAIRMAN, BIOMASS RESEARCH AND 
  DEVELOPMENT TECHNICAL ADVISORY COMMITTEE, PONTIAC, ILLINOIS

    Mr. Ewing. Thank you, Mr. Chairman.
    It is a pleasure to be here today as Chairman of the 
Biomass Research and Development Technical Advisory Committee. 
I was the House sponsor of this legislation upon the request of 
Senator Lugar, and I would not want to proceed further without 
giving the Senator the credit, for this was his idea and his 
brainchild, and without your initiative, Senator, probably we 
would not have the act that we have today.
    The Biomass R&D Act recognized the outstanding potential 
for benefit offered by biomass technologies. The act also 
acknowledged the need to integrate and coordinate the diverse 
R&D efforts currently taking place across the Federal 
Government, in industry, and at the State level. The primary 
objective of the Biomass Initiative is to coordinate the 
development of environmentally sound, cost-effective bioenergy 
and bioproducts.
    The Advisory Committee is comprised of individuals from 
industry, academia, nonprofits, from agriculture and forestry 
sectors to provide to the Secretaries of Agriculture and Energy 
and their points of contact, the gentlemen here at the table 
with me today, advice on the technical focus and direction of 
requests for proposals issued under the Bioinitiative and 
advice on the procedures for reviewing and evaluating 
proposals.
    The Advisory Committee recently ended its third year of 
activity. To date, the Committee's activities have resulted in 
five major products: one, in December of 2001, the Advisory 
Committee submitted a preliminary set of recommendations to the 
Secretaries of Energy and Agriculture on the potential for 
biomass research and development.
    Two, in June of 2002, the Secretaries of Agriculture and 
Energy requested that the Advisory Committee develop a vision 
and road map documents to guide future biomass research and 
development activities. The vision and road map were developed 
over the next several months. The documents now serve as a 
resource for the agencies in planning their biomass research 
and development portfolios. The vision for bioenergy and 
biobased products in the United States was released in October 
of 2002 and set far-reaching goals to increase the role of 
biomass in the U.S. economy.
    Three, in January of 2003, the Advisory Committee released 
the corresponding road map for biomass technologies. The 
purpose of this document was to outline a research and 
development road map and identify public policy measures for 
promoting and developing environmentally desirable biomass 
fuels, power and products in order to help achieve the goals 
established by the Advisory Committee in their vision document. 
The road map is organized by major categories of research and 
development that will be needed to achieve the vision goals.
    Four, in December 2002, the Committee submitted a set of 
R&D recommendations to the Secretaries of Energy and 
Agriculture based on research strategies outlined in the road 
map.
    Five, in 2003, the Advisory Committee reviewed the USDA/DOE 
joint solicitation request for process and awards in order to 
develop its recommendations. During that year, the Committee 
also evaluated the USDA and DOE biomass research portfolios and 
investments, and the Committee developed the assessment of the 
portfolios and developed recommendations to both the 
Secretaries of Energy and Agriculture.
    Finally, the committee also made specific recommendations 
for more aggressively pursuing the Federal procurement of 
biomass products. The Advisory Committee has been pleased to 
find that USDA and DOE have increased their level of 
coordination and collaboration as a result of the Biomass 
Initiative. The Committee also did not find significant 
duplication of biomass R&D by the USDA and DOE in the area of 
feedstock productions.
    Of major concern to the Advisory Committee is its belief 
that the Department's current biomass program in the current 
policy contexts are not adequate to achieve the goals set forth 
in the vision without an order of magnitude increase in 
financial and policy support for biomass. Specific steps in 
this direction are outlined in the full text of my comments 
submitted to the Committee.
    We are looking at 2004, and the Committee plans to complete 
the following: we want to respond to the USDA and DOE regarding 
aggressive Federal purchasing of biomass products, develop 
detailed recommendations regarding the agencies' joint 
solicitation; track progress in achieving the Committee's 
vision goals; discuss cellulose ethanol gasification and co-
firing and the history of the Federal Government's effort in 
these areas and discuss hydrogen power.
    Mr. Chairman, my complete prepared statement has been 
submitted, and I would be happy to answer questions. Thank you.
    [The prepared statement of Mr. Ewing can be found in the 
appendix on page 60.]
    The Chairman. Thank you very much, Congressman, for your 
participation in the hearing.
    Before we proceed to questions of the panel, I am pleased 
to recognize the distinguished Senator from Arkansas, Ms. 
Lincoln, who has joined the hearing.
    Any opening statement or comments you would like to make at 
this time?

STATEMENT OF HON. BLANCHE LINCOLN, A U.S. SENATOR FROM ARKANSAS

    Senator Lincoln. Thank you, Mr. Chairman. I would like to 
make just a few brief statements, and then, we will go on to 
some questioning.
    I just want to applaud the Chairman for holding this 
hearing. It is tremendously exciting to me that we are engaging 
in this issue and really talking about it, so I want to 
compliment the Chairman for being willing to hold this hearing 
and hopefully joining me in the excitement that I find in this 
issue and the potential that we have for our States and for our 
country.
    It is such a very important topic of converting our vast 
agricultural biomass resources to transportation fuels and to a 
host of other products that we can use often what we think of 
only as trash or left-over but to bring that into an enormously 
useful world of products that we can provide.
    I have worked to promote the use of agricultural products 
as a source of fuel throughout my public service, and it is not 
only an agricultural issue but also a security issue. Now more 
than ever, we must reduce our dependence on foreign oil and 
look toward renewable sources of energy. This hearing today is 
the beginning, but certainly, there are multitudes of 
opportunities for us to begin that search.
    I believe that the President and the Congress should 
consider developing a large-scale biomass and biorefinery 
initiative. We should look at the Clean Coal Program. A lot of 
what we have done there, we can see in evidence of what we can 
do and do in a better way. I know even in my travels, running 
into scientists in the airports and talking about some of the 
research that we have been able to get out of biomass and some 
of the potential that the biomass has, particularly our 
agricultural biomass is enormous, and the excitement out there 
in the investigative world, in the research world, is 
phenomenal, and we on Capitol Hill must seize that excitement. 
We must move forward in supporting these initiatives.
    With the proper financing and the policy focus, I believe 
we can help our farmers and others turn these farm fields of 
ours and many of our industries in our States into the energy 
fields of tomorrow while they still continue to produce the 
safest, most abundant and affordable food supply on the globe. 
In order to create favorable market conditions for biofuels, we 
need market support and tax incentives to foster these 
conditions, and with today's depressed market for farm 
commodities oftentimes, and it does become often cyclical, 
biomass will serve as a ready new market for surplus farm 
products.
    I know that in my example in Arkansas, as the rice hulls in 
my State that are piling up; we cannot burn them anymore 
because of clean air requirements. Now, with new industrial 
enzymes coming available, we have the hope that we can convert 
these crop residues to useful ethanol transportation fuel.
    The investment now in the biomass industry will level the 
playing field and create new opportunities in rural communities 
in Arkansas and nationwide. I am excited, and I very much 
appreciate the Chairman, because I do think that this is an 
issue that has tremendous potential for our country, for our 
States and certainly something that is near and dear to my 
heart, and that is our agricultural producers.
    We appreciate the panel being here; look forward to further 
discussions, questions today, and certainly the other panels 
that will be here.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Lincoln for your 
participation and leadership in this hearing.
    Senator Coleman from Minnesota has joined our hearing, and 
I would be pleased to yield to you for any opening statement or 
comments you would like to make at this time.

 STATEMENT OF HON. NORM COLEMAN, A U.S. SENATOR FROM MINNESOTA

    Senator Coleman. Thank you, Mr. Chairman. Very briefly, Mr. 
Chairman, I have a more complete statement here that I would 
like to have entered into the record. I want to join my 
colleague from Arkansas, Mr. Chairman, in thanking you for your 
leadership on this issue. In Minnesota, we have United States 
Steel up in Northeast Minnesota. It is the largest energy user 
in the State. They are looking at opportunities to use biomass 
to cut down the cost of energy, which is a big issue for them.
    We have a lot of forestry up there, and we have wood chips 
and a whole range of other things that create opportunity. I 
had a chance to visit and check out an anaerobic digester and a 
1,400-cow dairy farm that is providing energy not just to the 
farm but to the local co-op. Although we often talk about 
biomass in terms of rural issues, in St. Paul, Minnesota, the 
city which I had the great pleasure to be the mayor of for 8 
years, we have a biomass facility now operating as part of 
District Energy, which provides heating for the entire downtown 
area of St. Paul.
    This is something that is really universal that helps 
citizens in every corner of the State. We need to do more. 
There are a few things I know that are before us right now that 
will continue to move biomass on the forward track it has been 
on. The renewable energy provisions of the Farm bill are an 
important part of that. There is also the need to expand the 
Section 45 tax credit through 2006 and ensure that it applies 
to biomass projects.
    The Senate is poised to get this passed. I hope we do so. I 
hope this hearing spurs us to do even greater things for 
something that really holds great hope for meeting America's 
energy needs in the future.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator.
    [The prepared statement of Senator Coleman can be found in 
the appendix on page 44.]
    Mr. Rey, I appreciate very much the discussion that you 
gave us with respect to the provisions of current law that 
authorize certain projects. In the Farm bill, we provided 
authority for $22 million each year to fund renewable energy 
systems. I wonder whether you think this is a program that has 
enough authority. Should we consider expanding that at this 
time? Are there a number of biomass projects available to be 
funded around the country that offer hope for achieving the 
goals that we have discussed here this morning?
    Mr. Rey. Well, we had no trouble awarding the $22 million 
in the fiscal year 2003 program, and we have recently published 
a Notice of Funding Availability for $23 million in fiscal year 
2004 grants. If you would like, Mr. Chairman, as we get the 
response to that, we can keep you apprised of what sorts of 
responses we are getting, what kinds of systems are being 
suggested, and we can also give you an idea of how the number 
of responses and requests would compare with the $23 million in 
2004 funding that is available.
    The Chairman. I notice that in your testimony, Mr. Garman, 
you suggested that there is a goal of establishing the first 
large-scale biorefinery based on agricultural residues by the 
year 2010. What is the progress that is being made to indicate 
to you that we may be able to achieve that goal? What are the 
steps that are being taken now?
    Mr. Rey. We have been working closely, and let me say with 
the Department of Agriculture and the mechanisms you have 
established using both, farm bill money and our money to do 
joint solicitations to work on the underlying science and 
technology that has to be developed to make that kind of 
refinery possible.
    We have only done two or 3 years worth of projects. Those 
projects are underway now. We are starting to get some early 
results, but it is going to take some more time in the lab, 
some more time--I have not seen anything that tells me that was 
not the right goal to set. We can be on track; again, there can 
be slippage depending on the outcomes of budgets, but that 
remains our goal at this point, and we have seen nothing from 
the scientific results of the first three rounds of 
solicitations that we have done that would dissuade me from 
that view.
    The Chairman. Thank you.
    Senator Lugar.
    Senator Lugar. Thank you very much, Mr. Chairman.
    Let me just ask a general question based upon the fact that 
as the Chairman generously cited an article that Jim Woolsey 
and I wrote for Foreign Affairs in 1999. We were describing 
then a perilous situation with regard to our national security 
and our energy inputs from all over the Earth and specifically 
the declining amount of oil prospects we had in this country 
and the difficulty of getting natural gas.
    These debates continue in the energy debate this year more 
urgently and in terms of popular look-see at this, the price of 
gasoline at the pump goes up, and it is a very large political 
issue. The fact is the debate has, it seems to me, moved only 
incrementally in the 5-year period of time with most people who 
are savants at foreign policy pointing out again how perilous 
our situation is becoming.
    Toby Maxwell, a well-respected oil analyst, points out that 
as a matter of fact, even the foreign reserves, which we have 
always anticipated were relatively limitless are not; that we 
may have reached a tipping point in which the world is actually 
going through a quantity of oil and natural gas resources that 
comes to an end at some point.
    I expect those who are around this table when that time 
comes will be very urgent about that situation. This is no 
fault of any of the Departments here today. You are doing your 
best. As you point out, Mr. Garman, even given the $81 million 
you have, Congress has pigeonholed off $40 million, so you 
really could not quite get on with all of those projects.
    There still is obviously not the sense of national urgency 
quite apart from Congressional urgency. Even if there was, the 
problems that we saw then and now are that even taking corn for 
ethanol, the cost of using corn and that process always has 
been more expensive than simply the petroleum-based situation. 
Maybe the cost gap is narrowing, but a subsidy of one form or 
another has been in play.
    This has regularly been attacked as pork barrel politics 
for corn farmers. Leaving aside the validity of that attack one 
way or another, the fact is that we would have cost 
differentials elsewhere. Just theoretically, is it ever going 
to be possible to narrow the gap so that, for example, a corn-
based ethanol costs the same or less than petroleum-based, or 
if not corn-based ethanol, a biomass solution of some other 
type that, in fact, through American ingenuity, comes in at 
less?
    Now, that does not mean even if it did, in my judgment, 
people would leap to it. The infrastructure that now supports 
the petroleum and natural gas business is out there, and the 
infrastructure that supports the collection of biomass, 
whatever it is, and the transportation of it and the refining 
and so forth is not there.
    Can you give us some national optimism that it 
scientifically is possible to come to a point in which, in 
fact, you make the economic case, it just simply costs less, 
quite apart from how you have been doing it all these years?
    Mr. Garman. Well, with the current set of policy measures 
and subsidies in place, I can say with some assurance that 
ethanol, dry mill ethanol producers today are making money and 
getting a good return on investment.
    Now, their profit margin has been inhibited in recent years 
by the high price of natural gas that they need to produce that 
ethanol. They have to--it is a pretty large energy input, which 
is why our vision of the integrated biorefinery, your vision of 
an integrated biorefinery is on target, because it can produce 
much of or all of the energy it needs for its process, heat and 
energy inputs.
    I believe there is reason for optimism here. Let me qualify 
that a little bit, provided we are able to break that barrier 
of using the cellulosic material as the feedstock. That is very 
important, because we in this nation use about 135 billion 
gallons of gasoline each year, and we are excited about the 
prospect through the renewable fuels legislation that the 
Senate is considering getting up to 5 billion gallons of 
ethanol production each year.
    We do not know exactly where the point is, but when you get 
much above 5 billion or 6 or 7 billion gallons, you start to 
impede on other values we have: how much arable land do you 
want to produce? How much do you want to take starch and sugars 
out of food production to go into energy production? You start 
to have some problems.
    If we break through the technical barriers that prevent us 
from using the cellulosic material and waste, then, as I 
indicated in the testimony, we can get up to around 
theoretically as much as 60 billion gallons a year, and that is 
a large percentage of our needs.
    Now, when you take the next step and look at how biomass 
can be converted to hydrogen, as can natural gas, as can coal, 
as can water if renewable energy or nuclear energy is applied, 
then, you have a multitude of domestic feedstocks pointed 
toward the one fuel. That could be a tremendous advantage for 
us.
    I have probably said too much, but the bottom line answer 
is biomass, we think, plays an important role today and will 
play an increasingly important role in meeting our energy needs 
for the----
    Senator Lugar. On the cellulosic idea, though, if you 
were--on a scale of 1 to 10, through the dead start and 10 
being there that you really have, where is that?
    Mr. Garman. Our current estimates are that ethanol from 
cellulosic material probably can be produced at a cost of 
around $2.50 per gallon. Our 2012 target is $1.07 per gallon.
    Senator Lugar. $1.07?
    Mr. Garman. Yes, sir.
    Senator Lugar. All the way from $2.50 to $1.07.
    Mr. Garman. Yes.
    Senator Lugar. Through a new process.
    Mr. Garman. There is, you will hear, in later testimony on 
the next panel, there is an entity in Canada that is producing 
small commercial amounts of cellulosic biomass. I do not know 
with any precision their costs or how much they are actually 
shipping, but they have begun. That is an indicator to me that 
the time is coming. We produce cellulosic--ethanol from 
cellulose at a pilot scale plant at the National Renewable 
Energy Lab in Golden, Colorado today. We are talking about 2012 
or so before we think it can realistically compete with 
gasoline.
    Senator Lugar. That, optimistically, would--out of the 135 
billion gallons we need as a country for everything, 60 might 
come from this thing if you had the breakthrough on cellulose, 
and that might become in the cars by 2010, 2012, from what you 
are saying.
    Mr. Garman. Yes, and let me add, of course, this morning, 
oil was priced in the Asian markets this morning at around $40 
a barrel.
    Senator Lugar. Yes.
    Mr. Garman. Of course, when the competing fuel is priced 
higher, that can hasten the time when biomass-derived fuels can 
compete.
    Senator Lugar. Now, then, the step to hydrogen, where does 
that lie, if 2010-12 is somewhere in the neighborhood of where 
the first jump comes?
    Mr. Garman. Well, there are two methods that we can use to 
produce hydrogen from biomass, readily, just off the top of my 
head. One is through gasification, what we call the synthetic 
gas or the thermochemical platform, where you can produce a gas 
from biomass, you can gasify it, which makes a very hydrogen-
rich gas. You can strip off that hydrogen and use that as fuel. 
We are beginning to explore that today.
    In the nearer-term, because hydrogen is very difficult to 
store and move around, ethanol could serve as a hydrogen 
carrier, where people could produce ethanol the way they are 
today; it could be distributed the way it is today to local 
filling stations and then, at the filling station, the ethanol 
could be converted to gaseous hydrogen, and we have 
demonstrated some technologies to do that. That is a method 
where ethanol could continue to play in the transition years of 
hydrogen, even if we have not dealt with all of the issues 
related to gasification.
    We are trying to look at all of these things in a balanced 
way and pursue the avenues we think are most promising 
technically.
    Senator Lugar. Mr. Chairman, I wanted to ask one further 
question----
    The Chairman. Sure.
    Senator Lugar [continuing]. If I may, of Congressman Ewing, 
because he cited the act that we worked on in 2000 and which 
created the panel or the Advisory Committee that he speaks for 
today. How has that worked? Do the Energy Department and 
Agriculture work together? Has the coordination situation that 
we envisioned coming to pass?
    Mr. Ewing. We found a very good attitude of cooperation 
between the two, and I have been very pleased with it. We have 
just scratched the surface with the act that was passed in 
2000, and I doubted I would ever appear before a Committee of 
the Congress and say we need more money, but we really are not 
putting the resources yet into the development of new biomass 
energy sources, and what my observation is that there is an 
incredible amount of interest out there across the country in 
innovative ideas that they would like to have some help. We get 
a lot more applicants for the money than we have money to go 
around.
    Senator Lugar. Thank you, Mr. Chairman.
    Mr. Garman. Could I add just one thing? I apologize, but I 
just want to stress that point the Department of Energy and the 
Department of Agriculture are two completely different agencies 
with two completely different cultures and outlooks and 
orientation. I never thought, because I was working for Senator 
Murkowski on the Energy Committee at the time your bill was 
passed, that these two agencies could work well together.
    We still have a ways to go, but thanks to this legislation 
and thanks to the work that the Advisory Committee puts us 
through, we are making great progress.
    Senator Lugar. Well, we have created homeland defense in 
advance here, coordinated these agencies.
    Thank you.
    The Chairman. Thank you very much, Senator.
    I am going to ask now our distinguished ranking minority 
member from Iowa, Senator Harkin, if he would like to make any 
opening statement and then proceed with any questions he has of 
this panel.

STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM IOWA, RANKING 
   MEMBER, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

    Senator Harkin. Mr. Chairman, thank you very much.
    I would just ask that my opening statement be made a part 
of the record. I apologize for being late, and I will just make 
a couple of observations and then go into my questions.
    First, I want to thank you, Mr. Chairman and the previous 
Mr. Chairman for the great leadership both of you have shown on 
this energy matter regarding agriculture and biomass. It was, I 
remember, several years ago when I sat not in this room but in 
the Ag Committee room listening to then-Chairman Lugar talk 
about cellulosic biomass energy, energy from cellulosic 
material, and I turned to my staff and said what is he talking 
about. Let us find out about this.
    It then evolved into the R & D bill that was passed in 
2000, and then, all of us working together put the first energy 
title ever into the Farm bill, the 2002 Farm bill. We are 
making progress and moving ahead and getting a better handle on 
this, and I am just delighted that we have this advisory panel 
set up, and I look forward to the next panel also coming in to 
talk to us about what they see as our energy future.
    While we are making progress, it seems to me that there are 
some possible stumbling blocks, and we are not moving fast 
enough. I am concerned about a report, Mr. Garman, that DOE 
just came out that gave a significant negative reassessment of 
the cost of making ethanol from cellulose. The previous 
assessment was $1.40 a gallon. You just mentioned now cost that 
it is up to $2.50 a gallon. Why was this changed? This is a 
pretty drastic change.
    Mr. Garman. Yes, and that is an excellent question, and I 
was somewhat alarmed to see that jump as well, because I had it 
on a little card I carry around with me all the time, the 
current estimate, $2.40. It has been revised to $2.75, and I 
use $2.50 or above. After talking to some folks in the chemical 
business, I am reassured that this is normal; in fact, It is 
fairly said that when we said we thought we could do it at 
$2.40, the professionals in the chemical business did not 
believe us. They said yes, when you are first discovering a 
scientific frontier, you make an estimate. Then, as you start 
to delve into it and start to really and truly understand the 
technical obstacles that confront you, that estimate usually 
starts to go up. This was actually a gentleman from DuPont who 
was telling me this.
    Then now, they believe us. Now, they say, OK, $2.50, $2.75, 
now, you are talking. That is really what it is, because then, 
that shows us you have done the scientific work, and you have 
really baselined this thing properly. You have the correct 
slope toward pathways. What I tell our program managers is that 
when we discover that our R&D targets are off, let us fess up 
to it, and let us put that in the budget and make sure that the 
Congress and everybody else knows that. Because in the process 
of scientific discovery, those are things that you find out 
once you start to really get into things.
    Senator Harkin. I have here a press release dated 21 April 
2004: cellulose ethanol is ready to go. Iogen Corporation in 
Canada announced today it is producing the world's first 
cellulose ethanol fuel for commercial use. This is in 
cooperation with Shell, Petro Canada, whoever that is, but 
Shell Global--Shell Oil, the Government of Canada and Petro 
Canada. I assume Petro Canada is a gas company or something; I 
do not know.
    Anyway, Iogen made--is now making cellulosic ethanol, and 
they are actually selling it. Do you have any idea that they 
are now doing it.
    Mr. Garman. Yes, and that was the Canadian company I 
mentioned a little bit in the earlier question.
    Senator Harkin. How can they do it at $2.50? What is 
happening here?
    Mr. Garman. Well, we do not think they are selling very 
much of it, and we think it is a start, and they are learning a 
great deal, and many startup companies or demonstration 
companies do operate at a loss to get ahead and develop the 
expertise they think they will need to be the industry leader 
of the future. Sometimes, they get that kind of financing to do 
that.
    Senator Harkin. Could it be that they have some more active 
enzymes or some better enzymes that break down the cellulose?
    Mr. Garman. We are not aware that they have any kind of 
process or technology or enzymes that we also do not have 
access to, and the cost of enzymes is a major factor in the 
production cost.
    Senator Harkin. Is there any way you can find out what 
Petro Canada is paying for this?
    Mr. Garman. It is proprietary, and it is very difficult. 
There is nothing we can do to compel them to tell us, our folks 
are talking to their folks, and we are trying to learn 
everything that we can.
    Senator Harkin. Well, I am told that it is a private 
company, and I cannot imagine that they would be wasting money. 
That they would be doing something that would not be at least 
somewhat beneficial one way or the other. I guess my confusion 
comes from this reassessment that you have made and the fact 
that just recently, this Canadian company, which is a privately 
held company, along with Shell have announced that they are 
actually making it and marketing it. Someone is buying it, and 
I cannot imagine they would buy it at some exorbitant price 
when they could buy an alternative fuel a lot cheaper.
    I do not know; I just have a----
    Mr. Garman. The Department has not seen Iogen's estimated 
cost for the ethanol produced in their demonstration plant. 
However, Iogen has communicated to us that from a cost 
accounting perspective, the company is not including the cost 
of construction of its production facility in its ethanol 
product costs. Therefore, the selling price of the company's 
ethanol under these circumstances only needs to cover operating 
and delivery costs, plus profit, excluding all capital costs on 
their income sheet. This situation is unique and makes 
comparison to the broader ethanol market challenging.
    It is also difficult to view the Iogen plant as a 
commercial entity because of its size. Iogen's current rated 
production is approximately 250,000 gallons per year, which 
represents only 0.009 percent of 2003 domestic production. An 
average farmer-owned corn-to-ethanol plant is 120 times larger, 
with a capacity of 30,000,000 gallons per year. It is difficult 
to ascertain how the small size of the Iogen plant could lead 
to a profitable and cost-competitive situation under normal 
accounting methods.
    Senator Harkin. Well, sometimes, we always have the 
attitude, if it is not invented here, it must not be any good 
they say they have been researching this for 25 years, I do not 
know; I do not know this company; do not know anybody 
associated with it, but if they have some new enzymes or new 
enzymatic process that works better, we ought to be looking at 
it.
    Mr. Garman. I have personally met with this company in the 
past.
    Senator Harkin. You have?
    Mr. Garman. Oh, yes, sir, and they told us of their plans, 
and we have been monitoring them. Again, I do not know how much 
they are producing, and I do not think that release tells us 
how much they are producing either. This is pretty closely held 
information. They are certainly not telling us the cost at 
which they are producing this amount of material.
    Senator Harkin. Well, they just estimated that for 
cellulose ethanol, there will be a market of $10 billion by 
2012.
    Mr. Garman. I hope they are right.
    Senator Harkin. Well, I hope they are right, too, but I 
hope we are moving ahead aggressively, too.
    The last thing I just want to say, is that in February, 
final rules released by the Department of Energy will not 
require local governments and private fleet operators to use 
alternative fuel vehicles under the Energy Policy Act. The 
reasons given for not requiring alternative fuel vehicles was 
that even if the 2 million or so vehicles in these fleets were 
converted to alternative fuels, it would have little impact on 
petroleum consumption. In particular, availability of 
alternative fuels was given as a problem limiting their use.
    Well, if this is the case, what is the DOE doing to promote 
the creation of a nationwide network of E-85 pumps? The 
decision to not require alternative fuel vehicles in fleet 
operations seems to be sending a very mixed signal about DOE's 
commitment to biofuels development. Does the Department, do 
you, support E-85?
    Mr. Garman. Oh, absolutely, and we run what we call a Clean 
Cities Program to help to develop and deploy that refueling 
infrastructure that can help make E-85, compressed natural gas 
and some of the other alternative fuels, including biodiesel, a 
reality. Again, there are certain fleets under the Energy 
Policy Act that currently are required to use alternative fuel. 
What we found is that some of the State and private fleets, or 
State and local fleets are very small, fleet sizes of five 
vehicles. It was very difficult to justify the refueling 
infrastructure needed to do five vehicles, and so, many would, 
under provisions in the law, opt out of actually using 
alternative fuel in the vehicle.
    This is the kind of problem we have had. We can, under the 
law, compel people to purchase alternative fuel vehicles, but 
under the law, we cannot compel them to actually use 
alternative fuel in the vehicles. We have had that problem in 
the Federal fleet.
    Senator Harkin. I understand that, but again, further 
promoting E-85 and establishing a system of E-85 ethanol pumps 
around the country would be very helpful.
    Mr. Garman. Yes, and in fact, our Clean Cities Coalitions 
are meeting right now, I believe this week, in Florida. We have 
coalitions with some 85 cities around the country to promote E-
85, and compressed natural gas. We will see, 160 additional 
compressed natural gas buses plying the streets of Washington, 
DC in the next few months because of some of these successes.
    Senator Harkin. Thank you, Mr. Chairman. I will just submit 
questions for Mr. Rey, in writing.
    Mr. Rey. We will be happy to respond.
    The Chairman. Thank you, Senator.
    Senator Lincoln, any questions for the panel?
    Senator Lincoln. Thank you, Mr. Chairman. Lots of 
questions, but I may not have time for all of them.
    Just on this last one that we talked about, lots of times 
when I hear back from industry side in terms of alternative 
fuel vehicles, they pretty much get the alternative fuel 
vehicle and then put it on the lower 40 and never use it. They 
get their credits for that. Why is it so difficult for us to 
encourage the use of the alternative fuel? Is it accessibility?
    Mr. Garman. Accessibility. Most of vehicles that we operate 
in the Department of Energy, are alternative fuel vehicles, 
compressed natural gas mainly. There is one fueling station, 
precisely one in this near area, over near the Pentagon, where 
you can actually refuel it.
    Senator Lincoln. Right.
    Mr. Garman. I notice that we opened--or the private sector 
opened a new E-85 station in Lanham, Maryland just a few weeks 
ago, and that is a positive development, but you do not see a 
lot of E-85 stations outside the Midwest. Part of that is 
changing, and again, the renewable fuels legislation that the 
Senate is considering to expand renewable fuels production and 
using renewable fuels as an oxygenate is going to help create 
that infrastructure as we move more ethanol out of our 
heartland.
    Senator Lincoln. This company in Canada, is the research 
that has allowed them to do that, is that Government research, 
or is it private industry research? Or is it a combination?
    Mr. Garman. I am not positive. I imagine they have used a 
combination of both.
    Senator Lincoln. Do we?
    Mr. Garman. Yes, absolutely.
    Senator Lincoln. How much partnering does go on with 
private industry?
    Mr. Garman. We try to predicate all of our work on public-
private partnerships, because we think that the most productive 
kind of R&D we do is when we bring the private sector into the 
labs, and we work together on precompetitive aspects of the 
research. Then, they take what they learn in the labs and then 
go off and do their own proprietary research and try to gain 
that competitive advantage. That collaboration----
    Senator Lincoln. Well, I do not know as much about the 
cellulose, just simply because we do not grow as much corn as a 
lot of these gentlemen do. We grow a lot of rice and certainly 
soybeans. Biodiesel is really one alternative fuel that I am 
more focused on. I have also been very focused on what we can 
do with chicken litter, because it is creating a huge problem 
for us in the poultry industry and not to mention the municipal 
solid waste opportunities that exist out there.
    I guess my question is in earlier questioning, you 
continued to focus on the need for more money for research as 
opposed to really looking at the delivery of how we get this--
we know that we have enormous potential in biomass and in 
alternative fuels, and it seems to me that we have done a 
remarkable amount of research. Really, the research needs to be 
more focused if it is research at all that we need in the 
delivery model of what we are getting out there.
    I have farmers in a whole county in Arkansas that have 
committed to using 5 percent biodiesel in all of their 
equipment. We have a crusher that we are looking desperately 
for dollars to get started and then, hopefully, see a refinery 
for biodiesel there, because we do not need retrofitting, 
really, there. We can just pump it into a combustible diesel 
engine.
    Mr. Garman. Right, and a number of things are going to 
happen. First, the EPA is going to or has promulgated low-
sulfur diesel fuel standards for 2006. There will be a very low 
content of sulfur in that diesel fuel, less than 15 parts per 
million. As a consequence, that fuel will lose some lubricity 
that is very important. Biodiesel, soy biodiesel specifically, 
is a very good lubricity agent that folks are going to be 
clamoring for to meet the demand for the 2006 fuel standards.
    That is going to assist in deploying the biodiesel 
technology. There are also some things we need to do. There are 
not very many engine manufacturers that will honor a warranty 
on higher blends of biodiesel. Two percent is fine, but if you 
get up to 10 percent or more, you are in danger of voiding your 
warranty. Many consumers do not want to do that.
    One of the things that we are committed to doing is working 
with the engine manufacturers and fuel providers to certify the 
performance of higher blends of biodiesel in engine----
    Senator Lincoln. I heard that problem 10 years ago. Have we 
been doing that?
    Mr. Garman. We have been doing some but honestly not 
enough. There is a question as to whether, outside of certain 
small, regional markets, you can support blending of much more 
than 2 percent of diesel or it is going to be a regional and 
fractured market. We will have to talk to you more about this, 
because it is an exciting area.
    Senator Lincoln. I guess it is regional and fractured if we 
allow it to be that way. It seems to me that we have such 
tremendous potential that we could really energize all of the 
different sectors of the economy that are going to not only 
participate but benefit and move it along quicker than we have 
been seeing.
    On the cellulose side of things, where are we on the 
technological development curve in terms of developing enzymes 
that can convert that biomass to sugar or ethanol? If there is 
a classroom curve, where are we on that?
    Mr. Garman. We can do it today; just the enzymes are too 
expensive to do it at a price competitive to gasoline or corn-
based or starch-based ethanol.
    Senator Lincoln. The curve is pretty steep is what you are 
telling me in terms of cost.
    Mr. Garman. Right. As we were saying, it gets into this 
earlier discussion we were having. We believe the current costs 
are $2.50 to $2.75 a gallon. Our target for cellulosic biomass 
is $1.07 a gallon by 2012. That gives you a sense of----
    Senator Lincoln. That indicates to me that we are pretty 
low on the learning curve here.
    Mr. Garman. Pretty low on the curve, yes, because we have 
to reduce, for instance, the cost of the enzymes probably by a 
factor of 10.
    Senator Lincoln. Can the biorefineries that you are talking 
about that use the cellulose-based biomass, are they able to 
operate in all 50 states?
    Mr. Garman. Well, we have not developed one yet, but yes, 
the answer would be yes, because I personally think the expense 
and difficulty of hauling large amounts of feedstocks very far 
will ruin your economics if you have to haul things from the 
field a long distance.
    Senator Lincoln. What about hauling the end product? You 
cannot pipe it, right?
    Mr. Garman. Yes, you can.
    Senator Lincoln. You can?
    Mr. Garman. You can. It has an affinity for water, and you 
have to deal with some of those issues, but we can deal with 
those issues over time. We will have, instead of the model we 
have today of oil-based refineries geographically concentrated 
in certain regions of the country a more even distribution and 
an even smaller-based refinery system run on a community scale 
instead of a very large industrial base. That is what I would 
like to see because that helps farmers share in that value 
chain closer to home.
    Senator Lincoln. Mr. Chairman, I have used my time, but 
again, thank you for this, and I have many more questions I may 
submit for the record to be answered, and again, I appreciate 
it, because this is a very exciting topic with multitudes of 
possibilities.
    The Chairman. Thank you, Senator, thank you for 
participating in the hearing.
    Senator Coleman.
    Senator Coleman. Thank you, Mr. Chairman. Just a comment 
and then a question.
    I mentioned in my opening statement about the urban 
applications. For me, it is important. This cannot be seen as 
we are just focusing on rural communities; critically 
important, but everybody should realize that they have a stake, 
and everybody has opportunity. In Minneapolis, there is a 
neighborhood called the Phillips neighborhood. It is one of the 
lowest-income neighborhoods in the heart of the city, and they 
are in the process of developing a project that will heat 
20,000 homes and about 3 million square feet of business space 
and multifamily housing. They are looking at using tree stumps 
and some organic waste from a nearby General Mills plant.
    When they come to the Department of Energy and come to the 
Ag Department, please reflect upon the importance of our urban 
citizens understanding they have got a dog in this fight; they 
have got a stake in this, and the more we can get everyone to 
understand this is good for America, the better-served we are 
going to be.
    A question to Mr. Rey. I applaud the administration's 
comprehensive energy policy and the energy bill-biomass; 
ethanol; biodiesel; wind, which we have a lot of, by the way, 
in Southwest Minnesota; they call it the Saudi Arabia of wind. 
One area of concern, however, has to do with budget submission 
for the development of renewable energy systems. You noted in 
your comments that we did not have any problem with the $20 
million or the $23 million in 2003 and 2004.
    I understand that budget submission for 2005 is $10.8 
million, and I am wondering how do you respond to the critics 
who say the need is out there; we have shown a commitment to a 
comprehensive energy policy, and this funding level does not 
accomplish that?
    Mr. Rey. Well, what we have done in responding to funding 
requests for these kinds of systems is not only used the 
Section 9006 grants, but we have also been using the Value 
Added Market Development Grant and the Rural Business 
Enterprise Grant and Rural Business Opportunity Grant programs 
to supplement the money available for these kinds of systems. 
We have given a priority in those three other grant programs to 
renewable energy systems as well, and when you look across what 
we do in 2004 in all four of those programs and what we hope to 
do in 2005 with those four programs, assuming a favorable 
response to the budget request, you will see a significant 
emphasis on renewable energy systems.
    Senator Coleman. It is important just to get that word out 
there. I do not want anyone to have at all the sense that 
somehow, we are stepping back on this when, in fact, there is 
this whole world of opportunity that we have to seize. I 
appreciate that.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator. I appreciate your 
participation in this hearing.
    We appreciate also this panel leading off our hearing today 
on this subject. We thank you for your submission of your 
remarks in advance to the Committee. They will be made a part 
of the record in full. Thank you very much.
    The Chairman. We are pleased to have on our next panel a 
gentleman whom I mentioned in my opening remarks who came to 
visit with me and suggested that we take a more active role in 
trying to promote alternative fuels production, refining and 
research that is being done in this area of interest. We are 
pleased to welcome to the Committee James Woolsey, who is a 
former Director of Central Intelligence. He also served here in 
the Senate as counsel to the Senate Armed Services Committee 
about the time I was elected to Congress in 1972. He has 
chaired advisory boards of the Clean Fuels Foundation and the 
New Uses Council. He serves on the National Commission on 
Energy Policy as well; and Boyden Gray, who has been a friend 
for a long time. He served as legal counsel to Vice-President 
George Bush in 1981 and then continued in his role as counsel 
for President Bush when he served as our president from 1989 to 
1993.
    Mr. Gray is representing the Energy Future Coalition. We 
appreciate very much your being here. We ask you to make any 
opening statement to the Committee you think would be helpful 
to our understanding of these issues.
    Mr. Woolsey.

STATEMENT OF HON. R. JAMES WOOLSEY, FORMER DIRECTOR OF CENTRAL 
                INTELLIGENCE, MCLEAN, VIRGINIA.

    Mr. Woolsey. Thank you very much, Mr. Chairman.
    It is an honor to be asked to testify before this 
distinguished Committee. I first got interested in these issues 
due to my old friend Bill Holmberg, who is here today, and 
then, Senator Lugar asked me 7 years ago to testify before this 
Committee, and then, following that testimony, he and I wrote 
the article you described. It is an absolutely vital issue for 
our national security.
    Let me say just a word about what I do not think we should 
be spending a great deal of time on. One is where we buy oil. 
The world's oil market is more or less one market. We do not 
accomplish much by buying more from one part and having, say, 
Europe buy more from the Middle East. The economies are 
related; the oil prices are closely related. I do not think 
this is a question of the geographic region from which American 
imports come. The world's dependence on the Middle East is an 
extremely delicate and difficult matter because of the 
instability there and particularly because of the uncertain 
future of Saudi Arabia.
    I say in the written testimony that although Crown Prince 
Abdullah speaks somewhat hesitantly and not very strongly 
sometimes but nevertheless does speak to some degree for a 
reform movement in Saudi Arabia, other important parts of the 
royal family such as Prince Nayyaf at the Interior Ministry and 
others are quite opposed to reform, and whether or not that 
Kingdom moves in a positive direction in cooperation with the 
world's democracies and the rest of the world in setting oil 
prices or whether--and in a lot of other ways or whether it is 
mired in its vulnerability to terrorism and other threats has a 
good deal to do with the future direction of the world's 
stability in economic terms as it relates to oil.
    It is not only governmental uncertainty in Saudi Arabia. It 
is the vulnerability to terrorism. Bob Bayer's recent book 
Sleeping with the Devil opens with the scenario of a fully 
loaded 747 being crashed into a particularly important part of 
the fuel processing facilities in Saudi Arabia and thereby 
setting the world back many millions of barrels a day for many 
months. It is, unfortunately, a reasonably realistic scenario.
    Then, finally, of course, is the problem that could come 
about not only from terrorist attacks in Saudi Arabia, as we 
have seen earlier, within the last 5 days, but also in other 
parts of the Middle East and even the possibility of an 
Islamist government, people of the stripe of Osama bin Laden 
coming to power in Saudi Arabia.
    It is sometimes said that it does not really matter who is 
governing Saudi Arabia, because they are going to have to sell 
their oil anyway. That is not true if those who rule the 
country want to live in the Seventh Century, as do the 
Islamists. The uncertainty in the oil picture worldwide, driven 
by the uncertainty in the Middle East, is a very important 
aspect of the whole problem. It is also important that as we 
focus on alternative energy, we not spend a great deal of 
effort, if one is concerned about the strategic situation, on 
generation of electricity.
    There are interesting, renewable ways to generate 
electricity. There are a lot of ways to generate electricity. 
Oil only fuels about 2 percent of our electricity generation 
now, and that is headed down. Insofar as one is worried about 
instability from foreign supply, we are really almost 
exclusively talking about a transportation fuel issue here.
    That it is important to focus on the fact that came out in 
a number of questions to the preceding panel. The problem here 
is moving along smartly to being able to produce alternative 
fuel that can be consumed within the existing infrastructure 
and doing so relatively quickly. There are a couple of fuels 
that fit that definition, to my mind. One is ethanol from 
biomass, because ethanol that has been reduced from biomass 
mixes readily with gasoline, and you can use up to E-85, 85 
percent ethanol, in flexible fuel vehicles.
    Now, when I talk about these issues, rather than 
alternative fuel vehicles that sometimes would mean burning 
entirely, let us say, natural gas or something like that, which 
some bus fleets do, one wants to focus on the family car. There 
are millions of flexible fuel vehicles on the road. It costs a 
little bit extra to produce them, but you get a Ford Taurus 
that is a flexible fuel vehicle and can burn up to E-85 for no 
added cost if you walk into a dealer's showroom. It is a 
slightly different type of plastic in the fuel line and a 
slightly different kind of computer chip.
    One thing that is important is to buildup the fleet of 
vehicles that the average American family can buy so that when 
ethanol is available from biomass, we do not have to go through 
yet another conversion of infrastructure; the infrastructure is 
already there. I know of nothing that would keep a flexible 
fuel vehicle from also being a hybrid. If a hybrid gets about 
60 miles a gallon, as the Toyota Prius does today, then, if you 
were using E-85 in it, even with ethanol somewhat lower energy 
content than gasoline, you are up in the range of getting 300 
miles per gallon of gasoline. That is not bad.
    It seems to me with those kinds of prospects before us, it 
is not a wise idea to spend a great deal of time and resources 
on focusing on the hydrogen economy. We have more of an urgent 
problem than this. Yes, there are certain attractive features 
to hydrogen being used to carry energy from one form to 
another, and it burns cleanly, and that is fine.
    Someday, we may have a hydrogen economy and fuel cell 
vehicles. If we concentrate on what can be done now and 
financial incentives to get things like biomass ethanol 
produced now, we will do a lot more for the country and for the 
agricultural sector of our economy.
    One final point: the other technology that I would like to 
call to your attention is the use not only of agricultural 
wastes but also waste that is from biomass, from cellulosic 
biomass but also waste from animal carcasses and manure, 
particularly animal carcasses, given the dangers from BSE and 
the like.
    In Europe, for example, there are tipping fees, that is, 
negative costs recognized of over $100 a ton for dead animals. 
That means with one of the processes that is now commercially 
operating in Carthage, Missouri, in a joint venture between 
ConAgra and Changing World Technologies, one could give away 
the diesel fuel that is produced and still make money. The 
reason is because the negative costs, the tipping fees from the 
producer getting rid reliably of those animal carcasses is so 
recognized by the tax system and so forth.
    If we look at waste products, first and center, both those 
that grow in fields and those that are the result of animals, 
for instance, rice straw in the process of producing ethanol, 
we can focus on giving credits for getting rid of substances 
that we have to get rid of. Often, those costs are not 
recognized in the systems that we operate today. If one 
recognized that rice straw has to be gotten out of the field--
it is not like stover; it has silicon in it; you cannot plant 
again and cannot leave it in the field, and if you burn it, it 
smells awful.
    If we recognize those negative costs both in animal and in 
cellulosic agricultural wastes, we can help move the production 
of fuel, whether it is diesel that could be refined into 
gasoline or cellulosic ethanol, along far more quickly than by 
focusing on the R&D long-term perspective, which is often 
presented.
    With that, I will pause, Mr. Chairman, and turn the floor 
over at your permission to my friend, Boyden Gray.
    [The prepared statement of Mr. Woolsey can be found in the 
appendix on page 67.]
    The Chairman. Thank you very much, Mr. Woolsey.
    Mr. Gray, you may proceed.

  STATEMENT OF HON. C. BOYDEN GRAY, ENERGY FUTURE COALITION, 
                         WASHINGTON, DC

    Mr. Gray. Mr. Chairman, thank you very much for this 
opportunity.
    I thought what I would concentrate on is a response to what 
has already transpired rather than summarize the testimony that 
you already have. Transportation fuels are the key to import 
insecurity. The DOD commissioned a study from the Arlington 
Institute that basically came to the conclusion that our Energy 
Future Coalition came to, which is the road to independence is 
through ethanol, and through ethanol, you will get ultimately 
to hydrogen, but the key part is the ethanol.
    Our own American automobile industry would love to see this 
route taken. As much as they are intrigued with hydrogen, the 
vehicle for moving hydrogen is going to be ethanol, and of 
course, ethanol from biomass and biodiesel can be used to run 
the fleet, E-85 or whatever cars you are talking about in the 
interim.
    I believe--we believe ethanol biomass is the key. The 
questions that have come up have to do, obviously, with costs 
and capacity. Is there an efficient enough method of attacking 
the cellulose problem? Assuming you can do that in a cost-
effective way that makes the product competitive worldwide with 
gasoline, is there capacity to make a real dent, to make it 
worthwhile? Is it worth really trying to do?
    The answer to both questions is yes, there is a way to 
attack the cellulosic problem, and the results would be quite 
interesting: 60 billion gallons--we rely on a Battelle Memorial 
Institute study for our purposes which we have submitted which 
suggests 50 billion gallons. You heard Mr. Garman talk about 
60. I will take either number. If you include what the 
Caribbean basin could do, what Central America could do and 
South America, the number would be very, very much higher, so 
this is very, very significant cut of 120 billion, 130 billion 
gallons of gasoline. It is very, very significant.
    Now, what about the costs? I do not think only we really 
understands; this is something the Committee may and should 
perhaps try to get to the bottom of. I do not think the cost of 
the enzymes is the problem. My understanding is the Department 
of Energy has run studies to get the cost down tenfold that 
they were talking about. The problem is the commercialization 
of these technologies. Can they be worked at the plant scale? 
The huge kind of scale that you need to really realize the 
benefits of efficiencies?
    There, frankly, this is where the Government comes in, 
that's necessarily to help jump-start the technology. In the 
same way NIH did for biotech for the drug side of the equation, 
the Government really has a role to play in sharing some of the 
risk of this with the private sector.
    The payback would come very, very quickly, because studies 
show, Oak Ridge studies show, that for every 10 or so billion 
gallons of ethanol consumed, you would save $1 billion or so in 
crop subsidy supports. You are talking about huge savings that 
would pay back very, very quickly any investment the Government 
made in commercialization.
    Now, there are certain other side benefits that come from 
this. If you understand what is going on here, the increase in 
crop prices resulting from the demand for them in the 
transportation sector means less subsidies. It also means 
better prices for farmers worldwide, and William Klein, who is 
an economist with the Center for Global Development, has 
estimated that every 50 billion gallon increment produced 
raises 40 million farmers out of poverty worldwide in the 
developing world.
    The consequences for world agriculture and for the world 
economy are quite significant. The last point I want to make 
responsive to what has occurred, what are we comparing the 
costs of here, at least initially as this thing tries to get 
underway and ramped up, and people get used to doing this? The 
highest value of these alternative fuels is as a substitute 
for--as a source of clean octane for the transportation fleet.
    We lose sight of this. I got into this whole issue 
primarily because of the elimination of lead from gasoline 20 
years ago, which was one of the most successful environmental 
initiatives ever undertaken by the U.S. Government. We are 
still struggling trying to get the lead out of the gasoline in 
Africa, for example, but we have done it here. We were 20 years 
ahead of the rest of the world in this country.
    Well, where do you get the octane when you take out the 
lead? Well, the octane now comes from products called 
aromatics, which are bad actors. They are the principal 
remaining source of pollution in this country. They are 
expensive. They are on a par with ethanol to even produce 
today. If one were to eliminate the aromatics from the 
gasoline, one would have a ready market for ethanol at today's 
prices, let alone what could be happening with a little jump 
start on the commercialization of these new technologies for 
cellulose.
    One of the benefits would be, and I will close on this, a 
total elimination of any remaining air quality problems in the 
United States. That would be a nice thing to do as a side 
effect of gaining a little energy independence.
    Thank you.
    [The prepared statement of Mr. Gray can be found in the 
appendix on page 74.]
    The Chairman. Thank you very much.
    Mr. Woolsey, you mentioned in your statement the hybrid 
engine development and use. What should we do as a Government 
to help move this along or promote it?
    Mr. Woolsey. Well, I just bought a Prius a couple of months 
ago, and the tax advantage was $500 less than it was the 
previous year. Next year, the tax advantage will be $500 less 
still. We are headed in the direction of nonencouragement of 
hybrids, which seems to me a little odd, given the events, for 
example, as I said, in Saudi Arabia a few days ago.
    The taxes are, I would think, the Government's tool, both 
to encourage early production of biomass ethanol, of diesel 
fuels that can be used in the existing infrastructure and of 
hybrid vehicles. I realize, having worked up here, myself, Mr. 
Chairman, that it is sometimes a real struggle to get the tax 
system encouraging things that way.
    The Chairman. You also commented in your testimony about 
the potential of harvesting switchgrass----
    Mr. Woolsey. Yes.
    The Chairman [continuing]. On Conservation Reserve Program 
lands. I had a visit in my office some time ago from former 
Senator Henry Bellman of Oklahoma. He came to town with a 
research scientist from his State who had been actively working 
on this technology. What is the prospect of effective and 
efficient utilization of things like switchgrass? Does it offer 
real promise of helping us achieve these alternative fuel 
resources?
    Mr. Woolsey. I definitely think so. Professor Lee Lynd will 
be testifying in the next panel, who knows a great deal about 
this subject. I would just say briefly that although you will 
get an economic kick to these processes sooner by recognizing 
waste disposal, things like rice straw and begas in a growing 
area and things like dead animals or animal carcasses in the 
other rest of the biological area, switchgrass would probably 
provide the bulk of what one could use to produce large volumes 
of cellulosic biomass ethanol.
    I know Senator Harkin had a bill a few years ago to permit 
the harvesting of the CRP lands for purposes of energy, and 
that is very important, because according to Lee Lynd's 
calculations that Senator Lugar and I used a few years ago in 
our article, even at current levels of mileage, gasoline 
mileage in vehicles, if you harvested a small share of 
agricultural wastes and harvested just the switchgrass on the 
CRP lands, no new land into cultivation, no land taken out of 
cultivation from other crops, that would, as I recall, be able 
to produce about a quarter to a third of the replacement for 
the gasoline in the country.
    If you move up to hybrid mileages, 60 miles a gallon and 
better, it could replace all of the gasoline in the country. 
The trick, both with expanding the biodiesel definition so it 
covers all types of diesel, because this animal carcass to 
diesel is now not encouraged by the current biodiesel 
definition, if you move initially toward using recognition of 
wastes and getting rid of wastes as an economic incentive for 
commercialization of these various processes and then for the 
large-scale move into extremely substantial replacement of 
imported petroleum, I really believe that switchgrass would 
have a major role.
    The Chairman. Mr. Gray, you mentioned in your statement 
this Canadian company that we talked about when the first panel 
was before the Committee--Iogen, is the name of it--which has 
begun commercial production of ethanol from cellulose. Do you 
know of any U.S. investors or companies that are putting 
together similar joint ventures here in the U.S., or is that 
likely to happen in the near future without specific Government 
program development of incentives?
    Mr. Gray. I do not know of any that are as far along as 
Iogen that are public, publicly known. I do know that there are 
communities in Kansas, for example, and we discussed this with 
Senator Roberts, communities that are getting bond issues 
together to try to start to build plants to do this. I cannot 
say that one has actually been designed.
    I do think that the Government support--maybe it is a 
guarantee kind of arrangement--for the commercialization of 
these technologies which the Department of Energy has done on a 
pilot plant basis may be necessary to get them really launched. 
It is a small price to pay.
    Mr. Woolsey. Mr. Chairman, could I add one small point? 
There was a company, BCCI, a couple of years ago that was 
reasonably far along. It used a technology of Professor Lonnie 
Ingram at the University of South Carolina, who is one of the 
real experts in the world on the modification of these 
biocatalysts, and it was going to be producing biomass ethanol 
from begas in Louisiana.
    It was reasonably far along, and then, the Department of 
Energy, in early 2002, withdrew the incentive that they had had 
in place for about a year for it, and it has slowed down, to 
the best of my knowledge, to not making any progress now.
    The Chairman. Senator Harkin.
    Senator Harkin. Mr. Chairman, this is not only a 
fascinating subject, but it is one on which I hope that our 
Committee continues to focus more time. I thank you for this 
hearing.
    I also want to thank our witnesses here and also the group 
that you are representing, the Energy Future Coalition. I have 
read a number of the items that have come out from that 
coalition, and you are on the right track, and what your 
message is that we really ought to be doing more things in the 
tax benefit area, tax incentives, Government procurement.
    I am intrigued, Mr. Gray, by what the Battelle Memorial 
Institute--it is in your testimony but you did not cite it--
about the Battelle Institute's estimate that 50 billion gallons 
of cellulosic ethanol could be made annually without 
significantly impacting agriculture in a negative way.
    You mentioned, Mr. Woolsey, about all of the CRP ground out 
there with switchgrass. Switchgrass takes very little 
fertilizer. It grows annually. You can harvest it. I might just 
point out that I was involved several years ago with starting a 
switchgrass project, the Chariton Valley RC&D in Southeast 
Iowa, along with Alliant Energy and a couple of other groups, 
and we were able to get some funds into it.
    We have an ongoing project where they are just simply 
harvesting switchgrass and burning it in a coal-fired plant 
nearby. They are mixing it with the coal. That may not be the 
most efficient way, but at least it is working.
    Mr. Woolsey. Yes.
    Senator Harkin. It is not impacting the environment in a 
negative way, and it is on CRP ground.
    Mr. Woolsey. Yes.
    Senator Harkin. The next step is to get a digester and 
start using some of that cellulosic material in a digester to 
produce electricity. I hope that you will take a look at a 
paper that was developed for me by a scientist once in which he 
developed the idea of electro-farming, where farmers actually 
become producers of electricity by putting things through 
digesters, getting the hydrogen and using the hydrogen through 
a fuel cell to make electricity.
    The parameters he had were pretty interesting, using 
certain prices of fuel and that type of thing, it looked, 
actually, in a 10 to 20 year timeframe, promising. It would 
take some Federal Government involvement, and it would take 
some pushing and some subsidies and that type of thing to get 
this going.
    I want to get back, Mr. Gray, though, and ask you: tell me 
about this fly off. I am intrigued by this idea that you had in 
your testimony that we recommend the Federal Government 
authorize and conduct a one-time procurement fly off aimed at 
building 5 to 10 commercial-scale plants.
    Just tell me about what that means.
    Mr. Gray. Well, I do not know who would do it; maybe the 
Department of Defense would do it. They have a keen interest, 
as I said, and in my testimony says about getting away from 
oil, not just because of the world security situation but 
because of their own needs when they go into combat zones.
    The idea would be to take five or six or so of the most 
promising potentially commercialized technologies and order up, 
pay for or guarantee the construction of five or six or seven 
or eight different plants and then see which one won. That is 
what we mean by a competitive sourcing to see which--who had 
the best mousetrap that would work and come up with the 
cheapest price.
    I am trying to think of an analogy. At the beginning of the 
petroleum business 100 years ago, the yields from the barrel of 
crude were pretty low. Just like people now complain that the 
yield from the kernel of corn is pretty low, the yield from the 
barrel of crude was very, very low. The Federal Government did 
not get in this directly, but the companies did compete.
    When Standard Oil of Indiana, the original Standard Oil 
trust was broken up, all heck broke loose as it were, and these 
independent refineries, now, began to rapidly increase the 
technological capacity. Well, that is what needs to happen. 
What the oil industry had as a benefit was a huge subsidy from 
the Federal Government in the form of the depletion allowance 
and also the intangible drilling cost writeoff, which made the 
product they were buying artificially cheap, which allowed them 
to do it.
    Now, meanwhile, ethanol was being taxed. This was all 
before the Second World War. Things went in divergent 
directions from the original version that the founders of the 
automobile industry had. Henry Ford expected our transportation 
fleet to run on ethanol.
    If you just a little jump start, just giving the 
agricultural sector just a little bit of juice to do this fly 
off would yield enormous benefits very, very quickly and 
represent only a fraction of the subsidy the oil industry has 
over the last century.
    Senator Harkin. Would your Energy Future Coalition have any 
suggestions as to what that prize might be, or how much we 
would have to put--to say if you are going to do a fly off, 
what would we have to have in the end?
    Mr. Gray. Well, it is a big number but I do not think in 
the larger context of what we are dealing with here it is 
insurmountable. It is $1 billion. We think it would probably 
take $1 billion to do this; not in 1 year; it would be over a 
5-year period. That is not--I do not, luckily, have any 
responsibility for meeting budget caps, but that is your 
problem.
    Senator Harkin. I do not think we do either.
    [Laughter.]
    Mr. Gray. One billion would do it. That is what our best--
and we can supply more material for the record, but that is my 
understanding of the best number, what it would take, and it 
would yield huge benefits.
    Senator Harkin. I forget which one of you mentioned 
something about what we think in terms of the capacity in the 
United States, and Mr. Garman was mentioning that before, but 
one of you mentioned that we have got to think beyond that, 
think about the Caribbean basin, Mexico, sugar.
    Mr. Gray. Yes.
    Senator Harkin. We have more sugar than we know what to do 
with, and we are always having our sugar wars with Mexico and 
the Caribbean and everybody else, but it seems to me sugar is 
very efficient for conversion to ethanol.
    Mr. Woolsey. Well, Brazil has to subsidize it, but, of 
course, they have been the major country in the world that has 
moved in this direction, and if one can start with sugar and 
then get the genetically modified biocatalysts working right so 
you could use not only sugar but the begas that is left over, 
then, the cost would really go down.
    I must say I disagree with Mr. Garman about the degree of 
R&D that still needs to be done here. I would encourage the 
Committee to get in touch with Professor Lonnie Ingram of the 
University of South Carolina, who is the head of the program 
down there. As I remember several years ago, the genetically 
modified biocatalyst which he had designed was able to first of 
all ferment the C-5 sugar in hemicellulose. Hemicellulose may 
be, I do not know, 20 percent of what grows, so already, you 
are going from using well under 1 percent of what grows to 
using 20 percent or so of what grows by being able to ferment 
that sugar.
    Then, cellulose is a polymer of C-6 sugars, regular sugar, 
but it is hard to break. It is hard to hydrolyze it, to break 
it down. Lonnie's genetically modified biocatalyst, I believe, 
already produced at that point two of the three enzymes that 
were necessary in order to break down cellulose. At that point, 
you are being able to use maybe 80, 85 percent of what grows in 
order to produce ethanol.
    I believe one of the enzymes would have had to have been 
purchased from a plant that makes enzymes, and it would be 
better if we could do what Lee Lynd calls consolidated 
bioprocessing, that is, have everything happen together at 
once. It would make it a lot cheaper.
    I do not think we are years of R&D away on this. I agree 
very much with Boyden: what we need is some commercial 
incentives to people to move out and take some of these 
technologies into production.
    Senator Harkin. It seems to me that in a lot of this, we 
have the chicken and egg. Now, why don't more people use 
biomass energy? Well, because it is too expensive. Why is it so 
expensive? Because not very many people use it. Somehow, and 
that is what I am getting at here, is sometimes. You need a 
demand pull.
    Mr. Woolsey. Senator, if I might add, too, people need to 
be able to use it in what they have. They need to be able to 
use it in an existing vehicle. That is why the flexible fuel 
vehicles are important, because I do not have to decide now 
whether I am going to pump E-5 or E-10 or E-85. It will all 
work in my Ford Taurus. The same needs to be true of biodiesel. 
The biodiesel that is produced today is a very limited thing, 
and it does have the problems of mixing with other fuels and 
the problems that were described in the questioning with 
Senator Lincoln.
    The biodiesel that is produced by this ConAgra joint 
venture is regular diesel. It can mix with any other diesel. It 
can be used in existing vehicles. It is coming out of a turkey 
processing plant in Carthage, Missouri, right now.
    One needs to broaden the definition of biodiesel to include 
things like that, and one needs to focus on getting these 
transportation fuels, whether ethanol or a broadly defined 
biodiesel in a form that they can be used in the vehicles we 
all have and are driving, because if you have a separate 
alternative fuel vehicle, it probably will sit in the garage or 
the pasture or someplace if you have to have a special delivery 
of special fuel for it.
    You can mix ethanol with gasoline just fine, and you can 
mix some types of diesel that come out of biological processes 
with regular diesel just fine, and that, to me, is absolutely 
the heart of the matter.
    Senator Harkin. Well, again, I know the Chairman wants to 
move on. It just seems to me that the Federal Government is a 
900-pound gorilla here in a lot of ways, both with the tax 
things that we could do but also with procurement. I ask you 
and your Energy Future Coalition to look at Section 9002 of the 
last Farm bill. In that, we put in a provision that mandates--
shall--the word is shall--every department and agency of the 
Federal Government shall give a preference to bio-based 
products in their purchasing as long as they are equivalent in 
price, performance and availability.
    Now, that is in the Farm bill. Two years later, we do not 
even have the rules issued. The GAO did a report on this about 
a month ago, Boyden, about a month or so ago, they came out 
with this and just blistered the Department of Agriculture for 
not managing it, not promoting it, giving it a low priority.
    I happened to be in a car with President Bush a couple of 
weeks ago in Iowa, and I mentioned this to him about this bio-
based requirement. It is not so much pertinent to ethanol. It 
is not ethanol. It is bio-based products. It is like the corn 
starch-based products but it would give an impetus to start 
getting these things built out there. We have some plants out 
there making these products already. We are making soy grease, 
and we are making corn starch-based products and McDonald's is 
buying some of that material now. It just seemed to me that if 
the Federal Government could, again, breaking down that chicken 
and egg, get more people buying it, the price per unit comes 
down.
    Mr. Woolsey. Polylactid acid for all sorts of plastic being 
made out of corn in Nebraska right now.
    Senator Harkin. Right in Nebraska. They are doing that in 
Nebraska right now. Take a look at that and see if you--well, 
just take a look at it. I appreciate it.
    Thank you very much, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Thank you, Mr. Woolsey, Mr. Gray, for your contribution to 
this hearing and for bringing this initial idea of moving 
forward again on this issue to me initially. Thank you.
    Mr. Woolsey. Thank you, Mr. Chairman. Thank you, Senator 
Harkin.
    The Chairman. Our final panel of witnesses today includes 
Dr. Mark Zappi, who is the director of the Department of Energy 
for the Mississippi Research Consortium for the Utilization of 
Biomass. He is a professor of chemical engineering at 
Mississippi State University, and Dr. Tom Richard, who is an 
associate professor in the Department of Agricultural and 
Biosystems Engineering at Iowa State University--guess which 
two Senators recommended these two witnesses?
    [Laughter.]
    The Chairman. We are also pleased to have joining this 
panel Dr. Lee Lynd, who is a professor of engineering and an 
adjunct professor of biological sciences at Dartmouth College. 
He is a co-leader of a project entitled the Role of Biomass in 
America's Energy Future; and Dr. Samuel McLaughlin, who is a 
research professor with the University of Tennessee and a 
former senior research scientist with the Ecosystem Studies 
section of the Environmental Sciences Division at Oak Ridge 
National Laboratory. He has worked with the Bioenergy Feed 
Stock Development Program, which has examined switchgrass as a 
model species, as a source of renewable energy.
    Welcome to each of you. We thank you for being here today 
to help us understand better the issues that are involved in 
the subject of this hearing: biomass use in energy production, 
new opportunities for agriculture. Dr. Zappi, you may proceed.

    STATEMENT OF MARK ZAPPI, DIRECTOR, DEPARTMENT OF ENERGY 
MISSISSIPPI RESEARCH CONSORTIUM FOR THE UTILIZATION OF BIOMASS, 
 MISSISSIPPI STATE UNIVERSITY, MISSISSIPPI STATE, MISSISSIPPI.

    Mr. Zappi. Thank you, sir.
    Good morning. I would like to extend my thanks to this 
esteemed Committee for allowing me to testify today. My 
testimony today will hit on the four following key points: 
first, I would like to provide a brief comparison of the future 
of biomass and compare it to what we are getting from petroleum 
today. I would also like to take a look to show you the vision 
for what biomass feedstock industrial platforms of the future 
may look like; also discuss some obstacles to the future 
development and commercialization of biomass-based process. 
Then, I would like to end with some suggested R&D efforts.
    I would like to now briefly compare the potential of 
biomass to petroleum. The term biorefineries is a very accurate 
term, given the vast yet differing amount of chemicals found in 
both biomass and petroleum. The modern refinery for petroleum 
of today produces about 25 products. They really squeeze 
everything they can out of that crude petroleum. It is not to 
mention the many other chemicals they make once those chemicals 
leave the refinery.
    On the other hand, most biomass-based industrial processes 
of today or biorefineries will produce two to three products. 
Yet, the chemical complexity of biomass is on par with what we 
have with petroleum. Clearly, we need to fully develop the 
biomass potential in terms of what chemicals can we get out of 
biomass.
    It is very important that we do not separate energy 
production from biomass from what other chemicals we can make 
from biomass, because it is those other chemicals that I truly 
believe will provide the profitability to support this energy 
production we are after. Biodiesel is a good example. It is 
hard for me to envision an economically viable biodiesel 
business if we do not come up with another high-dollar co-
product other than glycerol, and/or we have got to reduce those 
production costs, because that is really what is killing that 
particular fuel.
    I would also now like to move on to what I envision to be 
the products of the future: where are we going with this? As we 
know, industry today is pretty much based on a petroleum 
platform. I envision numerous other biomass-based industrial 
platforms in the future. The first that I would like to discuss 
is what I call the bulk biomass platform. Here, we are going to 
see cogeneration of electricity using cultured grasses, wood 
waste and poultry litter.
    We are also going to see an increased production of biogas 
from swine manure, other agricultural manures and municipal 
manures, municipal sludges. I would also like to see the 
further development of bio-oils for the production of novel 
adhesives, wood preservatives, diesel cuts and polymers.
    The next platform would be our lipid platform. The lipid 
platform is where we get oils from plants and fats from 
animals. Here, of course, is where biodiesel is coming from. I 
envision polymers and paints and even nutraceuticals coming out 
of this lipid platform. Examples of the nutraceuticals I am 
talking about would be the omega-3 fatty acids and lecithin. 
These are very high-dollar products that would impart a high 
profitability to our vision for biorefineries.
    The next platform would be the carbohydrate platform. This 
is where we get our ethanol from. This is where hydrogen is 
going to come to run our fuel cells and many other chemicals 
such as acetic acid, which is in the top 20 most used chemicals 
in the world today. The next platform is a little more 
researchy. That is going to be the lignant platform.
    Lignant is still very much a waste product in many 
manufacturing systems and the future envisioned biorefineries. 
The reason why it is such a refractory and stable chemical. I 
believe it is that stable and refractory nature that might make 
it a wonderful feedstock for wood preservative and glues.
    The final platform would be the protein platform. Here, I 
envision us manufacturing environmentally friendly polymers and 
also new animal feeds derived from pretty novel feedstock such 
as algae cake as well as manures.
    Now, I would like to provide to the Committee what I 
believe are the obstacles to truly establishing viable biomass-
based industrial platforms. The first one is the heterogeneity 
of biomass resources between the various geographic areas of 
the United States. Developing a one-size-all technology for 
making ethanol is not conducive to allowing all areas of the 
United States to become biorefineries or homes of green 
processing.
    Another one is we have some proposed financial incentives 
that are being directed toward feedstocks and not the final 
product. Also we cannot accept bulk chemicals as a final 
developmental target. We have to look beyond the bulk chemical, 
the energetic chemical, into what the high-dollar by-products 
can be. I also think there is a lack of solid economic 
assessments of process viability prior to the construction of 
some projects here within the United States.
    I also think there is insufficient interest by some power 
companies to truly adopt green power, particularly biomass-
based systems. Finally, there is limited engagement of the 
university research community, particularly in the chemical 
processing and chemical production area.
    I would like to end by suggesting some R&D efforts. I would 
like to see us organize regional centers of expertise to 
address the unique biomass resources found in each region of 
the United States. I personally think the Sun Grant program is 
a wonderful program, but it is too small and limited in scope. 
I also propose four R&D focal areas that will move us a little 
further ahead. The first focal area would be the feedstock 
development and management. Here, we would target an increased 
amount of oil or fermentable products or components we get out 
of existing agricultural products. At the same time, we need to 
be working toward development of new energy and chemical crops. 
What are the crops of the future to support what we are after?
    The next focal point would be biomass conversion into bulk, 
secondary and specialty chemicals using novel processing 
techniques. The third would be tertiary processing of the 
secondary processing of these secondary products into high-
dollar chemicals, specialty chemicals. This is what is going to 
pay for the biorefinery.
    Finally, we need rigorous economic assessments of maturing 
processes, done so we can ensure that we are on the right track 
to an economic reality for our biorefinery vision.
    In closing, I would like to thank this Committee for its 
leadership in the development of biomass-based products over 
the years. I truly believe that biomass does indeed offer us a 
lot of great opportunity to develop new industrial platforms, 
and those platforms will be based on renewable resources grown 
here in the United States.
    I thank you.
    [The prepared statement of Mr. Zappi can be found in the 
appendix on page 78.]
    The Chairman. Thank you, Dr. Zappi, for your testimony.
    Dr. Richard, you may proceed.

        STATEMENT OF TOM RICHARD, ASSOCIATE PROFESSOR, 
           DEPARTMENT OF AGRICULTURAL AND BIOSYSTEMS 
         ENGINEERING, IOWA STATE UNIVERSITY, AMES, IOWA

    Mr. Richard. Thank you, Chairman Cochran and members of the 
Committee. Thank you for convening this panel and for the 
opportunity to share some of the exciting possibilities for 
expanding biomass energy production in the coming years. The 
opportunities to convert agricultural crops and residues into 
bio-based products and bioenergy present entirely new, value-
added pathways for agriculture and industry.
    Coordinating business, government and university 
partnerships can greatly accelerate the emergence of these new 
pathways and facilitate their success. In Iowa, the BIOWA 
Development Association, composed of representatives from 
production agriculture, industry, environmental interests and 
academia has been formed to support and promote the growth and 
development of Iowa's bioeconomy. BIOWA is working closely with 
the Iowa Department of Economic Development to structure Iowa's 
economic development portfolio so that it focuses on the 
opportunities and challenges produced by possibilities for bio-
based businesses.
    While near-term bio-based agricultural and economic 
development opportunities are being nurtured by business and 
government, research investments will drive the next generation 
of innovation needed for the bioeconomy to flourish.
    These research efforts will need to span both basic and 
applied sciences and also be widespread and diverse. Even with 
effective partnerships and significant investments, the 
development of a bio-based economy will not happen overnight. 
Extensive analysis of a range of feedstocks has identified 
several opportunities for near-term progress. Two of the 
feedstocks of particular interest are livestock manure and crop 
residues. Other organic residues and by-products, including 
wood and paper wastes, agroprocessing wastes and biotechnology 
by-products also represent immediate opportunities to pursue.
    In an earlier panel, Mark Rey summarized some of the 
opportunities for manure and anaerobic digestion, and my 
written testimony confirms those while outlining some of the 
challenges that also need to be met. Crop residues are an 
agricultural by-product with even greater energy potential than 
manure. Among the many straws and crop residues produced at 
present, corn stover is widely recognized as the most promising 
high-volume, low-cost lignocellulosic feedstock on which to 
base a range of bio-based energy, chemical and material 
industries for the next several decades.
    However, several significant challenges must be addressed 
before this vision can be achieved. First, stover biomass must 
be supplied at a price that is competitive with petroleum, 
profitable for producers and favorable for the growth of the 
rural agroindustrial economy. Current stover harvest systems 
rely on multiple passes across each field, followed by dry 
storage of stover bales. Unfortunately, this technology is not 
really achieving the target the Department of Energy has set 
for price of this feedstock.
    An alternative system, coupling single-pass simultaneous 
harvest of grain and stover with ensiled stover storage has 
recently been shown to reduce centralized delivery costs by 26 
percent. With targeted research and demonstration of these and 
similar new strategies as well as effective implementation, 
corn stover biomass appears poised to become the high-volume 
price competitive biorefinery feedstock that many had hoped.
    While manure, corn stover and other agricultural residues 
represent immediate opportunities for biomass energy, long-term 
growth of the bioeconomy will require additional feedstocks as 
well. Increased use of perennials and cover crops in 
agricultural systems has a number of environmental advantages, 
including reduced soil erosion, soil organic matter 
improvements, and carbon sequestration.
    The Conservation Security Program, established by the 2002 
Farm bill, provides a mechanism for encouraging greater use of 
cover crops and perennial species to conserve our working 
lands. The potential synergies with biomass feedstock 
production provide additional motivation for making sure that 
this conservation program gets stronger support.
    One of the distinct characteristics of biomass as an 
industrial feedstock is its low energy density relative to 
fossil fuels, and this is especially true of non-woody plants. 
As a result, transportation costs associated with large, 
centralized conversion facilities generate significant 
diseconomies of scale. Optimum sizing of bio-based facilities 
thus requires a decentralized infrastructure with many loci of 
bio-industrial development.
    While a decentralized mode of development has obvious 
advantages for rural development, it faces particular 
challenges as well. Perhaps one of the most critical issues 
that needs to be addressed as we ramp up the development of 
bio-based businesses is the business models of the supply 
chains. In particular, we need to find ways to recognize and 
reward the farmers through the foundation of bioeconomy value 
chains. One proposed solution is for producers to use their 
equity to vertically integrate up the value chain, as has been 
done for many of the ethanol plants in the Midwest. However, 
given the size of the capital investments that will be required 
for establishing integrated biorefineries and because of 
intellectual property protections, it is likely that the 
ethanol model will be rare. New types of business relationships 
need to be evaluated so that the new systems result in 
economically sustainable rural development.
    This concludes my summary of my written testimony, and I 
welcome any comments the Committee might have and questions.
    [The prepared statement of Mr. Richard can be found in the 
appendix on page 83.]
    The Chairman. Thank you, Dr. Richard, for your contribution 
to the hearing.
    Dr. Lynd, we will hear from you now.

STATEMENT OF LEE R. LYND, PROFESSOR OF ENGINEERING AND ADJUNCT 
PROFESSOR OF BIOLOGICAL SCIENCES, THAYER SCHOOL OF ENGINEERING, 
           DARTMOUTH COLLEGE, HANOVER, NEW HAMPSHIRE

    Mr. Lynd. Thank you, Mr. Chairman, for the opportunity to 
appear before your Committee.
    I suggest the following points be among those you leave 
this hearing with: one, solutions exist to the energy and 
security challenges we face, and biomass, particularly 
cellulosic biomass, could play a major role. Two, widespread 
energy production from cellulosic biomass offers transformative 
benefits for American agriculture. Three, the Government should 
do much more than it is doing now to enable and accelerate 
biomass energy production.
    I am an expert in science and technology directly related 
to biomass energy production. My perspective is shaped by over 
20 years' experience in the field and most recently by an in-
progress project entitled the Role of Biomass in America's 
Energy Future. Working hypotheses of the RBAEF project include, 
first, large improvements of cellulosic energy crops; for 
example, doubling per-acre productivity, can reasonably be 
expected from an aggressive and sustained research and 
development effort. Second, such an effort is also expected to 
dramatically increase the cost competitiveness and efficiency 
of technology for biomass processing. I note in this context 
that cellulosic biomass at $50 a ton is equivalent on an energy 
basis to oil at $14 a barrel. Third, an amount of fuel 
sufficient to provide for current levels of vehicular mobility 
in the United States could be produced from biomass. Moreover, 
this could be accomplished within the existing agricultural 
land base while greatly increasing income to American farmers. 
Fourth, the project has identified some very large 
environmental benefits accompanying expanded biomass energy 
production, including essentially zero net greenhouse gas 
emissions and improved soil fertility and has identified no 
environmental show-stoppers.
    I turn now to my third point: the Government should be 
doing much more. Sustainability and security are poorly 
reflected in market prices. The market provides only limited 
incentive to overcome obstacles associated with first of a kind 
technology and reinvestments of profits from a nascent energy 
processing cellulosic biomass will result in but a small flow 
of funding for innovation-focused R&D during the critical early 
growth phase.
    For these reasons and regardless of one's political 
philosophy, it is appropriate that the Government play an 
active role in enabling and advancing biomass energy 
production. In particular, I am confident that the growth of 
biomass energy production will be much more rapid with 
substantial and well-directed governmental support than without 
it.
    How well are we doing? Let us assume for a moment that 
sustainability and security challenges are deemed important to 
respond to and that biomass could play an important part of 
such a response, as I have argued. When viewed from these 
premises, the effort the U.S. is expending to enable and 
accelerate biomass energy production is far short of what it 
should be, as elaborated in my written testimony.
    I find it mindboggling that U.S. Federal expenditures on 
applied energy technology R&D are about what they were in real 
terms just before the oil price shock of 1973, although our 
economy is now more than twice as large, and energy-related 
challenges are much more evident. In short, we are not acting 
as if we have a lot at stake and an important solution at hand.
    What might we do differently? I recommend one, increase by 
several fold the amount of funding for biomass energy R&D, with 
clearly demarcated support for both precommercial research 
devoted to innovation and applied fundamentals as well as cost-
sharing for first of a kind industrial plants. Two: commit to 
pursuing increased biomass energy production in ways that 
expand opportunities for farmers and that achieve 
sustainability, security and environmental benefits. It is 
important that these features embody transition phases as well 
as targeted endpoints. Three, allocate funds in a way that is 
responsive to potential for enhanced sustainability and 
security, reliant to a significant extent on open solicitations 
and based on technical merit.
    If we are serious about cost-effectively realizing the 
benefits of biomass energy to the national interest, extensive 
earmarking needs to be curtailed. The cost of these measures 
are small on any relevant scale and significant relative to the 
potential benefits. Consider: quadrupling funding for bioenergy 
R&D would represent an additional expenditure of about $500 
million. The cumulative cost of a focused R&D effort to develop 
technology for producing ethanol from cellulosic crops at a 
cost competitive on an unsubsidized basis with current gasoline 
prices has been estimated at less than 1 year's expenditure for 
the current ethanol tax incentive.
    I believe that completion of such development within 5 
years is a realistic goal if we are prepared to change how we 
do business. Much can be done within existing legislative 
mechanisms that are already in place; for example, by adding 
new funding authorized by the Biomass Research and Development 
Act to funding levels of preexisting programs and by fully 
funding the Biorefinery Development Grants portion of the Farm 
bill.
    Mr. Chairman, as current events make clearer the urgent 
need for sustainable and secure energy sources, and analyses 
such as the RBAEF project make clearer the potential of biomass 
to serve these needs in a meaningful way, the case for business 
as usual in the biomass energy arena is becoming progressively 
more weak. I urge your Committee and the U.S. Congress to take 
decisive action.
    [The prepared statement of Mr. Lynd can be found in the 
appendix on page 92.]
    The Chairman. Thank you very much, Dr. Lynd, for your 
interesting comments and statement.
    Dr. McLaughlin, you are our best for last.

   STATEMENT OF SAMUEL B. MCLAUGHLIN, RESEARCHER, OAK RIDGE 
           NATIONAL LABORATORY, OAK RIDGE, TENNESSEE

    Mr. McLaughlin. Thank you, Mr. Chairman, for the 
opportunity to speak before you and the Committee about a topic 
that has generated great enthusiasm among the research 
community and amongst the farm community, which stands to 
benefit as we proceed with the use of cellulosic energy crops.
    I am going to talk to you about an energy crop this 
morning, switchgrass, which has been mentioned several times 
this morning. Switchgrass can be produced on American farms to 
provide benefits to the rural economy, to improve soil quality, 
to reduce erosion and improve stream quality, and to add 
significantly to our ability to displace foreign oil. 
Switchgrass is one of a group of cellulosic crops which are 
similar in the sense that the cell wall material that was laid 
down when they were formed can be used to produce chemicals, to 
produce energy. They include municipal waste, agricultural 
waste such as corn stover, rice hulls, cotton hulls, and 
forestry wastes.
    There are similarities in terms of cellulosic content 
amongst these potential feedstocks, but there are also big 
differences. As we keep our eye on the ball of reducing 
dependency on foreign oil, there are important things to think 
to consider as we look at feedstocks: Where will they be 
produced? What is the quantity we can produce per unit of land 
area? How much energy does it take to produce the feedstocks, 
so that when we balance the energy cost and supply components, 
we have actually gained significantly in using a particular 
type of feedstock.
    What are the benefits? What are the values that these 
feedstocks can provide to society in addition to just the cost 
that industry pays at the industry gate? These kinds of 
considerations lead us certainly to know that we will have to 
depend on multiple feedstocks and multiple chemical processes 
in the future, but there are best choices for achieving rapid 
gains as we move toward greater energy self-sufficiency.
    Switchgrass is a species that we picked in the Bioenergy 
Feed Stock Development Program at Oak Ridge National Laboratory 
after screening over 30 species of herbaceous agricultural 
crops. We picked switchgrass for a number of reasons that we 
think make it compatible with American agriculture and enable 
it to provide the kinds of benefits that we hope would be a 
part of an overall energy picture. It is a native prairie 
grass. It was here when the settlers came and contributed to 
the rich soils that were here when these mid-plains were 
settled.
    It occurs over most of the eastern United States, so it can 
be grown by a large segment of farmers. Participation in energy 
production can be regionwide, not just in a certain segment of 
the country. It is produced and harvested with equipment that 
is now used to produce 60 million acres of hay in this country. 
It puts about as much energy below ground as is harvested above 
ground. We have looked extensively at switchgrass roots, and 
there is just about as much biomass, roughly 5 to 10 tons of 
roots in the below-ground system that is turning over and 
adding carbon to the soil. An absolutely important component of 
soil fertility is how much organic carbon is sequestered in the 
soil, and that relates to nutrient supply, water supply, 
erosion and retention of nutrients within the system.
    In 12 years of research with switchgrass, we learned a lot 
before the program was stopped as one of the casualties of the 
Congressional earmarks a couple of years ago, but we made 
tremendous progress in terms of how to grow switchgrass, how to 
harvest it, and how to measure its benefits to agriculture. We 
found we could reduce the nitrogen needed to grow switchgrass 
by perhaps a half to a third, which reduces the energy input. 
We learned a lot about the basic genetics of switchgrass and 
incorporated that into breeding programs and made gains of 3 to 
5 percent per year in the initial phases of this program. Those 
gains are comparable to what was achieved with corn, which 
started 60 years ago and increased five to sixfold in the 60 
years hence. We think there is great potential to improve 
yields beyond current levels.
    We learned a lot about the production levels of switchgrass 
and they vary across the eastern region, two-thirds of the 
United States where our research plots were located. This has 
allowed us to interface with an important tool that has been 
developed by a collaboration between DOE and USDA scientists. 
It is an econometric model called POLYSYS. The economic effects 
of introducing energy crops into POLYSYS allows us to look at 
U.S. agriculture. This has provided a tool that has allowed us 
to see how various energy crop prices, production costs, and 
production levels influence gains to American agriculture.
    POLYSYS considers what crops are currently grown in over 
300 U. S. agricultural districts what it costs to grow these 
crops, and what the prices are. As we introduce an additional 
crop into this system, we can estimate what its impact will be 
on farm income, and also, because POLYSYS is tied to the 
Government subsidy program, how revised from income levels 
might influence Government subsidies.
    An input to this program derived from our production 
research is that it costs about $20 a ton to produce 
switchgrass. The model has also been used to look at how much 
acreage would come into play as the price we are willing to 
offer for an energy crop such as switchgrass changes from 
current crops. We estimate that at roughly $28 a ton, 7.6 
million acres would be converted to switchgrass if farmers want 
to go with a more profitable crop. At $48 a ton, roughly 50 
million acres of crop land would be converted to switchgrass 
production for energy from the land that is being used right 
now for agriculture.
    There are important benefits of energy crop production on 
farm income. At the lowest price level (28/t) annual, farm 
income would increase about $1.3 billion, and there would be 
about a $1.3 billion reduction in Government subsidies required 
to support crop prices. At the highest price level, farmer 
income increase about $6 billion per year, with $5.7 billion of 
subsidy savings.
    These price and benefit levels provide options to 
Government. At that lowest price, the subsidy decreases would 
more than cover the costs of purchasing the feedstock by 
industry. Thus, initial stages of feedstock production could be 
subsidized by that amount of savings to the governments derived 
from subsidy savings. By looking at these things in a balanced 
way, it allows one to consider what the policy options might 
be, so that a subsidy is not considered as a one-way street. It 
is a reward for value to society.
    The fact that this crop can add farm income, can improve 
soil quality, as well as providing a continuous supply of clean 
removable energy, gives us the flexibility to consider in 
policy decisions how we might work toward the greatest good to 
agricultural and to society.
    I would like to conclude my comments with summary 
statements derived from my written report. First of all, 
cellulosic biomass produced on American farms can contribute 
significantly to the nation's energy self-sufficiency and to 
both its economic and its ecological health. The American 
farmer and the American consumer should both benefit 
economically from increased reliance on biomass-derived fuels.
    It is my hope, Mr. Chairman, that the farmer would not just 
be the producer but the partner in this process. There are 
great opportunities for farm co-ops to be involved in this 
production process. The farmer should not get the lowest price 
possible but be able to be involved fully in the whole energy 
production industry just as the corn farmers have become 
involved in some of the ethanol producing plants in the 
Midwest.
    The costs of biomass-derived fuels to society both now and 
in the future are likely to be much lower than the costs of 
fossil fuels, and that seems controversial, but it is based on 
considering the values to society. We have values in terms of 
rural income, reduced Government subsidies, clean air. 
Ultimately, we will probably place a value on carbon emissions 
reduction, and there is about a ton of carbon per acre that is 
stored below ground each year when you produce switchgrass. 
There are human health effects of fossil fuels that would lead 
to avoidance benefits, and there are the tremendous oil shock 
effects to our economy resulting from our having to rely on 
highly variable oil price and supply levels as we are doing 
now.
    An important and appropriate focus of future energy policy 
should be the biomass utilization that minimizes net uses of 
imported energy maximizes net reduction in greenhouse gas 
emissions, and gives credit for reduction in societal costs of 
energy. Production, considering energy production values as 
well as costs, would accelerate near-term incorporation of 
cellulosic biomass into a U.S. energy strategy.
    There is flexibility within our system to enhance and 
accelerate benefits to be gained from increased reliance on 
cellulosic energy, however, it will require planning to 
consider how we most efficiently proceed to reduce energy costs 
and to enhance the associated values.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. McLaughlin can be found in 
the appendix on page 98.]
    The Chairman. Thank you very much for your statement.
    This panel has really added an extra dimension of 
understanding and important facts for us to consider as we try 
to figure out exactly what our role ought to be now to build on 
the incentives that are in current law and the opportunities 
that we have to make a difference in our future energy 
security, as well as the efficiency and profitability of 
American farms.
    These are interesting topics to consider, and I am very 
glad that the Committee was able to conduct this hearing today, 
and we appreciate especially the participation of this last 
panel. Senator Harkin and I both agreed with Dr. Zappi's 
suggestion that regional centers of expertise ought to be taken 
seriously as a matter of policy by this Committee, and we will 
look for ways to try to help ensure that that becomes a 
reality.
    Dr. Richard's comments about integrating the entire 
feedstock supply system was an interesting observation, I 
thought. I wonder if you could prophecize, what would be a 
reasonable timeframe for achieving this kind of integration 
that you mentioned?
    Mr. Richard. Well, there are two parts to that question. 
First, to really understand how to do that well, and the 
science has potential to put together integrated systems in the 
next three to 5 years. My colleagues, some at this table, are 
doing research on that, as I am as well. The second part, 
implementation, is going to face some of those challenges I 
mentioned earlier. Trying to develop decentralized economic 
development strategies, and getting the capital involved for 
many different farmers and many different communities to build 
these systems, will be a bigger step.
    The Chairman. Dr. Lynd, you pointed out the beneficial 
consequences for American agriculture in taking advantage of 
these opportunities for more production of biomass materials on 
farms. What if we put a lot of money in these incentives and 
encourage that production, and then, we still fall short? Are 
we going to be accused of wasting money? Do you think this is 
going to be a wasteful expenditure of Government money, or are 
you pretty confident that this is going to turn out to be a 
wise investment?
    Mr. Lynd. It could be a wasteful expenditure of Government 
money, and I also think it could be a historically successful 
expenditure of Government money, and it depends on how we do 
it. We need to recognize that we need a combination of funding 
for first of a kind commercialization but also, and I would 
disagree with several of the speakers who have appeared before 
this morning, a really much, much accelerated and more 
aggressive R&D program.
    In the absence of that R&D program to move that technology 
forward, we are just kidding ourselves if we think we are 
getting over the hump just by putting in the first of a kind 
plants or that revenue from those plants is going to drive the 
R&D process at any significant rate. If we do both of those and 
do them effectively, as I have suggested, then, I am confident 
this will be a very, very successful investment. We sure cannot 
take that for granted.
    The Chairman. Thank you.
    Dr. McLaughlin, you talked about the commercialization of 
switchgrass in particular as an energy source. I was impressed 
by the depth of research that has already been done at the 
university and within the program that you are involved in. Has 
the support from the national government, the Federal 
Government, been important to the conduct of this program? Is 
it one of those things that without which there would not be a 
program like yours?
    Mr. McLaughlin. Support was absolutely essential for the 
Feed Stock Development Program. It began back in 1978, which we 
can testify to somebody's vision that we needed to be doing 
this work way back when. A lot of the early work was screening, 
looking for the best choices. What we developed with Government 
support, and in some cases, in many cases, it was matched by 
other programs going on at universities, was a very interactive 
program that evolved--there were seven groups working directly 
with us, including regional universities and one USDA 
laboratory.
    We functioned somewhat as subregional centers, but the 
overall program was very interactive, and the Government 
support was absolutely essential. I would add that when that 
support largely dried up in 2002, some of these folks have been 
able to get additional support. We would like to think because 
they made really good starts on things that were very 
promising. One, for instance, was on genetic transformation of 
switchgrass to increase the content, precursors for plastic 
formation, and an individual company supported that. Other work 
has been picked up by USDA and others.
    Government support is essential is focusing national 
research efforts on integrated and interactive targets.
    The Chairman. Dr. Zappi, as we talked about the regional 
centers, or you talked about then, I was impressed with the 
fact that we do need to have a diversified analysis and not 
just concentrate research in one particular area or on one 
specific subject. Could you elaborate a little bit on why you 
think it is important to have the regional centers? Would they 
be more cost-effective or more likely to bring us answers to 
the questions we need in order to help assure that alternative 
sources of energy really can become a reality for our country?
    Mr. Zappi. Well, It will be more cost-effective, because it 
will bring more players into the game. If you take our home 
state of Mississippi, we produce a tremendous amount of 
biomass, but it is very diverse compared to mainly corn in 
Iowa. If we want to bring more players to the table, we have to 
realize that each region has its own unique biomass feedstock 
it contributes. A lot of the research is oriented toward 
probably one or two key technologies, and there are other 
potential technologies that are just not receiving enough 
attention. That is because some of the ones that are not 
receiving enough attention are not predominantly corn-based at 
this time.
    We are very oriented toward corn and corn stover, and I am 
not against it. It is an excellent feedstock, both of them, but 
we do not recognize the differences from region to region. To 
be more cost-effective, that as I said, as we increase the 
volume of biodiesel we can make, the market becomes more 
competitive; we find more by-products. In Mississippi, getting 
back to our home state, some of the by-products that may come 
out of biodiesel production could bring some new revenue.
    The Chairman. Well, thank you very much for your responses 
to our questions and our invitation to attend this hearing. We 
appreciate you helping us with our understanding and helping us 
develop a level of expertise to assist us in the shaping of our 
public policy formulation that is so important to this area of 
interest and concern.
    I do not know of any time in our history when this has been 
a more important subject for our consideration. The situation 
in the Middle East, the Persian Gulf, is strong evidence of how 
important sources of energy are, and the costs of energy can 
affect our own economy. We can look at the prices at the 
gasoline pumps right now, and the incentive is there as never 
before to look for alternative sources and try to help ensure 
that we are not so dependent on one form of energy for our 
economic survival and progress.
    Thank you for helping us at this hearing. It has been a 
very important and constructive step toward assuring a greater 
degree of independence for our country in the years ahead. We 
are going to make a part of the record, too, an article that 
impressed me that I read in preparation for this hearing 
written by Senator Richard Lugar and James Woolsey, who was one 
of our witnesses today. It was published in Foreign Affairs 
magazine in the January-February 1999 edition, and it is a very 
important statement, and we want to make that a part of our 
hearing record, and we will.
    With that, we thank all Senators for participating and all 
of our witnesses. The hearing is adjourned.
    [Whereupon, at 12:25 p.m., the committee was adjourned.]



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                            A P P E N D I X

                              May 6, 2004



      
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                   DOCUMENTS SUBMITTED FOR THE RECORD

                              May 6, 2004



      
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                         QUESTIONS AND ANSWERS

                              May 6, 2004



      
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