[Senate Hearing 109-671]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-671
 
   RENEWABLE ENERGY WITH A FOCUS ON CELLULOSIC ETHANOL AND BIODIESEL

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

                                HEARING

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                            SPECIAL HEARING

                    AUGUST 26, 2006--SIDNEY, MONTANA

                               __________

         Printed for the use of the Committee on Appropriations


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html

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                               __________
                      COMMITTEE ON APPROPRIATIONS

                  THAD COCHRAN, Mississippi, Chairman
TED STEVENS, Alaska                  ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico         PATRICK J. LEAHY, Vermont
CHRISTOPHER S. BOND, Missouri        TOM HARKIN, Iowa
MITCH McCONNELL, Kentucky            BARBARA A. MIKULSKI, Maryland
CONRAD BURNS, Montana                HARRY REID, Nevada
RICHARD C. SHELBY, Alabama           HERB KOHL, Wisconsin
JUDD GREGG, New Hampshire            PATTY MURRAY, Washington
ROBERT F. BENNETT, Utah              BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho                   DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas          RICHARD J. DURBIN, Illinois
MIKE DeWINE, Ohio                    TIM JOHNSON, South Dakota
SAM BROWNBACK, Kansas                MARY L. LANDRIEU, Louisiana
WAYNE ALLARD, Colorado
                    J. Keith Kennedy, Staff Director
              Terrence E. Sauvain, Minority Staff Director
                                 ------                                

  Subcommittee on Agriculture, Rural Development, and Related Agencies

                   ROBERT F. BENNETT, Utah, Chairman
THAD COCHRAN, Mississippi            HERB KOHL, Wisconsin
ARLEN SPECTER, Pennsylvania          TOM HARKIN, Iowa
CHRISTOPHER S. BOND, Missouri        BYRON L. DORGAN, North Dakota
MITCH McCONNELL, Kentucky            DIANNE FEINSTEIN, California
CONRAD BURNS, Montana                RICHARD J. DURBIN, Illinois
LARRY CRAIG, Idaho                   TIM JOHNSON, South Dakota
SAM BROWNBACK, Kansas                MARY L. LANDRIEU, Louisiana
                                     ROBERT C. BYRD, West Virginia
                                       (ex officio)
                           Professional Staff

                           Fitzhugh Elder IV
                             Stacy McBride
                             Dianne Preece
                             Graham Harper
                       Galen Fountain (Minority)
                   Jessica Arden Frederick (Minority)
                       William Simpson (Minority)
                        Tom Gonzales (Minority)

                            C O N T E N T S

                              ----------                              
                                                                   Page

Opening Statement of Senator Conrad Burns........................     1
Statement of Dan Downs, Board of Directors, Montana Farmers Union     2
    Prepared Statement of........................................     4
Statement of Jon Stoner, President, Montana Grain Growers 
  Association....................................................     6
    Prepared Statement of........................................     7
Statement of Dr. Jerald W. Bergman, Montana State University.....     9
    Prepared Statement of........................................    10
Statement of Garth Kallevig, on Behalf of the Montana Independent 
  Bankers Association............................................    10
    Prepared Statement of........................................    11
Statement of Thad Willis, Farmer, on Behalf of the Montana Farm 
  Bureau.........................................................    12
    Prepared Statement of........................................    14
Statement of Thomas C. Dorr, Under Secretary for Rural 
  Development, Department of Agriculture.........................    20
    Prepared Statement of........................................    22
Statement of Dr. John Ashworth, National Bioenergy Center, 
  National Renewable Energy Laboratory, Department of Energy.....    24
    Prepared Statement of........................................    28
Prepared Statement of the National Center for Appropriate 
  Technology.....................................................    36


   RENEWABLE ENERGY WITH A FOCUS ON CELLULOSIC ETHANOL AND BIODIESEL

                              ----------                              


                       SATURDAY, AUGUST 26, 2006

                           U.S. Senate,    
             Subcommittee on Agriculture, Rural    
                 Development, and Related Agencies,
                               Committee on Appropriations,
                                                        Sidney, MT.
    The subcommittee met at 9:30 a.m., at the USDA ARS Northern 
Plains Agricultural Research Laboratory, Sidney, Montana, Hon. 
Conrad Burns presiding.
    Present: Senator Burns.


               opening statement of senator conrad burns


    Senator Burns. We will call the committee to order, and 
this morning this is the Senate Subcommittee on Appropriations 
for Agriculture, which I am a member of that subcommittee; and 
thank you to the chairman of the subcommittee, which is Senator 
Bennett from Utah, and of course our chairman of the full 
committee, Senator Cochran from Mississippi.
    Today we're going to be talking about alternative fuels and 
renewables. There's been a lot of attention paid lately on 
renewable fuels, and I think today's hearing will give us a 
good sense of the state of this emerging industry, especially 
here in Montana.
    I think we have a great opportunity here to make 
agriculture part of the solution in the energy independence, 
and to bring economic growth to rural Montana and rural areas 
across America.
    As you know, agriculture is the backbone and probably the 
largest contributor to the GDP of just about every State in the 
union, although a lot of States won't admit that, but it is, 
because renewables are a vital part of the GDP to the Nation. 
Biofuels might not be the silver bullet for agriculture, but 
there's potential for improving the future of our farms and 
ranches, especially for our young farmers and beginning 
producers going back on the farm.
    But in order to be successful, we need to continue research 
and development of new technologies. I don't think we can 
sustain an energy policy that creates competition between food 
and fuel, so I'm hopeful that Montana can lead the Nation in 
developing cellulosic ethanol as well as biodiesel. To me, that 
is the future of our renewable fuels. We need to be using wheat 
straw and biomass to make fuel, but the technology in that area 
is just at the early stages, and some folks thought we had 
almost a breakthrough in it, we are still far--well not too 
far, but we're not there yet of perfecting this technology.
    We are also going to need to think through on our 
infrastructure and the needs it will take to support 
independent strategies. I know the folks here in Sidney, 
Montana understand that well. We are having another oil boom in 
Sidney, Montana and Richland County, but we don't have enough 
refining or pipeline capacity to support the production that we 
can get from this part of the world. Our ability to capture all 
the value of energy production is harmed by the lack of 
infrastructure, and that's a national issue that we need to pay 
some serious attention to.
    I want to thank our witnesses for coming today. We're going 
to start this morning with the producer panel because I think 
it's important that the folks that represent our Federal 
Government hear from them and really listen to the producer 
groups and see what they have to say. All of your written 
statements will be included in the record in their entirety. I 
would ask you might keep your statements brief so we can get 
the questions and have some good discussions this morning 
because I believe it's the give and take that we will have at 
this table that will solve some of our problems; but I think 
here's where we are. The real intent of this hearing is to 
bring some reality to our renewables and our alternative fuels. 
Where we are and what it's going to take to get from A--from 
the point A to point B, and I think that's very important that 
we sit on--we just don't talk about theories, that we actually 
talk about what it's going to take to get up and solve this 
energy thing that we're facing in the years to come.
    So, with that, like all good prepared chairmen, where is my 
list of witnesses this morning? Do we have any? Where? Oh, 
good. I covered it up. And I think if everything works out 
right, I think we will find some reality in this, and then we 
can deal with the challenges that we have in front of us.
    Our first panel, and of course a good friend of mine, Dan 
Downs, and he's representing the Montana Farmers Union this 
morning, and they asked for you to start, so you will be the 
first target. Mr Downs. And thank you for coming this morning.
STATEMENT OF DAN DOWNS, BOARD OF DIRECTORS, MONTANA 
            FARMERS UNION
    Mr. Downs. I don't have to do better than someone else, 
other than you, and that's all right.
    All right, my name's Dan Downs. I am on the Board of 
Directors for Montana Farmers Union. I also farm and ranch, and 
I have a grain business in Billings, Montana.
    I have this all wrote out, and I'm probably not going to 
follow it, because I never do; but 3 years ago I got very 
excited about--thanks to MSU up in Bozeman, I got very excited 
about biodiesel and biolubricants. Duane Johnson came down and 
presented a program to us, and I saw an opportunity at that 
time to really turn this into something that would be from the 
producers of Montana. And for us, the way the price of wheat 
is--at that time cows weren't as good as they are now--it 
looked like a real opportunity for us to turn it into our own 
little boom in oil production. So we started working at that 
time.
    Since then we have developed a small cooperative with the 
hopes of not only building a crushing facility, but also 
building a bio refinery. We want this to be in south central 
Montana, where--somewhere on the main line. We were currently 
looking at two different opportunities, one at Huntley and one 
at Hardin. We have a lot of interest through rail link--Montana 
Rail Link. They are very excited about working with us. So that 
has actually turned us from Hardin to an opportunity possibly 
at Huntley, and the Huntley people are excited about it, too.
    Our original goal was to crush all across Montana. We 
wanted to have satellite crushing facilities so, like Conrad 
mentioned a minute ago, you know, if we put all this in one 
location, what good does that do because we're going to have 
all this, for example, livestock feed in one spot. So our goal 
is to have a satellite crushing facility located in areas where 
we could take advantage of the feed stocks; and we take 
advantage of the feed stocks in those locations, that might 
prove for an opportunity to provide feeding facilities, feed 
lots, in different locations, which again helps in the 
transportation of livestock around the State. If we keep them 
local, the guys don't have to go very far. Even if you're 
swarming the cows up, that's fine, not finishing. At least we 
have that scattered throughout Montana, which puts jobs 
throughout Montana. Again, a good deal.
    If we can crush in these satellite locations instead of 
shipping, you know, bulk product into the central Montana area, 
we're shipping oil, which of course is a third less, or more 
than that.
    As far as Montana Farmers Union, we are very much behind 
anything that has alternative energy issues in it, whether it's 
wind, biomass, ethanol, biodiesel.
    We need to be careful, I think as we go ahead, that we 
don't think we're going to solve the energy problem, because 
we're not. If you do the numbers, we can't produce that much. 
But we can make a definite dent in the amount of oil that we 
need to bring in. And again, if we can use that, produced here 
locally, the jobs are in Montana, you know, the economic 
advantages are here in Montana, it's going to be a huge boom 
for us.
    And also you look at the chance for us to have alternative 
crops. For example, on my farm it's going to be wheat or 
barley; or we can have wheat or barley; or I guess we can have 
wheat or barley, you know, because that's the way it is. We've 
tried these other crops and it hasn't worked well. Well, thanks 
to MSU, they have been looking at some alternative crops. For 
example, safflower works for biodiesel. We have a new crop out 
there called camelina, and I'm sure a lot of people in here are 
aware of that, and it has potential.
    I've been working with the experiment station at Huntley, 
which is doing a great job, and you know, there's 14 different 
varieties out there now that we're going to have to choose 
from. We've been growing it for the past 2 years. Again, thanks 
to MSU, I got my first 22 pounds of seed, and we planted it. 
That's all there was to get. We got it out of France. And we 
gave it a shot and it turned out pretty darn good; and this 
year we learned a little more; and as we go forward with this I 
think we're going to find out that there is an opportunity to 
use that, but it's not going to be the silver bullet. We're 
going to need--you know, we're going to need ethanol 
production; like I said, we can have safflower, we can have 
soybeans. So anyway, if we look at it in a thought that we're 
going to supplement our current problem with good renewable 
energy, whether it's the wind, biomass biodiesel, or ethanol, I 
think we have the opportunity to really have this amount to 
something.
    If you have any questions, I'm sitting here. You can read 
my statement, which I didn't follow at all, and but you can 
read it. But I have several answers, I told Conrad earlier, 
over at the hotel. Most of them will be lies, but I will answer 
you, because the one time I found there was a statistic that 
said that 33 percent of all facts are made up on the spot. So 
we do the best we can do. Thank you.
    [The statement follows:]

                    Prepared Statement of Dan Downs

    Thank you, Chairman Bennett, for holding this field hearing and 
providing me the opportunity to testify before your committee regarding 
the issue of renewable energy, especially as it pertains to cellulosic 
ethanol and biodiesel. My name is Dan Downs. I serve on the Montana 
Farmers Union board of directors, and I operate a family farm and ranch 
operation near Molt, Montana. I also own a seed plant in Billings.
    I first became interested in renewable fuels--and in particular 
biodiesel--several years ago. Since that time my interest has grown to 
the extent that I, and a group of other interested growers, have formed 
a cooperative called Montana Bio Industries. The cooperative's goal is 
to grow oil seed crops. A separate entity, most likely controlled by 
the grower members, plans to build a refinery and market the fuel and 
associated byproducts. The feasibility study has been completed and is 
favorable. The business plan is almost done and some of the financial 
support is in place, with more to be completed soon.
    Our fundamental motivation is the belief that Montanans working 
together can provide opportunities for all: growers will benefit 
through the introduction of another crop to be used in rotation with 
current small grains grown; current in-state crushers will have 
additional work to schedule; construction and ongoing plant operations 
will provide local, decent paying jobs that, in turn, will keep people 
in their local communities, and we will have a refinery in the State. 
All these elements factored together equal statewide economic 
development that originates and stays in the State.
    Just as important, we will have a new fuel source that has obvious 
economic and environmental benefits. If the current predictions I've 
heard about the expected cost increases in fossil fuel are even close 
to be realized, biofuels will be well able to compete economically and 
we will be able to keep costs in control on the farm.
Fuels From the Farm
    Montana--and America--have been long known and respected for their 
contributions to the production of food and fiber. Now an emerging 
opportunity exists for crop, livestock and grass producers to become 
major producers of another essential commodity--energy.
    We believe that the current fossil fuel based energy model is no 
longer sustainable. Our Nation--and our State--is looking for new 
energy solutions.
    Just a cursory look at current events around the globe emphasizes 
that our fossil fuel-based economy is subject to increasingly 
precarious geopolitical forces in the Middle East and elsewhere. We 
support and are working toward a new sustainable economy that will rely 
increasingly on renewable sources of energy such as wind, solar, 
biomass, anaerobic digesters, and especially the ethanol and biodiesel 
based fuel programs, such as the Renewable Fuels Standard that has been 
promoted for years.
    As I look around and visit with my neighbors and have seen what is 
happening in other parts of the country, it is clear that farmers and 
ranchers can be at the forefront of this revolution. American--and 
Montana--agriculture is well positioned to significantly expand its 
role in the development and implementation of new energy solutions. We 
can utilize the commodities we grow in innovative new ways to produce 
power, transportation fuels, and a new generation of biobased products 
and chemicals.
    Energy, economic development, national security and environmental 
quality are inextricably linked. Home-grown energy solutions offer 
tremendous potential for farmers and ranchers to capture more income; 
for rural communities to prosper; and for the Nation to lessen its 
dependence on foreign oil.
    It is our belief that foreign imports of renewable energy products 
should be looked at closely. They threaten the emerging U.S. renewable 
energy sector and our goal of developing and growing our energy 
independence.
    America's farms and ranches can produce important fuels and 
feedstock needed to help our Nation improve energy security. Through 
emerging technology we can dramatically increase the production of 
liquid transportation fuels. We can generate electricity by harnessing 
wind and solar energy and capture and convert biogas emissions. And, we 
can produce biomass and turn crop residues, ag byproducts and wastes 
into value added energy feedstocks.
    This linkage between local agriculture and renewable energy is the 
key to diversifying our energy markets and creating new economic 
opportunity for rural America.
    We support a number of initiatives to achieve this economic 
opportunity fueled by renewable sources, including:
  --More research to quantify the non-monetary value of renewable fuels 
        to help policymakers determine the appropriate level of local, 
        State and Federal support for renewable energy and fuel 
        programs;
  --The Community-Based Energy Development Ownership model accomplished 
        in Minnesota, be adopted by other States and also used by 
        Congress in developing national wind energy related policies;
  --Using Congressional extension of production tax credits to provide 
        financial incentives for community-based wind energy 
        development;
  --Establishing a national Renewable Portfolio Standard (RPS) of 25 
        percent by 2025 that includes a strong local ownership 
        component;
  --Expansion and acceleration of the Renewable Fuels Standard, to 
        triple the current demand for ethanol used in U.S. gasoline 
        over the next 10 years;
  --Establishment of a separate national mandate for the production, 
        use and distribution of non-gas fuels such as biodiesel;
  --Creating a farm-stored Strategic Renewable Energy/Biofuels Reserve, 
        dedicated to biofuels and energy feedstocks storage and 
        production, to ensure a dependable long-term supply of the raw 
        materials that are critical to the uninterrupted operation of 
        the renewable biofuels/energy industry;
  --Full restoration of funding for existing 2002 farm bill legislation 
        including Federal financing for wind, biomass, solar, and 
        energy efficiency;
  --Exploring creative methods to increase demand for renewable energy 
        sources, such as blender pumps; and
  --Prohibiting imports of foreign sources of renewable energy 
        products.
    For many of us here in Montana, the bottom line is ``how can we 
keep our agriculture sector healthy.'' With an energized emphasis on 
``fuels from the farm'', we can expect increased farm income; added 
value uses for crops, livestock and by products; alternative 
agriculture and rural enterprises; more productive uses of marginal 
land; resolution of air, water and soil quality problems; lower energy 
input costs; increased reliance on new markets to maintain the 
viability of U.S. agriculture; enhanced rural economies; and increased 
public support and respect.
    Historically, almost all forms of fossil energy produced in the 
United States have enjoyed some form of government subsidies. The 
current higher cost of renewable energy and renewable fuels production 
does not reflect the environmental and energy security benefits of 
replacing petroleum based fuels and other fossil based energy sources.
    In conclusion, I want to note that as a part of a shrinking pool of 
independent family farmers across America, I speak with the interests 
of those independent producers in mind. Corporate American agriculture 
seems to be doing quite well in terms of its economic stability.
    My goal today is to highlight the economic interests of independent 
family farmers and ranchers who founded this great country. Every 
politician, voter, taxpayer, environmentalist, consumer--and so on--
needs to realize independent family farmers are by far the best 
stewards of the land and animals. The independent, localized family 
farm structure has a proven track record of success in America. 
Straying from this proven structure jeopardizes the United States' 
national strategic security, homeland security, the environment, rural 
economic development, food safety and food quality and now energy 
independence. Federal agricultural policy, with a strong energy 
component, that prioritizes the interests of independent family farmers 
and ranchers, is not vital just to the people on the land, but to our 
country. It is my hope that the committee will keep this in mind as it 
works to prepare future energy and farm policy.
    I wish to thank the committee for this opportunity to testify; I am 
happy to answer any questions you might have.

    Senator Burns. Thank you, Mr. Downs. We have Jon Stoner 
this morning with us, with the Montana Grain Growers 
Association. Jon?
STATEMENT OF JON STONER, PRESIDENT, MONTANA GRAIN 
            GROWERS ASSOCIATION
    Mr. Stoner. Thank you, Senator. I'll read my statement.
    Mr. Chairman, my name is Jon Stoner, and I am a grain 
producer from Havre, Montana. I am currently serving as 
President of the Montana Grain Growers Association. I have been 
involved for the last 3 years with Peaks and Prairies. It's a 
Montana based company that produces bio-based oil and 
lubricants. Thanks for this opportunity to discuss my thoughts 
about renewable fuels and for bringing this hearing to Montana.
    The recent proposal by President Bush to reduce America's 
dependency on foreign oil has been getting a lot of press, and 
I think the majority of the American public agrees that it's a 
good idea to reduce our dependency on foreign oil. Until the 
recent spike in fuel prices, the main focus of renewable fuels 
has been on--has been on corn-based ethanol. The corn producers 
have responded and a profitable new industry continues to 
expand. It's time for Montana to be part of this new industry 
and see what new ideas and solutions that we can bring to the 
table.
    About 3 years ago several other farmers and I started Peaks 
and Prairies. We had some experience with alternative crops and 
wanted to find a way to add value to them. The goal of Peaks 
and Prairies is to develop a bio-based motor oil that is 
competitively priced and is a superior product, and we are 
getting close to finalizing our motor oil formula.
    Currently the company produces several bio-based oils and 
lubricants. Some of our consisting products include: A 
penetrating oil, a bar chain oil, two-stroke motor oil, and 
dust suppressant. We also provide toll crushing to smaller 
Montana companies, and have several new products that are being 
developed right now.
    I think so everybody should be excited about the 
possibilities of this emerging industry. We are only in the 
beginning stages of this technology, and I think the 
possibilities are endless. You know, tires, rubber, any 
product, whatever is made from petroleum, we can make it from 
oil seeds. In addition, our oil seed crushing process yields a 
high quality animal feed as a by-product.
    We can make any lubricant that the petroleum industry makes 
from the high quality oil seed crops that we grow in Montana. 
These oils are biodegradable and they are environmentally 
friendly. We have been approached by several industries to 
produce lubricants for them. For example, the forestry 
industry, they are very interested in our bar chain oil, our 
hydraulic oil, our motor oil, to prevent petroleum based spills 
on our forest floors, and petroleum based hazardous residue on 
the wood that's cut. The mining and marine industries also see 
huge benefits with bio-based lubes as a way to improve energy 
performance from higher lubricity, higher fuel mileage, more 
power, and it's a product that is safe for the environment.
    So, we need to prove to these industries that we can be a 
reliable supplier of lubricants at a price competitive with the 
petroleum based products. We can answer this call and we can do 
it by offering our growers higher prices for the oil seeds they 
grow. This will create a great opportunity for Montana growers 
and our State by providing a chance to grow a premium product 
and get paid for it.
    The challenge that we and other biobased companies in 
Montana face is access to the capital required to meet the high 
cost of entering this industry and competing with the large, 
established companies. The equipment to manufacture bio fuels 
and lubes efficiently and competitively is expensive. We 
estimate that we will have between $2.5 and $3 million in 
equipment for our processing facility. Low or zero cost loans 
and grants that would directly support this infrastructure 
would be extremely beneficial to emerging companies such as 
ours. And our equipment could be offered to others statewide to 
keep it running full time. Our plant could be a model not only 
for the State, but for the country as we move fully into the 
lubricant market.
    Over 90 percent of the ethanol now produced in the United 
States is made from corn. But statistics show that additional 
renewable fuel sources will be needed to meet the challenge of 
becoming a more energy independent Nation. One source that 
holds promise for Montana's grain producers is the production 
of ethanol from cellulitic biomass, and we already have an 
abundance of the cellulitic feedstock in the form of wheat and 
barley straw. In addition, the development of a high biomass 
perennial grass like switchgrass offers an important 
opportunity for Montana producers to diversify and grow a new 
crop for a new market.
    Developing new crops, creating opportunities for existing 
crops and building the infrastructure needed to process them 
takes time and does not come without risk. Additional research 
is needed at all stages of this developing industry. Research 
and ongoing education will have to show Montana producers that 
there is an economic benefit to their business before they will 
change established agronomic practices.
    As we formulate ideas for the next farm bill, it is 
important to include the development of renewable fuels in the 
discussion. The safety net provided by the commodity section of 
the farm bill will continue to be most important to grain 
producers, and it's imperative that the money spent on the 
development of renewable fuels not come at the expense of the 
established commodity programs. Increased research dollars and 
growers' incentives like tax credits can be developed to 
encourage renewable fuel production. Montana grain producers 
are ready to meet the challenge.
    I want to thank you for allowing me to testify, and I will 
answer any questions.
    [The statement follows:]

                    Prepared Statement of Jon Stoner

    Mr. Chairman and Members of the Subcommittee, my name is Jon Stoner 
and I am a grain producer from Havre, Montana. I am currently serving 
as President of the Montana Grain Growers Association (MGGA) and I have 
been involved for 3 years with Peaks and Prairies, a Montana company 
that manufactures bio-based products. Thank you for this opportunity to 
discuss my thoughts about renewable fuels.
    The recent proposal by President Bush to reduce America's 
dependency on foreign oil and minimize global warming through lower 
emissions has been getting a lot of press. I think the majority of the 
American public agrees that these are worthwhile goals. Until the 
recent spike in fuel prices, the main focus of renewable fuels has been 
on corn-based ethanol. Corn producers have responded and a profitable 
new industry continues to expand. It's time for Montana to be a part of 
this new industry and see what new ideas and solutions wheat and barley 
producers can bring to the table.
    About 3 years ago several other farmers and I started Peaks and 
Prairies. We had some experience with alternative crops and wanted to 
find a way to add value to them. The goal of Peaks and Prairies is to 
develop a bio-based motor oil that is competitively priced and is a 
superior product. We are getting close to finalizing the motor oil 
formula. Currently the company produces several bio-based products:
  --Penetrating oil
  --Bar chain oil
  --2-stroke motor oil
    We also do toll crushing and have other products being developed.
    Everyone should be excited about the possibilities of this emerging 
industry. We are only in the beginning stages of this technology and 
the possibilities are endless. Tires, belts, rubber products. whatever 
is made from petroleum can be made from oil seeds. In addition, our oil 
seed crushing process yields a high quality animal feed as a by-
product.
    We can make any lubricant that the petroleum industry makes from 
the high quality oil seed crops we grow in Montana, and these oils are 
biodegradable and environmentally friendly. We have been approached by 
several industries to produce lubricants for them. For example, the 
forestry industry is interested in the bar and chain oil product to 
prevent petroleum based oil spills on our forest floor and petroleum 
based hazardous residue on the wood that is cut. Mining and marine 
industries also see huge benefits with bio-based lubes as a way to 
improve engine performance from higher lubricity, higher fuel mileage 
and more power.
    We need to prove to these industries that we can be a reliable 
supplier of lubricants at a price competitive with petroleum based 
products. We can answer this call and we can do it by offering our 
growers higher prices for the oil seeds they grow. This will create a 
great opportunity for Montana growers and our State by providing a 
chance to grow a premium product and get paid for it.
    The challenge we and other new biobased companies in Montana face 
is access to the capital required to meet the high cost of entering 
this industry and competing with large, established companies like 
Cargill, Bunge and ADM . The equipment we need to manufacture biobased 
fuels efficiently and competitively is the 800-pound gorilla. We 
estimate that we will have between $2.5 and $3 million invested in the 
equipment we need for a processing facility. Low or zero cost loans and 
grants that would directly support this infrastructure would be 
extremely beneficial to emerging companies such as ours. Our equipment 
could be offered to others statewide to keep it running full time, 
creating additional jobs and spinning off smaller companies that 
process by-products. Our new plant could be a model not only for the 
State but also for the country as we move fully into the lubricant 
market.
    Over 90 percent of the ethanol now produced in the United States is 
made from corn. But statistics show that additional renewable fuel 
sources will be needed in order to meet the challenge of becoming a 
more energy independent Nation. One source that holds great promise for 
Montana's grain producers is the production of ethanol from cellulictic 
biomass. Montana already produces an abundance of cellulosic feedstock 
in the form of wheat and barley straw and other plant material wastes. 
These largely untapped, low-cost resources could be a new source of 
income to farmers from existing acres. In addition, the development of 
high biomass perennial grasses like switchgrass offers an important 
opportunity for Montana producers to diversify and grow a new crop for 
a new market.
    Developing new crops, creating opportunities for existing crops and 
building the infrastructure needed to process them takes time and does 
not come without risk. Additional research is needed at all stages of 
this developing industry. The recent announcement of grant funding from 
the Department of Energy for demonstration biomass-to-ethanol 
refineries is a step in the right direction. Additional dollars are 
needed for research at the producer level though. For existing crops 
there may be additional costs required for storage, transportation, and 
new farm equipment. New, improved varieties for biomass ethanol use can 
take several years of research before becoming available to the farmer 
and it can take up to 3 years to establish a new perennial grass like 
switchgrass. Research and ongoing education will have to show Montana 
producers that there is an economic benefit to their business before 
they will change established agronomic practices.
    As we begin to formulate ideas for the next farm bill, it is 
important to include the development of renewable fuels in the 
discussion. The safety net provided by the commodity section of the 
farm bill will continue to be most important to Montana's grain 
producers. It is imperative that the money spent on development of 
renewable fuels not come at the expense of established commodity 
programs. Increased research dollars and grower incentives like tax 
credits can be developed to encourage renewable fuel production. 
Montana grain producers are ready to meet the challenge.

    Senator Burns. Thank you very much, Mr. Stoner, and I 
appreciate that, and I've got a couple questions, but we will 
get back to you in just a little bit.
    We have Jerry Bergman here, Dr. Jerry Bergman, with Montana 
State University; and good to see you again over here.
STATEMENT OF DR. JERALD W. BERGMAN, MONTANA STATE 
            UNIVERSITY
    Dr. Bergman. Thank you, Senator Burns. It is in deed a 
privilege to testify today. I'll briefly cover some of the 
written statement that I've made.
    The supply chain for vegetable oil-based biodiesel and 
other bio-based products is in place in eastern Montana and 
western North Dakota, the MonDak region, and ready for 
expansion. It is possible to grow oil seeds on one-third of our 
crop acres, an estimated 10 million crop acres in eastern 
Montana and western North Dakota; and with the high oil seed 
content oil seeds that we can grow, we can produce more oil per 
acre here than they can with soybeans in the soybean growing 
regions of the United States.
    The MSU Eastern Ag Research Center is evaluating all these 
high oil seeds crops that's under production here right now, 
and we will produce biodiesel from each of these high oil oil 
seeds and determine their fuel related properties for biodiesel 
and for bio lubricants.
    The research here is also developing high oleic safflowers 
with 45 to 50 percent seed oil content, improved oxidative 
stability, with improved antioxidant, and improved meal co-
products. These varieties will be able to be grown in all 
semiarid regions of Montanan and western United States.
    We are also developing a research project to promote the 
use of biomass. This experiment is being done at two research 
sites in western North Dakota, in the Nesson Valley. There we 
are growing and comparing switchgrass to perennial grasses that 
are adapted to our region. These grass species include 
switchgrass, tall wheat grass, intermediate wheat grass, Big 
Bluestem, and Alti Wildrye. We also have CRP mixes to test for 
this biomass study. There are over 1.8 million acres of CRP in 
northeast Montanan and northwest North Dakota alone. These CRP 
acres could easily be converted to biomass production for 
ethanol.
    There is a regional partnership that exists here between 
the Montana State University Eastern Ag Research Center, the 
North Dakota State Williston Research Center, and the USDA 
Northern Agricultural Research Laboratory, that is 
strategically located to conduct renewable energy research and 
development to promote the renewable energy industry in 
Montana, North Dakota, and other regions of the Nation.
    I thank you for the privilege to visit.
    [The statement follows:]

                Prepared Statement of Jerald W. Bergman

    Mr. Chairman and Members of the Agriculture, Rural Development, and 
Related Agencies Subcommittee: The supply chain for vegetable oil-based 
biodiesel and other biobased products is in place in eastern Montana 
and western North Dakota (MonDak region) and ready for expansion. It is 
possible to grow oilseeds on one-third of the estimated 10 million crop 
acres in eastern Montana and western North Dakota. It is interesting to 
note that the MonDak region can produce more vegetable oil per acre 
with high oil content oilseeds (safflower, sunflower, canola, flax, and 
camelina) than soybeans in the soybean growing regions of the United 
States.
    The Montana State University Eastern Agricultural Research Center 
in Sidney, MT is evaluating oilseed crops produced in Montana for use 
in the vegetable oil-based biodiesel production industry. Biodiesel 
will be produced utilizing a university research and development 
biodiesel production system. The unrefined vegetable oils of each 
oilseed crop will be converted to biodiesel and evaluated for fuel 
related properties as a replacement for/or blend with petroleum 
biodiesel.
    Research underway at the Montana State University Eastern 
Agricultural Research Center, Sidney, MT is developing high oleic 
safflower genetic lines with enhanced oxidative stability, improved 
meal co-products and seed oil content of 45-50 percent for commercial 
production in the MonDak region and other semi-arid growing regions of 
western United States. The low-saturate/high-oleic safflower oil with 
enhanced antioxidant levels has potential for bio-fuel, bio-lubricant, 
hydraulic oils, as well as livestock and human nutrition, cosmetics, 
and other industrial uses.
    This research and development project will promote and facilitate 
the development of a new biodiesel/renewable energy industry in the 
MonDak region and other parts of western United States. The research is 
supported by the MSU Biobased Institute, MSU-Bozeman, and the Montana 
Department of Commerce, Helena, Montana. Oilseed processing and 
biodiesel/biolubricant production facilities are in the planning and 
development stages by economic development groups, private companies, 
and farm producers throughout Montana.
    A biomass research project underway statewide in North Dakota has 2 
research sites at the NDSU Williston Research Extension Research site 
in Nesson Valley, 23 miles northeast of Williston, ND to evaluate 
perennial herbaceous biomass crops for cellulosic fuel production under 
dryland and irrigated conditions. The 10-year bioenergy crops study 
will determine the appropriate grass species, harvest methods, and 
optimum agronomic producers to maintain productive perennial biomass 
stands. The economics of bioenergy crop production to improve farm 
income and the impact on soil organic matter and carbon storage will be 
evaluated. Grass species include switchgrass, tall wheatgrass, 
intermediate wheatgrass, Big Bluestem, and Alti Wildrye. There are over 
1.8 million acres of CRP in northeast Montana and northwest North 
Dakota alone. These lands could easily be utilized for biomass 
production for cellulosic ethanol production.
    Feedstock production research products will optimize agronomic 
practices, soil sustainability and environmentally sound production of 
bio-based products for renewable energy and support bioproducts/
biodiesel refinery industries in our region.
    A regional research and development partnership between Montana 
State University's Eastern Agricultural Research Center (MSU-EARC) in 
Sidney, MT, North Dakota State University's Williston Research 
Extension Center (NDSU-WREC) in Williston, ND and the USDA Agricultural 
Research Service's Northern Plains Agricultural Research Laboratory 
(USDA-ARS-NPARL) in Sidney, MT is strategically poised to readily 
expand collaborative renewable energy research and development efforts 
to benefit farmers, ranchers, and grow the renewable energy industry 
not only across the MonDak region but across the Nation.

    Senator Burns. Thank you Dr. Bergman.
    We have Mr. Garth Kallevig, Stockman Bank here in Sidney, 
speaking on behalf of the Montana Independent Bankers 
Association. Thank you for coming this morning. Appreciate 
that.

STATEMENT OF GARTH KALLEVIG, ON BEHALF OF THE MONTANA 
            INDEPENDENT BANKERS ASSOCIATION
    Mr. Kallevig. Thank you, Senator Burns, and I am very 
pleased to be here and represent the Montana Independent 
Bankers Association.
    As bankers representing Montana's large and small 
communities, we are thankful to be part of this discussion.
    Progressive technology together with runaway oil prices has 
spurred a renewable energy boom, and in and of itself the 
development of alternative fuels provides a great opportunity 
to develop the economy of rural America; and it's our great 
desire and the desire of our colleagues across the State to be 
part of this program.
    However, if rural America and especially rural Montana is 
to survive, it is vital that rural communities are at the 
table, working to create opportunity for local producers and 
developers, and advocating for changes in public policy that 
will revive, restore and sustain small communities across our 
State.
    Bankers involved in the Montana ethanol project in the 
1980s saw some of these projects fail, and some reasons cited 
with the bankers that I visited with across the State were 
these: Oil prices fell and ethanol was no longer competitive 
with gasoline and demand plummeted. Tax laws and tax credits 
were constantly changing, and that created a lot of 
uncertainty. And limited capital with some of these projects 
resulted in small hand to mouth operations. And inexperienced 
management.
    We wish that we were able to do more in this regard; 
however, as bankers in small communities, we are especially 
accountable to our stockholders to do the necessary due 
diligence that produces responsible investments. We evaluate 
every project that comes into our offices for the necessary 
elements of a successful project, including their equity, their 
management structure, their business plan, and their available 
expertise, and marketing plan.
    And we look at this renewable energy as an opportunity, 
maybe not for the primary financing of these projects. A lot of 
the small rural independent banks, depending on the size of 
these projects, would be difficult for them; and it may even be 
difficult for the larger banks, depending on the size of some 
of these projects.
    In my opinion, the secondary financing that could be 
available for banks is the biggest opportunity that I see as 
far as ag producers expanding their land and their acreage and 
their equipment. We're going to have housing and land 
development for community growth that is sure to follow if 
these projects come to fruition, loans to new and existing 
businesses for expansions for service and products that will be 
part of this rural economic development. And also loans to 
local individuals and corporate people that invest in these 
projects.
    We understand that much of the funding for large biofuel 
projects comes from out of State sources, and our desire is to 
be part of the equation in any way that we can be in assistance 
to local producers.
    We're anxious to play any role possible in helping to draft 
or review language on this issue for inclusion into a final 
bill.
    And we thank you for allowing us the presence to speak 
here.
    [The statement follows:]

                  Prepared Statement of Garth Kallevig

    I am deeply honored to be invited to participate as a member of 
this prestigious panel, on behalf of Montana's independent community 
banks.
    Progressive technology together with runaway oil prices has spurred 
a renewable energy boom. In and of itself, the development of 
alternative fuels provides great opportunity to develop the economy of 
rural America, which is my great desire and the desire of my colleagues 
across the State.
    The issue of renewable energy development becomes even more 
compelling as a valuable component of the national energy strategy to 
reduce our dependence on foreign oil and lower the costs of energy for 
Americans.
    As bankers representing Montana's large and small communities, we 
are thrilled to be a part of this discussion. At first blush, our 
inclusion on this panel may appear to be a bit premature.
    However, if rural America, and especially rural Montana, is to 
survive, it is vital that rural communities are at the table, working 
to create opportunity for local producers and developers, and 
advocating for changes in public policy that will revive, restore and 
sustain small communities across larger regions.
    Bankers involved with Montana ethanol projects in the 80's saw 
these projects fail. Reasons cited for failure which need to be 
addressed to reduce the risks for all biofuels include:
  --``Oil prices fell and ethanol was no longer competitive with 
        gasoline and demandplummeted''
  --``Tax Laws and Tax Credits were constantly changing, creating 
        uncertainty''
  --``Limited capital which resulted in small hand to mouth 
        operations''
  --``Inexperienced Management''
    We wish that we were able to do more in this regard. However, as 
bankers in small communities, we are especially accountable to all of 
our stockholders to do the necessary due diligence that produces 
responsible investments. We evaluate every project that comes into our 
offices for the necessary elements of a successful project, including 
their equity, management structure, business plan, available expertise, 
and marketing plans.
    We understand that much of the funding for large biofuels projects 
comes from out-of-state sources. Our desire is to be a part of the 
equation in any way that we can be of assistance, to local producers, 
to local developers, or as part of a larger project, to aid the 
development of our local economies.
    We are hopeful that the evolving agriculture bill will include 
provisions that create for local communities a meaningful role in the 
certain evolution of this dynamic new component of the economy.
    Of considerable assistance would be grants to smaller producers and 
developers, for feasibility studies and other costly parts of their 
plans. Incentives, guarantees and tax credits could also be valuable to 
producers, developers and banks. We also see a great need for 
assistance in marketing, foreign competition is a huge concern. Foreign 
production costs are substantially lower than in the United States. To 
be certain, we see many good ideas that come up short in each 
progressive phase of the process.
    We would be anxious to play any role possible in helping to draft 
or review language on this issue for inclusion into the final bill.
    The location of this important hearing, here in my home town, is a 
sign of hope in and of itself. We want to be partners in developing the 
rural economy of America, and in developing the fuels that will provide 
Americans with a sustainable and affordable source of energy.
    We thank you for your presence with us, and look forward to working 
with you in the days ahead.

    Senator Burns. Thank you, Mr. Kallevig, and we appreciate 
your testimony.
    We have Mr. Thad Willis this morning, Montana Farm Bureau.
STATEMENT OF THAD WILLIS, FARMER, ON BEHALF OF THE 
            MONTANA FARM BUREAU
    Mr. Willis. On behalf of the Montana Farm Bureau, its 
staff, members, Board of Directors, we would like to welcome 
you back to Montana, and we're greatful for the opportunity to 
testify on biodiesel today.
    Senator Burns. You figure out for my schedule how I can 
stay home just one day, would you let me know?
    Mr. Willis. Well, okay. If we figure out how to get 
biodiesel to work, I'll get lot of days off for you.
    Senator Burns. You bet.
    Mr. Willis. First of all, we would like to go over a few of 
the policies that American Farm Bureau has on the biodiesel as 
a small business. The first is full research and development 
for increased production of all forms of renewable fuels and 
agriculture uses for energy use. The continued use of the 
Commodity Credit Corporation, funds of incentives to payment to 
producers of renewable fuels for new gallons of production. The 
establishment and enforcement of national qualities standards 
for biodiesel and ethanol. State and Federal tax credits that 
provide incentives for the use of alternative fuel, alternative 
based energy, and requiring that all new--requiring that all 
new gasoline powered vehicles to be capable of burning fuel 
containing a minimum of 85 percent ethanol blended gasoline.
    In light of keeping our opening comments short, I'll just 
edit mine and you can read them if you need something to get 
you to sleep tonight.
    In Montana one question that we're trying to figure out is 
how do we fit into this expanding ethanol equation? The last 20 
years has shown corn to be the best source of ethanol. This is 
not a crop grown in great quantities in Montana, as small 
grains such as wheat and barley are the largest crops. We would 
like to see research continue to focus on making small grains 
more cost effective, especially with barley conversions to 
ethanol.
    Biodiesel looks very promising for Montana. We would like 
to see new energy measures to include using extender biodiesel 
incentives and perhaps a mandate for biodiesel production 
incentives.
    The camelina is a crop that we have grown on our farm for 
the last 3 years, and that's something that we--as we work with 
MSU, they have given us a lot of hope that we could use.
    One thing that was brought up earlier by Farmers Union is 
that when you're done crushing camelina as a fuel, you have a 
by-product, and they are finding out that it's very high in 
omega-3 oils, which they are telling us is very good for humans 
and animals.
    Some examples of the research that's going on right now is 
trout feed, which we have done at MSU in bozeman; chicken feed, 
for the high omega's in the eggs, which is being done in 
Georgia; dairy goat feed, which is high omega's in milk and 
cheese, and that's being done in Montana; and the experiment 
station in Havre is working on for beef cattle, but they are 
finding some very promising results.
    So I think as we said earlier, rather than having one big 
plant in the State, let's try and have them regional so people 
can take advantage of the freight, the distribution, and the 
by-product for cattle feeds.
    There are a few things that we would like to see, as we are 
giving you some ideas, Senator Burns, if you could go, is there 
two incentives currently given for the blenders at the 
rendering plant for biodiesel. There's a $.50 for straight 
blending and $1 for blending virgin oils. An additional $.10 a 
gallon given to small producers which would be ``on the farm 
use biodiesel,'' we would like to see that happen. These 
incentives are set sunset in 2008. We would like to see it 
extended to at least 2011.
    Fuel for fertilizer costs have increased an average of 25 
percent in the last year alone. Addressing how to keep energy 
input costs consistent and workable should be paramount to the 
importance of the upcoming farm bill.
    Investing in research and industry infrastructure will be 
imperative so that when incentives to grow crops are given, 
there's an established market to sell them.
    We would also like to see setting loan rates for 
alternative crops to give producers that backup market for 
those crops.
    Agriculture is the renewable fuel source. Renewable fuels 
are not new, however continuing innovations have found more 
efficient production methods and have minimized adverse 
consequences of using them.
    With renewable fuels, it's a win/win situation for U.S. 
agriculture and its citizens. Thank you.
    [The statement follows:]

                   Prepared Statement of Thad Willis

    Chairman Burns and members of the Senate Agriculture Appropriations 
Subcommittee, my name is Thad Willis, a farmer from Big Sandy, Montana 
and immediate past Vice President of the American Farm Bureau 
Federation Young Farmer and Rancher Committee. Thank you for this 
opportunity to testify on the future of renewable fuels, with special 
emphasis on ethanol and biodiesel. On behalf of our members, board of 
directors, and staff, Montana Farm Bureau Federation welcomes you to 
the Big Sky State, and is pleased to make official comments with 
special emphasis on Western agricultural practices.
    Montana Farm Bureau Federation would like to thank Congress for 
passing comprehensive energy legislation last August, including a 
renewable fuels standard (RFS) calling for 7.5 billion gallons of 
renewable fuel by 2012. This is a great win for both ethanol and 
biodiesel.
    Regarding biofuels and ethanol, American Farm Bureau Policy States 
the following:
    We support:
  --Private and public efforts to develop and promote new uses for 
        agricultural products
  --Research into the viability and economic potential of new 
        agricultural products and commodities
  --Production and use of agricultural based fuels
  --Research and demonstration programs that use ethanol as a fuel for 
        fuel cell engine development
  --Retention and development of policies which support the biomass 
        fuels industry
  --Harvesting of lowland and riparian areas for biomass use
  --Full research and development for the increased production of all 
        forms of renewable fuels from agricultural resources for energy 
        use
  --Production of alcohol and biodiesel fuels from grain and other 
        agricultural products. We urge industry and agricultural 
        cooperatives to investigate and produce this fuel
  --The continued use of Commodity Credit Corporation (CCC) funds as 
        incentive payment to producers of renewable fuels for new 
        gallons of production
  --The establishment and enforcement of national quality standards for 
        biodiesel and ethanol. Biodiesel shall be defined as a mono-
        alkyl ester of a long chained fatty acid derived from vegetable 
        oils and/or animal fats meeting the specifications of American 
        Society of Testing and Materials (ASTM) 6751 or its properly 
        designated successor
  --Mandates to require all diesel to be biodiesel blend and all 
        gasoline be an ethanol blend
  --State and Federal tax credits that provide incentives for the use 
        of alternative ag-based energy
  --Requiring all new gasoline powered vehicles to be capable of 
        burning fuel containing a minimum of 85 percent ethanol blended 
        gasoline
  --Requiring new biofuels or renewable energy production facilities 
        that utilize public funding, tax deferments or grants to offer 
        a percentage of investment opportunity to local producers to 
        keep gains realized in rural America
  --The promotion, use and expansion of biofuels as an octane or cetane 
        enhancer, fuel source, or lubricity agent to improve air 
        quality. Our goal is expanding the use of biofuels to the 
        maximum amount possible.
    As you can see there are certain themes which consistently reoccur: 
Research, Develop, Promote, Incentives, Mandate, and Require. These are 
all words and policies structured to establish an exciting new 
industry. Industries based on agricultural products can help ensure the 
health of our Nation's heritage and independence. An industry that once 
established will be very profitable, but will need these types of 
assistance if they are going to grow, and ultimately survive. 
Increasing the role of renewable energy will help ensure adequate 
energy supplies, stabilize energy costs, and reduce dependence on 
traditional energy resources. The availability of affordable domestic 
energy sources and the opportunities for renewable energy resources are 
vitally important. Ethanol and biodiesel research and incentives 
already in place show this is working.
    Currently, within the ethanol industry, there is a rapid expansion 
under way in ethanol production as seen by a recent survey indicating 
the 7.5 billion gallons could be met in 2 years or less. The current 
annual estimated capacity of the U.S. ethanol is 4.5 billion gallons of 
ethanol. That number is expected to rise to 5 billion by this summer, 
and go to approximately 6 billion by the beginning of 2007. From that 
point forward it is more difficult to project, but if all the plants 
that are currently being planned are funded and built, total capacity 
could be close to 9 billion by 2010. Furthermore, if current plans for 
new plants and expansion are fulfilled, that number could be 10-12 
billion gallons of ethanol by 2012.
    In Montana one question we ask is; how do we fit into this 
expanding ethanol equation? The last 20 years have shown corn as the 
best source for ethanol. This is not a crop grown in great quantities 
in Montana as small grains (wheat and barley) are the largest crops. We 
would like to see research continue to focus on making small grains 
more cost effective, especially with barley conversions to ethanol. You 
may also want to discuss research into making cellulosic-based ethanol 
a reality. With cellulosic technology, wheat and barley producers and 
some grass producers in Montana would have an additional revenue stream 
for their straw by turning these by-products into ethanol through 
cellulosic technology. This same kind of technology can be utilized to 
convert forest by-products (as a result of forest thinning or cleaning 
as part of the Healthy Forest Initiative) into ethanol as well 
Historically there has been great interest in ethanol plants in 
Montana. We just need technology to create an alternate competitive 
market.
    Biodiesel, on the other hand looks to be financially promising 
immediately. We would like to see new energy measures include an 
extender of biodiesel incentives and perhaps a mandate for biodiesel 
production incentives.
    An August 2002 report prepared by USDA's Office of Energy Policy 
and New Uses working with the Economic Research Service estimated 
biodiesel demand to increase from its 2002 level of 13 million gallons 
to at least 124 million gallons a year. Based on the USDA baseline 
estimates for future soybean production, over a five-year time period 
the biodiesel tax incentive could add almost $1 billion directly to the 
bottom line of U.S. farm income.
    The huge benefits from biodiesel are many. It is a home-grown fuel 
that reduces our dependence on foreign oil and contributes to our 
national energy security. It is a clean burning fuel that reduces 
unburned hydrocarbons, carbon monoxide and particulate matter to help 
clean our air. It provides a new and expanding market for soybeans, 
sunflowers, canola, camelina and other agricultural feeds stocks that 
increase earnings for farmers and pumps money into rural economies. 
Opening new markets for agricultural commodities through affordable 
farm-based ethanol and biodiesel will lower our dependence on foreign 
sources for our energy needs.
    Camelina, a crop I grow on my farm has proven to be a great oil 
seed to produce biodiesel and in addition has been shown to have huge 
potential as an animal feed source. The animal feed by-product from 
camelina is showing higher amounts of Omega 3 oils in all testing. 
Omega 3 oils are considered a healthy part of your human diet. Examples 
of the research currently going on include the following:
  --Trout feed--Research done at MSU in Bozeman, Montana
  --Chicken Feed--in Georgia--Higher Omega's in the eggs
  --Dairy Goat feed in Montana--Higher Omega's in milk and cheese
  --Beef Cows in Havre--results not known yet.
    The feed is 40 percent protein and 10 percent meal and is thought 
to be about 95 percent digestible.
    Another American Farm Bureau Federation Policy that enhances this 
need for dependence upon foreign energy sources reads as follows:
Energy, #133
    The United States should be focused on energy independence. We 
support the Energy Policy of 2005 and the incentives it provides for 
the production of traditional and renewable energy sources. However, 
further action is needed to address the vulnerabilities of the U.S. 
energy sector and the resulting impacts on our Nation's farmers and 
ranchers. We support funding for the Renewable Energy System & Energy 
Efficiency Improvement Program. We endorse the 25  25 vision of the 
Agriculture's Role in Ensuring U.S. Energy Security which reads: 
``Agriculture will provide 25 percent of the total energy consumed in 
the United States by 2025 while continuing to produce abundant, safe 
and affordable food and fiber.''
    Energy independence should be of paramount importance to all 
lawmakers of the United States. Montana Farm Bureau Federation is 
pleased to see the following as the target of the USDA, National 
Renewable Energy Conference as taken from an August 10, 2006 USDA press 
release: ``Advancing Renewable Energy is designed to help create and 
strengthen partnerships and strategies necessary to accelerate 
commercialization of renewable energy industries and distribution 
systems, the crux of President Bush's Advanced Energy Initiative. 
Leaders from government and industry will address renewable energy 
topics such as Building Supply and Distribution, Encouraging Demand, 
Adapting and Building Infrastructure and Creating Effective Market 
Models and Partnerships. ``
    Strengthening partnerships, and strategies will accelerate 
commercialization through the actions described and is going to be the 
key to successfully meshing historical fuel sources and their uses, 
sales, and market share with successfully marketing renewable fuels. 
This is where the rubber meets the road, creating these opportunities 
is vital, so that fossil fuel companies looking at losing market share 
have incentives to participate in truly marketing renewable fuels.
    In conclusion, four outcomes that Montana Farm Bureau would like to 
see for the future of renewable fuels are:
  --There are two incentives currently given for the blenders at the 
        rendering plant for biodiesel; 1. $0.50 for straight blending 
        and $1.00 for blending virgin oils. 2. An additional 10 cents a 
        gallon given to small producers which would be ``on the farm 
        using biodiesel for their own use.'' These incentives are set 
        to sunset in 2008. We want these to be extended at least 
        through 2011.
  --Fuel and fertilizer costs have increased by 24-26 percent in the 
        last year alone. Addressing how to help keep energy input cost 
        consistent and workable should be of paramount importance in 
        the upcoming Farm Bill.
  --Investing in research and industry infrastructure will be 
        imperative so that when incentives to grow crops are given, 
        there is an established market to sell them.
  --Setting loan rates for alternative crops is essential for growing 
        oil seed crops.
    Agriculture is the renewable fuel source. Renewable fuels are not 
new, however continuing innovations have found more efficient 
production methods and have minimized adverse consequences of using 
them world wide.
    With renewable fuels, it's a win/win situation, for U.S. 
agriculture and U.S. citizens. Thank you.

    Senator Burns. Thank you, Mr. Willis.
    I'm going to start with Dan Downs here, and Dan has been 
pretty much involved in getting some biodiesel and biofuels 
established in the State.
    If there is one outstanding hurdle that is standing out 
there in front of us right now for a greater use of the 
biofuels, in your estimation, where is it?
    Mr. Downs. Make that two parts. When you first started to 
ask that question, the first thing that came to my mind is, our 
goal is to make sure like Peaks and Prairies is we keep it 
owned by producers. That has been a major problem for us. We 
can get all kinds of money to build these plants, but the 
problem is, how do we keep them owned by Montanans.
    The second biggest hurdle, I would imagine, will be 
transportation. I know you, Senator, work for us on all the 
time on that. If we do get these plants going, like we all--and 
that was great, I wrote in my notes here, it's wonderful, we're 
all sitting here in all these groups, and we all agree. You 
know, we all agree we need to do this; but if we get this thing 
going we're going to eventually use up--or get to the point 
where we're going to have no more demand in Montana, we're 
going to have that full, we're going to have to start exporting 
it. Well, what are we going to do? And I think transportation 
issues are going to be a big thing at that time.
    Senator Burns. Now, you mentioned that you think that 
financing is available?
    Mr. Downs. When we have been at the different bio meetings, 
you will see a particular group or investment organization 
that's more than willing to come in and give you a bunch of 
money, but it amounts to the same thing we have now. Then we're 
growing crops for Exxon, you know, is my comparison. We're not 
growing for a cooperative; we're not growing for Sidney, 
Montana; we're growing for an investment group somewhere. So 
our big effort goal in our venture here to get in co-op started 
is to have it owned by producers, or at least 51 percent. If we 
set up our bylaws, we want it owned 51 percent by producers. 
And that--the money's there, but it's just not coming from the 
right people; and that's why I appreciate your efforts, you 
know, through loans and grant, that that will give us an 
opportunity to own our own plants.
    Senator Burns. Anybody else want to comment on that? Mr. 
Willis.
    Mr. Willis. Well, I know as a producer, my banker's been 
fairly good to work with; but one thing I'm seeing other 
producers that have had hesitancy to approach these alternative 
crops is there's no world rate for it, there's LDP for it, 
there's no direct payment for it. So that leaves them exposed 
on a drought year. If they had wheat instead, they would have 
their payment for it, their LDP for it, or their crop insurance 
for it.
    We grew almost 80 acres of camelina this year, and it 
turned out very well for us; but that's all we want to risk 
this first year. The second year is just to make sure we know 
how to grow it is. So from a grower perspective we need, as I 
said earlier, if we can have this included in the farm bill, at 
least the loan rate where people were guaranteed some income 
off it, if it takes some of the risk out of it.
    Senator Burns. Mr. Stoner, do you want to comment on that?
    Mr. Stoner. Somewhat on the lines of that. Crop insurance, 
I think having a viable crop insurance for the alternative 
crops, because right now I think we're stuck where really 
there's not a lot of protection.
    Capital has been a hard thing for us to come up with. I 
guess we haven't been talking to the right people, because 
nobody's really throwing money at us. We started this little 
project as a pilot project, and we thought we could get this 
little crusher facility going, prove that we can produce 
quality products, and then try to expand this thing; and so we 
haven't been really out trying to recruit a lot of investment 
capital because we have been doing it out of our pockets, that 
are getting pretty small right now, but we have gotten some 
pretty good some grants, too, from the Government. That helped 
us out quite a bit.
    Senator Burns. Mr. Kallevig, financing?
    Mr. Kallevig. You know, there's some Government guarantee 
programs out there through the USDA Rural Development, and 
through SBA. Some of those programs are somewhat limited in 
their size for some of these projects, so it's a little 
difficult. So grant monies and some new guaranteed promise 
would really help out to finance the industry to take a look at 
some of these projects.
    You know, the risk is there for any business and any 
industry, and we try to identify those risks; and there's so 
many things that--I am the producer and the owners of these 
projects can do the greatest job in the world producing and 
making the final product, but there's so many things that are 
out of their control. Commodity prices are out of their 
control; if the tax incentives get taken away, that's out of 
their control; and you know, I did a little bit of research and 
I think that some of these things can be produced so much 
cheaper in the foreign countries, and that's out of their 
control if that import comes in from out of the country for 
some of this stuff.
    So, those risks have to be identified and dealt with so 
that the bank and the producer and the project owners can take 
a look at their projections and identify the risks, to help us 
make our decision if we can finance it.
    Senator Burns. Mr. Bergman, I was really surprised and 
struck by your comments on your production of oil seeds in this 
part of the country. It is bigger than I thought it was, the 
potential of production.
    Dr. Bergman. Yes. Because of the high oil content we can 
grow safflowers sunflowers, flax, canola, and camelina, and 
actually produce more oil per acre than soybeans in the soybean 
areas. So we have a lot of potential.
    I'd like to add, one of the problems with the minor oil 
seeds is getting the herbicides and fungicides registered on 
these minor oil feed crops so the farmers can use them.
    Senator Burns. Give me a for instance with regard to that.
    Dr. Bergman. Well, we requested registration of Harmony GT 
on safflower as opposed to emergence herbicides to control 
broad leaf, and I think that was submitted over 6 years ago.
    Senator Burns. Now, give me an idea, can you oil crop every 
year, or does it have to be rotated?
    Dr. Bergman. The recommendation is to grow it every third 
year, because otherwise you'll have problems with pests that 
build up with oil seed crops; but a one-third acreage on dry 
land right in our area, we could grow 2 or 3 million acres of 
oil seed crops.
    Senator Burns. Now, even though you might produce more oil 
per acre, tell me about your production costs as compared to 
soybeans in the mid west.
    Dr. Bergman. You know, I think we would be competitive on 
production costs. The problem that we have is the market of 
these products.
    Senator Burns. Does transportation enter into that?
    Dr. Bergman. Yes.
    Senator Burns. Big time?
    Dr. Bergman. Yes.
    Senator Burns. Okay. All right. That's pretty interesting. 
And also, we will be rewriting the farm bill in 2007. We want a 
stronger energy title. And I appreciate your written testimony. 
I read some of it last night; but we don't want to sacrifice 
other programs for this, either, because we still are in the 
business of providing food stocks for humans and for the 
livelihood of our ranches. What we're looking for now is the 
production of that extra nickel.
    And Dan Downs brought up a good point. How do we get those 
dollars? When we look at agriculture at the production level, 
years and years and years, in my life anyway, we've always had 
the--I guess you'd have to call it the value of the consumer 
dollar--we always got 15, to 16, 17 and 18 cents back to the 
farm. Now we're below a dime, and that's what's really hurting 
us more than anything else.
    So Dan brings up a good point. How do we get our share of 
that consumer dollar back to our producers? Is it through co-
ops? Is it through whatever? But now we're starting in on a new 
adventure where agriculture will become a part of the energy 
mix. That we can do it right and still get those dollars back 
on the farm to the producers, because right now if it's 
anything it's hurting us right now is our cost of production on 
the farm that's killing us, and these energy prices are just 
devastating. So I think as we look at that, we'll have to do a 
lot of research on that, too, on how do we hold those dollars 
back on the farm.
    Any comments on that?
    Mr. Downs. Do I have a minute left?
    Senator Burns. Yes.
    Mr. Downs. I wanted to mention something. Everybody brings 
up such great points on this; and when we go to these meetings, 
they are talking that, you know, we're going to take the food 
from the baby. Well, we're not. And the point was just made 
of--you know, we're looking on my place, I'm dry land, south 
central Montana, we go crop, fallow, crop, fallow, crop, 
fallow. With these crops here that we're looking at now, we're 
looking at, for example I'll just say camelina, wheat, fallow.
    Well, that's just added a third not only to my income, but 
that's put some tax base back in Montana, too; and that first 
year when I'm raising that camelina, it's not going to waste, 
I'm raising feed stocks for cattle, you know. That takes 
pressure off of other issues like bringing corn into the State. 
Instead of bringing corn into the State, or a high protein 
meal, we're doing it right here in Montana. So again, that 
leaves more money in Montana. And I think that's one thing that 
we really, really got to look at.
    And the high omega-3 thing, that's going to be a big deal. 
And we got that million dollar grant where we give that money 
out. I'm on that board, and boy these guys are doing great 
research with the fish and the chicken and the beef; and if it 
comes the way I'm hoping it's going to come, we're looking at 
Montana--and Montana is a great name in beef--or Montana is a 
great name in anything when you go to sell an ag product. But 
if we could sell Montana beef, high in omega-3, east coast, 
west coast, we just put $.50 a pound on them. And again, if we 
have the feed stock here, we could even be butchering here, and 
that's a big deal for Montana.
    Senator Burns. Yes, sir, Mr. Willis.
    Mr. Willis. You talk about finding ways to get the money 
back into the producers pockets. I think the first step, and it 
would only be the first step, would be let's set some goals 
from what's being heard from the panel of the producers growing 
fuel. We're trying to figure out how to calculate how many 
acres I need on my farm to grow enough fuel to run my tractors 
and my truck, and I think we're under 10 percent right now--I 
think it's actually lower than that--but some people that have 
minimum till, it will be lower than that; but I think the first 
step would be how can we just replace our own fuel. At least 
that would cut on your costs. Then as we get going and start 
developing these other plans, then we can start shipping it to 
other people or producers. But I think the first step would be 
how can we, just on our own acreage, take out 5 percent of our 
acres and grow our own fuel; and that would put the money to 
the bottom line directly.
    Senator Burns. Okay. Anybody else have any ideas?
    Anybody want to express anything else?
    You've answered most my questions. The renewables--wait a 
minute, I did write something here. I've got a fantastic 
memory, but it's short. No, we've already answered that. Okay. 
Thank you very much. Appreciate your testimony. Your full 
testimony will be part of the record. We appreciate you making 
the effort to get over here today and to testify on this. This 
will be a topic when we start looking at agricultural 
appropriations and where we take those dollars, and the 
emphasis to be placed on those dollars. And that's the purpose 
of this. Thank you very much, and we appreciate you coming.
    We will get ready for the second panel, if we can.
    Dr. Bergman. Senator Burns, can I introduce someone? We 
have a privileged person here that's an adviser to the National 
Biodiesel Board, Leland Thom. Leland, if you will stand up. He 
lives in Williston, North Dakota.
    Senator Burns. We'll not hold that against him.
    Dr. Bergman. Leland knows a lot about biodiesel, if anybody 
wants to visit with him after the hearing.
    Senator Burns. Leland, thank you for coming today. We 
appreciate that very much. We appreciate your good work, too.
    All right, we have Mr. Thomas Dorr, Under Secretary for 
Rural Development, and Dr. John Ashworth, National Renewable 
Energy Laboratory, Department of Energy down in Colorado; and 
we want to thank these two gentlemen for coming this morning, 
and to hear their perspective on renewables and alternative 
fuels; and I want to thank you for making the trip up here. I 
really do.
    By the way, Dr. Ashworth, Senator Domenici will be in the 
State next week and will be talking Milk River and irrigation 
and all that, and I know you're familiar with the chairman of 
the Energy Committee.
    Mr. Ashworth. Yes, I am.
    Senator Burns. And in your work. And we would be Secretary 
Dorr, and look forward to your comments.

STATEMENT OF THOMAS C. DORR, UNDER SECRETARY FOR RURAL 
            DEVELOPMENT, DEPARTMENT OF AGRICULTURE
    Mr. Dorr. Thank you. Thank you, Senator. Thank you to the 
committee for holding this hearing. It is a distinct pleasure 
for me to be here today to discuss renewable fuels and the 
agricultural economy. Let me add, it's great to be doing this 
in Montana. I might also add that I am a farmer from Iowa, from 
northwest Iowa, on temporary assignment in Washington, so it's 
great to be back in rural America.
    Historically, ethanol has meant corn, and biodiesel has 
meant mostly soybeans, as was discussed here a few minutes ago. 
These have been regional industries and the corn/soybean 
complex, obviously, isn't Montana's long suit; but the recipes 
are in fact changing, as we're hearing today.
    What is so exciting, though, is that biofuels are breaking 
out of the old boxes. The potential is to move from a regional 
industry based in the corn belt, currently supplying about 3 
percent of our gasoline usage, to a national industry providing 
hopefully as much as 30 percent of our transportation fuel 
needs by 2030, and that is a big deal. That prospect, however, 
isn't automatic; it's not certain. It's going to take a lot of 
hard work, and frankly, it's going to take some risk taking by 
investors to get there. A lot depends on the ability of 
researchers to make cellulosic ethanol cost competitive, which 
is President Bush's goal in the Advanced Energy Initiative.
    Well, that also depends on the price of oil 5, 10 and 20 
years down the road. Prices fluctuate, markets correct, and 
investors need to do their due diligence.
    That said, however, we are working hard to accelerate the 
transition to renewable fuels; and when this happens, Montana 
and other States of the northern plains have a very substantial 
resource base.
    At USDA Rural Development, we look forward to partnering 
with you to build upon these emerging opportunities. Dr. 
Bergman, who testified just a few minutes ago, is one of the 
top experts on the resource potential in Montana and North 
Dakota. And I would like to thank him personally for the 
information that he made available to my staff on some of these 
questions. But in particular, I was fascinated to learn that 
Montana safflower is potentially more productive for biodiesel 
on a per acre basis than Iowa soybeans. I spent most of my life 
farming outside Markus, Iowa, and I know something about 
soybeans, and I know that the potential Dr. Bergman describes 
is, in fact, quite significant.
    Similarly, production of cellulosic ethanol opens the door 
to a wide range of new feed stocks, including wheat straw, 
switchgrass, corn stover, and other new resource streams, again 
many of which were mentioned by Dr. Bergman earlier. But 
Montana's resource base is significant with more than 4 million 
highly productive acres potential. This 4 million acres 
potentially employed for renewables. The challenge before us, 
though, is how to capitalize and accelerate the development of 
ethanol biodiesel and in deed other renewable fuels. This is a 
core commitment for President Bush, and has been since he took 
office in 2001.
    The President, in my view, has been far out in front on 
this. USDA, the Department of Energy, and private labs are 
working hard to make cellulosic ethanol cost competitive. The 
Bush administration has extended the ethanol tax credit; they 
have created a new small refiners credit, and created the first 
ever Federal incentives for biodiesel production. The rapid 
expansion of the ethanol and biodiesel industries is a direct 
result of these.
    At USDA Rural Development, we are an investment bank, if 
you may, for rural America. Believe it or not, we currently 
have a portfolio in excess of $93 billion in investments in 
rural business, infrastructure, housing, and community 
facilities. We directly support renewable energy development 
through 10 separate programs in our business and utilities 
mission areas. In fact, we have made, collectively not just in 
renewable energy, but over $100 million a year--between $80 and 
$100 million a year in investments in the State of Montana 
alone, every year for the last 5 years.
    From fiscal year 2001 and fiscal year 2005, the first 5 
years of this administration, we have invested nearly $370 
million, in excess of 650 renewable energy and energy 
efficiency projects, and this continues to be the top priority 
going forward. We are not slowing up.
    The bottom line, Mr. Chairman, is that renewable energy 
represents an historic new opportunity for investment and 
wealth creation in rural America. We're eager to support this 
investment in this area, and I'm encouraged by the level of 
interest that we're seeing in Montana, throughout the Northern 
Plains, and I applaud the subcommittee, particularly you, 
Senator Burns, for your leadership on this issue.
    So on behalf of President Bush, Secretary Joe, the great 
team here in Montana, USDA, let me say we look forward to 
working with you as we go on. Thank you.
    [The statement follows:]

                  Prepared Statement of Thomas C. Dorr

    Mr. Chairman, it is a distinct pleasure for me to appear today to 
discuss renewable fuels and the agricultural economy. The potential may 
be summarized in three words: positive, significant, and imminent. It 
is also important to note that there is also risk. Prices fluctuate, 
markets correct, and due diligence is required. A great deal depends on 
the price of oil 5 and 10 and 20 years down the road. That said, 
however, renewable fuels are an enormous opportunity, both for rural 
America and for the Nation. They are also a high priority for the 
Administration. I thank the Subcommittee for this opportunity to 
discuss our activities in this area.
    USDA Rural Development's mission is to increase economic 
opportunities and improve the quality of life in rural communities. We 
administer over 40 grant, loan, and loan guarantee programs providing 
funding for rural housing, infrastructure, community facilities, and 
business development. In the first 5 years of the Bush Administration, 
we have invested over $72 billion. Our current loan portfolio exceeds 
$93 billion.
    Renewable energy is a relatively new but increasingly important 
part of this portfolio. USDA's commitment to renewables is twofold. 
First and most importantly is strengthening America's energy security. 
America suffers--in President Bush's phrase--from an increasingly 
expensive addiction to oil. This dependency imposes heavy national and 
economic security costs. Reducing this vulnerability is a high 
priority.
    From the President's initial energy policy initiatives in 2001 . . 
. through the energy provisions of the 2002 Farm Bill, the American 
Jobs Creation Act of 2004, and the Energy Policy Act of 2005 . . . to 
the Advanced Energy Initiative announced in January 2006, President 
Bush has advocated a wide range of initiatives to strengthen America's 
energy security. The recent sharp increase in world oil prices 
underscores the urgency of this effort.
    Secondly, from USDA's viewpoint, renewable energy offers an 
opportunity for investment and wealth creation in rural America. 
Ethanol and biodiesel rely on agricultural feedstocks. Anaerobic 
digesters are livestock dependent. Due to siting issues, many wind 
farms and solar arrays will be deployed in rural areas. These and other 
rural energy sources are becoming increasingly cost competitive.
    USDA Rural Development's role in this area is to stimulate economic 
growth in rural communities. From fiscal year 2001 through fiscal year 
2005, through the first 5 years of the Bush Administration, we have 
invested over $356 million in 650 renewable energy and energy 
efficiency projects encompassing a wide range of technologies. These 
investments have leveraged an additional $1.3 billion in private 
capital. This has been an agency-wide effort; 10 separate USDA Rural 
Development programs have contributed to these results.
    In addition to the Rural Development mission area, the Forest 
Service, the Cooperative State Research, Education, and Extension 
Service (CSREES), the Agricultural Research Service (ARS), the Natural 
Resources Conservation Service (NRCS), and the Farm Service Agency 
(FSA) are also involved in renewable energy initiatives as well. On a 
closely related front, USDA's Office of Energy Policy and New Uses 
administers the Federal Biobased Preferred Products Procurement Program 
(FB4P), the USDA Certified Biobased Product Labeling Program, and the 
Biodiesel Education Program (BEP).
    Across all mission areas, USDA outlays in fiscal year 2006 on 
biobased products, bioenergy and other energy-related programs are 
estimated at $272 million. DOE's fiscal year 2007 request for its 
Office of Energy Efficiency and Renewable Energy, which supports 
related research development, demonstration, and deployment, is $1,176 
million; funding at DOE's Office of Science and at other agencies (DOD, 
NASA, NSF) adds significantly to this figure. In addition, there are 
Federal and State income tax credits and other tax incentives that 
promote the use of ethanol and biodiesel.
    In short, renewable energy remains a core strategic commitment for 
the Bush Administration, and I want to acknowledge and thank the 
members of this Subcommittee for the support of the Congress for these 
initiatives.
    As noted above, our renewable energy investments involve a wide 
range of technologies. Today's hearing is focused on two of these--
cellulosic ethanol and biodiesel--with significant potential for 
agricultural producers in Montana and other States in the Northern 
Plains. The Northern Plains have not traditionally been considered 
biofuels country. That may change if cellulosic ethanol can be produced 
cost effectively.
    Traditional ethanol production in the United States has been corn 
based. This is a great thing for the corn belt. U.S. ethanol production 
last year soared to 3.9 billion gallons, up from about 900,000 gallons 
as recently as 2000. That is more than a four-fold increase in 5 years. 
One hundred and one ethanol plants are now in operation; 7 of these are 
being expanded, and another 39 plants are under construction. Annual 
ethanol production is now equivalent to about 3 percent of the Nation's 
gasoline consumption and is expected this year to absorb 20 percent of 
the corn harvest. Corn-based ethanol, however, is ultimately limited by 
the acreage suitable for corn production and eventually, the market's 
ethanol capacity. It is also an inherently regional resource.
    Cellulosic ethanol, however, escapes these constraints. Potential 
cellulosic feedstocks include switchgrass, wheat straw, corn stover, 
algae, woody biomass including forest byproducts, recycled wood and 
paper materials, and municipal waste. Reducing the costs and improving 
the conversion efficiencies of cellulosic production continues to be a 
high priority for research for USDA, the Department of Energy, and 
academic and industrial laboratories. Steady progress is being made in 
a number of pilot plants currently in operation. The next step is an 
industrial-scale demonstration, which DOE plans to begin funding in 
fiscal year 2007 if Congress provides the President's request. If the 
economics are favorable and scale-up issues are addressed, cellulosic 
ethanol plants may be eligible for a loan guarantee under a new program 
authorized to DOE by the Energy Policy Act of 2005.
    The potential biomass resource that could be used for cellulosic 
ethanol production appears to be large. A scoping study conducted by 
the Department of Energy and USDA (Biomass as Feedstock for a Bioenergy 
and Bioproducts Industry: The Technical Feasibility of a Billion Ton 
Annual Supply), found that U.S. farm and forest lands, on a sustainable 
basis, can supply enough feedstock to displace 30 percent of current 
U.S. petroleum consumption with biofuels by 2030, while still meeting 
the Nation's food, feed, and export demands. The Big Ton Study has 
generated a lot of discussion about the amount of feedstock available, 
but not about the direction of the analysis. The potential resource is 
large. There clearly is potential for biofuels to displace a 
significant amount of oil-based transportation fuels.
    Montana and other Northern Plains States share in this potential. 
The 16 counties of the Eastern Plains RC&D area, for example, have more 
than 4.3 million acres of cropland and 760,000 acres of hayland could 
be suitable for the production of bioenergy crops. Markets will 
determine whether, in the long run, cellulosic ethanol production will 
be based on dedicated crops such as switchgrass or on waste streams 
such as wheat straw, but in either case the regional resource base is 
significant.
    The Northern Plains also enjoy a major biodiesel potential. 
Biodiesel production in the United States last year reached 91 million 
gallons, up from just 2 million gallons as recently as 2000. The rate 
of increase is extraordinary and can largely be attributed to tax 
incentives and subsidies as well as rising oil prices. The number of 
biodiesel plants has increased from 10 in 2000 to 65 today, with 
another 58 under construction.
    This dramatic growth results from a classic push-pull combination: 
soaring oil prices coupled with the production incentives provided in 
the American Jobs Creation Act of 2004 and the Energy Policy Act of 
2005. It is also a classic case of ``back to the future,'' as Rudolf 
Diesel himself ran some of his earliest engines on peanut oil.
    To date, U.S. biodiesel production has been based primarily on 
soybeans and secondarily on animal fats and recycled cooking oil and 
grease. As the industry matures, however, a wide range of oilseeds may 
be employed including rapeseed, sunflower, safflower, and flax as well 
as soybeans. As with cellulosic ethanol, therefore, the Northern Plains 
have the potential to contribute significantly to the buildout of the 
biodiesel industry.
    There is some exciting work being done right here at the EARC 
(Eastern Agricultural Research Center) on this subject. In the Eastern 
Plains RC&D area, for example, there are 4.3 million acres of cropland 
suitable for growing oilseed crops in a 3 year crop rotation basis with 
wheat and annual legumes. Research here at EARC has already 
demonstrated that, on a per acre basis, safflower production in eastern 
Montana can produce more oil per acre than soybean cultivation in the 
soybean producing States. While results will differ somewhat in other 
regions and for other oilseed crops, this is obviously a very 
significant resource. I want to thank Dr. Jerry Bergman for bringing 
this analysis to my attention.
    In conclusion, the cellulosic ethanol and biodiesel potential is 
very large, and the Northern Plains have the potential to competitively 
produce these products as technologies and industries develop and 
mature. Biodiesel production is already increasing rapidly, while the 
goal is for the President's Biofuels Imitative at DOE is for cellulosic 
ethanol to be cost competitive by 2012. We understand that at least two 
private companies will soon announce plans to build commercial scale 
cellulosic ethanol demonstration plants.
    We are eager to accelerate this evolution and look forward to 
supporting it across the full range of USDA agencies appropriate with 
each agency's mission. We will coordinate closely with DOE, the lead 
for the President's Biofuels Initiative. This is an extraordinary 
opportunity for investment and ownership in rural America--for a new 
value-added product stream for producers--for new jobs and tax base in 
rural communities. We welcome the interest and support of the 
Subcommittee and of the Congress as well. Thank you.

    Senator Burns. Thank you, Mr. Secretary. I appreciate that. 
That's over $90 billion. It gets my attention a little bit.
    Mr. Dorr. Million, not billion. $92 billion in investments; 
between $80 and $100 million a year in Montana.
    Senator Burns. That's right. I read the testimony of Dr. 
Ashworth last night, and I think his testimony this morning, 
and there will probably be some questions that come from it; 
but we welcome him this morning. He's a team leader in 
partnership development, the National Bioenergy Center coming 
out of Golden, Colorado; and Dr. Ashworth, thank you for coming 
up this morning.

STATEMENT OF DR. JOHN ASHWORTH, NATIONAL BIOENERGY 
            CENTER, NATIONAL RENEWABLE ENERGY 
            LABORATORY, DEPARTMENT OF ENERGY

    Dr. Ashworth. Mr. Chairman, thank you for the opportunity 
to come and address this audience; and hopefully we can talk a 
little bit and I can answer questions that people may have 
about how we can take--we can produce not only abundant energy, 
but as this technology begins to spool up, we will create value 
added economic activity and high paying jobs in rural America, 
and reduce dependence on foreign oil at the same time.
    So, I am a team leader for partnership development for the 
National Bioenergy Center of the National Renewable Energy 
Lab--that's a big mouth full--in Golden, Colorado. We're the 
prime laboratory for the technology development and for the 
technology helping industry to commercialize the technology for 
both renewable energy and energy efficient technology; so we 
kind of cover the ground, but I'm going to talk about biomass 
today.
    The committee, I'd say, is commended for bringing up the 
topic of the potential of biofuels, and I'm going to focus on 
cellulosic ethanol today, and other people have already talked 
quite a bit about biodiesel; but I want to say that really, if 
we try to look at the issue of dependence on imported oil, we 
really have a limited number of technologies we can work with, 
because biomass is really your only option if you want to make 
transportation fuels.
    If you want to make electricity, we've got wind and other 
options, but biomass is really what we have to work with if you 
want to make liquid transportation fuels that are renewable and 
sustainable over a long period of time.
    The thing I think that surprises a lot of people, and 
particularly people in Washington, is how large the biomass 
resource base is in the United States. We've always asked that 
question, how big is it? So, about a year and a half ago USDA 
and Oak Ridge National Laboratory basically sat down and did an 
inventory of all the biomass resource base in the United 
States; and they found that there's about 1.3 billion tons of 
biomass that can be harvested on a sustainable basis. That 
means that the soil is not going to be degraded; you're not 
going to have wind erosion; you're going to keep the resource 
base at the same level or better every year.
    Well, that's an abstract number. What does 1.3 billion tons 
mean? And when we talk to people in industry, they think, in 
terms of oil, because oil is in fact what we run our society on 
today. It's about the equivalent of 3.5 billion barrels of oil 
a year. Well, how much oil do we use in the United States? This 
is equivalent to about 60 percent of all the oil we use in the 
United States today.
    So we could displace 60 percent of all our oil use, or more 
like 75 or 80 percent of our imported oil on this existing 
biomass resource base. Will we be able to do all that 
immediately? No. But do we have the technology and the 
capability to understand how to convert this resource base? 
Yes, we do. It's going to be an issue of economics.
    So the--I'm really going to talk just kind of briefly about 
biodiesel, because it's not something that NREL really works 
on. We don't work on biodiesel because it's a commercial 
technology, there's people out building things all over the 
United States. What I can tell you is it's growing very 
rapidly. Biodiesel, just last year, was 75 million gallons a 
year of production. This year it's going to be 300 million 
gallons. Next we are--we don't know how much, but it's probably 
going to be double that. Biodiesel is growing very rapidly in 
the United States.
    The issue really is in biodiesel, the resource base is 
relatively small. It's not insignificant, but it's relatively 
small. We think that biodiesel could probably produce 5 percent 
of the diesel fuel produced in the--used in United States 
pretty readily. Above that, it's going to be a challenge, and 
you're going to maybe have to find new sources that we were 
talking about, the panel was talking about today, new fuels, 
new feed stocks in order to get that much over 5 percent.
    I'm going to switch and talk a little bit about ethanol. 
The United States produces about 4 billion gallons a year of 
ethanol right now, most of it based on corn. There's a little 
bit produced on milo and some other crops, but primarily 
produced on corn; and that industry is growing very rapidly. 
There's 34 plants under construction in the United States right 
now.
    Mr. Dorr. 37.
    Dr. Ashworth. Okay, three have been added since yesterday. 
We expect corn based ethanol to probably hit about 8 billion 
gallons a year in the next couple years. It's more today; we 
expect it will probably reach about 8 billion; and my best back 
of the envelope calculation is that it can probably provide 
about 10 percent of the gasoline pool in the United States. 
This is also a number coming out of the National Corn Growers 
Association. So that's about 15 billion gallons. That's a lot 
of ethanol.
    But if you want to go beyond that, you really have to look 
at lower cost feed stocks, or other grains; but even if we 
include all the small grains, it's still not going to add a lot 
of capacity. So we're really looking at other resources; and 
two that I'd like to kind of raise to you today that we see as 
being very abundant and having potential, are corn stover, 
which is the one that people kind of talk about, and wheat 
straw. Now, this is the non food part of the corn plant or the 
wheat plant, including stalks, the leaves, the husks.
    And then there's other resources that people are only just 
beginning to look at that are very abundant in Montana and the 
United States. This is forest thinnings--as we try the take 
fire road off the national forests, and also the residues from 
the forest industry, the residues from agricultural operations, 
and eventually we will probably move to energy crops. By this 
we mean fast growing trees, like hybrid poplar, or fast growing 
grasses like switchgrasses that several people here have 
mentioned.
    DOE's developing a multi-year program right now to try and 
get to the point where we can produce about 60 billion gallons 
of ethanol, or other bio-based fuels by the year 2030. So, 
probably 15 times what we're doing now. It's a pretty ambitious 
program, but we can see a way to get from here to there; but in 
order to do that, we've really got to perfect the technology in 
every step of the process. I know we're researchers, we focus 
on certain pieces; but we know all the pieces have to be there.
    You have to be able to grow the feed stock inexpensively, 
you have to be able to transport it, you have to be able to 
convert it, and then you have to be able to use it once it's 
produced. And this is--in order to turn cellulosic materials 
into fuel, it has to be cost competitive. So we have to reduce 
the cost of the technology, and we have to increase the 
efficiency. It's a two-part process as we go along.
    We can also grow the size of the resource base, so the 
biomass resource base using new crops, new grasses, new trees, 
we believe will also go up; so bio fuels can become a large 
fraction of our liquid fuel supply.
    With the President's bio fuels initiative that several 
people have talked about, we now see a pathway to making this a 
reality. Our goal, our research goal given to us as a national 
laboratory, is to make cellulosic ethanol the same cost as 
corn-based ethanol in the next 6 years. So by the year 2012, we 
have a target of producing cellulosic ethanol, and producing 
that technology at $1.07 a gallon.
    Senator Burns. Do you think that's obtainable?
    Dr. Ashworth. Yes, we really do. We're looking at it right 
now as becoming $2.25 to $2.50 a gallon right now, in our 
model. Now, that's at scale. And we don't operate at scale, 
we're a pilot plant, we operate at a ton a day. But as we scale 
it up, we see a pathway to get from here to there. We 
understand the different research steps that have to get from 
here to there, and we haven't enough resources to do it. We 
didn't have enough resources to do it, but we do have the 
funding now to do that.
    What we would really like to do is--I'm going to skip some 
of this thing here--but I think one of the things I did want to 
point out here is that cellulosic ethanol is an interesting 
thing because it really will have a large impact on rural 
America; and the reason is, that if you're going to be taking 
a--let's take 2,000 tons a day, which is how we expect how 
large these plants are going to be, you're going to have to 
collect that feed stock, you're going to have to move it to the 
factory, you're going to have to process it, and you're going 
to have to ship the final product. That's going to mean 30 or 
50 high paying jobs in that plant for the people who operate 
that plant; but then more importantly the farmers who are going 
to provide the feed stock, or in the forestry parts of this 
country the foresters are going to provide that feed stock, 
somebody's going to transport that biomass, and somebody's 
going to transport the finished product away from the factory. 
These are all going to have a direct impact on the rural 
facilities.
    The number that--people ask me the question what does this 
mean? A 70 million gallon a year plant is going to put about 
$100 million a year into the local economy in terms of the 
output, the tax base, the production and the sale of that 
material. And we envision that in order to hit the President's 
goal is going to be several hundred of these plants in 
operation by the year 2030. So you can just kind of do the math 
and see the implications of that.
    The other kind of the last thing I'd like to say--I'm just 
going to summarize because I can see in people's eyes there's 
some questions out there, so I'm going to cut this a little 
short--I'm going to just kind of summarize one thing.
    Number one, biomass is really your only renewable resource 
of transportation fuel. If you want to make transportation 
fuels on a sustainable basis, biomass is it.
    Number two, we have a large resource base. We are not 
resource base constrained in this country.
    Number three, the energy balance, when people ask me this 
question, is actually quite today. It's not going to take more 
energy to do this than it is to do in the embodied product. 
It's going to come from all over the country, so we're going to 
see an industry that's going to be regional. It's not just 
going to be based on corn; it's going to be based on wood, and 
wheat straw, and it could be based on camelina. Whatever it is, 
it's going to be a very regional business.
    And lastly, we're finding ways to increase efficiency and 
lower the cost. We just need to get it to the point where 
private industry will take it over and run with it.
    My job is the putting together partnerships between private 
industry and our laboratories, so I work with industry all the 
time. That's my job. And I can guarantee you that the money 
that's being spent right now by the government, and by DOE, and 
USDA, has a commensurate investment by the private sector right 
now. They are very heavily investing into this technology, 
because they are looking for the path in order to make money in 
this; and I do think in the very near term, probably 2010, 
2011, the first cellulosic ethanol plants will be up and 
running in this country; and then the question then is, where 
do we go from there to make it a large scale industry.
    [The statement follows:]

                Prepared Statement of Dr. John Ashworth

    Mr. Chairman, thank you for this opportunity to discuss how 
biofuels can provide our Nation with an abundant, renewable source of 
energy; provide the rural areas of country with new value-added 
economic activity and high paying jobs; and in particular, help reduce 
our dependence on imported oil. I am the leader of the partnership 
development effort for the National Bioenergy Center at the National 
Renewable Energy Laboratory in Golden, Colorado. NREL is the U.S. 
Department of Energy's primary laboratory for research and development 
of renewable energy and energy efficiency technologies. I am honored to 
be here, and to speak with you today.
    The committee is to be commended for considering the issues related 
to renewable energy, and the important role to be played by cellulosic 
ethanol and biodiesel. Researchers at NREL are dedicated to helping our 
Nation develop a full portfolio of renewable energy technologies to 
meet our energy needs. Given the seriousness of the energy challenges 
we face as a Nation, there is a lengthy list of renewable and 
conventional energy options that must be pursued. If we narrow our 
focus, however, and consider specifically just those things we can do 
to create a viable alternative to oil--then our choices become more 
limited. Developing an industry to maximize the production of biofuels 
like ethanol, biodiesel, and other biofuels must be a priority--because 
biomass is the only renewable option we have for liquid transportation 
fuels.

The Emerging Biofuels Industry
    Biomass is plant material--most commonly trees, grasses or 
agricultural wastes--that can be turned into energy. There are a lot of 
ways biomass can provide energy, and for decades there has been a 
valuable biopower industry in this country that produces electricity 
from biomass. Your hearing on the future potential of biofuels is 
timely and appropriate. We only recently have come to fully comprehend 
just how valuable a contribution biofuels can make, and how we can 
mobilize the technology and the entrepreneurial wherewithal to make it 
happen.
    When President Bush came to our laboratory earlier this year, he 
talked about a national goal of replacing more than 75 percent of our 
oil imports from the Middle East by 2025. And he affirmed that the best 
way to do that is through increasing our research on advanced energy 
technologies.
    I strongly believe that the 7.5 billion gallon goals set forth in 
the Renewable Fuel Standard are not only achievable, but that they 
represent a minimum of what is needed. Accelerated development of 
cellulosic ethanol and biodiesel industries is a goal that I believe is 
required and can realistically be accomplished--if we put adequate 
resources behind the effort. And, accelerating the adoption of E-85 is 
critical to displacing a large fraction of petroleum with ethanol.
    Our goal is to make renewable biomass-derived fuels and chemicals 
the solution for ending, as President Bush himself memorably put it, 
our Nation's ``addiction'' to oil. And with the President's Advanced 
Energy Initiative, we are on course to bring the Nation's first 
commercial cellulosic ethanol production facilities into existence by 
2012.

Biomass: A Plentiful Resource
    While much remains to be done, we as a Nation start with some 
significant strength. The biomass resource in the country is huge, and 
the potential for it to grow is significant.
    The Department of Agriculture and the Department of Energy recently 
looked at the question of whether the Nation's biomass resource could 
foster a biofuels industry large enough to meet a significant portion 
of our Nation's future fuel needs. The report, now commonly referred to 
as ``The Billion Ton Study,'' for the first time confirmed that the 
United States could yield more than a billion tons of biomass annually 
for energy needs. And, importantly, we could do this without negatively 
affecting the Nation's ongoing needs for food or fiber. This is 
significant because the 1.3 billion tons of biomass that was forecasted 
contains as much energy as 3.5 billion barrels of oil.



    Let me provide some perspective on that. These 3.5 billion barrels 
are about 60 percent of the 6 billion-plus barrels of oil the U.S. 
consumes each year. Domestically, the United States, including Alaska, 
currently produces about 2 billion barrels of oil per year. That's only 
67 percent of the potential we see from biomass. U.S. oil production 
peaked in the early 1970s at the same level of production, about 3.5 
billion barrels per year. The United States has never produced more 
than 3.5 billion barrels a year of oil.
    It should be emphasized that such a transition to biofuels will not 
happen overnight. It will take a significant and sustained national 
effort to get us there. Still, ``The Billion Ton Study'' clearly 
demonstrates the biomass resource is real, and large enough to 
ultimately replace a large fraction of the petroleum-derived fuels we 
depend on today. DOE is in the midst of developing a vision for 
replacing 30 percent of current motor gasoline with ethanol by 2030 and 
this should help guide us in realizing the potential of biofuels.
    Moreover, the resource is regionally diverse. We envision that 
every State in the Nation could produce biomass and could benefit 
economically from an expanding biofuels industry. Montana, the Pacific 
Northwest, the Northeast, and the Southeastern United States are rich 
in woody biomass--forest thinnings, mill wastes, beetle kill trees, and 
possibly fast growing species such as hybrid poplar. There is also 
wheat straw and sorghum in Western farmlands with more modest rainfall. 
The Midwest will contribute corn stover, oat and soy hulls, and a 
variety of feedstocks.
    I am going to focus primarily on ethanol and particularly on 
cellulosic ethanol today. DOE and NREL are not undertaking major 
research on biodiesel today, other than to work with the National 
Biodiesel Board and other interested parties on testing biodiesel for 
purity and to undertake engine tests on biodiesel emissions and power 
output. Using relatively mature technologies, industry, is continuing 
to increase biodiesel production, from 120 million gallons in 2005 to 
an estimated 300 million gallons this year. We do see the vegetable oil 
and animal fat feedstock base for biodiesel as being much more limited 
than that for cellulosic ethanol, but expect biodiesel capacity to grow 
rapidly to meet perhaps 5 percent of U.S. domestic diesel fuel 
consumption.
    We are encouraged by the fact that there already exists a strong 
and growing ethanol fuels industry in this country. The United States 
currently produces more than 4 billion gallons a year of ethanol, 
almost exclusively from corn grain, and the industry is growing very 
rapidly. We believe that the U.S. ethanol industry will reach 8 billion 
gallons of installed capacity in the next few years, providing many 
highpaying jobs for rural America, and helping boost farm income.
    To understand where we are today and where we need to go, we need 
to see ethanol technology issues and biomass resource issues as 
interrelated. To move the ethanol industry to where we need it to be, 
we have to move beyond corn grain as the primary biomass resource. One 
of the most abundant potential resources we have is corn stover, the 
non-food parts of the corn plant, including the stalks, leaves and 
husks. Other resources are forest thinnings, hardy grasses like switch 
grass, and fast growing trees.
    To use these and other resources we need to perfect new 
technologies that convert the cellulosic materials of the plants into 
fuel. 


Breaking Down The Economic Barriers
    So, why aren't we producing ethanol from cellulosic biomass today? 
Simply put, the cost is too high. If we were to build a facility today 
for converting cellulosic biomass to ethanol, it would produce ethanol 
at about twice the price of one of today's existing corn grain ethanol 
facilities. But we are making steady progress. The focus of the DOE 
Biomass Program and the National Bioenergy Center is to make cellulosic 
ethanol as cheap as corn ethanol within the next 6 years. Longer term, 
DOE and NREL are targeting a cost of cellulosic ethanol as low as 60 
cents per gallon, but this will require revolutionary approaches for 
producing, collecting, and converting biomass.
    The targets we have set to accomplish this are ambitious, but we 
believe they can be met, if adequate research support is available. Our 
goal is to reduce the cost of producing cellulosic ethanol from $2.25 a 
gallon in 2005, to $1.07 in 2012. To get there we are working to 
greatly increase production efficiencies, and boost the average yield 
from 65 gallons per ton as it is today, to 90 gallons per ton in 2012.
    One of the reasons I'm optimistic that we will meet these targets 
is our encouraging progress to date. Over the past 5 years, we've been 
able to drastically cut the cost of ethanol from cellulosic biomass, 
corn stover in particular, by reducing the cost of enzymes through a 
partnership with two major enzyme manufacturers, and by improving the 
biomass conversion process.
    In the late 1990s, the high cost of cellulase enzymes forced the 
use of an entirely different biomass conversion process called acid 
hydrolysis, even though the acid hydrolysis process has inherent 
limitations in what it can yield. That has changed because of a 
partnership between DOE and two of the world's largest biotechnology 
companies--Genencor and Novozymes. The consequences of that research 
collaboration have been impressive. The cost of enzymes for producing 
cellulosic ethanol has been reduced more than tenfold. As a result, all 
major process development work on cellulosic ethanol production is now 
focused on the more efficient enzymatic hydrolysis process--proof that 
the nascent industry is already benefiting from these scientific 
breakthroughs. We continue to work toward further reductions in the 
cost of these enzymes.

Integration Of Biorefineries Into Existing Industries
    Another exciting area of work is in the development of what are 
coming to be called ``biorefineries''. Our scientists at NREL, together 
with those at other DOE national laboratories, universities and 
corporations, are leading the development of fully integrated 
refineries that use biomass, instead of petroleum, to produce fuels, 
chemicals, synthetic materials--virtually all of the products we use 
from a conventional oil refinery today. Biorefineries utilize a complex 
array of processing facilities to break down, convert and recombine a 
wide range of biomass components into fuels and chemicals, in a manner 
similar to how petroleum refineries convert petroleum crude oil. We 
envision that future biorefineries will utilize a wealth of resources 
we either underutilize or don't use at all today. That includes 
agricultural residues, forestry residues, dedicated energy crops, 
municipal solid waste, algae and by-products of the food and grain 
industry.
    A range of biorefinery R&D work is underway in partnership with 
industry. DOE's biomass program is partnering with a number of the 
major ethanol technology providers and ethanol producers, including 
Abengoa, ADM, Broin and Cargill, to increase the yield of ethanol from 
existing corn ethanol facilities and expand the slate of feedstocks. In 
many ways, a cellulosic biorefinery can be viewed as an expansion of a 
corn ethanol facility. That's why we believe tomorrow's cellulosic 
ethanol industry will not replace today's corn grain ethanol industry, 
it will evolve from it.
    At the same time, DOE is partnering with chemical industry leaders, 
such as DuPont, to develop new opportunities for producing both fuels 
and chemicals from biomass. DOE is partnering with the forest products 
industry to explore and develop biorefinery concepts that can integrate 
into existing forestry operations. And, most recently, NREL is 
partnering with oil industry technology developers to explore novel 
options for integrating biomass streams into existing petroleum 
refineries. These and other partnerships are speeding the progress of 
new technologies to the marketplace, and may uncover new options for 
producing fuels from biomass.
    Thermal technologies such as gasification, pyrolysis and 
hydrothermal systems are all worthy of further research and development 
to determine how these technologies and the respective biofuel products 
impact the cost, efficiency and integration into existing fuels 
infrastructure.

Biorefineries As Drivers For Rural Development
    Biomass is difficult and expensive to transport. Therefore, we 
expect that future biorefineries will be located close to the sources 
of biomass feedstock, just as corn-based ethanol plants are located in 
counties with abundant corn supplies. As a general rule of thumb, we 
expect large commercial biorefineries to draw upon a feedstock supply 
area with a radius of about 25 miles. So woody biomass-based cellulosic 
ethanol plants are likely to be located in rural areas with dense 
stands of timber or existing forest products plants. Each commercial 
cellulosic ethanol plant is expected to require 2,000 tons per day of 
feedstock, which will be purchased from local suppliers. The value of 
those biomass supply contracts alone may be $20 million-$30 million per 
year, for each plant. Trucking the feedstock to the plant can be 
another thriving local business, just as it is near existing corn 
ethanol plants today. Each plant can provide 30-50 new, high paying 
jobs, and there will be additional benefit to the local economy in 
terms of related job creation, as well as taxes paid to local and 
county governments.

Ethanol Reduces Use Of Petroleum
    Let me address issues surrounding the energy efficiency of ethanol. 
The first ethanol plants built in the late 1970s were costly and energy 
intensive, and that sparked a debate about whether it made good 
``energy sense'' to replace gasoline with ethanol. Today's ethanol 
industry is considerably more cost effective and energy efficient. 
Researchers at DOE, USDA and elsewhere have shown that the net energy 
benefits of fuel ethanol are clear and considerable.
    The figure below summarizes results from the ``Well to Wheels'' 
study conducted by Argonne National Lab, General Motors and several 
other partners including two major oil companies. As shown in the 
figure, the energy contained in ethanol made from corn is about 1.4 
times the fossil energy used to produce the ethanol, and 10 times the 
petroleum used. For cellulosic ethanol, the ratio of energy in the 
ethanol to the fossil energy used also increases to about 10 Btu in the 
ethanol for every 1 Btu of fossil fuel used. From the perspective of 
science, at least, this debate has been decided in favor of continued 
development of ethanol. Ethanol is proving to be a very effective 
option for reducing our dependence on petroleum--regardless of whether 
it is made from corn or cellulosic materials.



    There is little doubt that ethanol will be, and should be, the 
first biofuel that we can use to reduce our dependence on petroleum. 
However, NREL and the National Bioenergy Center recognize that other 
biofuel options need to be developed as well.
    Biodiesel and other derivatives of fats, oils and greases can make 
a significant contribution. Researchers at DOE and USDA have shown that 
the energy contained in biodiesel is 3.2 times the fossil energy used 
to produce the biodiesel. A wide variety of seed oils, animal fats and 
waste oils from all parts of the country can be converted to biodiesel. 
Aquatic species such as algae can also play a major role in the long 
term because they do not require fertile soils, can grow in brackish 
water, and yet algae can produce very high yields of oil. Considerable 
research and development will be required to realize the potential of 
algae as a source of oil feedstock.
    There is a small but rapidly growing biodiesel industry in the 
United States. The growth of this industry is currently limited by a 
number of barriers to market penetration, including the need to develop 
new fuel quality standards, uncertainty regarding impact on 
NOX emissions, and by lack of understanding of how this new 
fuel affects engine performance and durability. This is especially true 
for new diesel engines equipped with advanced emission control 
technologies that will be introduced beginning next year. NREL's Center 
for Transportation Technologies and Systems is working to address these 
issues, in partnership with biodiesel producers and engine 
manufacturers. We, along with industry, believe additional engine 
testing is needed to better understand the performance of B20 (20 
percent biodiesel) and lower blends in the advanced emission control 
diesel engines that will enter the market in the 2007-2010 time frame 
to meet EPA regulations. This engine test work would advance biodiesel 
technologies by ensuring compatibility with these new (and much 
different) engines.
    More broadly, we believe biofuels offer significant opportunities 
to reduce air emissions from the transportation sector nationwide. Both 
ethanol and biodiesel are oxygenates and hence can reduce the 
hydrocarbons, carbon monoxide and soot emitted from the tail pipes of 
gasoline and diesel vehicles. Biodiesel and ethanol can significantly 
reduce toxic compound emissions. Ethanol additionally can cut by 25 
percent the emissions of smog-forming hydrocarbons from fuel 
evaporation.

Other Nrel Vehicles and Fuels Research
    I would be remiss if I did not note the other important research 
being conducted at NREL which also is contributing to the next 
generation of vehicles and fuels. NREL's Center for Transportation 
Technologies and Systems is working to address the biodiesel 
utilization issues noted above. Similar R&D is needed to more 
accurately quantify the air quality benefits of ethanol and develop 
engines that are optimized to operate on ethanol as well as on 
gasoline. A number of vehicle efficiency improvements are also being 
investigated including technologies to dramatically reduce fuel use for 
air conditioning. Other promising answers to our future transportation 
needs are gasoline-electric and diesel-electric hybrid systems and so-
called ``plug-in hybrids.'' Plug-in hybrid vehicles use both a gasoline 
engine and the electric outlet of your home to achieve fuel economy of 
100 miles per gallon, or more.

Continued Research Hastens Fuels Development
    In conclusion, let me review some key points. Biomass is the only 
renewable option for producing liquid transportation fuels. The U.S. 
biomass resource can supply a large portion of demand for gasoline and 
we can greatly expand the resource base when world petroleum production 
begins its decline. The biofuels industry can use resources from every 
region of the country and could become a needed stimulus for ailing 
rural economies. Ongoing research, like research into biorefineries, 
will create many new products beyond the biopower, ethanol and 
biodiesel we are producing today.
    The President's Advanced Energy Initiative holds the promise of 
accelerating our work so that we can help get this industry up and 
running, to benefit the American people, even sooner. The initiative 
envisions a more aggressive research effort in all key areas: further 
reductions in enzyme costs, advances in process technology to reduce 
capital and operating expenses and advances in feedstock R&D that will 
reduce the cost of production, collection and transportation of biomass 
to the biorefinery.
    As the partnership development team leader for the Nation's 
research center for bioenergy, I can assure you that a sustained, high 
level of investment for research in bioenergy will provide major 
benefits for future generations. We need to keep apace with this work 
because biofuels are an environmentally and economically beneficial way 
to bridge the gap between rising energy demand and peaking oil 
production, while reducing U.S. dependence on imported oil. Thank you.

    Senator Burns. Thank you, Dr. Ashworth. I want to ask you, 
in your partnerships, do you also look into the usage of the 
infrastructure it's going to take to deliver to be used? In 
other words, our convenience stores, our gasoline stations, our 
companies, what do you see the challenges there?
    Dr. Ashworth. That's a wonderful question. And when we were 
talking about the administration is putting together this 
program for trying to understand how to get from here to there, 
the real interesting issue is that the first 15 billion gallons 
of ethanol, we already know how it's going to enter the 
marketplace. It's just going to go into gasoline, okay, because 
every car in America can run on 10 percent ethanol right now. 
There's no infrastructure issues there. Up to 15 billion 
gallons, they are already blending it into gasoline, and they 
will just blend a little bit more and eventually it will be 
nation-wide.
    Above that, you have two issues. You need to have vehicles 
that can run on high blends of ethanol, and you need to have 
stores which are going to sell the raw material, namely the E-
85 or whatever, and I think that's a place where the Government 
can have a real role. I'll be real honest with you, it's not 
something we work on. We're researchers, we do scientific 
research. But if you don't have access to an E-85 pump, or you 
don't have access to the materials in your neighborhood, you're 
not going to use it; and so one of the things that I think is 
going to be one of the issues, and was addressed in the Energy 
Policy Act of 2005 a little bit, which was that there's now a 
subsidy, or a tax credit for a gas station to add an E-85 pump. 
They can get, I think, $30,000 to add an E-85 pump. And most of 
those pumps today are concentrated in two or three States. They 
are concentrated in Minnesota, South Dakota, and throughout the 
corn belt. I think what we're going to need to see is about 
30,000 of those pumps around the country in order to get to the 
point where everybody has access to these technologies--I'm 
sorry, to this fuel. And that's just going to be a matter of 
demand and supply and the government making it less expensive 
for the pump guys to provide this material.
    Senator Burns. Does your partnership include, also, 
manufacturers of the engines?
    Dr. Ashworth. Very definitely. What we have at our lab, we 
actually work with all the energy manufacturers. Now, I 
mentioned we don't work on biodiesel very much, but we do work 
on biodiesel in engines, because the manufacturers are very 
interested in looking at the impact of large levels of 
biodiesel in their engines over time; and we have a lab that 
does that, runs those large scale heavy-duty engines, the kind 
that everybody uses in their equipment. It turns out there 
isn't much of an effect. That is to say it actually works quite 
well in those engines, and they are quite ready to run to B 20 
in those big engines now.
    Mr. Dorr. There are actually a number of CAT generators 
that are now running on B 100. Could I take a crack at this?
    Senator Burns. You bet.
    Mr. Dorr. I think the problem with building a new industry 
like this is the tendency to look at the immediate pieces that 
sometimes we address pretty effectively but other times, in 
fact, they kind of get sidetracked; and I think the easiest way 
to bring this whole issue relative the renewable energy, number 
one, is national security. It is high time that we develop a 
renewable energy industry so that we not only have energy 
security, but national security. So the easiest way to frame it 
is to look at what the President suggested. He wants to 
displace a minimum of one billion barrels of oil, imported oil 
by the year 2030.
    Stop and think about this. For the last 10 years, net farm 
income has averaged $56 billion. The last 2 years has been in 
the neighborhood of $75 billion. He wants to displace 1 billion 
barrels of oil annually, minimum. That's $75 billion. That $75 
billion will largely all be rural originated. It will come from 
biomass, it will come from wind, it may come from solar rays, 
it may come from geothermal; but when you look at that and look 
at the scope of what's required to think through back to the 
core of your question is, what does this do for the 
infrastructure in the community; and when you start looking 
piecemeal at, well, we know we've got it with ethanol, and we 
know we're going to have to deal with perhaps in cellulosic, 
and we understand all of this, but really what we need to do, 
in my view, is ultimately have something akin to a Manhattan 
approach to integrating this 30 percent of liquid fuels into 
the system that becomes domestically produced. And in fact, 30 
percent is a big deal. That is more than just a marginal 
commodity amount that will move this market a little bit; and 
so I think that's the framework of this that we need to 
continually keep in mind as we develop policies, and as we go 
about implementing policies that are a result of legislation 
authorized by Congress, or put in place by the administration.
    Senator Burns. We understand, you know; and when we start 
talking about moving big loads and doing big jobs, we have not 
found anything to replace diesel or the diesel power plants; 
and I guess that's why we're talking about biodiesel today. 
Now, I know there is an R&D organization in Butte, Montana, 
that is doing very well with greases on this type stuff. In 
fact, they have got them operating now in Green Bay, Wisconsin. 
All that technology comes out of Butte, Montana. And Larry 
Farrar over there has done a terrific job in their R&D work. In 
fact, they have got several of their--that work over there in 
the equipment, their light equipment, but hasn't really got 
into the big equipment yet. So I'm going to--I know there's 
questions in the audience that I haven't thought of, and I'm 
going to conclude this hearing right now and maybe answer some 
questions from the audience, because you're here because of 
your interest in our renewables and alternatives.
    I will say that I'm going to close this hearing. Anybody 
wanting to make comments, we will take your written comments 
and they will be made part of the record for the next 3 weeks.
    And the reason we had this hearing is because as we go down 
and we rewrite the 2007 farm bill, we will have a stronger 
energy title. Well, along with that we're going to have to 
figure out, in appropriations, where we should be making our 
investments as far as to the advantage, I think, to the ag 
producers of this country. That's our first--that's our first 
concern is the income on the farm. A guy says there's nothing 
wrong on the farm except the price. And that's where we're 
going to--we're going to place our emphasis whenever we start 
making appropriations, making recommendations to the 
authorizing committee, and I know Senator Chamblis has already 
started this whole process of talking about farm produced fuels 
and energy, and they all have to go together.
    In 2002 we had an energy title for the first time in the ag 
bill, and that was going to dovetail to what we wanted to do 
with an energy bill later on, and that didn't get passed until 
2005. But nonetheless, we did do some dovetailing and there's 
probably more incentives in this energy bill with regard to 
renewables, and our biomass, than any energy bill we've ever 
passed. Now we go to the 2007 we will be dovetailing in, and 
these programs should dovetail, and we come up with some real 
answers that make us energy independent, where we want to be. 
And we want to do it in a transition that was maybe a little 
bit better than what Brazil went through, but they did it, but 
they did it with a little bit of pain. We would like to make 
that transition for the American people and the American farmer 
as seamless and as smooth as we can, increasing our farm 
income; and that's what it's all about. As long as we don't 
take our eye off the ball.
    The subcommittee has received a statement from the National 
Center for Appropriate Technology which will be intered into 
the record.
    [The statement follows:]

  Prepared Statement of the National Center for Appropriate Technology

    Dear Senator Burns: Thank you for arranging a Senate Agriculture 
Appropriations Subcommittee on renewable energy issues, and for the 
opportunity to offer these comments on the future of renewable fuels in 
Montana.
    From its headquarters in Butte, Montana, the National Center for 
Appropriate Technology (www.ncat.org) has been intensely involved in 
farm energy issues throughout the organization's 30-year history, 
offering demonstration projects, research, technical assistance 
hotlines, publications, workshops, and websites.
    NCAT has hands-on experience with the full range of energy 
efficiency and renewable energy technologies. For example, NCAT has 
promoted energy efficiency in irrigated agriculture since the late 
1980s, completing over 500 irrigation system energy audits and 
demonstrating energy and water-saving technologies. We also manage the 
Montana Green Power website (www.montanagreenpower.org), the pre-
eminent source of information on Montana renewable energy news and 
funding opportunities. NCAT's technical specialists have conducted 
dozens of renewable energy demonstration projects and feasibility 
studies on Montana farms and ranches, including wind energy, anaerobic 
digestion, and photovoltaics for water-pumping and other agricultural 
uses. At our Iowa office, we are planning field studies on sustainable 
switchgrass production for cellulosic ethanol.
    In response to a tremendous recent increase in energy-related 
inquiries and requests, NCAT is substantially increasing its capacity 
and resources on farm energy topics. In this effort, NCAT will leverage 
the resources of its USDA-funded ATTRA Sustainable Agriculture 
Information Service. Since 1987, this service has provided over 200,000 
technical responses to farmers, ranchers, and information providers 
around the United States by mail, e-mail, and a toll-free phone line, 
1-800-346-9140. In 2005, the ATTRA web site (www.attra.ncat.org) 
offered over 200 free publications and received over 23 million hits, 
with about 180,000 unique visitors each month. These visitors 
downloaded more than 590,000 publications.
    NCAT believes very strongly that renewable fuels will play an 
important role in Montana's future. Although Montana is not a major 
corn or soybean State, the United States is rapidly expanding beyond 
corn ethanol and soy biodiesel. Montana is a dandy canola and camelina 
State. And it will most assuredly be an outstanding cellulose State.
    As a latecomer to the biofuel business, Montana has a chance to 
learn from the experience of other States. This experience 
overwhelmingly demonstrates the importance of local ownership.
    Local ownership means more jobs in rural communities. A 2006 study 
by Iowa State University showed that locally-owned ethanol plants 
created significantly more jobs than externally-owned ethanol plants, 
with job multipliers as high as 7.95. In one community with a 73 
percent locally-owned ethanol plant, 143 local ``induced'' jobs were 
created, along with the 40 ``direct'' jobs at the ethanol plant.\1\
---------------------------------------------------------------------------
    \1\ Euken, Jill, ``The Bioeconomy Movement: Lessons from Iowa.'' 
Center for Industrial Research and Service, Iowa State University, 
2006. Available from www.ciras.iastate.edu.
---------------------------------------------------------------------------
    Local ownership means greater income for the producers who grow the 
feedstocks. Recent increases in U.S. ethanol production may have 
increased the price of corn by 10 to 15 cents per bushel. But the 
20,000 or so U.S. farmers who own a share of an ethanol plant receive 
far more, in annual dividends, usually 50-75 cents per bushel.\2\ In 
2005, the State of Iowa had the fastest-growing economy in the Midwest 
and the second-fastest rate of income growth of any State in the 
country. Iowa's Governor Tom Vilsack attributes these accomplishments 
largely to the development of ethanol, biodiesel, and wind energy in 
Iowa.\3\
---------------------------------------------------------------------------
    \2\ Morris, David, ``The Carbohydrate Economy, Biofuels, and the 
Net Energy Debate.'' Institute for Local Self-Reliance, August 2005. 
Available from www.newrules.org.
    \3\ Vilsack, Tom, ``Remarks to The Future of Economic Development 
in Rural America Conference,'' November 17, 2005. Available from 
www.governor.state.ia.us/news/2005/november/november1705_1.html.
---------------------------------------------------------------------------
    Local ownership also means more dollars staying within Montana. One 
study in Minnesota found that 75 cents of every dollar spent on 
gasoline (excluding State taxes) left the State's economy. On the other 
hand, 75 cents of every dollar spent on ethanol stayed within the 
State's economy.\4\
---------------------------------------------------------------------------
    \4\ Morris, David, ``Ownership Matters: Three Steps to Ensure a 
Biofuels Industry that Truly Benefits Rural America.'' February 2006. 
Available from www.newrules.org.
---------------------------------------------------------------------------
    Despite the importance of local ownership for rural communities, 
the trends nationally are not encouraging. At least 90 percent of U.S. 
ethanol production coming on line in the next 3 years will not be 
farmer-owned.\5\ This production will mostly come from very large 
plants producing over 100 million gallons per year. Plants this big are 
too expensive for farmers and ranchers to own.
---------------------------------------------------------------------------
    \5\ Morris, David. ``The Carbohydrate Economy, Biofuels, and the 
Net Energy Debate.'' Institute for Local Self-Reliance, August 2005. 
Available from www.newrules.org.
---------------------------------------------------------------------------
    As Wall Street money and foreign investments continue to pour into 
the biofuel business, there is a real danger that farmers and ranchers 
will be priced out of the game. The Energy Title of the 2002 Farm Bill 
was largely silent on issues of scale and ownership that are vital to 
rural communities. NCAT would like to see much stronger support for 
local ownership in the 2007 Farm Bill.
    We believe that Montana and other States should follow the 
``Minnesota model,'' emphasizing in-State production and farmer 
ownership. We would like to see Federal ethanol and biodiesel 
incentives changed into producer payments that favor local and farmer 
ownership. The Farm Bill could also encourage local ownership, for 
example, by limiting incentives to a modest number of gallons per 
year--thus encouraging smaller plants.
    Unlike other forms of renewable energy, biofuels development will 
require the direct participation and full cooperation of American 
agriculture. So NCAT believes that Montana and other States should 
launch aggressive education efforts, covering the many benefits of 
biofuels and emphasizing particularly the importance of local and 
farmer ownership. Such educational efforts could be supported within 
the 2007 Farm Bill.
    NCAT is already fully engaged in educating rural landowners and 
communities about biofuels, and we are ramping up to do more. We are 
offering free information about biofuels through our ATTRA National 
Sustainable Agriculture Information Service. Farmers and ranchers can 
call our toll-free number, 1-800-346-9140, to speak to a farm energy 
specialist about biofuels or other renewable energy topics. NCAT also 
offers free publications on biofuels and many other farm energy topics. 
All of these are available at no cost, by mail or through our website, 
www.attra.ncat.org.
    NCAT has organized and participated in numerous biofuel workshops 
throughout Montana, and we are delighted to announce that we have just 
received funding for an ambitious new education project, ``Oilseeds for 
Fuel, Feed & the Future: Montana Farm Basics.'' We will be offering 
workshops and creating new print and electronic resources to inform 
agricultural producers about oil crops and biofuel use and production. 
We will also set up a mini-grant program to offset the financial risk 
to farmers of demonstrating biofuel use and identifying opportunities 
and barriers in the biofuel industry for Montana farmers. Our 
collaborators in this project will include the Montana Natural 
Resources Conservation Service, Montana Department of Environmental 
Quality, Montana Farmers Union, Alternative Energy Resources 
Organization, and the Montana Grain Growers Association.
    Thanks again for the opportunity to offer these comments.

                         CONCLUSION OF HEARING

    Senator Burns. I'm going to close this hearing. Everything 
will be made part of the record right now.
    [Whereupon at 10:45 a.m., Saturday, August 26, the hearing 
was concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]

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