[Senate Hearing 109-714]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-714

                   THE STATE OF THE BIOFUELS INDUSTRY

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

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION


                               __________

                             APRIL 26, 2006

                               __________

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


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

                                ______


                    U.S. GOVERNMENT PRINTING OFFICE

30-237 PDF                  WASHINGTON : 2006
------------------------------------------------------------------
For sale by Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax:  (202) 512-2250. Mail:  Stop SSOP, 
Washington, DC 20402-0001







           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY



                   SAXBY CHAMBLISS, Georgia, Chairman

RICHARD G. LUGAR, Indiana            TOM HARKIN, Iowa
THAD COCHRAN, Mississippi            PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            KENT CONRAD, North Dakota
PAT ROBERTS, Kansas                  MAX BAUCUS, Montana
JAMES M. TALENT, Missouri            BLANCHE L. LINCOLN, Arkansas
CRAIG THOMAS, Wyoming                DEBBIE A. STABENOW, Michigan
RICK SANTORUM, Pennsylvania          E. BENJAMIN NELSON, Nebraska
NORM COLEMAN, Minnesota              MARK DAYTON, Minnesota
MICHEAL D. CRAPO, Idaho              KEN SALAZAR, Colorado
CHARLES E. GRASSLEY, Iowa

            Martha Scott Poindexter, Majority Staff Director
                David L. Johnson, Majority Chief Counsel
              Vernie Hubert, Majority Deputy Chief Counsel
                      Robert E. Sturm, Chief Clerk
                Mark Halverson, Minority Staff Director

                                  (ii)

























                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing(s):

The State of the Biofuels Industry...............................     1

                              ----------                              

                        Wednesday April 26, 2006
                    STATEMENTS PRESENTED BY SENATORS

Chambliss, Hon. Saxby, a U.S. Senator from Georgia, Chairman, 
  Committee on Agriculture, Nutrition, and Forestry..............     1
Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member, 
  Committee on Agriculture, Nutrition, and Forestry..............     2
Coleman, Hon. Norm, a U.S. Senator from Minnesota................     8
Conrad, Hon. Kent, a U.S. Senator from North Dakota..............     5
Crapo, Hon. Mike, a U.S. Senator from Idaho......................    10
Dayton, Hon. Mark, a U.S. Senator from Minnesota.................     6
Lincoln, Hon. Blanche, a U.S. Senator from Arkansas..............    15
Nelson, Hon. E. Benjamin, a U.S. Senator from Nebraska...........     9
Roberts, Hon. Pat, a U.S. Senator from Kansas....................    13
Salazar, Hon. Ken, a U.S. Senator from Colorado..................    10
Stabenow, Hon. Debbie, a U.S. Senator from Michigan..............    12
Talent, Hon. James, a U.S. Senator from Missouri.................    14
Thomas, Hon. Craig, a U.S. Senator from Wyoming..................     9
                              ----------                              

                               WITNESSES

Brown, Robert C. Ph.D., Bergles Professor in Thermal Science, 
  Professor, Mechanical Engineering, Chemical and Biological 
  Engineering Agriculture and Biosystems Engineering Director, 
  Center for Sustainable Environmental Technologies, Iowa State 
  University, Ames, Iowa.........................................    22
Debertin, Jay D., Executive Vice President and Chief Operating 
  Officer, Processing CHS, Inc...................................    21
Dinneen, Bob, President and CEO, Renewable Fuels Association, NW 
  Washington, DC.................................................    17
Jobe, Joe, Chief Executive Officer, National Biodiesel Board, 
  Jefferson City, Missouri.......................................    19
                              ----------                              

                                APPENDIX

Prepared Statements:
    Salazar, Hon. Ken............................................    42
    Brown, Robert C..............................................    44
    Debertin, Jay................................................    48
    Dinneen, Bob.................................................    52
    Jobe, Joe....................................................    59
Document(s) Submitted for the Record:
    Statement of the American Forest and Paper Association.......    64
    Statement of the National Association of Conservation 
      Districts (NACD)...........................................    71
Questions and Answers Submitted for the Record:
    Nelson, Hon. E. Benjamin.....................................    74
    Salazar, Hon. Ken............................................    75
    Thomas, Hon. Craig...........................................    77




























 
                   THE STATE OF THE BIOFUELS INDUSTRY

                              ----------                              


                       WEDNESDAY, APRIL 26, 2006

                              United States Senate,
         Committee on Agriculture, Nutrition, and Forestry,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:05 a.m., in 
Room SD-106, Dirksen Senate Office Building, Hon. Saxby 
Chambliss, Chairman of the committee, presiding.
    Present or submitting a statement: Senators Chambliss, 
Roberts, Talent, Thomas, Coleman, Crapo, Harkin, Conrad, 
Lincoln, Stabenow, Nelson, Dayton, and Salazar.

STATEMENT OF HON. SAXBY CHAMBLISS, A U.S. SENATOR FROM GEORGIA, 
  CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

    The Chairman. Well, good morning, and welcome to the Senate 
Agriculture Committee's hearing to examine the current state of 
the biofuels industry.
    Interest in biofuels has exploded in this country, with 
good reason. Last week, oil futures prices reached nearly $75 
per barrel on the New York Mercantile Exchange. Asian economies 
continue to boom, creating soaring demand. Several of the 
countries we import from, such as Nigeria, are experiencing 
political and social unrest. Venezuela is planning to 
nationalize oil production, and we have continued uncertainty 
in the Middle East--in Iraq, as democracy struggles to grow, 
and in Iran, as its regime preaches hatred and world 
domination. Even with all of this uncertainty and the 
regrettable impact on our wallets, the United States can meet 
these challenges and in the future succeed in making this 
country energy independent.
    I believe we have a bright future and have already taken 
the right steps to get us there. Last year, Congress passed the 
comprehensive 2005 Energy Policy Act to lessen our dependence 
on foreign sources of oil and to ensure a healthy and 
prosperous future for all Americans. The energy bill balanced 
energy production at home with new conservation and efficiency 
efforts and increased investment in research and development.
    Two of the most notable provisions in the energy bill as 
they relate to our topic today are the creation of a national 
renewable fuels standard and the extension of the biodiesel tax 
credit. Already we are seeing the results of the 2005 Energy 
Policy Act. The renewable fuels standard will require the 
production of 7.5 billion gallons of ethanol by 2012. The 
industry is well on its way to exceeding that requirement.
    Biodiesel production in this country is growing at a 
fantastic rate. In 2004, the industry produced just 25 million 
gallons. In 2006, it is expected to produce a minimum of 150 
million gallons.
    This year, Congress will work to ensure the law is 
implemented and progress is made towards the goals it 
established. Congress also will conduct vigorous oversight to 
ensure everyone plays by the rules, especially as it relates to 
gasoline pricing.
    This hearing is the first in a series the committee will 
hold to examine the various components of agriculture in 
America as we prepare for the next farm bill. Producers have 
had years of experience with biofuels, and they are uniquely 
situated to capture the benefits of future investment in them.
    I am pleased to report to my colleagues that there are 
several opportunities in my home State of Georgia, which 
traditionally has not been a large producer of biofuels. For 
instance, there are two biodiesel plants using a variety of 
feedstocks currently operating in the northwest part of our 
State. In the southwest part of Georgia, the part of the State 
where I call home, there are plans to build a 100-million-
gallon corn ethanol plant. It will be uniquely situated to tap 
into Southeastern fuel markets and will bring significant 
economic development to the area.
    This hearing is not specifically on the farm bill, but I 
expect that this committee will expand the energy title in the 
farm bill that we expect to write next year. I am excited about 
the opportunities in the biofuels industry for producers and 
look forward to today's testimony to learn from the industry's 
experience and hear its expectations for the future.
    I will now turn to my ranking member, my good friend, the 
Senator from Iowa, Senator Harkin, for any comments he wishes 
to make.

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

    Senator Harkin. Well, Mr. Chairman, thank you very much, 
and I want to thank you for having this very important hearing 
about the state of the biofuels industry. This committee has a 
long history of promoting and being involved in biofuels, and 
under your great leadership, I know we are going to do even 
more, because we have a new farm bill coming up soon. And I 
heard your statements, Mr. Chairman, about the importance of 
energy in the farm bill.
    I want to thank all our witnesses for being here, 
especially Dr. Brown from my alma mater, Iowa State University.
    Just a few years ago, many Americans saw ethanol as kind of 
a boutique industry. It was okay for the Dakotas and Iowa, and 
maybe Minnesota and Missouri. I don't know if it got to Idaho 
or not. But, anyway, that was sort of we were using it and 
nobody else, and it was not going to be good for the rest of 
the country.
    Well, my, how times have changed. With the price of oil at 
record highs and escalating energy and gasoline prices, 3 bucks 
a gallon for gasoline, and all of a sudden, people are saying, 
you know, ethanol is not a bad deal after all. And when we look 
at what we have seen happen in Brazil, we think, My gosh, you 
know, they started in the 1970s and look where they are now.
    Well, the truth is we desperately need biofuels. The 
President was correct yesterday when he said that we are 
addicted to oil and that biofuels are our best bet for weaning 
America from this dangerous addiction. And yet I will take a 
little bit of issue with the President because I think there 
was something in his statement yesterday indicating that maybe 
ethanol producers and supporters are part of the problem.
    There has been this, for lack of a better word, I would say 
almost like propaganda or misinformation that somehow ethanol 
is responsible for the run-up in gasoline prices. Well, I beg 
to differ. When crude oil is $73 a barrel and going up, the 
fact is ethanol is helping to moderate gas prices, not boost 
gas prices.
    I am referring to when the President said in his remarks 
that State and local officials in parts of the country are 
worried that the sudden changes from MTBE to ethanol will cause 
supply disruption in the short term, and that is causing the 
price of gasoline to go up some amount in their jurisdictions. 
That is just total misinformation. Whoever gave that to the 
President ought to be set straight because somebody was 
misinformed on that one.
    Now, again, despite this, we have been making progress. 
Many of us on both side of the aisle chamoined the renewable 
fuels standard E85 installation tax credits will get more E85 
pumps out there. These are big steps forward. The biomass 
provisions that Senator Lugar and I put in the recently passed 
energy bill I think are another big step forward. This is going 
to help with the research to get more ethanol out of a kernel 
of corn than we get today, and to do more research into the 
kind of and the variety of feedstocks that we can use, 
especially for cellulosic conversion into ethanol.
    Again, the budget problem is that only half of the funding 
that we have put in there is being used right now. The 
President's budget only put in half of what we requested for 
the funding.
    Thousands of additional E85 pumps must be deployed to gas 
stations across the country. If you are going to have E85 and 
flexible-fuel cars, that is fine. But if you do not have the 
pumps, what good does it do you? So both of those have to be 
addressed at the same time. And we need to continue to press 
the auto companies to produce more FFVs, and consumers ought to 
have that choice.
    We know that biofuels are a solution to the great 
environmental challenge of our time--global warming. The more 
ethanol and biodiesel we produce, the less petroleum we would 
use. And, of course, as these crops grow, they take CO2 out of 
the air so there is not a net addition as there is when you 
burn petroleum products.
    Of course, we will also need better fuel economy, the 
expansion of other vehicle technologies, such as hybrids, 
hybrid FFVs, and more research into hydrogen. On hydrogen, the 
President was right on the mark yesterday when he talked about 
that.
    Lastly, the farm bill is coming up. In the 2002 farm bill, 
Senator Lugar and I worked together to put the first ever 
energy title in a farm bill to promote biofuels, wind power, 
other renewable energy resources. I think agriculture is the 
proper place to look to for that. And so, again, I am hopeful 
that we can continue to move this forward in the next farm bill 
and also that the budgets we pass here will reflect that.
    The energy price crisis I think drives home the critical 
need for the President and Congress to get on the right track 
and make the necessary Federal investment in biofuels and bio-
based products research and development. And I know Senator 
Conrad is here, and he has come up with a bill that I have 
looked at personally. I have not looked at the whole thing, but 
he is on the right track in terms of taking a long-term, 
comprehensive look at what do we do in everything. We cannot 
just do this and think we are solving a problem. Our response 
has to be very comprehensive.
    But I am convinced, after 30 years on the Ag Committee, 
both in the House and the Senate, watching the ethanol industry 
and biodiesel--and, you know, I was just telling Dr. Brown, who 
is a mechanical engineer, that I had always been told that you 
need a differential in tax incentives because you get about 20 
percent less power, less BTUs out of ethanol than you get out 
of gasoline. So you have got to have some differential there to 
make up for that 20 percent less. I just thought this was a 
physical fact of life and we just had to live with it.
    Now I find out that Saab has built an automobile with a new 
engine and a turbo charger that actually gets as much and 
slightly more power out of ethanol than gasoline. So there you 
go. You turn it over to the mechanical engineers, they can do 
it every time, I guess. Right?
    So what I am saying is that these are the things that we 
can start doing in our country. You know, we can make these 
automobiles, we can make these kind of engines. We need to do 
the tax incentives and the tax policies, plus the budget and 
other policies that move us in that direction.
    So I think this committee and under your leadership, Mr. 
Chairman, I think we can do a lot to really move this country 
forward in this area, and I thank you for your leadership on 
this.
    The Chairman. Thank you, Senator Harkin. You know, you are 
right about the automobile industry. They are making great 
strides towards producing flex engines that will allow up to 
E85 and even 100 percent ethanol utilized around the country. 
You folks in the Midwest have been doing it for years. We are 
now getting a taste of it in the Southeast, and I am excited 
about the opportunity. And I will report to you, too--you and I 
are going to talk more about this because I envision that we 
will get serious with our friends from Brazil.
    I had a meeting yesterday with the Agriculture Minister of 
Brazil, and I hope that is the first meeting in a series of 
meetings that you and I can have with our Brazilian neighbors 
to develop somewhat of a partnership in this area. We are the 
two dominant producers of ethanol in the world, and I think we 
have got a great chance to export not just ethanol from our two 
countries around the world but export technology and create a 
whole new market there that will really be exciting for 
agriculture.
    As staff, I know, advised every member, you will be 
recognized according to the way in which you showed up. Senator 
Conrad was first. He already has his charts out. I don't know 
why I am not surprised that he has charts this morning. But, 
Senator Conrad, we will turn to you for any opening statement 
you have this morning.

STATEMENT OF HON. KENT CONRAD, A U.S. SENATOR FROM NORTH DAKOTA

    Senator Conrad. Thank you, Mr. Chairman, and thank you, 
Senator Harkin, for your kind comments on the legislation I 
have introduced.
    I introduced, just before we took the Easter break, 
legislation that I think is by far the most important 
legislation I have ever introduced in the Congress of the 
United States. I call it the BOLD Act, Breaking Our Long-term 
Dependence. And for about 7 months now, we have worked to meet 
with every entity in agriculture, in energy. We spent a lot of 
time with the people at the Hewlett-Packard Foundation, who 
financed a broad-based review of America's energy 
vulnerability. We have talked to everybody that we could find 
who had an idea for what might be done in a serious way to 
dramatically reduce our energy dependence.
    I think the President got it right when he said in his 
State of the Union that we have a serious problem that we are 
addicted to oil, much of it coming from the most unstable parts 
of the world. The President has got that exactly right.
    Let's go to the next one.
    This shows the level of dependence we have now reached: 60 
percent of our oil is being imported, much of it from Saudi 
Arabia, Kuwait, Abu Dhabi, and other places that are unstable.
    Let's go to the next one.
    The circumstance that we confront is that, increasingly, 
this is an incredible drain on the economy of the United 
States. We are now spending over $260 billion a year for our 
oil imports--$260 billion a year. That is over a third of our 
trade deficit.
    When we look for ideas for what might be done, the chairman 
and ranking member have both mentioned Brazil. Let's go to the 
next slide. Brazil 30 years ago was 80 percent dependent on 
foreign energy--80 percent dependent on foreign energy. They 
have reduced that to less than 9 percent now, and they tell us 
they will declare their energy independence next year. At the 
same time they have been reducing their dependence, we have 
been dramatically increasing ours. We have gone from 35 percent 
dependent on foreign energy to 60 percent, and we are headed 
for 80 percent dependence if we fail to act.
    You know, I was hopeful that others would move forward and 
introduce legislation that was really comprehensive and 
dramatic and would make a substantial difference. And, finally, 
I decided just to do it, and that is what the BOLD Act is all 
about. It would call for extending biodiesel and ethanol tax 
credits through 2013. It calls for increasing ethanol use from 
4.7 billion gallons in 2007 to 30 billion gallons in 2025. It 
calls for all vehicles sold in the U.S. by 2017 to include 
alternative fuel technologies such as hybrid electric or flex-
fuel systems.
    Why? Because that is at the heart of what Brazil did so 
successfully. They aggressively promoted ethanol and biodiesel 
and flexible-fuel vehicles. So that has got to be the 
cornerstone of our strategy.
    The BOLD Act also creates an alternative diesel standard 
starting at 250 million gallons in 2008 and increasing to 2 
billion gallons in 2015. These are the kinds of aggressive 
steps that are going to be necessary if we really are going to 
make substantial progress.
    You know, the energy bill we passed last year was good. I 
supported it. But it is not going to make a meaningful 
difference in our energy dependence. This legislation, if 
passed, the experts tell us, would make a dramatic and 
meaningful difference. And to me it is time to step up.
    Now, not only do we, instead of looking to the Middle East, 
turn toward the Midwest for our energy supplies, instead of 
looking to foreign oil fields, we start to look toward the farm 
fields of America to help grow our way out of this crisis. But 
we also do a whole series of other things, including clean coal 
technology; investments in hydrogen, the fuel of the future; 
domestic energy production incentives to use CO2 to repressure 
oil fields in this country so that we get more production out 
of our domestic oil fields; authorizing the opening up of 
offshore drilling for natural gas. All of these have to be part 
of a comprehensive solution.
    I thank the Chair and thank my colleagues. I urge them to 
take a look at the BOLD Act. It is going to take this kind of 
aggressive action to make meaningful progress.
    The Chairman. Thank you very much, Senator.
    Senator Dayton?

  STATEMENT OF HON. MARK DAYTON, A U.S. SENATOR FROM MINNESOTA

    Senator Dayton. Thank you, Mr. Chairman. Thank you for 
convening this very important hearing. I hope it will be the 
first and not the last, and from what you said I trust that it 
will because--
    The Chairman. I think you need to hit your microphone.
    Senator Dayton. Sorry. I think it is better when I am not 
heard sometimes.
    I want to thank you, Mr. Chairman, for convening this 
hearing. I hope it will be the first, not the last, because 
biofuels, specifically ethanol and biodiesel, are real and 
viable and here are now alternatives to the ever-increasing 
costs of gasoline and diesel fuels. It is an important 
component of Senator Conrad's BOLD initiative. I commend him 
for that. I am proud to be a cosponsor of it, and that is the 
kind of bold action that we need. It is going to be very, very 
important.
    As we all know, we are in this room now with a larger than 
usual capacity because in part we are in the midst of another 
price crisis for the gasoline, the diesel, and the oil upon 
which our cities and our industries, our lifestyles and our 
entire U.S. economy depend. Most Americans want their fuel 
prices to be lower, but they don't want to change their fuels 
in order to make them so. They say solve our energy problems 
right now, that is certainly understandable, but don't make us 
do anything different in order to accomplish that.
    That is why I respectfully disagree with those who say that 
we do not have a national energy policy. We do. It is to 
maintain the status quo for as long as possible. And that is 
actually a rational policy because our existing energy sources, 
over 95 percent of which are and have been for over three 
decades oil-derived products, coal, natural gas, and nuclear, 
have been and in most cases continue to be cheaper, more 
available, more convenient, and certainly more familiar than 
any of their alternatives. The sources of supplies, their 
production, transportation and distribution systems, and retail 
networks are all well established and well protected by 
everyone who profits from them.
    Those industries and companies that control and profit from 
our country's enormous and almost exclusive dependence upon 
their sources of energy have enormous stakes in preserving 
their control and protecting their profits by destroying any 
real competition, competitive threats to their energy 
monopolies.
    Nowhere are the stakes higher than in our Nation's 
transportation sector. Over 40 percent of total U.S. energy 
consumption is of oil and petroleum products, and over two-
thirds of that oil is used for transportation. Our country now 
consumes almost 30 percent of all the oil that is produced in 
the entire world every year, which means that 20 percent or one 
out of every five barrels of oil produced in the entire world 
goes into an American car, truck, train, or airplane. And up 
until recently, oil was the only fuel that those cars, trucks, 
trains, and airplanes could run on. What a gigantic energy 
monopoly that is. It is the largest monopoly of any in the 
world. And like most monopolies, it is hugely profitable for 
the monopolists and hugely expensive for everyone else.
    And like every other source of enormous profits and 
financial power, it is not going to be surrendered voluntarily 
by the profitable and the powerful. The huge oil and oil 
products monopoly is not going to willingly surrender sales or 
market share or profits to a competitor like the biofuels 
industry. Like other well-established energy monopolies, they 
may give lip service to energy alternatives, but they do not 
really mean it.
    That was very clear when the Senate considered its energy 
bill last year. Full-page ads in The Hill and Roll Call by the 
American Petroleum Institute smeared biofuels with the same 
distortions and fears that they tried to use a decade ago to 
defeat a 10-percent ethanol mandate in the Minnesota 
Legislature. They claimed it would raise the price of every 
gallon, as the President repeated yesterday, that the supply 
would be impure and unreliable, and that people's gas tanks 
would explode or their carburetors would implode and their cars 
would be damaged or destroyed.
    None of that occurred in Minnesota. Yet almost 10 years 
after the Minnesota Legislature required every gallon of 
gasoline sold in our State to contain at least 10 percent 
ethanol, we are still the only State in the Nation to have that 
requirement, and nationwide the use of ethanol is only about 
2.5 percent of that gasoline.
    That is starting to change, in large part because of these 
prices, and I commend the automobile industry for leading that 
initiative here in this country. If you see what has been 
passed out to my colleagues here, the current issue of U.S. 
News and World Report, the inside cover is a two-page 
advertisement by General Motors touting their flex-fuel 
engines.
    Yesterday, Daimler Chrysler announced that 500,000 of its 
vehicles by the year 2008, one-fourth, would be also containing 
these flex-fuel engines.
    In Brazil last year, over 80 percent of the automobiles 
sold in that country contain flex-fuel engines. I have had 
legislation for the last 3 years that would require every 
vehicle sold in this country--automobile, SUV, small truck--
that now consumes gasoline to contain a flex-fuel engine by 
model year 2006, 2008, 2010, take your pick, because it is 
technologically feasible, it costs about $100 to $300 per 
engine, I am told by the engineers in Detroit. And if the 
American consumer demands those vehicles as a requirement for 
buying or leasing new vehicles, it is going to spur this 
development, and then the consumer will have a choice. And that 
is the key. It is the price competition between ethanol E85 or 
E100 and gasoline--every time the consumer goes to the service 
station, it is that price competition that is going to help 
more than anything else we can do to reduce the price or reduce 
the increase in prices of our fuels.
    Mr. Chairman, again, I thank you for holding this hearing. 
I hope that we will have the opportunity at some future date to 
ask the chief executives of the major automobile manufacturers 
to come here and see how we could work cooperatively with them 
to encourage this implementation of flex-fuel engines in our 
Nation's automobile and vehicle supply.
    Thank you very much.
    The Chairman. Thank you, and that is a great suggestion, 
and we will work on that.
    I am not suggesting that everybody make an opening 
statement, but I want to make sure that anybody who has 
anything to say has the opportunity. Does any other Senator 
wish to make an opening statement? Senator Coleman?

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

    Senator Coleman. Mr. Chairman, I will be, if I can, very, 
very brief.
    First, I want to thank you for your leadership. This is 
critically important. There are so many crises we have in which 
the solutions are outside of our hands, we cannot control it. 
This is one that is right in our hands. It is in the hands of 
farmers in Iowa and Minnesota and the Dakotas. It is in the 
hands of American technology. So this is one that if we simply 
have leadership that says what John Kennedy said in the 1960s, 
when he said we are going to land a man on the Moon by the end 
of the decade, and we did not have the computer capacity to get 
to the Moon, nevertheless get back, what we simply need to say 
is that we are going to end the unhealthy dependence on Middle 
East oil and foreign oil, and we can do it.
    I am not going to get into the detail here. The reality is 
we need to obviously do more with ethanol and biodiesel. We 
have also got to get the infrastructure out there. Half the E85 
pumps in America are in Minnesota. Great for Minnesota, but 
this is not, as you said, as the ranking member said, it is not 
a Minnesota issue or an Iowa issue or a Midwest issue. It is an 
American issue.
    And my last comment, Mr. Chairman, goes to your comment 
about China. I had a chance to visit with Hu Jintao last week. 
I talked about this issue. You know, we have an unhealthy 
dependence on Middle East oil. The Chinese are walking down the 
same path, and that has some terrible global, political, 
security implications. And so if we can figure out a way to 
forge a partnership on this issue, we can both help our own 
security and help our economy, and I think help the world.
    So great things to do, great opportunity. Let's seize the 
opportunity and make it happen.
    The Chairman. Senator Nelson?

   STATEMENT OF HON. E. BENJAMIN NELSON, A U.S. SENATOR FROM 
                            NEBRASKA

    Senator Nelson. Thank you, Mr. Chairman, and I, too, want 
to thank you for putting this issue on the agenda for today, 
and I appreciate the opportunity to hear from all of our 
colleagues and from the panelists as well.
    I am also pleased that the President spoke of alternative 
fuels and ethanol in particular in his State of the Union 
address. What I think that did is it legitimized the whole 
discussion that we are having today in a way that could not 
have been accomplished in such a timely manner as we have seen 
it.
    I am convinced that American agriculture is positioned to 
supply the Nation with an abundant source of clean, high-
quality energy that will reduce our destructive reliance on 
foreign oil. That is what our purpose is all about.
    I, too, have visited Brazil, met with them when I was 
Governor, learning of their dependence issues of the past and 
their independence rise in the present and the future. We have 
the same opportunity to do that.
    As we look to the farm bill in 2007, I would hope that we 
would think in the following terms: If we like importing 60 
percent of our fuel, we would love importing 60 percent of our 
food. So I am hopeful that, as we look at the importation 
requirements that we are experiencing today, we would focus on 
how to make the Food and Fuel Security Act of 2007 the 
highlight of what we are attempting to do, because it is a 
matter of security. Our food is a matter of our own security, 
to be able to produce enough so that we are not dependent on 
foreign sources for the predominance of our food any more than 
we want to be dependent on foreign sources for our fuel. So I 
hope that we can think as we move forward and look at 2007 and 
the farm bill, that our focus will then be on how we could--and 
for the sake of those in the South, we can add fiber, too. I 
know cotton is very important to some of our friends, if we are 
into Food, Fuel, and Fiber Security Act for 2007.
    I appreciate it very much. Thank you.
    The Chairman. You got my vote for President.
    [Laughter.]
    The Chairman. Senator Thomas?

  STATEMENT OF HON. CRAIG THOMAS, A U.S. SENATOR FROM WYOMING

    Senator Thomas. Well, thank you, Mr. Chairman, and I am 
very interested in hearing from our members of the panel. I 
agree entirely with what has been said here. This is an 
opportunity for us to do some things. But I am very anxious to 
know what the prospects are for making this kind of an approach 
a little more efficient, a little more effective. I mean, if we 
go up to the 7 billion area that we talked about, or 6.3 
billion, that is 3 percent--that is 3 percent of our energy 
needs. So we need to be working here, but we need to find some 
ways to see how we can make it work a little better.
    You talk like you are going to change the whole thing with 
ethanol. Well, that is not the case the way it is now. So we 
need to be really interested in how we can make this whole 
program be a little more efficient in terms of volume. That is 
really the key. So I am anxious to hear from you.
    Thank you.
    The Chairman. Senator Crapo?

    STATEMENT OF HON. MIKE CRAPO, A U.S. SENATOR FROM IDAHO

    Senator Crapo. Thank you very much, Mr. Chairman.
    First of all, I want to thank all of our witnesses for 
coming here today. I have a very eloquent and well-prepared 
statement, but most of the points I was going to make have 
already been made. I would simply submit my statement for the 
record and add that I had the opportunity recently to be in 
Brazil and to meet with the agricultural leaders and many of 
the other leaders of Brazil and actually go out and visit some 
of their ethanol facilities and observe some of the decisions 
that they are making in an effort to become energy independent.
    And although I believe that the circumstances that the 
United States faces and the circumstances that Brazil faced are 
sufficiently different that we may have to design a little bit 
different approach to it.
    But the fact is that the effort that Brazil has made shows 
that it can be done and that biofuels can be a key part of 
achieving energy independence, can be good for our agriculture 
community and good for our energy independence, and, frankly, 
as Senator Coleman has indicated, it can be very helpful to us 
in our international relations as energy issues become 
increasingly forefront issues in terms of the relations between 
nations.
    So I think this is a very critical issue. I have got some 
questions for the panelists about how we will be as effective 
as possible, both technologically as well as in terms of the 
development of these fuels. But I am convinced that this is one 
of the key areas that needs to be a highlighted part of our 
national energy policy.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Salazar?

  STATEMENT OF HON. KEN SALAZAR, A U.S. SENATOR FROM COLORADO

    Senator Salazar. Thank you very much, Chairman Chambliss. 
Let me first thank you and Ranking Member Harkin for putting 
the spotlight on this issue because it is an issue that is very 
timely.
    Two, I want to thank Bob Dinneen and Joe Jobe for their 
leadership and for the renewable fuels summit that you put 
together yesterday. I thought it was very, very well done, and 
I appreciated participating in that.
    I have a statement for the record, and I will submit that 
for the record, but I want to make just a couple of quick 
points, and I will try to be very brief.
    First of all, it seems to me that when you look at the 
national policy issues that we are dealing with here today, 
they are the most important national policy issues of our time 
for our country. And when you look at the national security 
issue of our overdependence on foreign oil--the President's 
statement that this was an addiction that we had to foreign 
oil--it tells a story that we ought not to be putting the 
future of our country or our children in the hands of the 
sheiks and kings of the Middle East. And there is a tremendous 
national security imperative that I think brings conservatives, 
progressive Democrats, and Republicans together to try to 
address this issue.
    Secondly, from a rural America point of view, I think that 
what happens with biofuels and bio-energy is going to create a 
whole new chapter of opportunity for what I often call the 
forgotten America, places that struggle so much, and I think it 
is a real opportunity for us to try to re-energize rural 
America.
    The fourth point, quickly, Colorado I think is like the 
rest of the Nation, moving very fast forward in terms of 
embracing biofuels concepts. You know, 14 months ago, we had no 
ethanol plants in the State of Colorado. Today we have two that 
are up and functioning. There is ground-breaking scheduled for 
another five. There are biodiesel projects that are going on, 
probably in 20 locations around the State. This is really, 
really a very exciting movement and I am sure Colorado is an 
example of what is happening in the other States around the 
country.
    I spent time with President Bush when he came out to 
Colorado and visited the National Renewable Energy Lab. I know 
he is excited, as is the Department of Energy, with respect to 
what we do with biofuels, including cellulosic ethanol and a 
whole host of other things. And I think, Mr. Chairman, it would 
be important for this committee to take the opportunity of the 
momentum that has built around the concept of renewable fuels 
and the technology that we now have around renewable fuels, to 
try to push forward with an energy package that might be very 
much what Senator Conrad has introduced--there are others who 
have ideas out there--but to try to do that this year as 
opposed to even waiting for the farm bill that I know we will 
be having hearings on in the year ahead and considering it for 
next year.
    It seems to me that this is the issue of our time of this 
year, and we as an Agriculture Committee I think have a good 
sense of how it is that rural America can contribute to dealing 
with this national issue.
    So my suggestion to you, Mr. Chairman, is that as we move 
forward with this issue of biofuels, we might want to speed up 
our conversation about legislation that might help us get to 
the energy independence that Senator Conrad spoke about so 
eloquently with respect to what has happened in Brazil.
    The Chairman. Very good point.
    [The prepared statement of Senator Salazar can be found on 
page 42 in the appendix.]
    The Chairman. Senator Stabenow?

STATEMENT OF HON. DEBBIE STABENOW, A U.S. SENATOR FROM MICHIGAN

    Senator Stabenow. Thank you, Mr. Chairman, and, first, 
welcome to our guests this morning, and thank you for your 
patience. I think the fact that all of us are here and have 
wanted to share thoughts means that this is something that we 
all care very much about, and it is, I think, wonderful to see 
that this is really an area where we can come together on a 
bipartisan basis. We have a real vision that is very exciting, 
I think, for where we can go as a country, both that relates to 
our national security, our foreign policy, our jobs, as well as 
supporting agriculture.
    And, Mr. Chairman, I thank you and I also want to thank 
Senator Harkin. When I think about the farm bill in 2002, I 
think one of the most forward-thinking provisions in there was 
the energy title, and I am hoping with both of your leadership 
that we will really be able to build on that, because as 
Senator Conrad has said, this really is about being bold now. 
And it is exciting to see what all of us can do together.
    Just a couple of points I would make. One is that our auto 
manufacturers are stepping up and are very excited and 
investing millions of dollars now in biofuels and alternative 
energy, and I appreciate Senator Dayton talking about the 
industry headquartered in Michigan. We are very proud of what 
is being done. Daimler Chrysler is the first automobile 
manufacturer to approve the use of B20 biodiesel. General 
Motors is advertising, as is Ford, for ethanol E85. Many of our 
vehicles right now can use that without any changes, and people 
are not aware of that. Flex fuels, hybrids, Ford has put out a 
bold plan for the future for their fleet.
    There is a lot of excitement here, and in Michigan, where 
we will have five ethanol plants by the end of the year, and we 
already have biodiesel industries, announced that they are 
going to build a 3-million-gallon-per-year biodiesel production 
facility near Detroit. There is a lot happening. This is very 
exciting. And it is about jobs, and it about supporting 
agriculture, and it is about energy independence.
    The only thing I would add is something that is also very 
exciting, Mr. Chairman. We are seeing now that not only are we 
talking about ethanol out of corn byproducts and also being--
the possibilities now are for sugar cane, sugar beets, which 
are very important in Michigan in terms of ethanol. There are, 
of course, soybean biodiesel, a variety of things. But we have 
been working in Michigan on other oil-based products. Plastics 
now can be made from corn byproducts. The President of Michigan 
State University just released a report on creating oil-less 
products in terms of plastics, and we are developing in 
Michigan now automobile parts. There is a development process 
going on for a dashboard that would be made with plastic from 
corn byproducts. And it has the added byproduct that if you get 
hungry and you are driving, you can...
    But I throw out there because I think there is some real 
excitement and real possibilities for us that relate to not 
only fuels but relate to plastics and other options. And we can 
all come together around a vision that says we want our fuels 
and we want our plastics to come from middle America rather 
than the Middle East.
    Thank you, Mr. Chairman.
    The Chairman. Thank you. Indeed, there are a number of 
other products that we are experimenting with, and I had the 
privilege of joining my colleague Norm Coleman at the Farmfest 
in Minnesota last year. And knowing that I come from a big 
cotton-producing State, they presented me with a golf shift 
made from corn byproducts. They did tell me that it had not 
been perfected yet and that if I got hot and sweaty, it would 
fade.
    Well, by the time I got in that night, it having been a 
very warm day, I had the most beautiful pair of pink underwear 
you have even seen.
    [Laughter.]
    The Chairman. But the shirt is very nice.
    I hate to turn this over to Senator Roberts now, but, 
Senator Roberts?

   STATEMENT OF HON. PAT ROBERTS, A U.S. SENATOR FROM KANSAS

    Senator Roberts. Well, up to this point, pink underwear has 
been classified, but it now seems it is out.
    [Laughter.]
    Senator Roberts. Mr. Chairman, thank you, and thank you to 
Senator Harkin for really highlighting this issue, which is not 
a temporary challenge. It is a long-term challenge, maybe a 
permanent challenge.
    I want to thank Senator Salazar for really stating what 
this is about, and that is, our national security in regard to 
our national economy. But it is our security as well.
    We hold a lot of hearings in the Intelligence Committee 
that are classified, and I want every member here to know that 
this is a long-term, very serious challenge that we have, if 
you add up what the fuel consumption is going to be in terms of 
fossil fuels with India and more especially China and the 
turmoil in the Middle East, look at what happened with Iran. 
And Hugo Chavez is not behaving very well down in Venezuela. 
And then you take a long-term look at that in terms of 
increased population, and you look at what the price increase 
has done in regards to energy and farm country, and we have a 
very serious challenge. One would say it might even be a 
crisis, but I do not like to use that word.
    I would like to know that we would continue to build this 
industry that we are talking about that everybody has mentioned 
with sound economic principles. I remember the 1970s when we 
went through the gasohol business and we had the National 
Alcohol Fuels Commission traveling all over the country with 
previous Senators and members. I think Senator Harkin was very 
much aware of that. And then it all folded like a tent in terms 
of the economic viability.
    So I want to hope that we make sure that we educate and we 
equip our local communities to help make practical and 
financially sound investments in this fuel technology. We have 
seven ethanol plants, a biodiesel plant coming on board, and we 
are using that product. It seems like to me we have a real 
chicken and egg problem. Why would you buy a flex-fuel 
vehicle--and many more are going to be made, and that certainly 
isn't an answer if you can't buy biofuels at your local gas 
station. And if you are a station owner, what incentive do you 
have to dedicate a pump for biofuels if your customers do not 
have the vehicles that can use it? Now, we can work that out, 
but that has to be according to a plan, and I don't think we 
can do it with mandates.
    We have the higher blends of fuel in Kansas, the E85, B2, 
B10, B20, all of the fuel pumps popping across the State, and a 
lot of vehicles aligned to line them up, but we need more.
    I am very pleased with the progress that we have made, but 
I have a word of caution. I said again that we must be sure 
that certainly our communities invest in the long-term 
viability of these biofuels, but these plants must be able to 
sustain price changes in our commodities and the prospect of 
future market fluctuations. We all certainly know about that. 
So we have to support incentives for, I think, the alternative 
fuel vehicles, and like the tax credit to producers that was 
included in the energy bill, and I agree with Tom Harkin, we 
need an energy section in the farm bill, and we need to 
consider that.
    And we have to get these fuels from the countryside to the 
coasts and the urban areas as well. And I think we have to view 
our investments in regards to alternative fuels in the broader 
context of the next farm bill. What will the energy title look 
like? We need to keep in mind that any incentives or policy 
changes we make on the energy side cannot come at the expense 
of the food-based agriculture. And I think we need to think 
very carefully about the law of unintended consequences as we 
go through this, how our commodity programs and conservation 
and energy programs will work together, have to work together. 
Changing one title at the expense of another is just not the 
answer.
    And that includes research. We have to continue to invest 
in the agricultural research that has increased our crop 
variety, production, and yield and disease resistance. 
Basically this is just not going to work without the proper 
research, and so research into these feedstocks will only help 
to ensure the viability of the biofuels industry.
    I am pleased that the alarm bell has gone off. I am pleased 
that the American people are waking up to this issue. We have 
an obligation on our hands, and I think, Mr. Chairman, with you 
and Senator Harkin at the helm that we certainly will meet 
these challenges with some good answers.
    The Chairman. Thank you, sir.
    Senator Talent?

STATEMENT OF HON. JAMES M. TALENT, A U.S. SENATOR FROM MISSOURI

    Senator Talent. Thanks, Mr. Chairman. Three things, 
briefly.
    E85 in Missouri is selling for 50 cents a gallon less than 
unleaded gasoline. It is already moderating the price of 
energy, and this at a time when supply is under stress and the 
distribution network is not as fleshed out as it needs to be 
and as it is going to be.
    There is a town in mid-Missouri called Mexico, Missouri, 
and they broke ground on a biodiesel plant, and so a practical 
illustration of Senator Salazar's point, this is one time when 
it is a good thing that jobs are going to Mexico, in this case 
Mexico, Missouri. And we are seeing this story repeated all 
over rural Missouri, and I believe we are going to see a 
renewal of many economies in rural America because we are now 
going to fuel with the same kind of substances that we have 
been using for food.
    And, finally, Mr. Chairman, we are in the renewable era 
now. The energy bill last year I think did that. It ushered us 
into it. And all that bill really did was unblock the situation 
so the normal economic forces should work. And we should 
understand what was going on for years in the country. The oil 
companies are vertically integrated, and they just wouldn't buy 
ethanol, even though it did make economic sense, because they 
were in control of the oil market. And the renewable fuels 
standard, which many people in this committee worked hard to 
get, has made the difference because it was the watershed that 
said, no, we are going to buy ethanol, and it has allowed the 
economic forces that I think otherwise would have worked to 
work. And that's why I think everybody has come out of the 
gate, if you will, so fast because it was pent up anyway.
    So we have taken a big step. I think we all wish that it 
had been taken earlier, but we have taken it. And then the 
question is now: What is the next step how to perfect this 
process? We do need continued investment, and we need continued 
investment in the infrastructure, in the distribution network 
as well. And I am going to be very interested to hear what the 
witnesses have to say about that, and I want to say a special 
welcome to Joe Jobe from Jefferson City, Missouri. It is good 
to have you here, Joe.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Lincoln?

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

    Senator Lincoln. Well, thank you, Mr. Chairman, for putting 
together such an extremely timely hearing on the state of the 
biofuels industry. We want to welcome our panel, and I will try 
to be brief so we can get to you all because we want to hear 
from you.
    But this is clearly a topic that is on most Americans' 
minds, and it is: What are we going to do to control the price 
of fuel? Whether you are a farmer, whether you are trucker, 
whether you are just trying to get to a job, it is a critical 
issue, and it is really hitting at your pocketbook and your 
ability to do your job.
    But the question I get the most when I go to Arkansas and I 
travel across my State is: Why are we not doing more? They know 
the technology exists. They know that there are so many 
opportunities out there for us to do something about the issue 
of the price that they are paying for petroleum-based fuels. 
And they just cannot understand that we are not moving forward 
more quickly.
    So we are looking to you for some help in answering those 
questions to constituents of how we can provide the kind of 
help that the industry needs in order to jump start it in a 
little faster fashion.
    I have said for so many years that the biofuels can play an 
important role in bringing down the cost of fuel and certainly 
reducing our dependence on foreign oil, but they also do a 
tremendous amount for the environment. They are great as a 
secondary marketplace for our producers of crops and job 
creation. As Senator Talent mentioned, in Missouri, in 
Arkansas, places like that, this is going to be a real jump 
start in terms of the redevelopment of many of our rural areas. 
Being able to put up a lot of small plants in different places 
is going to mean an awful lot. And certainly through supply and 
demand we can figure that out.
    We know that demand out there, the demand problem comes 
from the increasing industrialization of the Far East--that has 
been mentioned as well--namely, China and India and the demands 
that are being put on the supply that exists. Certainly the 
world market is more competitive than it has been, and it is 
not going to be slowing any time, and that is one of the other 
reasons you see a sense of urgency among our constituency when 
I was home for 2 weeks. They know it is not getting any better. 
They can see the future ahead of them, and they realize that 
over the course of this summer it is not going to get anything 
but probably worse.
    So up to this point we have not been able to fundamentally 
address the supply problems that we face, and I think people 
are anxious and ready for us to do that now. We have tried 
diplomacy, urging oil-rich countries to open their spigots to 
meet increasing demand. We have tried greater investment, 
putting in place tax structures, other mechanisms that allow 
oil companies to seek investment in marginal sources they might 
not otherwise attempt. You know, to date, these efforts have 
just not achieved what we have got to do.
    We have got to get serious about making an investment in 
alternative fuels, and I think that is why it is time for us to 
take ownership. I am pleased that the chairman and Senator 
Harkin are leading the way. We have to develop a domestic 
renewable fuels industry that can meet our Nation's energy 
demand, and we have got to do it now. You know, in our Nation's 
history we have faced unbelievable technological challenges 
that we have confronted and we have overcome. You know, we did 
not put a man on the Moon by talking about how important it 
was. We developed a plan and we committed the resources and we 
dedicated ourselves to achieving that plan. That is what we 
have to do in regard to renewable fuels. We have to embrace it. 
We have to set it as a priority, and we have to be willing to 
make the investment. Industry cannot do it by themselves. They 
have done a tremendous job in developing new technology and 
making biofuels a viable option. I attended a dedication; the 
very first new biofuels biodiesel plant in Arkansas opened last 
week. We were real proud of that. They did a great job not only 
in terms of making sure that they had the feedstock and the 
oils and the refinery in place, but they put together a 
financial plan and a whole business plan that also included the 
oil marketers and the distribution, making sure that what we 
are doing is not looking at just one component but all 
components, making sure that we are going to have these 
alternative fuels available. But they had to go to six 
different funding sources. They had to jump through hoops and 
blow whistles, and it was just unbelievable, the challenges. 
But they did it in less than a year to prove that it can be 
done. It does not take decades to do this. We can make it 
happen, and we can make it happen in a timely way that the 
American people expect us to do that.
    So I am grateful that we are here today. I know, Mr. 
Chairman, in your State, First United Ethanol is getting ready 
to break ground. That is, I think, a wholly privately funded 
operation. They visited our office to talk to us about what 
they were up to. So we know that private industry has got the 
capacity and the capability to do it. We just have to be able 
to provide them the incentives and certainly the wherewithal to 
make sure that they are out there. There are great success 
stories. Hopefully we will hear about some more of them from 
you all. We have got our stories to tell. The most important 
thing are your suggestions of how we accelerate those stories 
and multiply them.
    So thank you, Mr. Chairman. I am pleased to be here and 
certainly proud that the panel is willing to spend the time to 
work through this issue with us.
    The Chairman. Thank you very much, Senator Lincoln, and now 
we will move to our panel. Gentlemen, thank you for your 
patience.
    Our panel today consists of Mr. Bob Dinneen, President and 
CEO of the Renewable Fuels Association, headquartered here in 
Washington, D.C.; Mr. Joe Jobe, Chief Executive Officer, 
National Biodiesel Board, from Jefferson City, Missouri; Mr. 
Jay Debertin, Executive Vice President and Chief Operating 
Officer of Processing, CHS Inc., St. Paul, Minnesota; Dr. 
Robert C. Brown, Bergles Professor in Thermal Science. He is a 
mechanical engineering professor and chemical and biological 
engineering at Iowa State University in Ames.
    Gentlemen, thank you very much for being here. We will 
start with you, Mr. Dinneen, and move down the row for any 
opening statement you wish to make.

     STATEMENT OF BOB DINNEEN, PRESIDENT, RENEWABLE FUELS 
                  ASSOCIATION, WASHINGTON, DC

    Mr. Dinneen. Thank you, Mr. Chairman. Mr. Chairman, members 
of the committee, good morning. While my statement may not be 
as eloquent and well prepared as Senator Crapo's, I would ask 
that it be entered into the record, and then I will try to 
summarize real quick.
    The Chairman. Without objection.
    Mr. Dinneen. First of all, Mr. Chairman, I want to thank 
you for holding this very timely and, indeed, very important 
hearing. I am pleased to be here. I want to tell you all about 
the growth in the domestic ethanol industry, the unprecedented 
growth that we are seeing today. Indeed, ethanol today is the 
single most important value-added market for farmers. Ethanol 
is the second largest consumer of grain this year, having 
passed exports in terms of demand. The growth that we are 
seeing in the industry today is simply phenomenal.
    Today's ethanol industry consists of 97 biorefineries 
located in 19 different States. We are processing close to 2 
billion bushels of grain today into more than 4.5 billion 
gallons of fuel ethanol. And we are going to continue to grow. 
But ethanol is totally blended in 40 percent of the Nation's 
fuel--40 percent. Virtually every single gallon of gasoline in 
California is blended with ethanol. Minnesota has led the way 
with a 10-percent requirement. Ten percent of the fuel sold in 
Minnesota is blended with ethanol, 85 percent of the fuel in 
Iowa and throughout most of the Midwest, but it is no longer 
just a niche market in the Midwest. Ethanol is now sold 
virtually coast to coast and border to border, and we are going 
to see continued demand.
    The 4 billion gallons of ethanol that were produced last 
year have provided tremendous economic benefits for the 
country. In using 1.5 billion bushels of grain, we increased 
gross output in this country by $32 billion. We added 153,000 
jobs across all sectors of the economy last year. Household 
income was increased $5.7 billion as a result of the ethanol 
industry that exists today, and we are growing.
    The ethanol industry added $1.9 billion in Federal tax 
revenues, $1.6 billion in State and local taxes, money that is 
used then to build infrastructure, build schools, and add to 
the quality of life in rural communities. Ethanol today is 
revitalizing rural America. When I go to grand openings and I 
see a thousand farmers that have invested their own money in an 
ethanol plant, they are so excited because jobs and economic 
opportunities are returning to rural America. That is what the 
ethanol industry is doing today.
    In addition, as many of you have noted, ethanol is having a 
tremendous impact on energy. The 4 billion gallons of ethanol 
that were sold last year reduced our oil imports by 170 million 
barrels a day. That is reducing our trade deficit by $8.7 
billion, and those benefits will continue to grow.
    In terms of air quality, the 4 billion gallons of ethanol 
sold last year reduced greenhouse gas emissions by some 8 
million tons. That is the equivalent of taking a million 
vehicles off the road.
    Now, the reason for that tremendous growth is in large part 
because of the energy bill that was passed last year. As you, 
Mr. Chairman, noted, the renewable fuels standard that was 
passed as a part of that bill that so many on this committee 
worked hard to do was a clarion call to our industry to go 
ahead and grow. We have 35 plants under construction today; 24 
of those have begun construction since August 8th when 
President Bush signed that bill into law.
    The other reason for all the tremendous growth is that MTBE 
is hemorrhaging the marketplace. Now, importantly, there is 
nothing in the energy bill, nothing in the Clean Air Act, no 
Government requirement that says the oil companies have to 
remove that MTBE. It is probably a good thing because MTBE had 
been contaminating drinking water supplies all across the 
country. And some have questioned whether or not there is going 
to be sufficient ethanol to meet that tremendous increased 
demand, and absolutely there will be.
    We are growing, as I have noted. There is going to be some 
migration from ethanol sold in conventional gasoline markets to 
those markets where it is needed more for MTBE replacement. And 
there will be some level of increased imports. We are working 
awfully hard today with our oil industry customers and the 
transportation infrastructure to make sure that ethanol is 
where it needs to be when it needs to be and the transition is 
moving forward as smoothly as we can expect.
    In the future, we are going to continue to grow. The 
industry right now is changing. It is evolving. There are new 
feedstocks that are coming into play, new technologies. Our 
industries are looking at corn extraction, gasification to 
reduce energy inputs. It is a very exciting time to be a part 
of this industry. I look forward to continuing to work with the 
leaders on this committee on bold energy initiatives and other 
measures to increase the production and use of renewable fuels 
because it is terribly important for our country, for our 
national security, as Senator Salazar has said, for economic 
opportunity, as Senator Harkin knows, seeing all the 
development in the State of Iowa, and for the environment in 
the future.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Dinneen can be found on page 
52 in the appendix.]
    The Chairman. Thank you, Mr. Dinneen.
    Mr. Jobe?

   STATEMENT OF JOE JOBE, CHIEF EXECUTIVE OFFICER, NATIONAL 
           BIODIESEL BOARD, JEFFERSON CITY, MISSOURI

    Mr. Jobe. Good morning, Mr. Chairman, Ranking Member 
Harkin, members of the committee. I am the chief executive 
officer of the National Biodiesel Board. That is the trade 
association representing the biodiesel industry in America. And 
I am also pleased to report that the biofuels industry is in an 
era of tremendous growth. I will focus my comments this morning 
briefly on the factors that have contributed to that growth for 
biodiesel, why that growth is important to America, and what 
must be done to keep it on its current successful path.
    As you mentioned, Mr. Chairman, the amount of growth has 
been substantial. We went from 25 million gallons in 2004 to 
approximately 75 million gallons of production and sales in 
2005 and on track for 150 million gallons in 2006. In the last 
2 years, the biodiesel industry has built approximately 45 
biodiesel plants, which have come online--as many of the 
Senators have mentioned, in their own States--and another 40 
more that are currently under construction.
    The majority of diesel fuel in the United States is used in 
over-the-road trucks, and the trucking industry serves as a 
critical part of our economy, as you all know. Everything that 
is in this room--this microphone that I am speaking at, this 
table--all of the products that we use every day were brought 
to us by diesel-powered trucks and America's truckers. Average 
diesel prices have nearly doubled over the past 4 years, which 
represents a tremendous threat to the trucking industry.
    The American Trucking Association has endorsed the use of 
B5 as a way to supplement our Nation's energy supply, and 
likewise, Sysco Corporation, which is the largest private truck 
fleet in the Nation, has begun using B5 in its trucks. 
Biodiesel contains oxygen, so it burns cleaner, it reduces 
smoke and smell, it increases cetane and improves lubricity. 
And as ultra-low sulfur diesel fuel is coming online beginning 
in June of this year, biodiesel is well positioned to replace 
lubricity that is lost in the refining process of ultra-low 
sulfur diesel fuel.
    The high price of fuel is just one of the contributing 
factors to increased biodiesel use. But I am here today to 
highlight three Federal policy measures that have been 
extraordinarily effective in stimulating biodiesel development. 
Because of these three measures, biodiesel is beginning to make 
a small but significant impact on our Nation's energy supply. 
All three of these measures are scheduled to expire soon, but 
must be continued in order to keep the growth of biodiesel 
going strong. Although we are showing significant signs of 
success, we are an industry that is still in its infancy and we 
are comparable to the ethanol industry in approximately 1982.
    First, the biodiesel blenders tax credit, which, Mr. 
Chairman, you alluded to earlier this morning, was part of the 
restructured Volumetric Ethanol Excise Tax credit, or VEETC, 
went into effect in January of 2005. It functions similarly to 
the excise tax credit for ethanol and was the primary stimulant 
for the development of the biodiesel industry in 2005 and that 
showed a lot of increase in new plants and jobs in biodiesel 
production.
    Senators Grassley and Baucus have introduced the 
Alternative Energy Extender Act, S. 2401, and this act includes 
the extension of the biodiesel tax credit through 2010, which 
would make it consistent with the ethanol provision. 
Additionally, as Senator Conrad mentioned, there is an 
extension through 2013 in his BOLD Act. Legislation is also 
currently pending in the House which would extend this credit.
    The second policy measure is the Bioenergy Program. A 2005 
OMB evaluation reported that that program has done much to 
stimulate biodiesel growth and could continue to be effective 
for the emerging biodiesel industry. The report stated, and I 
quote, ``Increases in the production of biodiesel indicate a 
rise in the supply of domestically produced renewable fuels. It 
is also an indicator of the viability of the biodiesel industry 
and its expanded consumption of agricultural commodities.''
    High diesel fuel prices are also hurting farmers as they 
have entered the spring planting season. But while costs are 
going up, the projected value of their crop is going down. The 
USDA is estimating the highest number of planted soybean acres 
on record for 2006 and projecting that soybean prices will drop 
below $5 per bushel in 2006 and 2007, triggering significant 
payments to soybean farmers. If the extended 2007 Bioenergy 
Program increased soybean prices and reduced Government 
payments, increased the production by $40 million, it is 
expected it would reduce Government payments by $210 million, 
which would be a net plus for the United States Treasury. That 
program is scheduled to expire in July of this year, so it is 
critical that we work to do something to extend that program.
    The third program I will mention briefly is the USDA's 
Biodiesel Fuel Education Program. It was part of the energy 
title of the 2002 farm bill. That has been extraordinarily 
important in addressing fuel quality measures, which is vital 
to the success of our industry, as well as educating the 
petroleum partners and the automotive industry. So, to 
summarize, the three Federal policy measures: the extension of 
the biodiesel tax credit, the extension of the Bioenergy 
Program for biodiesel, and the extension of the Biodiesel Fuel 
Education Program.
    Mr. Chairman, we appreciate this opportunity, and I thank 
you very much for this committee.
    [The prepared statement of Mr. Jobe can be found on page 59 
in the appendix.]
    The Chairman. Thank you.
    Mr. Debertin?

  STATEMENT OF JAY D. DEBERTIN, EXECUTIVE VICE PRESIDENT AND 
   CHIEF OPERATING OFFICER, PROCESSING, CHS INC., ST. PAUL, 
                           MINNESOTA

    Mr. Debertin. Thank you, Mr. Chairman. My name is Jay 
Debertin. I am Executive Vice President and Chief Operating 
Officer for CHS Inc. We appreciate very much the opportunity to 
appear before you and would like to express our appreciation to 
the members of this committee for their strong support of 
efforts to promote a viable and competitive United States 
renewable fuels industry.
    By way of introduction, CHS is an energy, agricultural 
supply, and grain-based foods company owned by about 1,100 
local cooperatives and 350,000 farmers in over 30 States. This 
year we are marking our 75-year anniversary.
    CHS is also one of the few farmer cooperatives that own 
petroleum refineries and fill key agricultural and rural market 
niches. Yes, I am one of those refiners. We own a refinery in 
Montana and have majority interest in a refinery in Kansas. In 
fact, we are the largest fuel supplier, including diesel, for 
on-farm use.
    We are also one of the few refiners that have an equally 
strong commitment towards renewable fuels. For example, CHS has 
been extremely active in the renewable fuels business for a 
quarter of a century, marketed many times in States that you 
represent under the Cenex brand that you might see at 
facilities across your States.
    In 2005, we marketed more than 500 million gallons of 
ethanol-blended fuels and sold approximately 100 million 
gallons of B2 diesel. We have been marketing these fuels since 
the late 1970s, went through those gasohol phases that we spoke 
of earlier, and we have been there.
    While our focus has long been in the marketing of renewable 
fuels, last fall we took the major step of investing 
significantly in U.S. Bioenergy, a South Dakota company that 
manufactures and markets ethanol and which has a half dozen 
plants under construction or planned in the Midwest, as well as 
ownership in an established plant in Nebraska. They also have 
plants under development and under construction in many States 
that you might represent.
    This represents a major commitment by our cooperative to 
our Nation's energy future and in helping our farmer owners 
better capitalize on new value-added opportunities as part of a 
growing renewable fuels industry. Being a cooperative also 
helps them to reduce the effective cost of fuel and other 
inputs as well as improve their income from the marketplace 
since our earnings are returned directly to our farmer members.
    The renewable fuels industry is still a very young and 
growing industry. We see tremendous opportunities, but there 
are still some challenges. Two that we could talk about would 
include making sure that the Renewable Fuels Program is a true 
national program; and, number two, to continue the development 
and enhancement of a distribution system.
    The recently passed renewable fuels standard was an 
important achievement in helping drive industry growth. It is 
also important that EPA rulemaking help ensure that it is a 
national program, applying to both blending requirements and 
the use of tradable credits.
    There is a geographic imbalance between where ethanol is 
produced and where the majority of the United States motor fuel 
is consumed. Ethanol production largely takes place in the 
Midwest today while the bulk of our population is in the 
coastal States. Therefore, we need to continue to ensure that 
we have an economical and efficient transportation and 
distribution system that facilitates this future growth.
    In conclusion, what can Congress do to further encourage 
the production and availability of renewable fuels in a way 
that enriches rural America? We have a couple of thoughts:
    First, to pursue an increase in the allowance for blending 
of ethanol with gasoline from the 10-percent level to an 
ultimate goal of 25 percent or more in addition to the current 
E85 option;
    Second, to ensure that the current Renewable Fuels Program 
is a national program;
    Third, continue to encourage the development and use of 
renewable fuels by maintaining current programs and tax 
incentives;
    Fourth, to help meet current and future distribution 
requirements through continued infrastructure improvements;
    Fifth, to work to ensure that future farm legislation 
builds on the success of the current farm bill to help promote 
the development and growth of renewable fuels;
    And finally, sixth, to maintain and strengthen the ability 
for farmers to join together in cooperative efforts to 
capitalize on new value-added opportunities and improve their 
income from the marketplace.
    Thank you, Mr. Chairman. We look forward to working with 
you and the members of this committee on these and other 
important issues.
    [The prepared statement of Mr. Debertin can be found on 
page 48 in the appendix.]
    The Chairman. Thank you very much, Mr. Debertin.
    Dr. Brown?

   STATEMENT OF ROBERT C. BROWN, PH.D., BERGLES PROFESSOR IN 
 THERMAL SCIENCE, PROFESSOR, MECHANICAL ENGINEERING, CHEMICAL 
   AND BIOLOGICAL ENGINEERING, AGRICULTURAL AND BIOSYSTEMS, 
  ENGINEERING DIRECTOR, CENTER FOR SUSTAINABLE ENVIRONMENTAL 
        TECHNOLOGIES, IOWA STATE UNIVERSITY, AMES, IOWA

    Mr. Brown. Mr. Chairman, thank you for this opportunity to 
speak on the future of the renewable fuels industry. I would 
also like to thank Senator Harkin for his long-term support of 
biomass research at Iowa State University and his personal 
vision for a bioeconomy.
    The Chicago Board of Trade recently reported that ``the 
U.S. ethanol industry is experiencing exponential growth and 
this trend is expected to continue.'' In other words, the sky 
is the limit. If this sounds like the heady days of the 1990s 
Internet boom, there are indeed parallels. The Washington Post 
notes that both the Internet and the renewable fuels industry 
started from relatively small bases, they are dependent upon 
technological innovation for growth, and both were 
underinvested relative to the size of the potential market. 
This parallel has not been lost on the original investors of 
the Internet who are among the largest investors in the 
renewable fuels industry today. With a growth rate averaging 22 
percent in the last 4 years and a doubling expected in the next 
5, it is hard not to be excited about this industry. However, 
we must realize that decisions made today will determine 
whether this industry meets expectations or whether it falls 
victim to irrational exuberance.
    The Department of Energy calls for renewable fuels to meet 
20 percent of U.S. transportation demand by 2030. Currently, 
ethanol represents only 3 percent of transportation fuels. but 
even the most optimistic scenarios do not predict grain ethanol 
to displace more than 6 to 8 percent of gasoline demand. 
Agriculture must think beyond corn and soybean production if it 
is to supply a significant fraction of U.S. transportation 
fuels.
    At Iowa State University, I teach students about 
biorenewable resources in one of the only such graduate 
programs in the United States. As a class exercise, I ask my 
students, given the choice of growing an acre of corn, 
soybeans, or switchgrass, which would yield the most 
transportation fuel and which would produce the greatest 
quantity of dietary protein. Most students choose corn for fuel 
and soybeans for protein. They are surprised to learn that an 
acre of switchgrass could yield almost twice the biofuel as an 
acre of corn and almost the same amount of protein as an acre 
of soybeans. Much work remains to make this intriguing 
possibility a reality.
    Success would allow renewable fuels to meet 30 percent or 
more of our Nation's transportation needs, according to a 
recent USDA study.
    The emergence of the renewable fuels industry is only part 
of a bigger movement known as the bioeconomy. The Des Moines 
Register recently characterized this movement ``a revolution''; 
indeed, proponents of a bioeconomy call for nothing less than 
the complete replacement of petroleum with plant-based 
chemicals and materials in the manufacture of not only 
transportation fuels but building materials, fabrics, 
lubricants, plastics, and other durable and consumable goods.
    We must be careful in our delineation of goals for the 
bioeconomy. Often people confuse pathways with goals. For 
example, converting corn into ethanol is not a goal of the 
bioeconomy but, rather, a pathway, and possibly a transitory 
one at that, as new technologies present more efficient and 
high-yielding pathways. I suggest four goals for the 
bioeconomy.
    The first goal is to reduce reliance on imported petroleum. 
If we discover after a decade of ``exponential growth'' in the 
renewable fuels industry that we still import more than 60 
percent of our transportation fuels, then the bioeconomy is not 
fulfilling its promise.
    The second goal is to improve environmental quality, 
especially reducing emissions of greenhouse gases into the 
atmosphere. In principle, the manufacture of biofuels yields no 
net emissions of greenhouse gases, while innovations in 
agriculture can substantially sequester carbon into soils. In 
practice, these advantages are diminished by overreliance on 
fossil fuels in the production of biofuels and failure to 
employ sustainable agricultural practices. We must be diligent 
about keeping the ``renewable'' in renewable fuels.
    The third goal is to expand markets for U.S. agriculture 
products. Although these products might be traditional cash 
crops, they might also be new commodity crops that better meet 
the needs of a bioeconomy.
    The fourth goal is to provide economic development 
opportunities for rural America. Outsourcing by U.S. 
corporations is often justified as ``following the resource.'' 
In the bioeconomy, the resources are the rich agricultural 
lands of rural America. We can expect the manufacture of 
biofuels and biobased products to occur in communities close to 
this resource, which will boost our rural economies.
    The way to a bioeconomy is not clear even with the well-
defined set of goals. It is too early to pick winners and 
losers among the technologies that can transform biomass into 
biofuels and biobased products. I think you would be surprised 
and astonished at the wide array of technologies that are being 
explored as pathways to the bioeconomy. Much of the recent 
public discussion has been about the development of advanced 
enzymes to produce cellulosic ethanol, but other possibilities 
include Fisher-Tropsch liquids or alcohols from syngas, co-
refining bio-oils and petroleum crude, and hydrogen generation 
from algae, to name a few. Expanded research both applied and 
fundamental in nature is the best way for Government to help 
industry distinguished the winners for commercialization.
    Thank you for this time this morning.
    [The prepared statement of Mr. Brown can be found on page 
44 in the appendix.]
    The Chairman. Dr. Brown, you certainly make the point that 
Senator Roberts emphasized, and that is that we must continue 
agricultural research in this area and the funding thereof.
    Mr. Dinneen, the Federal excise tax credit and the recently 
enacted renewable fuels standard are both designed to sustain 
domestic ethanol production and encourage future growth. 
According to a study completed by USDA last year, if the 
Federal tax credit of 51 cents per gallon is eliminated, 
ethanol production would fall sharply to about 1.5 billion 
gallons per year. With petroleum prices reaching record highs 
and gasoline at $3 per gallon, ethanol producers are receiving 
a higher return for a gallon of gasohol than at any time in the 
past.
    Do high gasoline prices lessen the need for the tax credit? 
If so, how much longer would the credit be necessary in order 
to meet the minimum production schedule called for by the RFS? 
And at what point will the domestic ethanol industry mature 
where the tax credit and the import tariff are no longer 
necessary?
    Mr. Dinneen. Mr. Chairman, I can tell you that the ethanol 
industry is doing everything it possibly can to reduce 
production costs. We are indeed evolving as an industry with 
new technologies all the time, and it is exciting to see.
    Clearly, we want to look to a time when such Government 
supports are not necessary, but I will tell you that the oil 
industry today is making their investment decisions based on a 
conclusion that there is still going to be $25-a-barrel oil. 
And, clearly, what the oil price is going to be is going to 
determine whether or not additional incentives, continued 
incentives for ethanol production are necessary.
    I would hope that in the future they would not be, and we 
are certainly working toward a place where they should not be.
    In terms of the tariff, I think it is important to 
understand, to put the tariff in some kind of structure. There 
are two tariffs for imported ethanol. There is the ad valorem 
duty which is imposed at 2.5 percent for undenatured ethanol, 
1.9 percent for denatured ethanol. That compares to a tariff of 
25 percent in Brazil, 65 percent in Europe, about 135 percent 
in Japan. The lowest ad valorem duties anywhere on the globe. 
There is a secondary tariff that is imposed that is often 
talked about that merely offsets the benefit of the tax 
incentive that refiners get no matter the source of the 
ethanol. So we are, in effect, asking an importer to pay for 
the benefit of the tax incentive. The reason for that is we do 
not need to be asking U.S. taxpayers to subsidize already 
subsidized Brazilian ethanol.
    Brazil over the past 30 years has built a heck of a 
program. I give them great credit for the industry that they 
have created, and Senator Conrad's chart shows the results of 
that investment. But they have had decades of tax incentives, 
production incentives, mandates, export enhancements, building 
the infrastructure, forgiving the debt. So they have done 
everything that they possibly can to build their industry. They 
do not need our incentives as well.
    And if you remove the tariff and you have not changed the 
structure of the tax incentive, that is, in effect, what you 
would be doing.
    I think the focus of both of us ought to be, as it seems 
your discussion with them yesterday was, how do we build 
worldwide markets for ethanol so that both Brazil and the 
United States and others can export product, because there is a 
growing demand for renewable fuels all across the globe. That 
is an agenda that makes a great deal of sense.
    But I think nations that are trying to build a biofuels 
industry, as Brazil did, as we are doing, ought to be able to 
build incentives into their programs and encourage domestic 
production of renewable fuels from indigenous feedstocks 
without having to subsidize Brazil or without having to 
subsidize us. We would not go to Europe and say, you know, give 
us your incentives. I think that is the responsibility for our 
Nation, and we are doing it.
    The Chairman. Senator Harkin?
    Senator Harkin. Thank you very much, Mr. Chairman.
    Let me ask a question, and I am going to start with Dr. 
Brown, but I would like you all to kind of respond to it. We 
heard from Mr. Jobe here about biodiesel, and then you, Dr. 
Brown, you talked about the whole bioeconomy, about looking at 
different items that we can build from this bioeconomy. Other 
than just ethanol and biodiesel, but there is a whole host of 
other things that an be produced.
    I guess my question is sort of are we--and, Bob, I would 
ask you to think about this, too. We have been so focused on 
fuel because that is the Big Kahuna out there. That is what is 
costing us all this money because we are importing oil. But are 
we shortchanging ourselves by not thinking about how we combine 
the fuel production with feed--now, we do that already with 
ethanol, with distiller's dried grain, but what about the other 
types of things that we can get out of agricultural production 
that you mentioned. In other words, what about a refinery that 
would not only make your ethanol or biodiesel but would also 
make a whole host of other things?
    Has anyone really looked at that? Do we know about the 
economics of that? Or are we building a whole industry now that 
will have to be revamped at some point down the pike? Will that 
cost us more than if we were to right now begin integrating 
with those fuel plants, the ethanol plants, the biodiesel 
plants, the necessary components for a biobased production 
facility that would make other things? Are we shortchanging 
ourselves? Should we be thinking about it in a broader scope, 
for example, in terms of tax benefits, tax write-offs, 
provisions, things like that, rather than only ethanol or 
biodiesel?
    Mr. Brown. Senator Harkin, if our goal is to reduce 
petroleum imports, we have to remember that we also use 
petroleum for an awful lot of products that--if you look around 
the room, the carpet I am just certain is a petroleum-based 
product, and paints and any number of things are based on 
petroleum. So if we are going to make that substitution for 
fuels, we also need to address the issue of how we transform 
biomass into the other products that we use?
    Now, those are not necessarily going to be identical 
products, but examples like polylactic acid, PLA, as a polymer 
for the use in fabrics and utensils, plastic utensils and such, 
is a good one.
    The idea is to build a biorefinery that models what a 
petroleum refinery does, which is a notion we can get both 
fuels and important products out of it.
    I believe that the economics of a biorefinery will be very 
dependent on its ability to capture value clear through the 
processing, that it will not be enough to produce fuels. We 
need to do--in fact, they refer to it as an integrated 
biorefinery, the notion to make them pay, you need to be able 
to squeeze every BTU, if you will, out of the biomass that goes 
into it, and use it in production of fuels and different 
products.
    I think one of the difficulties, though, is we do not have 
a good handle on what are the attributes, the physical and 
chemical attributes, of biobased materials that make them 
superior consumer products? You know, a lot of years have been 
put into looking at petroleum-based polymers and solvents, et 
cetera, to make good adhesives or cleaners or whatever. And I 
think the industry would be helped, the biobased industry would 
be helped tremendously if there was more information on what 
makes for a superior product using these biobased materials, 
and that is coming to an understanding of the physical and 
chemical properties of those materials that are being produced.
    Senator Harkin. Mr. Debertin?
    Mr. Debertin. Senator, it is a very insightful question, 
and as an investor in these plants and in these businesses, it 
is something that we are exactly thinking about at the same 
time, because clearly there are opportunities. And when we talk 
about on the ethanol side--and Bob could probably speak to this 
better than I, but there are thoughts around ethanol and corn 
degerming and taking the oil off the corn, and that may be 
going into corn oil or into the pharmaceuticals industry, which 
has opportunities in the future.
    The issue that we really face is that the industry is 
moving very fast. Those types of opportunities are not yet, it 
seems, ready for the market. And I wish that they were because 
I would rather invest in an operation that was capturing all 
that. And I know at the end of the day we are going to have to 
go back and plow some ground again.
    The offset to that is wait until all that is proven out, 
and I am afraid that this industry is--and some companies 
perhaps are taking that route. We have decided to enter into 
this industry knowing that there is probably going to be some 
ground that is going to have to be replowed, whether it be due 
to using pharmaceuticals as an option for some bioproducts of 
an ethanol plant or using switchgrass as a feedstock, which, 
again, may take some existing plants and have to do rework to 
those plants when that technology is marketable and ready for 
market.
    Senator Harkin. Mr. Jobe, how do you respond to that? Keep 
in mind that what I am thinking about is if we are 
shortchanging ourselves by just looking at fuel and maybe some 
feed, such as animal feed. Should we be thinking about 
biorefineries that are capable and even right now responding to 
a growing demand for biobased products out there, such as 
starches and other things?
    Mr. Jobe. Senator Harkin, excellent question, and as it 
pertains to biodiesel specifically, the primary bioproduct of 
biodiesel production is glycerine, and there is already 
starting to be some response in the development of that product 
as an industrial chemical, as a more profitable industrial 
chemical, as a part of a biorefinery concept. In fact, there 
was an announcement of a glycerine plant that will be refined 
into a replacement of propylene glycol, which is a chemical 
that is used for a number of industrial uses, but primarily one 
of the major ones is as a de-icer at airports. And it is a 
valuable industrial chemical; however, as crude oil increases 
and as more biodiesel production comes on line, we can begin to 
utilize our glycerine-refining capacity, which is in surplus, 
and develop these industrial chemicals that compete with 
conventional petroleum-based petrochemicals. So that is 
beginning to become a driver.
    I believe that the best way to do that on the biodiesel 
side is to do more of what we are doing, which is making the 
economics of biodiesel work. And what we are seeing in our 
industry, which is rather exciting, is as the economics begin 
to drive this, then the profitable biorefinery concepts and the 
bioproducts and the other emerging industries that are 
supporting it are beginning to--the creative processes are 
flowing and beginning to thrive.
    Senator Harkin. Mr. Dinneen?
    Mr. Dinneen. Senator, indeed, there is nothing that is 
currently produced at an oil refinery that could not 
theoretically be produced from an ethanol refinery, a 
biorefinery. And, indeed, I have had to begin to change my own 
vernacular and stop talking about ethanol plants and start 
talking about ethanol biorefineries, because that is what they 
are today and that is what they are likely to be in the future. 
There are already many of my member companies that are highly 
engaged in bioproducts--pharmaceuticals and other products. But 
it is not just the large agri-processors that are doing this. 
Some of the smaller, farmer-owned ethanol plants also have very 
aggressive research programs underway right now because they 
recognize that to be competitive in the future, they have to 
have diversified products and they have to be looking at these 
technologies.
    The incentives that the Congress has put in place for fuel 
obviously have been terrific and have allowed this industry to 
grow and develop, and I do think it probably makes some--a 
great deal of sense to think about how to create additional 
incentives to encourage bioproducts as well as biofuels.
    Senator Harkin. I appreciate your response to that. And, 
Mr. Chairman, I just think that is something we did not really 
incorporate fully into the energy title of the farm bill last 
time, but I think it is something we ought to be really 
thinking about down the pike for next year.
    I would just add two other things. I had a picture here. I 
guess my staff gave it to Senator Stabenow's staff and they 
left. Just to show you there is nothing new under the sun as 
they say, it was a photocopy of a picture I have--and I have it 
in my office. It was a picture of Henry Ford with an axe handle 
hitting the trunk of a 1939 Ford. The picture was taken in 
1939, the year I was born, and Ford was hitting the trunk of a 
car. The picture shows him hitting it with an axe handle to 
demonstrate that a trunk made from soybeans would not crack or 
dent when hit with an axe handle. And he predicted in 1939, as 
Senator Stabenow said, that much of the automobile of the 
future would be made from soybeans. That was 1939 so he was way 
ahead of his time.
    I will say one other thing. In regards to a lot of the 
biobased products, again, it is the chicken and egg. Why don't 
more people or companies buy them or use them? Well, because 
they are a little bit more expensive than petroleum-based 
products. Well, why are they more expensive? Well, they are 
more expensive because no one buys them. And no one buys them 
because they are more expensive. You see, someone has got to 
crack this thing.
    And so my idea was to at least put a demand pull. There is 
a small section that we slipped in the farm bill the last time 
that not too many people know about, Section 9002. It is a 
mandate. It says that every Federal department and agency--
every one, not just the Department of Agriculture but Defense, 
Commerce etc. Every Federal department and agency shall give a 
preference to biobased products in their purchasing as long as 
they are equivalent in price, performance, and availability. 
This was signed into law by President Bush.
    Well, the Department of Agriculture dragged its feet. We 
kept hammering it to come out with the rules on this so 
departments would know what to do. It was not until--and I say 
this, quite frankly, until Secretary Johanns came down and I 
met with him about. He got it because there is a biobased plant 
north of Omaha owned, I think, by Cargill Dow that uses 
starches, and they make a lot of plastics and things like that. 
And he has now gotten the initial rules out on it. I think by 
the end of this year, he predicted they would have several 
hundred items on the list, Mr. Chairman, that now the Federal 
Government will have to buy, as long as they are reasonably 
equivalent in price, performance, and availability.
    I mean, just think if all the hydraulic fluid that the 
Department of Defense uses every year for its equipment and 
such was, made from soybeans. We know that. All the grease that 
is used could be made from soybeans. Starches. McDonald's buys 
some of their plastic from the plant that is in Nebraska.
    I asked President Bush one time on this, I said, How many 
plastic knives, forks, spoons, and plates do you think the 
military uses every year? Hundreds of millions of dollars 
worth. Well, now they are supposed to be buying those based 
upon biobased products.
    Oh, here is my picture. They got it back. Henry Ford 
hitting his 1939 Ford car.
    So that is why I asked the question, because if we are 
going to start really purchasing these, then we have got to 
make sure we have the refineries to make them. And I am 
concerned that we are not doing that, that we are only looking 
at fuels. As I said, that is important because it is the 900-
pound gorilla on the block. That is what we have got to take 
care of. But we use our imported petroleum for other things, 
too, I say to my friend from North Dakota, and hopefully we can 
think about this in terms of biorefineries.
    I have taken too much time, but I just wanted to make that 
point and get your response on it. Thank you, Mr. Chairman.
    The Chairman. It is interesting you make that point, 
Senator Harkin, because when I was called recently by the White 
House and asked what can we do about fuel prices, I said, Well, 
you know, it occurs to me that the Department of Defense has 
one heck of a gas bill every month, and one problem we have got 
relative to ethanol consumption is the availability of pumps in 
places like the Southeast. We just do not have them. But at 
military bases, it is pretty easy to install them. We can 
control that because we control the retail outlets. And I 
suggested to him they might think about mandating that all 
military installations move to at least a 10-percent blend of 
ethanol. So hopefully they will start thinking about those 
things.
    Senator Harkin. Put me on that, will you?
    The Chairman. Okay.
    Senator Conrad?
    Senator Conrad. Thank you, Mr. Chairman, and thank you, 
Senator Harkin. I think the question you asked actually is 
very, very important because it helps change the economics in a 
very favorable way when you extend the product mix that comes 
from these biorefineries. So I think that was a very important 
question.
    Mr. Dinneen, the BOLD Act that I have introduced calls for 
ethanol production to be increased from 4.7 billion gallons in 
2007 to 30 billion gallons in 2025. Can the industry meet that 
ambitious timetable?
    Mr. Dinneen. Senator, we can. Obviously, it would not all 
come from grain. National Corn Growers have done a very 
comprehensive study of where they think the upper bounds of 
ethanol production from grain would be, and their analysis 
suggests that we can get 15, 16 billion gallons of ethanol from 
grain.
    The industry is moving today to look to new feedstocks, to 
look to cellulose-ethanol production, and we are very, very 
close. Senator Crapo has been leading an effort to help a plant 
that is beginning to produce ethanol from wheat straw in Idaho. 
One of my member companies recently announced the construction 
of a plant in Spain that will be producing ethanol from both 
grain and cellulose, and they intend to bring that technology 
to the United States.
    There are many other efforts. Dupont is working awfully 
hard. There is not, frankly, a single ethanol producer that I 
represent that does not have a very aggressive cellulose-to-
ethanol research program underway today, because they all have 
cellulose already coming into the plant, and if they can 
convert that into higher-value ethanol, they are going to be 
more competitive.
    I believe that we are going to see a time well before 2025 
when there is meaningful production of ethanol from cellulosic 
material, and that will allow the types of numbers that you are 
talking about be realized.
    Senator Conrad. Let me just say BOLD Act also calls for a 
benchmark of producing 100 million gallons of cellulosic 
biomass by 2010, increasing to 250 million gallons by 2013, to 
help that effort.
    We also have an alternative diesel fuel standard, and I 
want to ask Mr. Jobe about this. Starting at 250 million 
gallons in 2008, increasing to 2 billion gallons by 2015, is 
that an achievable standard?
    Mr. Jobe. I think it is, Senator, and our industry is 
supportive in principle of that measure. We are certainly very 
interested in working with you and your office on some of the 
mechanics of that. Obviously not all of that volume is in 
reference to biodiesel. There are a number of alternative 
diesels, coal--
    Senator Conrad. It also involved coal-to-liquids, because 
that has got to be an important part of this. We have 
anticipated that this new diesel fuel standard would not only 
reach out to biodiesel but also to coal-to-liquid fuels as a 
source.
    Mr. Jobe. Absolutely. And we agree that that would be a 
very important way to support domestic--increase domestic 
production of a very viable alternative diesel technology and 
one that is compatible with biodiesel, frankly, because coal-
to-liquid technology is a very arid fuel. And biodiesel is 
complementary with that fuel on the lubricity side.
    Senator Conrad. One of the things we have also done in the 
BOLD Act is to extend the existing income and excise tax 
credits through 2013. You know, we see as one of the big 
problems here that we have got all these short-term time 
horizons, and for the industry to plan appropriately--if we are 
really going to make a big push, if we are going to do anything 
close to what Brazil accomplished, we have got to get serious 
about this. Brazil did this over a 30-year period. They went 
from 80 percent dependence on foreign energy, and they say they 
are going to declare their energy independence next year. An 
aggressive promotion of ethanol and biodiesel and flex-fuel 
vehicles was right at the heart of their strategy.
    Now, some have said we have got a more complex economy than 
they do. Absolutely we do. That is why in the BOLD Act we do 
not just have the renewables. We also have coal-to-liquid 
fuels. We have hydrogen. We have extension of the wind energy 
credit, the solar credit. We also have provisions on domestic 
energy, repressuring existing oil fields with CO2 and 
additional incentive for the oil industry to do that.
    We also open up offshore natural gas reserves because that 
has got to be part of an overall comprehensive strategy, and 
that is what is desperately needed.
    Let me just say the chief criticism of my bill has been it 
invests $40 billion over the next 5 years. That is $8 billion a 
year. I have said to those who raise that criticism we are 
going to spend $1.3 trillion over that period buying oil from 
unstable parts of the world. So the BOLD Act is 3 percent--is 
less than 3 percent of what we are buying from abroad. That is 
the cost of it. And the transformation, I would say to the 
chairman and say to my colleagues from Minnesota and Arkansas, 
Colorado, is that money--instead of spending $260 billion to 
ship our money to Saudi Arabia and Kuwait and Abu Dhabi and all 
the rest, invest that money here. Just a fraction of it, how 
that would transform rural America, how that would reduce the 
vulnerability of our country.
    My time has expired, Mr. Chairman. I just think this is the 
time, and I urge my colleagues to look at the BOLD initiative. 
I would welcome original cosponsors.
    The Chairman. Senator Dayton?
    Senator Dayton. Thank you, Mr. Chairman.
    I certainly agree with my esteemed colleague, Senator 
Conrad, about the importance for action now, and I think what 
Senator Salazar suggested earlier about the Senate passing 
another energy bill this year, if we are really serious and are 
going to take bold action and take action itself rather than 
just continue to wring our hands over these problems, I think 
we have to act, and I hope that the Ag Committee, Mr. Chairman, 
under your leadership could be part of that, along with the 
Senate Energy Committee.
    I just want to offer one more editorial comment, Mr. 
Dinneen. When you talk about ethanol as a substitute for MTBE--
and I recognize that it is, and I recognize that the practical, 
short-term focus, concern of some parts of the country is the 
impact of that on price and the like, and supply. I think in 
terms of this body, and the House as well, the mentality, the 
East Coast mentality toward biofuels, that the misconception 
that ethanol is a substitute for MTBE rather than a substitute 
for gasoline is one of the biggest conceptual barriers we have 
got to get over here.
    I hear that again and again from my colleagues. You know, 
what is the additional cost that ethanol is going to add to a 
gallon of gasoline? It is grossly exaggerated. But I go to a 
very highly respected source, Congressional Quarterly Weekly, 
this current week about ethanol, and it says the Energy 
Information Administration estimates that expanded use of 
ethanol will add up to 4 cents per gallon in some places to the 
price of regular unleaded gasoline this year.
    Well, first of all, I think that is an exaggeration because 
if you are talking about 3 percent MTBE replaced by ethanol, a 
4-cent-a-gallon increase, that would be a $1.33-a-gallon, if it 
were 100 percent ethanol, increase. That is contradicted by 
what I see the price of E85 is in Minnesota.
    So I don't think it is correct, first of all, but secondly, 
it reinforces this notion here that that is really the limit of 
ethanol's capability. So why go through all the trouble. It is 
one of the same problems we have with, I think, 2-percent 
biodiesel. I mean, it is a start, but why ask truckers to go 
through all the fears they have and the possible disruptions 
and everything else for a 2-percent variable and the price 
difference you get from that? Whereas, if ethanol is 85 percent 
of the fuels, then whatever transitional changes have to be 
made are really going to be worth it. They are really going to 
pay off for the consumer. The same thing for the truckers with 
biodiesel. So I offer that.
    That segues into my--I guess my question is: I was driving 
around Minnesota quite a bit last week. I have an SUV that can 
go on E85 so I can, you know, price shop as I go into every 
station. The price of E85 last August-September in Minnesota 
was $1.70 a gallon. Last week, it was typically about $2.39 a 
gallon. The price of regular unleaded was about $2.79 a gallon. 
So it was about 40 cents less than regular unleaded. But that 
is based on--from a year ago, that is an increase of 69 cents a 
gallon in ethanol, in E85. That is a 41-percent price increase. 
And what I have heard anecdotally from some station managers is 
that they--or at least somewhere along the line somebody is 
just pegging the price of E85 to about 40 cents below the price 
of regular unleaded. It is not based on the cost. You know, 
frankly, it is as much profiteering somewhere along the line as 
I fear is happening with gasoline. And I think it is going to 
be the destruction of the industry and this opportunity now 
because if it is not kept the price well enough below the--as 
you know, with the difference in fuel density and, therefore, 
miles per gallon, it has got to be priced about 80 percent, or 
it depends on the vehicle, less than regular unleaded in order 
to be price competitive. And I think they assume people do not 
know that so they can get away with it. But if you are going 
to--whoever is along the line here is going to take advantage 
of this current situation, I think it is going to undermine the 
short-term cost competitives.
    I see you nodding your head, Mr. Debertin, and I appreciate 
what Cenex has done around Minnesota to make available and 
encourage the use of this fuel. I would be interested in your 
comments, and anybody else's.
    Mr. Debertin. I would agree with the comments that you 
made, Mr. Dayton. The pricing formulas that are hitting energy 
products, whether they be straight gasoline or gasoline blended 
with unleaded, are fundamentally different than they were just 
a year ago when we saw ethanol prices roughly half what we have 
right now, and it has translated into the pump price, too.
    If commodities act in such a way that they start losing 
public support, such as E85, if they act in such a way, it will 
do the industry long-term harm. And, therefore, what we think 
is going forward is that this will become more and more of a 
commodity business, more production is coming online, more 
production will come online, and that is going to do what price 
does, and it is going to bring those prices down for an 
ethanol-blended fuel across the marketplace. But your comments 
I would agree with.
    Senator Dayton. Well, who is making these pricing 
decisions?
    Mr. Debertin. On the ethanol side, most of the times the 
pricing decisions are made by the ethanol manufacturer that 
sells the product. That isn't the case in all places because 
other companies will buy the ethanol off these plants, bring it 
into a terminal, and then market that ethanol to be blended 
with gasoline across the terminal. So you kind of could have 
two sets of pricers, so to speak--an ethanol plant that sells 
it directly off his plant to a retailer that you may have 
stopped to buy gas at, or they may have sold it to a company 
like us or other companies that bring it into a terminal and 
blend it with gasoline. So there are kind of those two.
    Mr. Dinneen. Senator, if I may just real quick, ultimately 
it is the marketplace that is going to set the price, and the 
demand for ethanol has indeed been very strong this year 
because refiners made the decision to remove MTBE. That has 
driven demand much higher than the demand that was created by 
the renewable fuels standard, about a billion gallons more 
demand than Congress had suggested was going to be necessary. 
So, I mean, that is what is driving the price right now.
    I might add that refiners having made the decision to 
remove MTBE, were it not for ethanol, were it not for the fact 
that our industry has been expanding and we are there in order 
to supply the 11-percent MTBE volume coming out of gasoline, 
prices would be significantly higher. It is true that that has 
absolutely had an impact on the E85 market, but virtually all 
the ethanol sold in this country is sold as a blend component 
with gasoline, and very little of it today is sold as E85. When 
there are more vehicles, when there is more infrastructure, 
quite frankly, when there is more ethanol, then you will see a 
pricing structure for E85 developed that is independent from 
the blend marketplace.
    Senator Dayton. Thank you, Mr. Chairman.
    The Chairman. As I turn to my colleague, Senator Coleman, I 
am going to also turn control of the microphone over to him as 
I am meeting with the Majority Leader right now. But, 
gentlemen, thank you very much for being here. I appreciate 
your participation today, and we look forward to continuing to 
use all of you as a resource as we move through this very 
critical issue.
    Senator Coleman?
    Senator Coleman. [Presiding.] Thank you, Mr. Chairman. I am 
going to ask one question because I think we have a series of 
stacked votes at noon, and I want to give my colleague, Senator 
Salazar, an opportunity to ask some questions.
    A very simple question, Mr. Debertin. You talked about 
geographical imbalance. I think, as I said before, perhaps half 
the E85 pumps in America are in Minnesota. What do we have to 
do to--what can be done--and I would open it up to anybody--to 
extend the infrastructure? I think, by the way, we should 
mandate it in military bases. We should simply say--we do 10-
percent ethanol blend in Minnesota. We could do it with the 
military. It works well. But I would like some ideas on what 
can we do to expand infrastructure. I am the author of a bill 
that has two choices--one to increase the ethanol tax credit 
from 30 percent to 50 percent; another piece would use some of 
the CAFE penalties to fund fueling infrastructure grant 
program, Department of Energy. There has been some talk about 
requiring the oil companies to step up to the plate. I would be 
interested in your perspective, how to extend infrastructure.
    Mr. Debertin. Senator, I think the examples that you give 
are exactly the types of things that I would offer to you. 
Minnesota, as you said, has the vast majority of E85 pumps. In 
Minnesota, we have the vast majority that are under our brand. 
But we are in rural America. Unfortunately, rural America does 
not have the population, does not have the large consumption 
that you see other places.
    So I think incentives, to incentivize other parts of the 
country, other retailers to put in more E85 pumps is a big 
role. I think increasing ethanol as a blend stock in more parts 
of the country is also a role, because E85 is one good route. 
It is one good route, but it is not the only route. Increasing 
ethanol as a blend stock in gasoline goes a long way toward 
addressing the energy problems for the country.
    I think also then the credit trading system that the EPA is 
developing and how that gets developed is going to be--I think 
it is something that is a little bit under the radar screen to 
a lot of people, but it is a very important development. If 
that credit trading system gets developed in a certain way, it 
almost could inhibit the movement of ethanol around the 
country. If it gets developed in another way, it could make 
ethanol become more of a fuel type of product, which it becomes 
fungible and transportable and dependable. And those are the 
components that I think you have to have for ethanol really to 
move up to be a part of the fuel chain of the country, beyond 
just, you know, kind of an isolated product.
    Mr. Dinneen. Senator Coleman, there are lots of things that 
have to happen before E85 is a much more meaningful component 
of our motor fuel infrastructure. You have to have more 
vehicles. We have got 5 million flexible-fuel vehicles on the 
road today. That represents less than 3 percent of our total 
vehicle fleet and, quite frankly, only a fraction of those know 
that they even have the cars. I give great credit to what 
General Motors and Ford have done to promote FFVs of late, and 
I think the yellow gas cap campaign will help to inform 
consumers.
    But given the fact that there are so few vehicles on the 
road today, it is awfully difficult to go to a gasoline 
marketer and say, hey, turn over one of your pumps to E85 to 
satisfy a fraction of the marketplace. And so incentives to 
help them do that make sense, and they should be done, and it 
is all good. But we need to have incentives for infrastructure 
coinciding with efforts to have more vehicles that are capable 
of running on the fuel.
    Senator Harkin has legislation in place requiring 
automakers to produce more FFVs. This country this year will 
produce some 17 million vehicles. Roughly a half a million of 
them will be flexible-fueled. Yesterday Chrysler made an 
announcement at our conference talking about they are going to 
have a quarter of their vehicles FFVs next year. That is great. 
That is terrific. We need to do more, however, but it needs to 
be on the vehicle side, on the infrastructure side, and maybe 
just one more brief comment. If we are incentivizing the 
production of FFVs, let's make sure that we are incentivizing 
the most efficient use of the fuel as well. General Motors had 
a vehicle at our conference yesterday, a turbo-charged engine 
that, as Senator Harkin talked about, realizes no mileage 
penalty whatsoever when ethanol is used. Unfortunately, while 
they had that vehicle out front of the hotel, you cannot buy it 
here in the United States. General Motors has plans to 
introduce that vehicle here, but I think we need to encourage 
that kind of technology, that kind of leadership, because 
ultimately that is what is going to create the marketplace 
environment to allow E85 to be used more widely.
    Senator Coleman. Mr. Jobe?
    Mr. Jobe. Senator, it is an excellent question. One of the 
primary things for biodiesel is blends up to B20 can be used in 
any conventional diesel engine seamlessly. So for us it is not 
a matter of having a special vehicle, but it is a matter of 
having availability of blends of B20. And it also is a matter 
of getting better, more fervent support by the engine 
manufacturers specifically stating that they support the use of 
B20 in their vehicles. Most state now verbally that B20 will 
not void their warranty. Some of them in their written 
statements say they do not recommend blends over B5. But one of 
the key elements that is helpful in getting more support from 
engine manufacturers is the Biodiesel Fuel Education Program 
that I mentioned earlier, and working with our automotive 
industry partners and our petroleum industry partners.
    I will also mention that that applies also with OEM's 
dealing with rail and water transportation, our barges and rail 
industries. Biodiesel can be used in those aspects as well, and 
so rail and water transportation issues, critically important 
on the diesel side.
    One last point as to the infrastructure and availability of 
B20. Infrastructure credits and the infrastructure credit that 
offers tax credits for retail pumps of E85 and B20 can be very 
effective. However, one of the things that is very critical 
when putting in infrastructure credits is making sure that the 
mechanisms actually work within the Tax Code and can be taken 
advantage of. We know historically the income tax credit that 
was available for E85 did not really work for E85 until it was 
restructured into the VEETC tax credit. And as we are looking 
at the rulemaking process for the infrastructure tax credit, it 
could be limited in how effective it could be unless we perfect 
it in some way.
    Senator Coleman. Your response has been very helpful. 
Before I turn to Senator Salazar, I would note that my 
colleague from Iowa was talking about Henry Ford. I believe 
that Henry Ford's first automobiles actually ran on ethanol 
fuel. But it was the availability of cheap Pennsylvania crude 
that really turned him to using a petroleum base. Had he gone 
in another direction, we would have had different hearings, I 
think, today.
    So with that, Senator Salazar?
    Senator Salazar. Thank you, Senator Coleman.
    I have four questions, and I would appreciate it if you 
would keep your responses to 30 seconds because we have a vote 
coming up shortly.
    Senator Coleman. I believe, by the way, the vote is at 
12:15, so you have a little time, Senator Salazar.
    Senator Salazar. Okay. Thank you, Senator Coleman.
    First, Jay, if you can respond to this question, what, in 
terms of technical and financial assistance, are we doing 
enough for all of these communities that want to do something 
regarding a biodiesel or ethanol plant or a biorefinery program 
so that they know what to do instead of having their exuberance 
somehow wasted out there? Is there something more than the 
United States of America should be able to do?
    Number two--I am going to ask all my questions so you can 
all then respond to them in 20 second. Number two, for Joe, if 
you can tell me what the level of technology is with respect to 
some of the jelling that has occurred with biodiesel in some 
places around the country, with some people saying that it 
makes a not very effective fuel in some of our colder States. 
Joe, also for you, and for Bob, the question about small-scale 
projects that are actually on-farm projects that can produce 
fuel, how feasible is that? How far along is the technology on 
that?
    And then, Bob, for you on the question of cellulosic 
ethanol, we are spending--investing tremendous amounts of 
money, $50, $100 million into each one of these ethanol plants 
now where we are using corn as a feedstock. How difficult is it 
going to be to convert those plants over to a new feedstock, 
whether it is corn stocks or switchgrasses, et cetera, when we 
get to the 2012 time frame and we have the technological 
capacity to do it?
    So why don't we just go down the line, give me a 30-second 
response to each of those questions. Go ahead.
    Mr. Jobe. I can start. First of all, the community 
production, are we doing enough to stimulate investment in 
plants and community production, I believe the answer to that 
is the Bioenergy Program, which I mentioned in my comments, is 
set to expire in July. That program has been extremely 
effective in developing domestic biodiesel production capacity 
as we look at--biodiesel does not have an offsetting import 
tariff like the ethanol industry does, and in terms of how we 
address that, the Bioenergy Program is going to be important 
because it has been a cornerstone in the development of a 
domestic biodiesel industry, and we believe that perhaps is the 
best, strongest way to compete against imports.
    In terms of jelling, the Biodiesel Fuel Education Program 
is very important because some of the fuel quality problems 
that we have had have been not having the proper information 
and education with the petroleum industry on proper handling 
and blending. Also, that program helps support fuel quality 
programs in the industry.
    And, finally, on-farm small-scale production, that has not 
been a focus of the industry. We have kind of let the market 
take care of that. But we are--the average biodiesel plant is 
considerably smaller than the average ethanol plant. Many of 
the plants that are going up right now--in fact, the average 
scale is about 3-million-gallon plants--they are farmer-owned 
and community-based.
    Senator Salazar. Thank you, Joe.
    Bob Dinneen?
    Mr. Dinneen. In terms of on-farm small-scale production, 
most of that today I believe is going into beverage, not 
necessarily fuel. It is really not an economic model. Most 
ethanol production facilities today that are going in are 50 or 
100 million gallons. The economies of scale are important. I 
would say, however, that the single largest ethanol producer 
taken as a whole today is the farmer-owned ethanol plant. So 
farmers are investing. They have got a strong place in this 
industry, and they always will, but it is going to be coming 
together, not necessarily putting it in on-farm production.
    In terms of cellulose-ethanol production, I do not see that 
replacing existing facilities. I think you are going to have 
cellulosic ethanol production alongside an existing grain-based 
ethanol facility. The two technologies are going to continue to 
evolve, but evolve together over time.
    Senator Coleman. Jay?
    Mr. Debertin. Mr. Chairman, just the issue of what you are 
doing for local communities and getting investment, I can't say 
there is nothing around the edges that might be helpful or 
might be necessary, but I can say you are doing it 90 percent 
right. Investment in ethanol manufacturing within rural 
communities is going well. The money issue is not a problem 
today. Local communities are welcoming this both from jobs and 
a property tax point of view. They are welcome employers and in 
light manufacturing in those towns. So I think it is on a good 
track as we speak.
    Senator Salazar. Thank you very much for your exciting and 
very, very informative testimony.
    Senator Coleman. Senator Harkin, is there anything else 
that you want to raise?
    Senator Harkin. No. I see a vote is on right now?
    Senator Coleman. The vote is to go on at 12:15, so we are 
right on schedule.
    Senator Harkin. Could I just ask one thing?
    Senator Coleman. Absolutely.
    Senator Harkin. I appreciate that very much. Thank you.
    You have all touched on ethanol production in one way or 
the other, and, Bob, you have been involved in this for many 
years. But one of the constant kind of things I hear are fears 
that, oh, my gosh, if we are just going to use all our corn for 
ethanol, then we are going to be going fence row to fence row? 
Are we going to be plowing up all this conservation land we 
have, and are we going to have all the environmental problems 
that come with that? It is going to maybe even impinge upon the 
use of that grain for other things.
    And so what has appealed to me is this whole idea of 
cellulosic conversion, Senator Lugar and I have talked about 
this, and he has kind of been the leader in that for a long 
time. And I know Canada has at least one demonstration plant. I 
think we have maybe one here in the near future. I do not know. 
I am not as familiar with it in the States a I'ld like to be.
    How aggressive should we be--now, we got the renewable 
fuels standard. We got that in, and we will probably exceed 
that, by the way.
    Mr. Dinneen. Far exceed it, yes.
    Senator Harkin. But how aggressive should we be in the 
research and the development of cellulosic conversion now, 
anticipating this big growth? Again, I am thinking about the 
next farm bill. I am thinking about the WTO and what we have to 
do in terms of cutting back on our price supports and things 
like that. The world is changing on us, and if we are going to 
be in that WTO negotiation, which I believe we should be and 
part of it, then we are going to have to cut back on a lot of 
the old traditional types of supports that we have had for 
agriculture. Well, then, maybe we ought to think about how we 
shift it into some other areas, and I am thinking about 
cellulosic conversion. Can we see that it actually will be--Dr. 
Brown, will that be a viable part of our fuel supply? Will it 
be economically feasible at some point? And how do you see it, 
Bob? What do you see for ethanol production down the pike? How 
aggressive should we be on this cellulosic conversion?
    Mr. Dinneen. Senator, I think we have to be as aggressive 
as we possibly can. We are 60 percent or more dependent on 
imports. You look at the world oil situation. You see what 
China and India and others are doing to worldwide oil supply by 
creating tremendously increased demand. And, Senator, quite 
frankly, Americans are dying today because of our dependence on 
oil from that part of the world.
    We have to be doing everything that we possibly can to 
assure greater production of ethanol and other biofuels from 
domestic feedstocks. That is not just corn. Corn growers are 
incredibly productive and efficient, and the Corn Growers, as I 
mentioned earlier, have an analysis out there that they 
anticipate being able to get 15 billion gallons of ethanol. 
Actually, 15 billion bushels of grain, by the way, in the 
future. We are coming off of back-to-back 11-billion-bushel 
corn crops. They are doing a tremendous job. But even they will 
tell you that if ethanol is to become a much more meaningful 
component of our motor fuel supply, that you have to be 
producing ethanol from other feedstocks. And there is no 
question.
    But as I indicated earlier, there is not an ethanol 
producer I represent that does not have a very aggressive 
ethanol cellulosic program. I have been in this industry now 
for 19 years. When I first started with the association, 
Department of Energy would say that the cellulosic ethanol 
production is 5 years away. And it has been 5 years away every 
year since then. But, Senator, we are closer today than we have 
ever been. There is production of ethanol from cellulose today. 
Iyagen has a facility in Canada, but they are looking to build 
a much more--a commercial size facility here in the United 
States. Abengoa Bioenergy is today building a commercial size 
cellulose and grain ethanol production facility in Spain, but 
Abengoa operates four plants here in the United States, and 
they intend to bring that technology here.
    There are others out there--Dupont, many other companies--
that are excruciatingly close to cracking the code to be able 
to produce ethanol from cellulose economically. This is not a 
time to be taking the foot of the gas. This is the time to be 
going forward.
    Senator Harkin. Well, I am open for any kind of suggestions 
any of you have, whether it is in the Tax Code or whether it is 
pilot projects or whatever else we might do. If you have got 
any suggestions, let me know.
    Dr. Brown, do you have any comment?
    Mr. Brown. I would echo both remarks. At the growth rate of 
the ethanol industry right now, we will have no choice but to 
be producing cellulosic ethanol in 7 years. We need to make 
sure we are ready to do that, and I am not convinced we are. I 
think we are going to need to be doing both research and pilot 
scale--
    Senator Harkin. We need to put more money in research in 
that area?
    Mr. Brown. I believe so, and I believe there are many 
options for doing this, and we have not explored all of those. 
And I think we need to open that up and look at those 
possibilities.
    As I mentioned in my testimony, enzymatic hydrolysis is 
just one possibility. There was mention of coal to diesel. It 
is also possible to go to biomass to a green diesel using a 
Fisher-Tropsch type process. So there's a lot of possibilities, 
but it takes time to do that, and the next 7 years is really 
pushing it as a schedule.
    Senator Harkin. Well, because, you know, we have gotten--
what do we have now? Norm, how many acres do we have got in the 
CRP? About 40 million acres? Thirty-six million acres in CRP 
now, and, you know, farmers have to plant a conserving crop on 
that, such as switchgrass or alfalfa. It would seem to me if 
you could keep that CRP thing going but give farmers another 
incentive to grow something that would be harvested for fuel 
without disrupting the conserving nature of it, that would give 
the farmers an income stream to offset a decrease in commodity 
prices because of WTO. That is why I am interested in this 
approach and how close we are to cellulosic conversion.
    Senator Coleman. I would note the vote was posted at 12:03, 
so I just--
    Senator Harkin. I appreciate that. Thank you very much. I 
am sorry I had to leave for a phone call, but I was listening 
to you out there. Thank you.
    Senator Coleman. Gentlemen, this has been an 
extraordinarily helpful panel, and we are very, very 
appreciative. And as the chairman said, this is the start of a 
much longer discussion so I want to thank you for your 
participation and thank the ranking member for his leadership 
on this issue.
    With that, this hearing is now adjourned.
    [Whereupon, at 12:11 p.m., the committee was adjourned.]
      
=======================================================================


                            A P P E N D I X

                             April 26, 2006



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

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

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


                   DOCUMENTS SUBMITTED FOR THE RECORD

                             April 26, 2006



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

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


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


                         QUESTIONS AND ANSWERS

                             April 26, 2006




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




[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



                                 
