    [House Hearing, 110 Congress]
    [From the U.S. Government Publishing Office]

                  H.R. 547, THE ADVANCED FUELS INFRASTRUCTURE
                          RESEARCH AND DEVELOPMENT ACT

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

                                    HEARING

                                   BEFORE THE

                     SUBCOMMITTEE ON ENERGY AND ENVIRONMENT

                      COMMITTEE ON SCIENCE AND TECHNOLOGY
                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED TENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                JANUARY 30, 2007

                                   __________

                                Serial No. 110-1

                                   __________

                Printed for the use of the Committee on Science

         Available via the World Wide Web: http://www.house.gov/science

                        U.S. GOVERNMENT PRINTING OFFICE
    32-612                      WASHINGTON : 2007
    _____________________________________________________________________________
    For Sale by the Superintendent of Documents, U.S. Government Printing Office
    Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800
    Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001

                                     ______

                      COMMITTEE ON SCIENCE AND TECHNOLOGY

                     HON. BART GORDON, Tennessee, Chairman
    JERRY F. COSTELLO, Illinois          RALPH M. HALL, Texas
    EDDIE BERNICE JOHNSON, Texas         F. JAMES SENSENBRENNER JR.,
    LYNN C. WOOLSEY, California              Wisconsin
    MARK UDALL, Colorado                 LAMAR S. SMITH, Texas
    DAVID WU, Oregon                     DANA ROHRABACHER, California
    BRIAN BAIRD, Washington              KEN CALVERT, California
    BRAD MILLER, North Carolina          ROSCOE G. BARTLETT, Maryland
    DANIEL LIPINSKI, Illinois            VERNON J. EHLERS, Michigan
    NICK LAMPSON, Texas                  FRANK D. LUCAS, Oklahoma
    GABRIELLE GIFFORDS, Arizona          JUDY BIGGERT, Illinois
    JERRY MCNERNEY, California           W. TODD AKIN, Missouri
    PAUL KANJORSKI, Pennsylvania         JO BONNER, Alabama
    DARLENE HOOLEY, Oregon               TOM FEENEY, Florida
    STEVEN R. ROTHMAN, New Jersey        RANDY NEUGEBAUER, Texas
    MICHAEL M. HONDA, California         BOB INGLIS, South Carolina
    JIM MATHESON, Utah                   MICHAEL T. MCCAUL, Texas
    MIKE ROSS, Arkansas                  MARIO DIAZ-BALART, Florida
    BEN CHANDLER, Kentucky               PHIL GINGREY, Georgia
    RUSS CARNAHAN, Missouri              BRIAN P. BILBRAY, California
    CHARLIE MELANCON, Louisiana          ADRIAN SMITH, Nebraska
    BARON P. HILL, Indiana               VACANCY
    HARRY E. MITCHELL, Arizona
    CHARLES A. WILSON, Ohio
                                     ------

                     Subcommittee on Energy and Environment

                       HON. NICK LAMPSON, Texas, Chairman
    JERRY F. COSTELLO, Illinois          BOB INGLIS, South Carolina
    LYNN C. WOOLSEY, California          ROSCOE G. BARTLETT, Maryland
    DANIEL LIPINSKI, Illinois            JUDY BIGGERT, Illinois
    GABRIELLE GIFFORDS, Arizona          W. TODD AKIN, Missouri
    JERRY MCNERNEY, California           RANDY NEUGEBAUER, Texas
    MARK UDALL, Colorado                 MICHAEL T. MCCAUL, Texas
    BRIAN BAIRD, Washington              MARIO DIAZ-BALART, Florida
    PAUL KANJORSKI, Pennsylvania
    BART GORDON, Tennessee               RALPH M. HALL, Texas
                    JEAN FRUCI Democratic Professional Staff
                CHRIS KING Democratic Professional Staff Member
             SHIMERE WILLIAMS Democratic Professional Staff Member
             ELAINE PAULIONIS Democratic Professional Staff Member
                        STACEY STEEP Research Assistant

                                C O N T E N T S

                                January 30, 2007

                                                                       Page
    Witness List.....................................................     2

    Hearing Charter..................................................     3

                               Opening Statements

    Prepared Statement by Representative Bart Gordon, Chairman,
      Committee on Science and Technology, U.S. House of
      Representatives................................................     9

    Statement by Representative Nick Lampson, Chairman, Subcommittee
      on Energy and Environment, Committee on Science and Technology,
      U.S. House of Representatives..................................     7
        Written Statement............................................     7

    Statement by Representative Bob Inglis, Minority Ranking Member,
      Subcommittee on Energy and Environment, Committee on Science
      and Technology, U.S. House of Representatives..................     8
        Written Statement............................................     8

                                   Witnesses:

    Mr. John Eichberger, Vice President, Government Relations,
      National Association of Convenience Stores
        Oral Statement...............................................    10
        Written Statement............................................    12
        Biography....................................................    15

    Mr. Richard Kassel, Senior Attorney and Director of the Clean
      Fuels and Vehicles Project, Natural Resources Defense Council
        Oral Statement...............................................    15
        Written Statement............................................    17
        Biography....................................................    21

    Mr. Bob Dinneen, President and CEO, Renewable Fuels Association
        Oral Statement...............................................    22
        Written Statement............................................    23
        Biography....................................................    26

    Discussion
      Ethanol Transportation Costs...................................    27
      Current Subsidies and Tax Incentives...........................    28
      Biodiesel Fuel Quality Concerns................................    28
      Ethanol Infrastructure Concerns................................    29
      Fuel Additives.................................................    30
      Ethanol Source Concerns........................................    31
      EPA Involvement................................................    33
      Ultra-Low Sulfur Diesel Costs..................................    35
      Diesel Performance.............................................    35
      More Ethanol Production Concerns...............................    37
      Ethanol Infrastructure and Environmental Impacts in Brazil.....    39
      The Ethanol Market in the U.S..................................    41
      Cellulosic Ethanol R&D.........................................    43
      Ethanol Fuel Availability......................................    44
      More on Cellulosic Ethanol R&D.................................    45
      More Ethanol Source Concerns...................................    46

                  Appendix: Additional Material for the Record

    H.R. 547, the Advanced Fuels Infrastructure Research and
      Development Act................................................    48

    Letter to Bart Gordon from R. Timothy Columbus, Counsel for the
      Society of Independent Gasoline Marketers of America, dated
      January 19, 2007...............................................    53

    Letter to Bart Gordon from David Gibson, President, X-Ray Optical
      Systems, Inc., dated January 30, 2007..........................    55

    Letter to Bart Gordon from Gregory M. Scott, Counsel, Coalition
      of E85 Retailers (CER), dated January 26, 2007.................    57

    Letter to Bart Gordon from Darrell K. Smith, Executive Director,
      National Association of Shell Marketers, dated January 29, 2007    58

    Letter to Bart Gordon from John Eichberger, Vice President,
      Government Relations, National Association of Convenience
      Stores (NACS), dated January 17, 2007..........................    60

    Letter to Bart Gordon from Sarah R. Dodge, Vice President of
      Government Affairs, NATSO, Inc., dated January 25, 2007........    61

    Letter to Bart Gordon from Dan Gilligan, President, Petroleum
      Marketers Association of America, dated January 26, 2007.......    63

    Letter to Mark Udall and Bob Inglis from Nancy Colleton,
      President, Institute for Global Environmental Strategies;
      Executive Director, Alliance for Earth Observations, dated
      April 6, 2007..................................................    65

     H.R. 547, THE ADVANCED FUELS INFRASTRUCTURE RESEARCH AND DEVELOPMENT
                                      ACT

                                  ----------

                           TUESDAY, JANUARY 30, 2007

                      House of Representatives,
                Subcommittee on Energy and Environment,
                           Committee on Science and Technology,
                                                        Washington, DC.

        The Subcommittee met, pursuant to call, at 2:10 p.m., in
    Room 2318 of the Rayburn House Office Building, Hon. Nick
    Lampson [Chairman of the Subcommittee] presiding.

                                hearing charter

                     SUBCOMMITTEE ON ENERGY AND ENVIRONMENT

                      COMMITTEE ON SCIENCE AND TECHNOLOGY

                         U.S. HOUSE OF REPRESENTATIVES

                  H.R. 547, the Advanced Fuels Infrastructure

                          Research and Development Act

                           tuesday, january 30, 2007
                              2:00 p.m.-4:00 p.m.
                       2318 rayburn house office building

    Purpose

        On Tuesday, January 30, 2007 the Subcommittee on Energy and
    Environment of the Committee on Science and Technology will hold a
    hearing to receive testimony on H.R. 547, the Advanced Fuels
    Infrastructure Research and Development Act.
        H.R. 547 directs the Department of Energy (DOE) and the National
    Institute of Standards and Technology (NIST) to initiate a research,
    development, and demonstration program to make alternative bio-based
    fuels more compatible with present-day infrastructure. H.R. 547 also
    directs these agencies to develop technologies and methods to provide
    low-cost, portable, and accurate measurements of sulfur in fuels, and
    to develop a physical properties database and Standards Reference
    Materials for alternative fuels.
        Science and Technology Committee Chairman Bart Gordon introduced
    H.R. 547 on January 18, 2007. This bill was originally introduced in
    the 109th Congress as H.R. 5658. The language from H.R. 5658 was
    included as Section 17 of H.R. 5656, the Energy Research, Development,
    Demonstration and Commercial Application Act of 2006, which was later
    passed by the House under suspension of the rules as H.R. 6203.
        To date, H.R. 547 is expressly endorsed by the following
    organizations:

              National Association of Convenience Stores (NACS)

              Renewable Fuels Association (RFA)

              Society of Independent Gas Marketers of America
            (SIGMA)

              National Association of Truck Stop Owners (NATSO)

              Coalition of E-85 Retailers

              Petroleum Marketers Association of America (PMAA)

        The hearing will seek to address the following questions related
    H.R. 547:

            1.  What infrastructure challenges currently hinder wide scale
            marketplace distribution of alternative fuels?

            2.  What are the limitations in the current testing equipment
            and protocols for verification of the sulfur content of diesel
            fuel?

    Witnesses

              Mr. John Eichberger is the Vice President of the
            National Association of Convenience Stores (NACS) and will also
            testify on behalf of the Society of Independent Gasoline
            Marketers of America (SIGMA).

              Mr. Bob Dinneen is the President and CEO of the
            Renewable Fuels Association, the trade association for the U.S.
            ethanol industry and advocate for the increased production and
            use of fuel ethanol.

              Mr. Richard Kassel is the Senior Attorney and
            Director of the Clean Fuels and Vehicles Project at the Natural
            Resources Defense Council which advocates for cleaner diesel
            fuels and increased use of bio-based alternative fuels.

    Background

    Alternative Fuels and Infrastructure
        Rising oil prices and concern about our nation's dependence upon
    foreign fuel sources have increased interest in diversifying our fuel
    supply through the development of alternative, domestic sources of
    fuel.
        The development and production of alternative bio-based fuels is
    increasing and there is great interest in expanding the use of these
    fuels. There are approximately 101 ethanol refineries online today,
    with many more in various stages of planning. However, due largely to
    ethanol's hydrophilic properties, ethanol is not compatible with the
    existing distribution pipeline infrastructure. Therefore it must be
    transported by tanker truck and rail, making long-distance shipping
    extremely expensive.
        According to the National Ethanol Vehicle Coalition there are
    already approximately six million E-85-compatible Fuel Flexible
    Vehicles (FFV) on American roads, with auto manufacturers adding
    several new FFV models to their product lines. The Department of Energy
    counts over 900 stations to date selling E-85, concentrated primarily
    in the Upper Midwest. While the number of stations is expanding, it is
    still less than one percent of the approximately 167,000 retail fuel
    outlets in the U.S. For example, despite being the Nation's largest
    auto market, California currently has one public E-85 station. The lack
    of service stations selling E-85 means that in the near-term a very
    small proportion of compatible vehicles will actually utilize E-85.
        Ethanol is currently blended with approximately 40 percent of the
    Nation's fuel supply, mostly at concentrations of approximately 10
    percent of the fuel by volume. It is at higher concentrations of
    ethanol, such as in E-85, where technical issues arise. Alternative
    fuels like E-85 and biodiesel have different physical and chemical
    properties that make them incompatible with existing transportation,
    distribution, and retail infrastructure. These fuels may be associated
    with a variety of technical issues relating to corrosion of tank and
    pipeline materials, increased sediment buildup, filter clogging,
    electrical conductivity, water and microbial contamination, varying
    flow rates, and thermal and oxidative instability. Unfortunately, even
    with federal assistance grants, the cost of replacing or building new
    infrastructure is simply not feasible for many fuel retailers and
    distributors, most of whom are small businesses.
        Evidence suggests that it may be possible to develop additives and
    blendstocks that would avoid the need for expensive modification and
    replacement of existing infrastructure. It may also be possible to
    develop safer and less destructive infrastructure refurbishment methods
    and technologies. H.R. 547 directs the Secretary of Energy, in
    consultation with the National Institute of Standards and Technology to
    develop additives, blendstocks, technologies and methods to address
    these concerns.

    Ultra-Low Sulfur Diesel (ULSD)
        In 2000 the U.S. Environmental Protection Agency (EPA) instituted a
    program to lower the emissions of diesel fuels by approximately 95
    percent. Federal regulations mandated that after an initial phase-in
    period, beginning June 1, 2006, all diesel fuel refined and sold in the
    U.S. must be Ultra-Low Sulfur Diesel (ULSD). ULSD is diesel fuel
    containing less than 15 parts per million (ppm) of sulfur.
        Prior to this time retailers sold Low Sulfur Diesel (LSD)
    containing up to 500 ppm of sulfur. The reduction in the sulfur content
    of diesel fuel served to mitigate the acid rain-causing effects of
    sulfur compounds and also allowed for the introduction in 2007 of
    advanced diesel engine technologies that would otherwise foul with high
    concentrations of sulfur. These new engine technologies reduce the
    emissions of particulate matter and nitrogen oxides, or NOX, which
    exacerbate respiratory ailments and react with oxygen to produce ozone.
    This allows for the introduction of a wide range of clean diesel trucks
    and passenger vehicles into the U.S. market.
        ULSD introduction also presented some challenges at various points
    of the distribution chain. As ULSD moves from the refinery through the
    pipelines, tanks, trucks and related infrastructure it can absorb
    residual sulfur left by other, high-sulfur fuel products. Products such
    as Low Sulfur Diesel with up to 500 ppm sulfur, Jet Fuel with 3,000
    ppm, and even Heating Oil with up to 5,000 ppm may be moved through the
    same infrastructure as ULSD. The fuel industry feared that this
    contamination would result in diesel fuel arriving at fueling stations
    with sulfur contents that exceeded 15 ppm, thus exposing ``downstream''
    retailers and distributors to liability for sale of non-compliant
    fuels. Current protocols and equipment for verifying the sulfur content
    of fuel are expensive and inaccessible to fuel retailers and others
    along the distribution chain. While the transition to ULSD has gone
    smoothly by most all accounts, the development of less expensive and
    more robust testing methods would enable more frequent testing of fuel
    sulfur content to assure that regulated limits are not exceeded and to
    quickly identify any contamination problems that may occur along the
    distribution chain.
        The need for advances in testing equipment is not limited to ULSD.
    Evolution in sulfur analysis technologies may lead to advances in
    testing for other fuel contaminants. For instance, current standards
    for biodiesel (ASTM standard D6751) lay out the critical specifications
    and set limits for manufacturers on maximum allowed concentrations for
    various contaminants, including sulfur. The biodiesel industry is
    pushing for strict adherence to these specifications. Because of the
    low concentrations and narrow tolerances needed to meet these
    standards, the measurements are difficult to perform accurately,
    especially in the smaller production facilities that tend to
    characterize the biofuels industry.
        Further steps that can be taken to improve measurement accuracy for
    diesel fuels involve working with analytical instrument manufacturers
    and commercial suppliers of calibration materials to transfer the
    inherent accuracy of Standard Reference Materials developed by NIST to
    working calibration standards used for field testing instrumentation.
    Section 4 of H.R. 547 directs DOE and NIST to develop these portable,
    low cost, and accurate technologies for testing sulfur content of
    diesel fuels, and begin demonstrations of such technologies within one
    year.

    Standard Reference Materials (SRMs)
        NIST prepares SRMs for three main purposes: (1) to help develop
    accurate methods of analysis; (2) to calibrate measurement systems used
    to facilitate exchange of goods, institute quality control, determine
    performance characteristics, or measure a property at the state-of-the-
    art limit; and (3) to ensure the long-term adequacy and integrity of
    measurement quality assurance programs.
        Industry, academia, and government use NIST SRMs to facilitate
    commerce and trade and to advance research and development. For
    example, State governments use SRMs for fuels to certify station pumps
    and other dispensing equipment.
        Market acceptance of any fuel requires a reliable supply of the
    fuel that consistently meets certain specifications needed to ensure
    quality and compatibility with engines and infrastructure. Section 5 of
    H.R. 547 directs NIST to compile a database of physical properties for
    alternative fuels, and use these data to develop Standard Reference
    Materials (SRMs) such as those NIST develops for conventional fuels.

    Section-by-Section Description of H.R. 547

    Section 1. Short Title

        The Advanced Fuels Research and Development Act

    Section 2. Findings

        The Nation should have a diverse fuel supply which includes
    alternative fuels, but incompatibility of some fuels with existing
    infrastructure presents significant and costly barriers to market
    penetration. Fuel additives or other technologies may allow such
    alternative fuels to be distributed and dispensed in existing
    infrastructure. Fuel retailers and distributors do not have ready
    access to technologies that verify fuels are in compliance with federal
    regulations for diesel fuels.

    Section 3.  Alternative Fuel and ULSD Infrastructure and Additives
    Research and Development.

        Directs the Department of Energy (DOE) and the National Institute
    of Standards and Technology (NIST) to conduct research and development,
    demonstration and commercial application of additives for bio-based
    alternative fuels (and ULSD) to address infrastructure compatibility
    issues such as: corrosion of infrastructure materials, dislodging of
    storage tank sediment, water and microbial contamination, increased
    emissions, temperature-sensitivity. The program should also investigate
    various methods for infrastructure refurbishment and cleaning, and
    other infrastructure-related problems as identified by DOE and NIST.

    Section 4. Sulfur Testing for Diesel Fuels

        Directs the Department of Energy (DOE) and the National Institute
    of Standards and Technology (NIST) to conduct research, development,
    demonstration and commercial application of portable, low cost, and
    accurate technologies for testing sulfur content of diesel fuels, and
    begin demonstrations of such technologies within one year.

    Section 5.  Standard Reference Materials and Data Base Development

        Instructs the National Institute of Standards and Technologies
    (NIST) to collect data on the physical properties of various
    alternative fuels, and develop the Standard Reference Materials (SRM)
    such as are available for conventional petroleum-based fuels.
        Chairman Lampson. Good afternoon. This is the first hearing
    of the Subcommittee on Energy and Environment.
        I would like to take the opportunity to welcome all our new
    Members. Representative Inglis, I look forward to working with
    you over the next two years, and I will call this meeting to
    order, and tell you that our hearing this afternoon is on H.R.
    547, the Advanced Fuel Infrastructure Research and Development
    Act, introduced by Chairman Gordon.
        Energy is on everyone's mind these days. The price of fuels
    has been rising, and awareness of the extent to which we are
    dependent upon foreign sources of oil has grown. At the same
    time, in an effort to reduce emissions of air pollution, we are
    also transitioning to cleaner burning fuels. The good news is
    that we have developed and are continuing to develop
    alternative fuels, and cleaner burning versions of our current
    petroleum-based fuels. But it is not enough simply to develop
    these new alternatives. We also must ensure the availability of
    infrastructure and equipment for transporting, distributing,
    and utilizing these new fuels at a reasonable cost.
        And that is where H.R. 547 comes in. This bill authorizes
    research programs to address two specific issues. The first
    will seek cost-effective methods for making our current fuel
    distribution system compatible with biofuels. The second will
    initiate a program to develop less expensive, easier to use
    testing methods and equipment for verifying the sulfur level of
    fuels. I understand from recent reports that transition to new
    Ultra-Low Sulfur Diesel fuel mandated by the Environmental
    Protection Agency, is going well. I believe several of our
    witnesses will speak to that, to that effort briefly this
    afternoon.
        And I look forward to hearing the views of our panel of
    witnesses on H.R. 547, and I thank all of you for participating
    today. And now, I will yield my remaining time to the author of
    this--is he not here yet? Okay.
        Let us--I will hold on to that, and at this time, I would
    like to recognize our distinguished Ranking Member, Mr. Inglis,
    of South Carolina, for his opening statement.
        [The prepared statement of Chairman Lampson follows:]

                  Prepared Statement of Chairman Nick Lampson

        Good afternoon.
        This is the first hearing of the Subcommittee on Energy and
    Environment. I would like to take this opportunity to welcome all of
    our Members. Rep. Inglis, I look forward to working with you over the
    next two years.
        Our hearing this afternoon is on H.R. 547, the Advanced Fuels
    Infrastructure Research and Development Act, introduced by Chairman
    Gordon.
        Energy is on everyone's mind these days. The price of fuels has
    been rising and awareness of the extent to which we are dependent upon
    foreign sources of oil has grown. At the same time, in an effort to
    reduce emissions of air pollution we are also transitioning to cleaner
    burning fuels.
        The good news is that we have developed and are continuing to
    develop alternative fuels and cleaner burning versions of our current
    petroleum-based fuels. But it is not enough simply to develop these new
    alternatives. We also must ensure the availability of infrastructure
    and equipment for transporting, distributing, and utilizing these new
    fuels at a reasonable cost.
        That is where H.R. 547 comes in. This bill authorizes research
    programs to address two specific issues. The first will seek cost-
    effective methods for making our current fuel distribution system
    compatible with biofuels. The second will initiate a program to develop
    less expensive, easier to use testing methods and equipment for
    verifying the sulfur level of fuels.
        I understand from recent reports, that transition to new Ultra-Low
    Sulfur Diesel fuel mandated by the Environmental Protection Agency
    (EPA) is going well. I believe several of our witnesses will speak to
    that effort briefly this afternoon.
        I look forward to hearing the views of our panel of witnesses on
    H.R. 547, and I thank all of you for participating today.

        Mr. Inglis. Thank you, Chairman Lampson, and thank you to
    the witnesses for appearing.
        Now, since this is my first time to speak as the Ranking
    Member of the Energy Subcommittee, I would say this. I am very
    grateful for the opportunity to be at this subcommittee. There
    are other people, including, I see down here, Mr. Bartlett, who
    probably could do an even better job as the Ranking Member, and
    then, we have got Vernon Ehlers, and some other people. That
    hasn't caused me to want to give up the slot, however, I would
    point out, but in any event, I am grateful for the opportunity
    to be here, and Chairman Lampson, I would say to you that this
    is a remarkable opportunity we have, I think, as Republicans
    and Democrats, to work together to accomplish good things for
    the country.
        The President says he is for alternative energy. He called
    on us to take action in the State of the Union. Democrats are
    clearly for alternative energy. A good number of Republicans
    are concerned about this, and so, there is no reason not to
    take action, and so, I am very excited about serving with you,
    and I think that the other Members of--on our side of the panel
    are also vitally interested in this topic. It is--we have
    opportunities in alternative energy to win the triple play, to
    create jobs with new technologies, to clean the air, and then,
    third, and maybe of more--most general application for
    everybody in the country, to improve the national security of
    the United States.
        So, it really is the triple play opportunity for us, in
    this Congress, and so, I am excited about that, and hope that
    we can work together to move ideas forward that will help
    advance this cause, of breaking our addiction to oil, and
    finding new sources of energy.
        And this bill before us certainly fits that bill, and so, I
    am very happy that we are having this hearing, and I join in
    support of this bill put forward by the Chairman, and there are
    some interesting questions for our panelists today, and I look
    forward to those, and I look forward to working with you in
    making this a very productive Congress.
        [The prepared statement of Mr. Inglis follows:]

                Prepared Statement of Representative Bob Inglis

        Thank you, Mr. Chair, for your remarks. I am excited to be working
    with you as we seek to tackle the energy and environmental challenges
    in the first Energy and Environment Subcommittee hearing of the 110th
    Congress.
        I am pleased to see the Subcommittee addressing this legislation
    early in the Congress. The promise of fuels of the future to reduce our
    dependence on foreign oil is one that both Republicans and Democrats
    support. Americans don't care which party gets the credit; they want to
    see solutions.
        I am also excited about the possibilities to improve our energy
    security, create jobs by retooling the car, and clean the air through a
    hydrogen economy. The scope of the challenge requires many solutions.
    America will benefit from the successes of its inventors, scientists
    and engineers. The government can help by harnessing the energy of its
    citizens through funding basic research. During my tenure on the Budget
    Committee ('93-'98), I learned the difference between simple spending
    and thoughtful investing. Investing in the research and development of
    fuels of the future makes sense. If we invest wisely, we can find
    economic growth through innovation.
        We can reap the benefits of biodiesel made from renewable
    agricultural products instead of buying it from foreign oil companies
    in unstable countries--and produce less pollution.
        A Department of Energy study showed that the production and use of
    biodiesel, compared to petroleum diesel, resulted in a 78.5 percent
    reduction in carbon dioxide emissions. For every unit of energy needed
    to produce a gallon of biodiesel, we gain 3.24 units of energy, giving
    it a positive energy balance.
        I understand that biodiesel is chemically and physically different
    than petroleum based diesel. These differences present some problems of
    compatibility with the existing infrastructure. I hope that the
    witnesses today can help us better understand this challenge and how
    H.R. 547 can help address other challenges related to moving Ultra-Low
    Sulfur Diesel through our existing infrastructure.
        I commend the Chairman of the Science Committee, Mr. Gordon, for
    introducing this bill and taking quick steps to further its passage.
    H.R. 547 is an example of a clear step that will both improve energy
    security and help clean the air.
        Democrats are for alternative energy; Republicans are for
    alternative energy. Congress is ready; the President is ready. So let's
    hear from the witnesses how we may best begin.

        Chairman Lampson. Thank you very much, Mr. Inglis.
        I totally agree. I think there is a magnificent opportunity
    for us here, and I look forward to working with all of you, and
    there are some awfully bright people on this subcommittee, so I
    hope that neither of us is intimidated by their knowledge. But
    I think that we will grow because of what they bring to this
    committee.
        I will, at this time, in the interest of time, ask
    unanimous consent that all additional opening statements, with
    the exception of Mr. Gordon when he comes, submitted by
    Subcommittee Members, be included in the record.
        Without objection, so ordered.
        [The prepared statement of Chairman Gordon follows:]

                   Prepared Statement of Chairman Bart Gordon

        Thank you Mr. Lampson.
        I am happy to be with the Subcommittee today to discuss my bill
    H.R. 547, the Advanced Fuels Infrastructure Research and Development
    Act.
        I appreciate the witnesses providing testimony on the bill. I would
    also like to thank the many groups that are supporting this
    legislation. Your endorsements will be included in the record.
        When I took the reigns of this committee I made a promise that this
    would be a Committee of ``Good Ideas'' and ``Consensus.'' We are here
    to solve problems.
        This bill is a prime example of how we can identify problems big
    and small, and leverage the resources and expertise of the Committee to
    develop creative ways to bridge technological gaps through research and
    development.
        It is clear that fueling our country solely on conventional fuels
    threatens our economic well-being and environmental health. The public
    wants and deserves clean and reliable fuel choices.
        But, if this country is serious about reducing our dependence on
    foreign oil, we need to get serious about mobilizing the infrastructure
    necessary to distribute and dispense the newest generation of fuels.
        For a number of reasons alternative fuels such as ethanol and
    biodiesel are often incompatible with many components of the present-
    day infrastructure.
        Fuel distributors and retailers are left to bear the considerable
    burden and cost of refurbishing, replacing, or constructing entirely
    new infrastructure if they want (or are ever required) to carry such
    fuels.
        At $30,000 to $200,000 per station, a nationwide change in
    infrastructure could cost $5 to $30 billion.
        Instead, my bill instructs the Department of Energy and the
    National Institute of Standards and Technology to research fuel
    additives and other technologies that could mitigate many of these
    problems, and make bio-based fuels more compatible with the country's
    petroleum-based infrastructure.
        In addition, the bill addresses potential challenges as suppliers
    transition to significantly cleaner fuels by instructing DOE and NIST
    to develop portable, low-cost, and accurate methods suppliers can use
    to test sulfur content in fuels.
        Since infrastructure is used for various fuel products with sulfur
    content ranging from 15 to 5000 ppm, there is a concern that
    distributors and retailers may sell fuel with levels of sulfur beyond
    what is safe for the newest generation of highway diesel engines.
        It should be noted that this section is not meant to interfere with
    the role of the Environmental Protection Agency in what has been a very
    successful market transition to Ultra Low Sulfur Diesel. It simply
    seeks to provide easier access to testing and verification for all
    participants. I encourage DOE and NIST to coordinate these activities
    with EPA.
        I hope this bill also illustrates that solving problems does not
    require years of wrangling over major omnibus legislation that in the
    end fails to meet everyone's expectations.
        Here we took a good idea, turned it into a good bill, and with the
    support of our Members we will pass it out of Committee tomorrow and
    send it to the Floor next week.
        I look forward to hearing testimony. Thank you.

        Chairman Lampson. It is my pleasure to introduce the
    excellent panel of witnesses that we have with us this
    afternoon. Mr. John Eichberger is the Vice President of the
    National Association of Convenience Stores, NACS. This
    afternoon, he is also testifying on behalf of the Society of
    Independent Gasoline Marketers of America. Mr. Richard Kassel
    is the Senior Attorney and Director of the Clean Fuels and
    Vehicles Project at the National Resources Defense Council; and
    Mr. Bob Dinneen is the President and CEO of the Renewable Fuels
    Association, the trade association representing the U.S.
    ethanol industry.
        I want to welcome each and every one of you. You will each
    have five minutes for your spoken testimony. Your written
    testimony will be included in the record if you choose to
    submit anything in the record for the hearing.
        And when all three of you have completed your testimony, we
    will begin with questions. Each Member will have five minutes
    to question the panel.
        Mr. Eichberger, would you please begin.

     STATEMENT OF MR. JOHN EICHBERGER, VICE PRESIDENT, GOVERNMENT
         RELATIONS, NATIONAL ASSOCIATION OF CONVENIENCE STORES

        Mr. Eichberger. Mr. Chairman, Ranking Member Inglis,
    Members of the Committee, thank you very much for inviting me
    here to testify. My name is John Eichberger. I am Vice
    President, Government Relations, for the National Association
    of Convenience Stores, also known as NACS.
        On behalf of the convenience and petroleum retailing
    industry, which sells approximately 80 percent of the motor
    fuels in the Nation, I appear today in support of H.R. 547, the
    Advanced Fuels Infrastructure Research and Development Act.
        This legislation comes at an appropriate time. Today, the
    motor fuels industry is experiencing a significant transition
    to the next generation of fuels, and as Congress contemplates
    policies to accelerate this transition, H.R. 547 represents a
    welcome effort to address two of the many challenges facing the
    retailers.
        With regards to alternative fuel, let me be clear.
    Petroleum retailers don't really care which fuels they sell,
    provided there is sufficient supply and consumer demand for
    those products. However, converting to new fuels can present
    challenges to many retailers. For some, converting to a fuel
    like E-85 or B-100 can be relatively simple. If they are
    fortunate, all of the equipment at their facility is already
    certified as compatible with these fuels. And all they need to
    do is simply make sure--begin the transition to those new
    fuels.
        Other retailers, however, are not as fortunate. Much of the
    equipment commonly found at a retail location is not certified
    for use with these fuels, typically because of concerns with
    corrosion and material degradation. Such equipment must be
    replaced, and in some cases, at significant cost. Sample
    invoices on the Department of Energy's website range from about
    $17,000 to $60,000 per location. But NACS' members inform us
    that if they had to replace the entire tank system, costs can
    be significantly higher. To put this in perspective, in 2005,
    the convenience stores reported an average pretax profit of
    only $42,000 per location.
        Compounding this issue is the fact that Underwriters
    Laboratories last fall suspended certification for all
    dispensers to sell E-85, due to concerns about corrosion. While
    many E-85 retailers continue to operate under agreements with
    local officials, this does not absolve them from any potential
    liability associated with a release from one of these non-
    certified dispensers. Until UL decides to certify dispensers
    for E-85 sales, the number of retailers interested in
    converting to E-85 will be greatly diminished.
        Clearly, equipment compatibility is a serious issue. The
    research in H.R. 547, if successful, will hopefully address
    these challenges in a more cost-effective way, and mitigate the
    significant barrier to entry. But I must caution this committee
    and the Congress that resolving the issue of incompatibility
    alone will not result in automatic widespread availability of
    alternative fuels. Retailers must assess the impact of
    alternate fuel on their overall business model.
        For example, is there sufficient demand to justify
    replacing a gasoline or diesel fuel dispenser with an
    alternative fuel? Does the retailer have a tank available to
    convert to alternative fuel, or the physical space to install
    an additional tank? Are supplies in the market sufficient to
    enable the alternative fuel to compete for price-sensitive
    customers with gasoline? And most importantly, will switching
    to an alternative fuel increase or decrease customer traffic
    inside the store, where the retailer makes most of their money?
        Mr. Chairman, these are real issues. Yes, H.R. 547 could
    substantially improve the economic calculations for retailers,
    but installation decisions will be based upon a balancing of
    various market forces involved, and Congress should be
    sensitive to these issues.
        With regards to Ultra-Low Sulfur Diesel, NACS strongly
    supports research to develop an accurate and affordable sulfur
    test. So far, the transition to ULSD has gone relatively
    smoothly, much more so than anybody could have anticipated.
    However, consistent compliance is critical. Drivers must be
    able to rely upon the integrity of ULSD, and retailers face
    fines up to $32,500 if they are found to violate the 15 parts
    per million sulfur standard. If a retailer is found violating
    15 ppm, the regulations provide them a three part defense. One,
    they must demonstrate that the ULSD delivered to their location
    was certified by their distributor as compliant. They must
    demonstrate that the contamination was not caused by their
    actions. And third, they must demonstrate that they have
    implemented a credible quality assurance program to ensure
    continued compliance.
        This third defense is the primary challenge. The only way
    to completely ensure continued compliance is to test every
    batch. However, there is no accurate, prompt--no accurate way
    to measure sulfur and get prompt results. Right now, you have
    to take a sample, send it to a lab, and wait 48 hours for a
    response. It is impractical to hold a load of diesel aside
    until those results come back. Therefore, currently, quality
    assurance programs are based upon a specific process of
    inventory management supported by evidentiary testing results.
    They figure out what they need to do to manage inventory, and
    test early on to see if it is working, then they continue that
    process throughout the system.
        While this is a defensible method to ensure compliance, it
    is not perfect. H.R. 547 seeks to develop an accurate and
    affordable sulfur test. If successful, retailers and others
    throughout the distribution system will be able to conduct
    quality assurance tests more frequently, thereby increasing the
    confidence of their customers that all ULSD meets the sulfur
    level, the 15 parts per million.
        Mr. Chairman, these conclude my remarks, and I look forward
    to your questions.
        [The prepared statement of Mr. Eichberger follows:]

                     Prepared Statement of John Eichberger

        Mr. Chairman, Ranking Member Inglis, and Members of the Committee.
    My name is John Eichberger and I am Vice President of Government
    Relations for the National Association of Convenience Stores (NACS).
        NACS is an international trade association comprised of 2,200
    retail member companies representing an industry with more than 140,000
    retail locations. In 2005, the convenience and petroleum retailing
    industry employed more than 1.5 million workers and sold nearly 80
    percent of the motor fuels consumed in the United States.
        The motor fuels industry is currently experiencing a significant
    transition to the next generation of fuels. As Congress contemplates
    policies to promote this transition, it must also understand that there
    are many complicated challenges facing retailers and the distributors
    that serve them that must be overcome before the market can efficiently
    offer these new fuels to consumers.
        H.R. 547, the Advanced Fuels Infrastructure Research and
    Development Act, initiates federal research and development projects to
    help the petroleum industry overcome some of these hurdles in the most
    cost efficient manner, thereby facilitating the smooth transition to
    these the new fuels. NACS supports the goals of this legislation and,
    today, I would like to comment on the two primary provisions
    independently.

    Alternative Fuels

        Clearly, the political momentum to bring alternative fuels to
    market is strong and growing. I cannot stress enough that petroleum
    retailers are agnostic regarding the type of fuels they sell, provided
    there is sufficient supply and consumer demand for those products. As
    supply and demand increase for alternative fuels via market forces and
    government programs, however, there remain significant hurdles
    inhibiting their smooth introduction to market. H.R. 547 seeks to
    address one of these challenges--the incompatibility of certain fuels
    with existing storage and distribution infrastructure.
    Compatibility Issues
        This issue of incompatibility carries with it potentially high
    costs to retailers seeking to convert their facilities to dispense
    these alternative fuels. A retailer must be able to determine precisely
    what equipment is involved in his system and for which fuels that
    equipment is certified.
        Some reports have indicated that certain components commonly found
    in storage and dispensing infrastructure may be incompatible with fuels
    like E-85 and B-100. These may include components made with aluminum,
    brass, copper and zinc or containing various elastomers,
    thermoplastics, thermosets, ceramics, pipe dope and organic coatings.
    Such metal components could be vulnerable to corrosion when in
    consistent contact with these fuels, while non-metal components could
    be subject to swelling, degradation, softening, embrittlement and
    delamination.\1\
    ---------------------------------------------------------------------------
        \1\ ``PEI/NACS 2006 Alternative Fuels and Material Compatibility,''
    Presentation by Edward W. English, II, Fuel Quality Services, Inc.
    http://www.pei.org/pdf/EdEnglish.pdf
    ---------------------------------------------------------------------------
        However, there remains a considerable amount of uncertainty
    regarding the extent to which these materials may be vulnerable and
    retailers cannot make broad assumptions regarding the compatibility of
    their equipment.
        In an effort to address the confusion that exists with regard to
    compatibility, the Petroleum Equipment Institute has provided on its
    web site a list of equipment certified by the manufacturer and listed
    by a laboratory for compatibility with certain fuel types.\2\ Retailers
    must work with their equipment suppliers to determine specifically what
    equipment must be replaced and what is already compatible with the fuel
    they are considering. In some cases, retailers may find it necessary to
    replace their entire system at significant expense.
    ---------------------------------------------------------------------------
        \2\ Petroleum Equipment Institute, http://www.pei.org/altfuels/
    ByFuel.asp
    ---------------------------------------------------------------------------
        Underwriters Laboratories Inc. (UL) is the definitive resource to
    certify equipment as compatible. On October 5, 2006, UL suspended
    certification of all dispensers for compatibility with fuels containing
    greater than 15 percent alcohol. UL cited as the reason for this
    suspension: ``Research indicates that the presence of high
    concentrations of ethanol or other alcohols within blended fuels makes
    these fuels significantly more corrosive. This may result in the fuel
    chemically degrading the materials used in fuel-dispenser components,
    and may ultimately affect the dispenser's ability to contain the
    fuel.''
        As of this month, despite the assistance of a technical conference
    and receipt of various supporting documents, UL has been unable to
    resolve its concerns and is preparing to conduct its own round of
    testing later this year.\3\
    ---------------------------------------------------------------------------
        \3\ ``Progress Update on E-85 Fuel-Dispensing Equipment
    Requirements--January 2007,'' Underwriters Laboratories Inc.
    www.ul.com/regulators/E-85up.cfm
    ---------------------------------------------------------------------------
        This is an important issue for retailers. Most jurisdictions
    require equipment to be UL certified before a retailer can put it into
    operation. Given the current state of non-approval by UL, many
    retailers who have already installed E-85 fueling systems continue to
    operate under agreements with local officials. While this may satisfy
    local operating requirements, it does not absolve retailers of
    potential liability associated with a petroleum or alternative fuels
    release caused by one of these dispensers. Therefore, the continued
    deliberations at Underwriters Laboratories and the rapid resolution of
    this issue is of critical importance to retailers.
        Clearly, compatibility between alternative fuels and existing
    infrastructure is a serious issue that can cost retailers thousands of
    dollars.
        The Department of Energy has posted on its web site invoices for
    the installation of E-85 compatible equipment. Some of the prices
    quoted on that site are $35,274, $15,383, $57,922, $27,321, and
    $24,105. These costs are significant, especially when one considers
    that the average pre-tax profit for a convenience store in 2005 was
    only $42,000.\4\
    ---------------------------------------------------------------------------
        \4\ U.S. Department of Energy, http://www.eere.energy.gov/afdc/E-
    85toolkit/cost.html
    ---------------------------------------------------------------------------
        This is one of the primary reasons the petroleum retail industry is
    slow to adopt these alternative fuels. The legislation under
    consideration today, however, if successful, will hopefully address the
    equipment compatibility challenges in a more cost efficient way and
    mitigate this significant barrier to entry. For that reason, NACS
    supports this part of the legislation.
    Other Hurdles to Installation
        However, I must caution this Committee, and the entire Congress,
    that the issue of incompatibility is only one of the hurdles that
    impede an individual retailer's decision to install E-85. Consequently,
    resolving that issue alone will not automatically result in widespread
    availability. While other Congressional Committees will determine
    federal policy and government programs regarding alternative fuel
    availability, I would like share with you the other considerations
    facing retailers because I believe it is pertinent to Congress' broad
    consideration of the alternative fuels issue.
        First, while I will acknowledge that the auto manufacturers are
    increasing their production of flexible fuel vehicles equipped to run
    on E-85, the number of these vehicles currently on the road remains
    relatively small and the number of drivers who know their vehicles are
    specially equipped is even smaller. This means a retailer must
    carefully evaluate the level of demand for E-85 in his operating market
    to determine if it makes business sense to dedicate a dispenser to sell
    the product. The typical convenience store operates four multi-pump
    dispensers, each providing two fueling positions. If E-85 is sold from
    one of these dispensers, gasoline customer throughput capacity is
    reduced by 25 percent due to the reduction in fueling positions. Unless
    there is strong demand for E-85, this could substantially affect the
    retailer's overall business model.
        Secondly, not every retail location can accommodate an E-85 storage
    tank. Many facilities maintain only two underground storage tanks--one
    for premium unleaded and one for regular unleaded. Mid-grade often is
    produced by mixing the two at the dispenser. To install E-85, the
    retailer must either install a third tank, which may not be physically
    possible depending upon the size of the facility, or replace one of
    these two gasoline tanks. Clearly, this is not a viable option.
        Retailers with additional tanks, perhaps containing diesel fuel,
    must make a decision to replace that product with the alternative fuel.
    Again, this is a decision that will have direct implications for the
    company's business model.
        Third, retailers must be cognizant of the price sensitivity of the
    consumer. The retail gasoline marketplace is the most competitive in
    the Nation--large price signs on the corner empower consumers to shop
    by price without ever leaving their vehicles. And they do.
        According to consumer polling just completed this month, NACS found
    that two-thirds of consumers shop by price and more than one in four
    will go out of their way--such as turn left across a busy
    intersection--to save one penny per gallon. Given the fact that E-85
    provides the consumers with approximately 25 percent fewer miles per
    gallon, a retailer must be able to sell it at a substantial discount
    compared to gasoline in order to satisfy the consumers' economic
    interest. NACS members who do offer E-85 report that when the
    alternative fuel is priced similar to gasoline they experience a
    significant drop in gallons sold. Therefore, retailers must assess the
    availability of E-85 in their market and the variable price
    relationship of that product to gasoline. Often, there is a favorable
    price differential because of government incentive programs, but
    sometimes there is not. This issue must be taken into consideration.
        My final point on alternative fuels is to applaud Congress for its
    interest in assisting retailers to overcome the hurdles presented by
    these new fuels, but to make sure that Congress understands the
    complexities of the issue. Section 3 of H.R. 547 could substantially
    improve the economic calculations for retailers, but installation
    decisions will be based upon a balancing of the various market factors
    involved.

    Diesel Sulfur

        With regards to Section 4, ``Sulfur Testing for Diesel Fuels,''
    NACS again supports the research program to develop an affordable and
    reliable testing method to ensure compliance with federal regulations.
        In December 2000, the Environmental Protection Agency (EPA)
    promulgated rules requiring a 97 percent reduction in the sulfur
    content of on-road diesel fuel. Phase-in of that program began in June
    2006 and, effective October 15, 2006, any retailer claiming to sell
    Ultra-Low Sulfur Diesel, or ULSD, must ensure that its sulfur level
    does not exceed 15 parts per million. The engine manufacturers report
    that sulfur levels above that limit could damage emissions and engine
    technology of model year 2007 and later vehicles. If inspectors find
    that the USLD does in fact exceed this sulfur limitation, a retailer
    can be subject to fines up to $32,500 per violation, as established by
    the Clean Air Act.
        If found in violation of the sulfur limitation, the regulations
    provide the retailer with a three-part defense. First, a retailer must
    demonstrate through product transfer documents that all ULSD delivered
    to the facility was certified as compliant by the distributor. Second,
    a retailer must be able to demonstrate that contamination of the
    product was not caused by the retailer. And third, a retailer must have
    its own credible quality assurance program designed to ensure
    compliance with the sulfur limitation.
        This third defense is the primary challenge. The only way to
    completely ensure continued compliance is to test every batch.
    Unfortunately, testing must be conducted in a laboratory, is expensive
    and may take 48 hours to return results. Consequently, it is not
    practical for a retailer to hold a load of ULSD aside until
    confirmation of such test results. Therefore, retailers are left to
    design a quality assurance program based upon a specific process of
    inventory management supported by evidentiary testing results. While
    this is a defensible method to ensure quality, it is not perfect.
        NACS has been concerned for many years that there exists no
    reliable, affordable sulfur test for retailers to use on a more
    frequent basis to ensure regulatory compliance. H.R. 547 seeks to
    develop such a test. If successful, retailers and others throughout the
    distribution system will have the ability to conduct quality assurance
    tests more frequently, thereby increasing the confidence of their
    customers that the product sold as ULSD does indeed meet the sulfur
    limit of 15 parts per million.

    Conclusion

        Mr. Chairman, these conclude my remarks. On behalf of the member
    companies of NACS, I thank you for your efforts to address these
    specific retailer challenges and I appreciate the opportunity to share
    our views on this legislation. I would be happy to answer any questions
    my testimony may have raised.

                         Biography for John Eichberger

        John Eichberger is Vice President of Government Relations for the
    National Association of Convenience Stores (NACS) where he oversees the
    association's government relations activities, represents the
    convenience and petroleum retailing industry before Congress, the
    Administration and the media, and directs the Association's petroleum
    related activities. Eichberger joined the association in 2000 as
    Director of Motor Fuels and was named to his current position in 2006.
        NACS is an international trade association representing more than
    2,200 retail member companies and more than 1,700 companies that supply
    the convenience and petroleum retailing industry. NACS represents an
    industry operating more than 140,000 retail locations, of which more
    than 112,000 sell motor fuels. In 2005, the industry employed more than
    1.5 million workers and sold 80 percent of the Nation's gasoline and
    diesel fuel.
        Prior to joining NACS, Eichberger served as a legislative assistant
    for Representative Greg Ganske (R-IA) where he advised the Congressman
    on such issues as those relating to energy, environment and
    agricultural policy.

        Chairman Lampson. Thank you, Mr. Eichberger, and now, we
    will go to Mr. Kassel.

     STATEMENT OF MR. RICHARD KASSEL, SENIOR ATTORNEY AND DIRECTOR
      OF THE CLEAN FUELS AND VEHICLES PROJECT, NATURAL RESOURCES
                            DEFENSE COUNCIL

        Mr. Kassel. Thank you, Mr. Chairman, Ranking Member Inglis,
    and Members of the Committee. My name is Richard Kassel, and I
    am very pleased to testify today on H.R. 547.
        I am a Senior Attorney at the Natural Resources Defense
    Council, where I direct our Clean Fuels and Vehicles Project. I
    also advise EPA, as a member of its Clean Air Act Advisory
    Committee and its Mobile Sources Technical Review Subcommittee,
    so I am familiar with all the issues that are at hand here.
        NRDC is a national nonprofit environmental organization. We
    represent more than 1.2 million members and online activists
    nationwide. It is no secret our continuing reliance on gasoline
    and diesel for our transportation needs contributes to a wide
    range of important environmental and energy concerns, including
    air pollution, a wide range of public health impacts, oil
    dependency, and of course, global warming.
        H.R. 547 can help improve the transition to two groups of
    fuels that can help in all these, Ultra-Low Sulfur Diesel, or
    ULSD, and biofuels. I am going to first address the ULSD issue,
    and that is where I will spend most of my time. Diesel
    pollution is, of course, a serious problem that affects all
    Americans, but luckily, it is a solvable problem. And thanks to
    EPA's groundbreaking Highway Diesel Rule, and its upcoming
    Nonroad Diesel Rule, we actually have the regulatory structure
    in place now to solve the problem. And over time, as today's
    diesels are replaced by the new engines that meet these
    standards, more than 20,000 premature deaths will be eliminated
    every year nationwide, more than $140 billion in annual health
    costs as well.
        ULSD fuel is the key to achieving these pollution benefits.
    Just as--there is an analogy here. Just as it was critical to
    remove lead from gasoline to get cleaner cars two decades ago,
    it is now critical to remove sulfur from diesel fuel to get
    cleaner trucks, buses, farm equipment, industrial equipment,
    and so on today.
        Now, H.R. 547 is going to help improve the transition to
    ULSD. To paraphrase Mr. Gordon's written comments that were in
    the back of the room, it is a good idea, worthy of consensus.
        But it is important also to note that the transition is, as
    already has been mentioned, going smoothly. Just this month,
    EPA reported that 90 percent or more of the ULSD in the system
    is already Ultra-Low Sulfur Diesel. That is why engine makers
    and car manufacturers are jumping over each other to announce
    their new product offerings that will meet the new pollution
    standards. They wouldn't do this if they thought that fuel
    availability would be a serious issue that would last.
        Of course, that doesn't mean that there are no bumps
    whatsoever. Over the past few years, many stakeholders raised
    concerns about possible sulfur contamination in the pipeline
    system. EPA listened to those concerns, and in response, last
    year, for example, raised the sulfur tolerance limits to give
    industry a little bit more breathing room during this
    transition phase. It was a good step.
        Here is what appears to be happening now. Because of
    concerns about mis-fueling at the retail level, service
    stations are not putting the appropriate ULSD label on the
    pumps. And indeed, EPA reported last week that 76 percent of
    the pumps they surveyed did not have ULSD labels. But we know
    from the same report that 90 percent of the fuel is, in fact,
    ULSD. So, there is no availability issue, but there is clearly
    a labeling issue. It is a serious issue, and it needs to be
    addressed, and addressed swiftly.
        Now, that said, it makes sense to create a faster and
    simpler way of accurately monitoring and verifying the sulfur
    level of the fuel that is being sold. So, we support H.R. 547,
    but we also strongly urge the Subcommittee to make one change,
    to add EPA as part of the intergovernmental team that will
    implement this bill. After all, EPA is the agency that is
    charged with overseeing with the implementation of ULSD. It is
    the agency that is charged under the Clean Air Act with
    maintaining fuel quality. For lots of different reasons, EPA is
    involved in fuel quality at every step in the process, and they
    should be part of this team as well.
        Now, allow me, if I may, to just spend a moment on the
    alternative fuels provisions of this bill. Developing methods
    and technologies and procedures to increase the compatibility
    of bio-based alternative fuels with our nation's conventional
    fuel distribution system makes sense. It is another good idea
    worthy of consensus. Biofuels will never replace petroleum at
    the level we need to get energy independence and address global
    warming if the biofuels have to be trucked from the biorefinery
    to the retail outlet.
        There is also--so addressing that issue is important. But
    there is another issue here as well. Not all alternative fuels
    are alike. Some offer significant lifecycle emissions
    reductions in global warming pollutants, for example,
    cellulosic ethanol, while others can be worse than, or in the
    best case, roughly equivalent to gasoline, coal to liquids
    fuels would be the example there. So, it is critical that we
    pursue biofuels in a way that not only helps on energy
    security, but it also reduces global warming pollution. And
    likewise, it is critical that the future of biofuels strategies
    address other environmental issues that will come up, forestry
    issues, land use issues, and so on.
        Now, H.R. 547 can't solve all of the challenges, or address
    all of the challenges of our future bio-economy, but it can
    help. It can help in two ways: first, by adding EPA to the
    alternative fuel provisions as well; and second, by clearly
    defining the various fuels provisions in the bills. Right now,
    there are four different fuels provisions in it. And clearly
    defining those, so that the research is moving towards fuels
    that are sustainable, not just for energy security, but for
    global warming, for the forestry and land use issues, and
    others.
        Thank you very much for the opportunity to testify.
        [The prepared statement of Mr. Kassel follows:]

                      Prepared Statement of Richard Kassel

        My name is Richard Kassel, and I am pleased to testify on H.R. 547,
    the Advanced Fuels Infrastructure Research and Development Act.
        I am a Senior Attorney at the Natural Resources Defense Council
    (NRDC), where I direct NRDC's Clean Fuels and Vehicles Project. My
    expertise includes developing clean diesel and alternative fuel
    programs for large urban bus and truck fleets, as well as federal
    advocacy on EPA's various diesel and renewable fuels programs over the
    past fifteen years. In addition to my NRDC fuels and vehicles work, I
    currently advise the U.S. Environmental Protection Agency as a member
    of its Clean Air Act Advisory Committee and its Mobile Sources
    Technical Review Subcommittee, and have served on numerous technical
    advisory committees on fuels and vehicles issues in the United States
    and around the world.
        NRDC is a national, nonprofit organization of scientists, lawyers,
    and environmental specialists dedicated to protecting public health and
    the environment. Founded in 1970, NRDC has more than 1.2 million
    members and online advocates nationwide, served from offices in New
    York, Washington, Los Angeles, San Francisco, Chicago, and Beijing.
    Most relevant to today's hearing, NRDC's Clean Fuels and Vehicles
    Project has been in the forefront of research and advocacy to reduce
    diesel pollution, petroleum dependency, and global warming, and to
    increase the use of bio-based alternative fuels and clean diesel
    technologies, for many years.
        Thank you for the opportunity to testify.

    Introduction: The Importance of Transitioning to Ultra-Low Sulfur
                        Diesel Fuel and Biofuels

        America's continuing reliance on gasoline and diesel fuel for its
    transportation needs contributes to a range of critically important
    environmental and energy concerns. H.R. 547 will help transition the
    Nation to cleaner, more sustainable fuels in two key areas.
    H.R. 547 and the Ultra-Low Sulfur Diesel Fuel Transition
        H.R. 547 can help transition the Nation to the Ultra-Low Sulfur
    Diesel (``ULSD'') fuel that is critical to reducing diesel pollution
    nationwide.
        More than 150 million people live in areas that fail to meet EPA's
    health standards for ozone and/or particulate matter, in part due to
    emissions from today's dirty diesel vehicles.\1\ In cities and towns
    throughout the Nation, dirty trucks, buses, construction equipment and
    other diesel engines contribute a disproportionately large share of the
    particulate matter (PM) that triggers asthma attacks, bronchitis, and
    roughly 25,000 premature deaths every year. In addition, more than 35
    percent of the nitrogen oxides (NOX) emissions that are key ozone
    precursors come from diesel engines.\2\
    ---------------------------------------------------------------------------
        \1\ American Lung Association, State of the Air: 2006.
        \2\ U.S. Dept. of Energy, Transportation Energy Data Book, Volume
    25, Tables 12.4, 12.5 (2006).
    ---------------------------------------------------------------------------
        Thanks to EPA's landmark Highway Diesel Rule,\3\ more than 90
    percent of the health impacts from today's dirty diesel trucks and
    buses will be eliminated over the next two decades, as today's engines
    are replaced by new engines that meet the Rule's stringent emission
    standards for PM and NOX.
    ---------------------------------------------------------------------------
        \3\ 66 Federal Register 5001 et seq. (January 18, 2001).
    ---------------------------------------------------------------------------
        The health benefits of implementing EPA's diesel programs
    successfully will be enormous. When all of today's engines have been
    replaced by new engines that meet the standards set in the Highway
    Diesel Rule, which EPA estimates will occur in 2030, more than 8,300
    premature deaths, 1.5 million lost work days, and $66 billion in net
    health and other costs will be eliminated every year.\4\ Combined with
    EPA's Nonroad Diesel Rule, the combination of ULSD and new engines that
    meet the standards of these two rules will eliminate more than 20,000
    premature deaths, tens of thousands of child asthma emergencies and
    other respiratory illnesses, and more than $140 billion in health costs
    every year in 2030.\5\
    ---------------------------------------------------------------------------
        \4\ Id. at 5005.
        \5\ See 69 Federal Register 38957 et seq. (June 29, 2004) for
    Nonroad Diesel Rule benefits.
    ---------------------------------------------------------------------------
        ULSD fuel is the key to achieving these pollution reductions and
    public health benefits. Today's modern diesel engines are equipped with
    extremely sophisticated catalysts and filters that can reduce harmful
    PM and NOX by more than 90 percent. However, all of these emission
    control technologies are extremely sensitive to the sulfur levels of
    the fuel. Indeed, higher-than-expected sulfur levels can impair--and
    even disable--these technologies. Just as it was critical to eliminate
    leaded gasoline to enable the use of effective catalytic converters two
    decades ago, it is now critical to use ULSD fuel to enable the
    effective use of today's diesel emission control technologies.
        It is important to note that the transition to ULSD is, in fact,
    running smoothly. Since mid-October, at least 80 percent of the
    Nation's highway diesel fuel has been required to be ULSD, pursuant to
    the Highway Diesel Rule. In fact, EPA has reported that more than 90
    percent of the highway diesel fuel is already ULSD.\6\ Consequently,
    the heavy-duty engine industry has moved forward with its 2007
    offerings, all of which require ULSD.
    ---------------------------------------------------------------------------
        \6\ Inside EPA, ``EPA Speeds Enforcement of Diesel Fuel Labels Due
    to Industry Concern,'' January 26, 2007.
    ---------------------------------------------------------------------------
        NRDC shares EPA and industry concern about the lack of ULSD labels
    at many service stations around the Nation.\7\ However, there is a big
    difference between a labeling issue and an availability issue. The
    evidence is now clear that ULSD is widely available, in excess of the
    minimum required by the Highway Diesel Rule.
    ---------------------------------------------------------------------------
        \7\ The January 26, 2007 Inside EPA article reported that EPA has
    found that 76 percent of the diesel fuel labels have not been updated
    yet.
    ---------------------------------------------------------------------------
        With ULSD now in the marketplace, many car makers have announced
    plans, with great fanfare, to introduce clean, fuel-efficient diesel
    cars, light trucks, and sport-utility vehicles to the Nation's
    showrooms next year. Indeed, these diesel vehicles were the centerpiece
    of last week's Washington Auto Show and similar shows around the Nation
    over the past few months. All of these diesel vehicles will require
    ULSD to operate cleanly and effectively. Car makers would not be so
    excited about their potential to sell new diesel passenger vehicle
    models next year if they had any concerns about the retail availability
    of the ULSD fuel that these vehicles will require.
        Moreover, EPA has developed effective mechanisms to ensure that
    diesel fuel that leaves the refinery gates as ULSD arrives at the
    terminal and the retail seller as ULSD. These mechanisms have evolved
    since 2001, in large part due to EPA's ongoing dialogue with
    stakeholders throughout the refining, distribution, and retailing
    industries. For example, last year, EPA provided a temporary increase
    in the sulfur testing tolerance, as well as an amended ULSD tracking
    system in response to industry concerns.\8\ While we understand that
    the same retailers would prefer a simpler system of verification and
    monitoring and we support R&D programs that are designed to create
    methods and technologies for such a system, we also think that it is
    important to note that the current ULSD transition has been a smooth
    one so far.
    ---------------------------------------------------------------------------
        \8\ See EPA420-F-06-033, April 2006. ``Direct Final Rule and Notice
    of Proposed Rule-making for Amendments to the Nonroad and Highway
    Diesel Fuel Regulations.'' Also Available at: www.epa.gov//otaq/regs/
    fuels/diesel/420f06033.htm
    ---------------------------------------------------------------------------
    H.R. 547 and the Biofuels Transition
        H.R. 547 can help transition the Nation to biofuels that will help
    end our dependence on oil, and that can reduce global warming pollution
    as well.
        It is well-known that the Nation remains dependent on oil for its
    transportation needs, most of which comes from some of the world's most
    unstable and/or unfriendly nations. And, it is equally well-known that
    this oil dependence contributes greatly to the ever-growing greenhouse
    gas emissions that contribute to global warming.
        A comprehensive strategy that combines increased vehicle efficiency
    with increased use of biofuels can reduce virtually all of our
    projected gasoline demand in 2050, as illustrated in the graph below.

        However, not all ``alternative fuels'' are alike. Some offer
    significant life cycle emissions reductions in global warming
    pollutants (e.g., cellulosic ethanol), while others can be worse than
    (or, in the best case, roughly equivalent to) gasoline (e.g., coal-to-
    liquid fuels), as the chart below shows.\9\ Thus, it is critical that
    Congress and the President pursue oil savings in a way that also
    produces global warming pollution savings.
    ---------------------------------------------------------------------------
        \9\ NRDC research based on published materials from multiple
    sources.

        In sum, it is critically important that EPA's Highway Diesel Rule
    is implemented successfully, and it is critically important that
    Congress and the President take action to ensure that the Nation ends
    its dependence on oil in a way that simultaneously reduces global
    warming pollution. H.R. 547 can play a meaningful role in succeeding in
    both efforts.

    NRDC Supports H.R. 547 with Modifications
        With minor modifications, H.R. 547 can play a meaningful role
    towards ensuring the effective transition to ULSD, and towards ensuring
    that increased biofuels are effectively incorporated into the Nation's
    fuel infrastructure and transportation systems. However, the
    modifications that NRDC proposes are critically important to the
    ultimate success of the bill, and to our support.
        First, it is critical to add EPA as part of the team that will
    implement H.R. 547. Currently, the bill directs the Secretary of
    Energy, in consultation with the National Institute of Standards and
    Technology only, to carry out an effective program of research,
    development, demonstration and commercial application of materials to
    be added to alternative bio-based fuels and ULSD, and to seek portable,
    low-cost and accurate ULSD testing methods and technologies, to make
    each of these fuels more compatible with our existing fuel storage and
    delivery infrastructure. However, EPA is the agency charged with
    implementing the Highway Diesel Rule and the Renewable Fuel Standard.
    EPA is the agency with responsibilities under the Clean Air Act, as
    amended, and the Energy Policy Act of 2005 to create effective programs
    to monitor fuel quality throughout the system. Indeed, for the past six
    years, EPA has worked closely with industry and other stakeholders to
    ensure that the ULSD that comes out of the Nation's refineries arrives
    at the pump as ULSD. And, as noted above, EPA has managed the
    transition to ULSD successfully. While further R&D efforts may provide
    added benefits to the ongoing ULSD transition, NRDC believes strongly
    that those efforts will be most successful if EPA is a designated
    member of the inter-governmental team that oversees this work and
    implements H.R. 547.
        Second, many terms in H.R. 547 have to be defined clearly. While
    ULSD is an accepted term already, phrases like ``advanced fuels,''
    ``bio-based fuels,'' ``alternative bio-based fuels,'' and ``alternative
    fuels'' are used seemingly interchangeably throughout the bill.\10\
    Given our concerns about energy security paths that would not reduce
    global warming pollution, about the potential increased use of coal-to-
    liquid fuels, and about the wide range of current and potential
    alternatives to conventional gasoline and diesel fuel under
    consideration, clarifying these definitions is critical. As noted
    above, NRDC does not support energy security policies that do not
    simultaneously address global warming.
    ---------------------------------------------------------------------------
        \10\ It is worth noting that ``Low Sulfur Diesel'' is not defined
    in the bill either. Presumably, this term refers to diesel fuel
    containing no more than 500 parts-per-million sulfur. In the final
    bill, NRDC encourages the Subcommittee to clearly define both Low
    Sulfur Diesel and ULSD.
    ---------------------------------------------------------------------------
        Last, NRDC believes that the bill draft provided to us earlier this
    month would benefit from some minor text editing. We have provided
    these edits to committee staff, and include those that are not
    reflected in our prior two paragraphs here:

              Page 2, line 7: delete ``newer.''

              Page 2, line 10: insert ``potentially'' before
            ``placing.''

              Page 2, line 21-25: after ``sale'' in line 25, insert
            ``if not transported properly'' and replace ``can'' with
            ``may'' in line 21.

              Page 3, line 14: replace ``and'' with ``or.''

    Conclusion:

        Certainly, the Nation would benefit from programs that help ensure
    the smooth transition to ULSD and an increased use of biofuels. H.R.
    547 appears to be a meaningful step towards both of these important
    steps. However, NRDC strongly urges the Subcommittee to make the
    modifications suggested herein before moving this bill forward.
        Thank you for the opportunity to testify today.

                          Biography for Richard Kassel

        RICH KASSEL is a senior attorney at the Natural Resources Defense
    Council and directs NRDC's Clean Vehicles and Fuels Project. He is an
    internationally-recognized expert on diesel and other fuel and vehicle
    pollution issues.
        Highlights of Mr. Kassel's projects include:

              Working with the U.S. Environmental Protection Agency
            to help develop and implement EPA's Highway Diesel and Nonroad
            Diesel Rules. When all of today's engines have been replaced by
            new engines that meet EPA's new standards, more than 20,000
            premature deaths and $150 billion in health costs will be
            eliminated annually.

              Working with the Pataki Administration and the
            Metropolitan Transportation Authority to create a ``Clean Fuel
            Bus Program'' for the New York City Transit bus fleet, the
            largest fleet in North America. As a result of this program,
            particulate matter (PM) emissions from the MTA buses are 97
            percent lower than they were in 1995, and the program is a
            model for fleets worldwide.

              Working with U.S. EPA, the United Nations Environment
            Program, and a range of industry and other stakeholders to
            create the Partnership for Clean Fuels and Vehicles in 2002.
            The Partnership works in developing countries around the world
            to eliminate leaded gasoline where it is still used, and to
            help countries develop plans to reduce diesel and other vehicle
            pollution.

              Working with local and global vehicle experts to
            create clean vehicle pollution plans for Mexico and Brazil that
            combine clean fuel standards, more stringent emission
            regulations and accelerated ``retirement and retrofit''
            programs to reduce air pollution in Mexico City and Sao Paolo.

        Mr. Kassel is a member of many technical advisory committees. These
    include EPA's Clean Air Act Advisory Committee, its Mobile Sources
    Technical Review Subcommittee, its Clean Diesel and Retrofit Work Group
    and its former Clean Diesel Implementation Review Panel; the Health
    Effects Institute's Special Committee on Emerging Technologies and the
    Steering Committee for HEI's Advanced Collaborative Emissions Study;
    and others.

                                    *  *  *

        NRDC is a national, non-profit organization of scientists, lawyers
    and environmental specialists dedicated to protecting public health and
    the environment. Founded in 1970, NRDC has more than 1.2 million
    members and online advocates, served from offices in New York,
    Washington, Los Angeles, San Francisco, Chicago, and Beijing. More
    information is available at NRDC's web site, http://www.nrdc.org/

        Chairman Lampson. Thank you for being here. Mr. Dinneen.

      STATEMENT OF MR. BOB DINNEEN, PRESIDENT AND CEO, RENEWABLE
                           FUELS ASSOCIATION

        Mr. Dinneen. Thank you very much, Mr. Chairman. Thank you
    for the invitation, Mr. Chairman and Members of the Committee.
        On behalf of the members of the Renewable Fuels
    Association, which is the national trade association
    representing the U.S. ethanol industry, I want to express my
    strong support for H.R. 547, the Advanced Fuels Infrastructure
    Research and Development Act. This bill and this committee's
    continued commitment to expanding the technical foundation for
    a more robust renewable energy industry in this country will be
    critical to breaking this nation's addiction to oil.
        Already, the U.S. ethanol industry is making great strides
    and dramatically reducing our dependence on imported petroleum.
    There are today 111 biorefineries in operation across the
    country that are processing more than 1.8 billion bushels of
    grain into approximately 5.4 billion gallons of high quality,
    high octane renewable ethanol. Ethanol has indeed become a
    ubiquitous component of the U.S. motor fuel market. Today, it
    is blended in 46 percent of our nation's fuel. It is blended
    literally from coast to coast and border to border. Every
    single gallon of gasoline sold in California is blended with
    ethanol. Every single gallon of gasoline sold in the great city
    of New York is blended with ethanol. It is no longer just a
    niche Midwest market. It is a national fuel, and it is
    continuing to grow.
        Indeed, ethanol is providing perhaps the most significant
    tool that we have today to reduce our dependence on imported
    oil. Just since the year 2000, 30 percent of the increase in
    gasoline demand in this country has been met by ethanol. To
    take a shorter timeframe, look at just last year, when gasoline
    demand increased about a billion gallons, ethanol production
    and use in this country increased well more than a billion
    gallons. We satisfied about 110, 115 percent of our increase in
    gasoline consumption last year. That is gasoline that we don't
    have to import. That is helping to break that addiction to oil
    already.
        The U.S. ethanol industry already today is contributing
    significantly to this nation's energy and economic security.
    The five billion gallons of ethanol that were produced last
    year added $41 billion to gross output, created 160,000 jobs,
    contributed $2.7 billion in increased tax revenue to the
    Federal Government, and reduced oil imports by 170 million
    barrels, a value of some $11 billion. But the ethanol industry
    is continuing to grow. There are today 78 ethanol biorefineries
    under construction. That is steel on the ground, people on the
    site, the facilities going up, including, Mr. Chairman, five in
    the great state of Texas. Indeed, there are as many plants
    under construction in Texas as there are in Illinois. And
    plants are going up outside the traditional Midwest. There are
    plants under construction in Arizona, in New Mexico, in Idaho.
    There are plants in the Northeast, the Southeast. We are
    becoming a national production center as well, which is
    important to understand, as we look to some of these
    infrastructure issues.
        Yes, today, ethanol is not shipped by pipeline. That is
    not, then, a hindrance at all to ethanol marketing, because we
    have created a virtual pipeline, not just by trucks. Most
    ethanol today is shipped by rail and by barge, and we are able
    to get ethanol anywhere in the country where it needs to be,
    cheaper than if we were to put our product on a barge, send it
    down the river to Houston, where we would load it up on the
    pipeline, where then it would go. We can get there faster and
    quicker. And when you think about homeland security issues, the
    way that ethanol is distributed is probably a lot safer, and as
    the ethanol industry continues to grow in the way that it is
    all across the country, it will provide a great number of
    opportunities as well.
        The point, though, is that the ethanol industry, which is
    today largely a blend component with gasoline, as we grow, we
    are going to saturate that blend market. We have a 140 billion
    gallon gasoline market in this country. We will saturate 10
    percent ethanol blends in that market probably some time in
    2008 or 2009. But we have got to grow beyond that. We are going
    to grow with new feedstocks as well, and once you have
    cellulosic ethanol production, and there is not an ethanol
    company that I represent that doesn't have a very aggressive
    cellulose to ethanol research program, the opportunities for
    ethanol are going to expand exponentially. We will need markets
    beyond just the additive market.
        E-85 represents a tremendous opportunity, but that E-85
    market is not yet mature. It is not yet there. There are some
    six million E-85 vehicles on the road today, and that is
    terrific, but there needs to be a lot more to encourage Mr.
    Eichberger's members to put in the infrastructure necessary to
    create the refueling infrastructure. The commitments by Ford
    and General Motors to produce as much as 50 percent of their
    vehicles as flexible fuel vehicles that could utilize E-85 by
    2012 is terrific. That would get you about four million
    additional E-85 vehicles beginning in that year, perhaps as
    many as 35 total--35 million total on the road by 2017. It is a
    great start, but we need to do more than that. With a greater
    demand for E-85, the infrastructure will follow.
        Bills like this, H.R. 547, that will allow that
    infrastructure to grow, and to understand the issues associated
    with that growth, will be a critical important step in finally
    breaking that addiction to oil, and again, I appreciate the
    opportunity to testify.
        [The prepared statement of Mr. Dinneen follows:]

                       Prepared Statement of Bob Dinneen

        Good afternoon, Mr. Chairman and Members of the Subcommittee. My
    name is Bob Dinneen and I am president of the Renewable Fuels
    Association, the national trade association representing the U.S.
    ethanol industry.
        This is an important and timely hearing, and I am pleased to be
    here to discuss the growth in the domestic ethanol industry, and the
    increasingly important role of continued research and development of
    infrastructure for our nation's biofuels industry. The rapid growth of
    our domestic ethanol industry since the passage of the Energy Policy
    Act of 2005 (EPAct) had led to the growth of ethanol's virtual
    pipeline. The continued expansion of the industry will require greater
    development of infrastructure in many areas around the country.
    Research into the feasibility of transporting ethanol by pipeline from
    the Midwest to the East and West coasts, such as the provisions
    outlined in H.R. 547, will also be important.
        The ethanol industry today is on the cutting edge of technology,
    pursuing new processes, new energy sources and new feedstocks that will
    make tomorrow's ethanol industry unrecognizable from today's. Ethanol
    companies are already utilizing cold starch fermentation, corn
    fractionation, and corn oil extraction. Companies are pursuing more
    sustainable energy sources, including biomass gasification and methane
    digesters. And there is not an ethanol company represented by the RFA
    that does not have a cellulose-to-ethanol research program.
        The Science and Technology Committee can have an important role in
    accelerating these efforts by promoting and targeting research and
    development funds appropriately. The U.S. ethanol industry has
    identified several areas where new research can advance the renewable
    energy agenda further:

              Increase utilization of co-products and development
            of new co-products;

              Development of harvesting equipment, and tools to
            streamline the transportation and storage of cellulose
            feedstocks;

              Improve energy efficiency and reduce energy
            consumption; and,

              Improve cellulose feedstock conversion technologies.

        Support through research to build upon the industry's advancements
    in technologies will be critical to the future growth of the biofuels
    industry. Programs authorized by EPAct, such as the cellulose ethanol
    loan guarantee programs (Title XV and Title XVII) and biorefinery grant
    program (Section 932(d) ), to accelerate the commercialization of
    cellulose ethanol must be fully funded.

    Background

        Today's ethanol industry consists of 111 biorefineries located in
    19 different states with the capacity to process more than 1.8 billion
    bushels of grain into 5.4 billion gallons of high octane, clean burning
    motor fuel, and more than 12 million metric tons of livestock and
    poultry feed. It is a dynamic and growing industry that is revitalizing
    rural America, reducing emissions in our nation's cities, and lowering
    our dependence on imported petroleum.
        Ethanol has become an essential component of the U.S. motor fuel
    market. Today, ethanol is blended in more than 46 percent of the
    Nation's fuel, and is sold virtually from coast to coast and border to
    border. The almost five billion gallons of ethanol produced and sold in
    the U.S. last year contributed significantly to the Nation's economic,
    environmental and energy security. According to an analysis completed
    for the RFA,\1\ the approximately five billion gallons of ethanol
    produced in 2006 resulted in the following impacts:
    ---------------------------------------------------------------------------
        \1\ Contribution of the Ethanol Industry to the Economy of the
    United States, Dr. John Urbanchuk, Director, LECG, LLC, December, 2006.

    ---------------------------------------------------------------------------
              Added $41.1 billion to gross output;

              Created 160,231 jobs in all sectors of the economy;

              Increased economic activity and new jobs from ethanol
            increased household income by $6.7 billion, money that flows
            directly into consumers' pockets;

              Contributed $2.7 billion of tax revenue for the
            Federal Government and $2.3 billion for State and local
            governments; and,

              Reduced oil imports by 170 million barrels of oil,
            valued at $11.2 billion.

        In addition to providing a growing and reliable domestic market for
    American farmers, the ethanol industry also provides the opportunity
    for farmers to enjoy some of the value added to their commodity by
    further processing. Farmer-owned ethanol plants account for half of the
    U.S. fuel ethanol plants and almost 40 percent of industry capacity.
        This dynamic and growing industry is also empowering more of
    America to have a vital role in our nation's infrastructure. If a
    farmer in Des Moines doesn't want to invest in the local co-op, he can
    choose to invest in a publicly traded ethanol company through the stock
    market. As can a school teacher in Boston, or a receptionist in
    Seattle. Americans coast-to-coast have the opportunity to invest in our
    domestic energy industry, and not just in ethanol, but biodiesel and
    bio-products. U.S. agriculture is evolving in very important ways, and
    rural America is primed to take advantage of these opportunities.
        There are currently 78 biorefineries under construction. With seven
    existing biorefineries expanding, the industry expects more than six
    billion gallons of new production capacity to be in operation by the
    end of 2009. The following is our best estimate of when this new
    production will come online.

    Infrastructure

        The existing motor fuel pipeline system was built by the Federal
    Government to accommodate an oil and gas industry producing in the Gulf
    Coast. To utilize the existing pipeline system, ethanol producers would
    have to ship ethanol first to the Gulf Coast to load up on a pipeline.
    It would be much more cost effective to instead ship the ethanol
    directly to the markets that demand the fuel.
        Thus, over the past several years, the ethanol industry has worked
    to expand a ``Virtual Pipeline'' through aggressive use of the rail
    system, barge and truck traffic. As a result, we can move product
    quickly to those areas where it is needed. Many ethanol plants have the
    capability to load unit trains of ethanol for shipment to ethanol
    terminals in key markets. Unit trains are quickly becoming the norm,
    not the exception, which was not the case just a few years ago.
    Railroad companies are working with our industry to develop
    infrastructure to meet future demand for ethanol. The biofuels industry
    is working closely with terminal operators and refiners to identify
    ethanol storage facilities and install blending equipment. We will
    continue to grow the necessary infrastructure to make sure that in any
    market we need to ship ethanol there is rail access at gasoline
    terminals, and that those terminals are able to take unit trains.
        Incidentally, the existing oil and gas pipeline system itself is
    filled to near capacity today. The fact that ethanol does not have to
    be shipped on those pipelines, because the ethanol industry can get our
    product to the markets where it needs to go with the ``Virtual
    Pipeline,'' means that consumers are able to get 10 percent more volume
    shipped to their area on existing pipelines that is helping to hold
    down the cost of gasoline.
        That said, many stakeholders in the biofuels industry are beginning
    to look at the practical issues involved with shipping ethanol via a
    dedicated pipeline. Shipping ethanol in pipelines is done today in
    Brazil, and it has been done at times in the U.S. as well, in dedicated
    pipelines. If the marketplace demands it, as it does in Brazil, and
    there is enough ethanol demand to warrant the investment in the
    infrastructure for dedicated pipelines, such a system will develop in
    the U.S.
        The Renewable Fuels Association has also supported the concept of
    regional ``corridors'' that concentrate the E-85 markets first where
    the infrastructure already exists.
        Ethanol today is largely a blend component with gasoline, adding
    octane, displacing toxics and helping refiners meet Clean Air Act
    specifications. But the time when ethanol will saturate the blend
    market is on the horizon, and the industry is looking forward to new
    market opportunities. As rapidly as ethanol production is expanding, it
    is possible the industry will saturate the existing blend market before
    a meaningful E-85 market develops. In such a case, it would be most
    beneficial to allow refiners to blend ethanol in greater volumes, e.g.,
    15 or 20 percent. The ethanol industry today is engaged in testing on
    higher blend levels of ethanol, beyond E-10. There is evidence to
    suggest that today's vehicle fleet could use higher blends. An initial
    round of testing is underway, and more test programs will be needed.
    Moving to higher blend levels with our current vehicle fleet would have
    a significant positive impact on the U.S. ethanol market, without
    needing to install new fuel pumps and wait for a vehicle fleet to turn
    over in the next few decades. It might also allow for a smoother
    transition to E-85 by growing the infrastructure more steadily.

    Research & Development, Deployment and Commercialization of New
                        Technologies

        The Department of Energy's Advanced Energy Initiative has set a
    goal of making cellulosic ethanol costs competitive by 2012. Funding
    for additional research in cutting-edge methods of producing ethanol
    from corn stover, wheat straw, rice straw, wood chips and switch
    grass--to name just a few--will play a critical role in the
    Initiative's success or failure.
        The most effective way to speed the commercialization of cellulose
    ethanol is to fully fund the programs enacted in the Energy Policy Act
    of 2005 (EPAct) for research and development for cellulosic ethanol.
    The technology exists to process ethanol from cellulose feedstocks;
    however, commercialization of cellulosic ethanol remains a question of
    economics. The capital investment necessary to build cellulosic ethanol
    facilities remain about five times that of grain-based facilities.
    Those costs will, of course, come down once the first handful of
    cellulosic facilities are built, the bugs in those ``first mover''
    facilities are worked out, and the technology continues to advance. The
    enzymes involved in the cellulosic ethanol process also remain a
    significant cost, as well. While there has been a tremendous amount of
    progress over the past few years to bring the cost of those enzymes
    down, it is still a significant cost relative to processing grain-based
    ethanol.
        Increasing funding for such EPAct programs as the federal loan
    guarantee program for cellulose-based biorefineries, and the
    biorefinery grant program would do more to advance the
    commercialization of cellulose ethanol in a shorter period of time than
    to enact any of the cellulose-related legislation proposed since EPAct
    as enacted. Funding for EPAct programs like the bioenergy program for
    biofuels and bioproducts would encourage industry and university
    partnerships to develop price competitive biochemical and thermo
    chemical conversion technologies from lignocellulosic feedstock and
    enzyme-based processing systems.
        As Flexible Fuel Vehicle (FFV) production is ramped up, it is
    important to encourage the use of the most efficient technologies. Some
    FFVs today experience a reduction in mileage when ethanol is used
    because of the differences in BTU content compared to gasoline. But the
    debt can be easily addressed through continued research and
    development. For example, General Motors has introduced a turbo-charged
    SAAB that experiences no reduction in fuel efficiency when E-85 is
    used. There is also technology being development that utilizes
    ``variable compression ratio engines'' that would adjust the
    compression ratio depending on the fuel used. Thus, if the car's
    computer system recognized E-85 was being used, it would adjust the
    compression ratio to take full advantage of ethanol's properties. This
    technology could dramatically improve E-85 economics by eliminating or
    substantially reducing the mileage penalty associated with existing FFV
    technology.

    Conclusion

        The 109th Congress enacted several polices that clearly put our
    nation on a new path toward greater energy diversity and national
    security. Additional and more focused research and development
    programs, and increased funding levels for EPAct 2005 programs, will be
    critical to the rapid deployment and commercialization of new
    technologies for biofuels. Infrastructure will need to continue to
    expand and advance as the biofuels market does. The continued
    commitment of this committee, the introduction of legislation such as
    H.R. 547, and the 110th Congress will all contribute to ensuring
    America's future energy security.
        Thank you.

                           Biography for Bob Dinneen

        Bob Dinneen is the President and CEO of the Renewable Fuels
    Association (RFA), the national trade association for the U.S. ethanol
    industry. As such, he is the ethanol industry's lead lobbyist before
    the Congress and Administration.
        Mr. Dinneen joined the RFA in 1988 as Legislative Director, and
    became President in July of 2001. In this capacity he has led the
    Association's effort to build coalitions with the industry's petroleum
    customers as well as transportation and environmental groups in order
    to provide for marketplace growth for the industry. These coalitions
    have resulted in an historic Renewable Fuels Standard (RFS) fuels
    agreement and passage of the Volumetric Ethanol Excise Tax Credit
    (VEETC).
        Mr. Dinneen has presented testimony before the Congress and federal
    agencies on numerous occasions, and represented the ethanol industry's
    interests at State, national and international forums.
        Prior to joining the RFA, Mr. Dinneen worked on Capitol Hill for
    various Members of Congress and Congressional Committees. Mr. Dinneen
    graduated from the Catholic University of America with a Bachelor's
    Degree in Political Science.

                                   Discussion

        Chairman Lampson. Thank you very much, all of you, for
    coming. It is a tremendously interesting subject, and one that
    hopefully we will be able to move quickly enough to make a
    difference for all of us.

                          Ethanol Transportation Costs

        Let me start with the questioning at this time, and I would
    like to first ask Mr. Dinneen, you mentioned that because
    ethanol can't be shipped by standard pipeline like conventional
    fuels, the industry is developing a virtual pipeline that
    consists of rail, barge, and truck shipping, which is
    considerably more expensive.
        What proportion of the market price for ethanol is
    attributable to transportation and distribution, and how does
    this compare to traditional fuels?
        Mr. Dinneen. Well, Mr. Chairman, I am not sure I would
    agree with a couple premises to the question.
        First of all, it is true ethanol is not shipped by pipeline
    today, but it is not true that it cannot be shipped by
    pipeline. Ethanol is shipped all over Brazil via pipeline, in
    multiple product pipelines. It has been shipped in this country
    as well in dedicated pipelines, and will be again, if the
    marketplace demands it. In Brazil, 40 percent of their motor
    fuel is ethanol, so there is a tremendous need for pipeline
    shipments. In this country, while five billion gallons of
    ethanol produced last year is a tremendous amount, it is still
    less than three percent of the total motor fuels in this
    country, and so, there really isn't a marketplace pull for, or
    the necessity for pipeline shipments.
        But we have created, as you say, the virtual pipeline. The
    cost is maybe $0.14 to get ethanol from the Midwest to either
    coast, but the cost of shipping that same product via pipeline
    would be darn close to that anyway. So, there really isn't an
    increased cost associated with that, and the marketplace would
    figure those issues out. The real issue is, is the market going
    to develop such that a pipeline is necessary. There have been
    bills that have been introduced to study that issue, and
    determine whether or not it would make sense, but quite
    frankly, if you have got significant ethanol production in all
    regions of the country, which it looks like you are going to
    have, because there are plants in the Northeast, there are
    plants in the Northwest, then you may have the product close
    enough to the markets, where significant pipelines aren't
    really going to be practical.
        But I think there are a number of issues you need to look
    at.
        Chairman Lampson. Okay. We are trying to--at this point,
    you can't really say, or project a specific savings by doing
    the research necessary to get to a point where we can use those
    pipelines. Correct?
        Mr. Dinneen. Correct.
        Chairman Lampson. Okay. You also mentioned unit trains in
    your testimony. Does ethanol require specialized or dedicated
    train cars, trucks and barges dedicated only to that?
        Mr. Dinneen. No. Any chemical tank can accommodate fuel
    ethanol.
        Chairman Lampson. Okay. What is the industry-wide cost
    estimate for producing or procuring this type of virtual
    pipeline, and why is this more cost-effective than a
    conventional pipeline system?
        Mr. Dinneen. As I said, I mean the marketplace, I think, is
    going to develop, as we see, where the production is, and maybe
    an actual pipeline will be useful. But if you have got plants
    located all across the country, where is the pipeline going to
    be, and how do you get it onto the pipeline? It is not the
    situation you have got with the oil industry, where you have
    concentration in the Gulf Coast, and you know, ready access to
    the pipeline system.
        It may be that over time, when you are talking about 30,
    40, 50, 60 billion gallons of ethanol, that a pipeline will,
    indeed, make sense, but I am not sure that that is clear at
    this point.
        Chairman Lampson. Thank you.

                      Current Subsidies and Tax Incentives

        Mr. Eichberger, there are currently some 150,000 fuel
    retailers in the U.S., with approximately 1,000, or less than
    one percent selling E-85. How effective are current subsidies
    and tax incentives in helping retailers transition to
    alternative fuels, and what are the shortcomings?
        Mr. Eichberger. The current subsidies are helpful. A lot of
    our retailers who have installed the E-85 have done so with the
    help of the tax credits that are in the system right now.
    Anything that is going to help offset the cost of installation
    is going to be helpful. However, as I mentioned in my
    testimony, there are so many other factors involved, and Mr.
    Dinneen mentioned what is the level of demand? How many
    vehicles can run on these--on this fuel, and how many drivers
    of those vehicles know they can?
        There are other bills that have been considered in
    Congress, to take CAFE credits, and make those into some sort
    of grant program through the Clean Cities Initiative. We have
    been supportive of those as well. This legislation, I think, if
    successful, will make all those incentive programs, perhaps,
    obsolete. If we can get to a point where E-85 and B-100 and
    other alternative fuels can be put directly into the existing
    storage tank infrastructure without the costly renovations, you
    are going to remove that barrier to entry. And then, we are
    going to be dealing with the market-based forces, demand,
    supply, and cost competitiveness.

                        Biodiesel Fuel Quality Concerns

        Chairman Lampson. One of the things that I have been
    looking at and trying to consider within the language of this
    particular bill has to do with no sulfur biodiesel. Is that
    adequately addressed within the language of this bill, because
    most of it speaks to Ultra-Low or Low Sulfur Diesel, which is
    petrodiesel?
        Anybody there.
        Mr. Eichberger. I don't have an answer for that.
        Mr. Kassel. The biodiesel that is being sold, whether it is
    in a low blend, a B-2 or B-5, or a higher blend, B-20, still,
    in each case, it is being sold in a setting where the bulk of
    the fuel is convention diesel. So, it is the sulfur level of
    that piece of it, that 80 to 98 percent, that is really
    critical, if the goal is to make sure the package of the
    blended fuel is low enough in sulfur to be compatible with the
    new emission controls.
        I think the bigger issue that has come up on this issue of
    biodiesel and sulfur levels, and the new technologies and the
    new standards, is the extent to which the blended biodiesel
    itself is creating other issues that may, I am not going to say
    impair, but perhaps create challenges, or--for some of the new
    technologies. Some of the engine companies have been saying
    that they are concerned about warranty issues with biodiesel
    blends that are over, say, a B-20. Now, if you had a full 100
    percent biodiesel fuel, the sulfur level would have to be low
    enough that there would be other fuel quality issues that would
    come about. It is not particularly a big issue. Nobody is
    running B-100 in any significant way, and I don't think anybody
    is projecting it, although I have a feeling Mr. Dinneen will
    correct me if I am wrong about that.
        But I think the big issue here is that I don't think
    sulfur, per se, is an issue going forward for biofuel, for
    biodiesel.
        Chairman Lampson. Okay.
        Mr. Dinneen. The Renewable Fuels Association represents
    ethanol producers, so biodiesel is not in my wheelhouse.
    However, I am unaware that there is any sulfur content
    whatsoever in biodiesel, and in fact, one of the reasons
    biodiesel is being used in blends today is to help refiners
    meet the Low Sulfur Diesel requirements, so I think if you move
    forward, and you create additional opportunities for biodiesel,
    it will have a benefit in terms of sulfur.
        Chairman Lampson. Hence my question. And I yield, now, to
    Mr. Inglis.

                        Ethanol Infrastructure Concerns

        Mr. Inglis. Thank you, Mr. Chairman.
        Tell me, what is it that makes ethanol tough on equipment?
        Mr. Dinneen. Congressman, I don't think the ethanol used
    today, in 10 percent blends, there are no technical issues,
    fully warranted by all auto manufacturers. It is--the
    infrastructure is there. There are some questions about if you
    move to higher level blends, E-85, whether or not there are
    some corrosive issues there, because of the alcohol. However, I
    should note that there are 1,000 E-85 pumps across the country,
    many of which have been there for, have been out there for
    close to ten years or more now, and there has never once been
    an incident of failure. And while Underwriters Laboratories has
    recently indicated that it wants to certify those pumps, and do
    some research to do so, it has been clear that it--they have
    not heard of any incidences.
        So, we are confident that E-85 will be compatible with the
    existing infrastructure, and we are working with UL and other
    stakeholders to get them the comfort level that they need to
    again certify those pumps. The manufacturers of the pumps
    themselves are willing to certify each of the individual
    components of the pumps, but they just want UL to certify that
    also.
        Mr. Eichberger. Clearly, there is an interest in getting
    the E-85 dispensers certified by UL. Retailers across the
    Nation who want to do E-85 need to have that for liability
    reasons. Some of the concerns with higher concentrations of
    ethanol are its corrosive properties. Metal can corrode, and
    when they corrode, they can spring leaks. That is why so much
    equipment has to be replaced when you are converting to a new
    system. If your equipment has not been certified as compatible,
    you run the risk of corrosion, or nonmetal items possibly
    degrading and cracking and swelling, and losing your fittings,
    and that is the issue.
        Mr. Inglis. Because there is something more--maybe Mr.
    Bartlett can explain this to me later--is why it is that
    ethanol is more corrosive. There is something about it, I
    guess, that is more corrosive than gasoline. When is it mixed?
    Right now, it is by barge and by whatever, but when does it
    actually get mixed? At the terminal?
        Mr. Dinneen. It is blended with gasoline at the gasoline
    terminal, so for this area, for example, the--Newington is the
    gasoline terminal that services virtually all of the Washington
    metropolitan area, and there will be tanks filled with
    gasoline. There will be a tank with ethanol there as well. A
    truck will pull up, and if he wants to blend--if he is going to
    an Exxon station or a Shell station, he puts in a card, and if
    it is going to be ethanol blended, as it would be in this area,
    he is drawing fuel from both tanks, and in inline blending
    systems, the truck is then filled at that point, and the
    blending occurs at that point.
        Mr. Inglis. So, the gasoline comes to the terminal by
    pipeline, and the ethanol comes by truck or barge, or some way
    to get there.
        Mr. Dinneen. Yes.

                                 Fuel Additives

        Mr. Inglis. And when--we are now requiring this as an
    additive, right? We have replaced MBE, is it? Help me remember
    what we did there?
        Mr. Eichberger. With the reform of the gasoline program,
    which is required in the most polluted cities, you have to
    use--prior to the Energy Bill, you had to use a two percent
    weight of oxygen. That could be accomplished by using methyl
    tertiary butyl ether, MTBE, or ethanol. The majority of the
    Nation used MTBE, because it could be blended at the refinery,
    was cheaper for the refiners to obtain, because they produced
    it, shipped in the pipeline directly to retail.
        With the Energy Bill and the elimination of the oxygen
    requirement, and the liability concerns associated with MTBE,
    the refining industry decided they are not going to use MTBE
    any more and switched to ethanol. Now, that there was a major
    transition, and now almost every gallon of RFG in the Nation
    has a 5.7 percent, I think, Bob, of ethanol in it.
        Now, there is the opportunity to start producing a non-
    oxygenated RFG, but that is still pretty much in its infancy.
    So, that was the issue of the transition there.
        Mr. Inglis. And so, this travels through the pipeline with
    that level of ethanol in it, right?
        Mr. Eichberger. No.
        Mr. Inglis. No?
        Mr. Eichberger. Even with RFG, it is blended at the
    terminal.
        Mr. Inglis. Okay. So----
        Mr. Eichberger. All ethanol is shipped via rail, barge, or
    truck.
        Mr. Inglis. And as to the Ultra-Low Sulfur Diesel, as I
    understand it, that would pass through the same pipeline that,
    say, gasoline and Jet A is passing through, right?
        Mr. Eichberger. Right.
        Mr. Inglis. And that--help me understand. I think I know
    that you put this thing called a pig, right, in there, then you
    push--it separates the product?
        Mr. Eichberger. Not necessarily. Actually, the products are
    butted up against each other just through viscosity barriers.
    So, you will have gasoline and diesel, jet fuel, right up
    against each other. Because the pipelines change size
    throughout the system, you can't necessarily put a pig in
    there. Some places you can, but traditionally we are not using
    pigs. When they are butted up against each other, and they come
    in the terminal for--offloaded from the pipeline, certain cuts
    are made, what is called transmix, where the two products have
    been blended together, that is pulled out and put into
    whichever fuel is allowed to accept it, and that is how it is
    distributed.
        So, the reason there was so much concern about
    contamination of ULSD going through the pipeline is you have
    jet fuel going through, with about 3,000 parts per million
    sulfur. How do you sequence the product in the pipeline to make
    sure that Ultra-Low Sulfur Diesel is protected? We have been
    very successful, and that has happened. ULSD has come through
    the pipeline with very little contamination, and when it gets
    down to retail, we have a pretty good shot of getting clean
    product.
        Mr. Inglis. Mr. Chairman.
        Chairman Lampson. Thank you very much. I will yield five
    minutes to the gentlelady from California, Ms. Woolsey.

                            Ethanol Source Concerns

        Ms. Woolsey. Thank you, Mr. Chairman.
        In my district, the demand for ethanol has resulted in a
    scarcity and a dramatic rise in the price of corn, which has
    had quite an effect, a huge effect, actually, on the local
    family dairies in my area. They can't afford feed, I mean, and
    they are really feeling it.
        So, Mr. Dinneen, ethanol can't be the only advanced fuel
    technology, so what other fuels are we looking at that you
    would project will be in our future?
        Mr. Dinneen. Well, two comments. I think first of all, with
    respect to the price of corn, the marketplace just recently got
    the signal to dramatically expand corn acres, and I believe
    that most analysts expect eight to ten million acres planted in
    corn this year, which will have a beneficial impact on corn
    prices.
        When you produce ethanol from grain today, we are only
    using the starch, and what is left behind is a very high value,
    high protein feed grain that is then used for dairy markets,
    poultry markets, and other feed uses. But the industry
    certainly understands that we can't grow to the levels that
    people want us to grow, and that we want to grow, on grain
    alone. And indeed, that is why we are working so hard on
    cellulosic ethanol technologies. There, as I indicated, there
    is not an ethanol plant that I represent that doesn't have a
    very aggressive cellulose to ethanol research program, because
    they already have cellulose coming into the plant, and indeed,
    there will be pilot plants opening up shortly, that will be
    producing ethanol from a variety of different feedstocks, and
    if the Energy Bill's loan guarantee programs are authorized and
    appropriated in this continuing resolution, I think you will
    see a couple of companies begin to construct commercial scale
    cellulosic ethanol plants. We are on the cusp of seeing that
    technology commercialized, and it is a very exciting time in
    the industry.
        Ms. Woolsey. Well, thank you for that, and so, then, Mr.
    Eichberger, as we, the markets grow, and regions specialize in
    different crops, cellulosic, grains, sugar, for ethanol
    production, as an automobile drives across the country and
    fills their tank, will every tank be able to take any one of
    these kinds of fuels? I mean, or will----
        Mr. Eichberger. If it is used as an additive to the
    gasoline, yes. Ethanol is ethanol is ethanol. If you are
    talking about higher concentrations like E-85, no. Only
    flexible fuel vehicles, specially formulated, can run on that
    product. But if a typical gasoline--car is running across the
    Nation, they can fill up anywhere they want with regard--
    without concern whether or not it is a corn-fed ethanol,
    cellulosic ethanol, or sugar.
        Ms. Woolsey. Mr. Kassel, you looked like you wanted to
    respond to that.
        Mr. Kassel. I did. I wanted to make two brief points. One
    is with respect to the corn question that you raised. I think
    it--there is an analogy that I think is useful, and that what
    has to happen in the ethanol, and more broadly, biofuels world
    is analogous to what happened in the food production world
    roughly 100 years ago.
        Because of Kellogg and C.W. Post and others, they were able
    to dramatically increase the yield per acre. You know that, I
    am sure, from your farming constituents.
        Ms. Woolsey. I thought you were going to say because I am
    that old that I remember it.
        Mr. Kassel. No, no, absolutely not. Absolutely not. But a
    similar phenomenon has to happen, and is starting to happen, in
    the biofuels world, where the research is going into cellulosic
    ethanol, and how to increase the crop yields, and to use more
    of the plant, so we can use the full plant, the nonfood part of
    the plant. Because ultimately, if we are going to meet the
    goals, 35 billion gallons a year, that were laid out in the
    State of the Union last week, or other very aggressive goals to
    wean ourselves off oil, and to curb global warming pollution,
    we have to be able to provide biofuels in a way that is
    environmentally sustainable. We don't want to replace concerns
    about petroleum with concerns about how we are using land. Are
    we taking product from the food chain and putting it into the
    fuel chain? Are we taking--is the Amazon rainforest becoming
    biofuels? We don't want any of that to happen. That is why the
    type of research that Mr. Dinneen is talking about is so
    important, and I think it is so exciting as well.
        The second point that I wanted to make goes to the driver
    in a few years driving across country. If Congress and the
    President put into place an energy savings and global warming
    package that really gets us off our current pathway, and there
    are different proposals going around, of course, to start to do
    that, and if we merge that into what is coming out of Detroit
    and Japan, Germany, and the other car producing countries, we
    can start to see a future where people are driving different
    kind of cars based on what their needs are, and there will be
    people who drive long distances on the highway, they have a 70
    mile commute on an interstate to get to work, and they will
    choose a very clean, high efficiency diesel car. Somebody else,
    who drives in the urban setting, stop and go driving, who is
    also concerned about fuel prices, is also concerned about
    global warming, will choose a hybrid. Somebody else will choose
    a flexible fuel vehicle, and they will be driving with E-85,
    and I think if we forecast out 10 or 15 years from now, it will
    be like other consumer products that we use, that there will be
    much more of a mix, much more of a marriage, if I may, between
    the type of driving we are doing and the type of car and fuel
    we are choosing, and that will create synergies that will
    address the different issues that you have raised, and that are
    really--underlie why this bill makes sense.
        Chairman Lampson. Thank you very much. The gentlelady's
    time has expired. My friend from Texas, Ralph Hall from
    Rockwall, the Ranking Member on the Science Committee. Five
    minutes.

                                EPA Involvement

        Mr. Hall. I thank you, Mr. Lampson. And I am sorry I
    haven't been here to hear your testimony. I have read it, or
    had some of it read to me. I--Mr. Kassel, I want to ask you
    something about--you have recommended, I understand, that H.R.
    547 be amended to include the Environmental Protection Agency
    as part of the programs in the bill, and other representations
    in conjunction with that. And I would ask some other
    information from Mr. Dinneen and Mr. Eichberger, but before I
    do, let me just say to you and to the Chairman, Chairman
    Lampson, with whom I have known a long, long time, and worked
    with him before. We were both Democrats together a long time
    ago, and I have high regard for him, and I have high regard for
    Bart Gordon, and for the Members that are in the majority
    today, and it is their bill, and I am a co-sponsor on it, and I
    think Mr. Inglis is also a co-sponsor on it. So, this bill
    has--is going to pass, and--but as you know, the bill before us
    today was included in H.R. 6203, which was Representative Judy
    Biggert's bill. It was passed by the House last Congress by a
    voice vote under suspension of the rules. Now, H.R. 6203
    contained a lot of provisions that we really wanted in this
    bill, but this is Mr. Gordon's bill, and this is Mr. Lampson's
    bill, and they are in control of this committee, and they are
    in control of the House, and it is good legislation, but--and
    we didn't insist, and I didn't come up here with a bunch of
    amendments to send up to cause them to vote no on some things
    that they really would want to vote yes on, but they don't want
    to slow this bill down. And I am not going to be a part of
    slowing the bill down, because I am for the bill. I want it to
    get out, get through the House, get to the Senate, and get to
    the President, who will sign it.
        But we--it contained provisions to promote research and
    development in areas such as biofuels, hydrogen, solar, wind,
    plug-in hybrids, energy efficient buildings, and coal
    gasification, and we think all these things were good, and the
    same people on the other side of the docket were on those
    bills, too. And I am just hoping, Mr. Chairman, that later, as
    we can put those bills together, we can work together to pick
    these things up, and pass them, too.
        I understand, at the end of the Hundred Hours, that you
    want to get a bill, and you want to get it to the Floor, get it
    passed, without being burdened down with a bunch of amendments,
    and we are not sending those up just to make somebody look bad,
    or make them vote on them. We are hoping that this committee is
    successful, and we hope Bart Gordon is successful, because he
    is a decent guy, and a good leader. And our purpose is going to
    be to pass legislation, not to get even with anybody.
        As the Ranking Member for the Republican Party, I want to
    make that statement, and I think it is something that we can
    all live with later on down the road.
        So, my question to Mr. Dinneen and Mr. Eichberger, is if
    the EPA should be included in H.R. 547, and is there an
    amendment to that effect? None. Tell me about your reason for
    wanting to include it. Are you in the same position I am in,
    that it is also good, and would be good in this, but you are
    not asking them to slow the bill down? You want it to whistle
    on through.
        Mr. Kassel. We don't want to slow this bill down. We think
    it is important to do the kind of research and development that
    is in this bill. We just offer that suggestion as a way to make
    it a smoother implementation going forward. EPA is the agency
    which is responsible under the Clean Air Act and the Energy
    Policy Act of 2005 with implementing the key regulations that
    govern the way fuel is moved through the system, whether it is
    Ultra-Low Sulfur Diesel fuel or the renewable fuel standard
    that EPA will finalize fairly soon.
        I understand that there is an intention across the board
    that people hope that DOE and NIST will collaborate with EPA,
    and that is great. If that can be memorialized in the bill,
    that is even better. But we certainly don't want to slow it
    down, and so, I hope that this suggestion won't slow it down.
        Mr. Hall. And the R&D proposals that I set forth, that were
    in the other bill, supported by the present Chairman and
    Chairman of this subcommittee, are good legislation for the
    future.
        Mr. Kassel. Well, I will be honest and say and admit that I
    don't remember the specifics of H.R. 6203, and exactly what was
    in it, but certainly NRDC is extremely involved in advancing
    policies that increase the use of wind, solar, and other forms
    of alternative, and we would be happy to take a look at----
        Mr. Hall. Well, let me quickly ask Mr. Dinneen and Mr.
    Eichberger. My time has expired, so on expired time, could you
    give me a short answer as to your opinion of the proposal that
    I have made?
        Mr. Eichberger. Mr. Hall, I mean, our focus on the bill is
    can the research be successful to provide these bridges for
    retailers, and if the EPA is involved, we have no problem with
    that?
        Mr. Dinneen. Yes and yes.
        Mr. Hall. I yield back my time. Thank you, Mr. Chairman.
        Chairman Lampson. Thank you, Mr. Hall. Next, we have five
    minutes from Mr. McNerney from California.

                         Ultra-Low Sulfur Diesel Costs

        Mr. McNerney. I need to learn how to use a microphone, with
    the assistance of Lynn Woolsey. Thank you, Mr. Chairman.
        I think this is a really great first step, H.R. 547. In my
    district, we have a particular problem with diesel pollution,
    and so, I am really thrilled to see us move to the Ultra-Low
    Sulfur Diesel, and I am concerned about the mixing of diesel
    with--Low Sulfur Diesel with higher forms of diesel,
    particularly in our area, but you have sort of addressed those
    questions already. And I am wondering, what are we going to see
    in terms of cost effect for the consumer for the Ultra-Low
    Sulfur Diesel in the long run, as opposed to the higher forms
    of diesel?
        Mr. Kassel. Right now, the incremental cost is running a
    little higher than expected, comparing to--there was a report
    that just came out in the last week or so, that did a
    comparison of Ultra-Low Sulfur Diesel compared to, say, regular
    gasoline. I suppose the authors of that report were looking at
    a future car market that would be bifurcated between gasoline
    and diesel, showed about a $0.20 to $0.30 gap between regular
    diesel and Ultra-Low Sulfur Diesel. Now, I don't know that that
    is really the right comparison, because it is a little bit of
    apples and oranges.
        When the rule was first promulgated by EPA, they suggested
    a cost increment of about $0.04 to $0.05 a gallon between
    standard 500 part per million sulfur and Ultra-Low Sulfur
    Diesel, and over time, my guess is that is probably about
    right. We will see.
        You know, when you look at fuel prices, the incremental
    costs of the desulfurization is a small piece. The real issue
    is the price of a barrel of oil and the refinery margins. Those
    are the two big pieces. The ultra-low sulfur component is going
    to be relatively small.

                               Diesel Performance

        Mr. McNerney. Well, the high performance diesels are an
    improvement, both in terms of emissions and in terms of
    performance. They get more, maybe 30 percent more performance
    per gallon than gasoline. So, do you see this as something that
    is going to incentivize private vehicles to be using diesel
    technology, diesel fuels?
        Mr. Kassel. Absolutely. There is no question about it.
    The--if you had a chance to go to the Washington Auto Show last
    week, there were car companies that were--many car companies
    pushing and pushing their diesel vehicles. Daimler had a huge
    announcement, where they announced that they had the first
    pickup truck that was going to meet not the 2007 pollution
    standards, but the 2010 standards already. So, the question of
    can you make a diesel clean has now been answered definitively,
    and the answer is yes.
        So, then the question is will people buy a diesel car? And
    I think the answer to that is that for the driver who is
    concerned about fuel prices, and who wants to do what they can
    ahead of time, when they buy their car, to reduce the hit of
    higher fuel prices in the future, they are going to look at
    these diesel cars. They are also going to look at hybrids. They
    are going to look at a range of vehicles. And that is all good
    news. We are really entering a new era of cleaner cars, more
    fuel efficient cars, and I think that is all for the good.
        Mr. Eichberger. Congressman, the auto industry was strongly
    behind the Ultra-Low Sulfur Diesel regulations, in support of
    it from the beginning, and one of the theories is, I mean, if
    you get higher fuel economy with a diesel engine, and you start
    putting that into your fleet, you have just improved your
    ability to comply with CAFE standards, so I would suspect that
    as ULSD becomes more prevalent, and all the kinks are worked
    out, you are going to see a lot more automakers start to turn
    towards diesel engines for their passenger vehicles.
        Mr. McNerney. One other question is, and I don't understand
    this very clearly, is the relation between Ultra-Low Sulfur
    Diesel and biodiesel. Are they mixable with any problems, or
    what are the sort of issues that we are looking at in that----
        Mr. Eichberger. For the most part, there aren't too many
    issues, as long as the biodiesel is ultra-low sulfur as well.
    There were some early concerns, when I spoke to the Bio Board a
    couple years ago, that some used food oils, that if there were
    onions in there, you may have some trace sulfur level in there,
    so that was an early concern, but in terms of compatibility, as
    long as they are both ultra-low sulfur, you shouldn't have a
    problem.
        There are some concerns with high concentrations of
    biodiesel in colder climates that you can get a gelling effect
    in the product. What has happened is during those colder
    months, the suppliers of biodiesel at the retail level have
    just reduced the percentage of biodiesel as a component of
    diesel fuel that they are selling.
        Mr. McNerney. Thank you. Are there any other issues
    regarding diesel, promoting diesel in this bill, that we should
    be aware of, or amendments that you would recommend?
        Mr. Eichberger. I don't know of any amendments I would
    recommend. I would comment that Mr. Kassel earlier commented
    that 90 percent of the fuel, diesel fuel, is Ultra-Low Sulfur
    Diesel. And just to clarify, that is 90 percent of the diesel
    fuel being produced at the refinery is Ultra-Low Sulfur Diesel.
    As I mentioned earlier, when it goes to the pipeline, and you
    start cutting batches, you do have some downgrading, so not all
    of the Ultra-Low Sulfur Diesel being produced is making it to
    retail, which is causing some slow--a little bit of slowness,
    in terms of the conversion of some retail locations.
        Mr. McNerney. I yield.
        Chairman Lampson. Thank you very much, Mr. McNerney, and
    now, Mr. Roscoe Bartlett from Maryland. Five minutes.
        Mr. Bartlett. Thank you very much.
        Chairman Lampson. I should have said Dr. Bartlett, excuse
    me.
        Mr. Bartlett. Sir?
        Chairman Lampson. I should have said Dr. Bartlett. Pardon
    me.

                        More Ethanol Production Concerns

        Mr. Bartlett. There are obviously three reasons for being
    interested in alternatives. One is the environment, which has
    been a major focus here. A second is the national security
    interest. We are getting far too much of our fuels from, as the
    President says, from people who don't even like us. And the
    third one, which I think is the most dominant one, that is,
    that the oil just may not be here, if you believe in peak oil.
        Anybody who has listened to any of my 21, now, full hour
    speeches on the floor of the Congress knows that there is no
    bigger supporter of alternatives in the country than Roscoe
    Bartlett, but just a word of caution, please. We need to be
    realistic, or we will lose the American people. My colleague,
    who was my Ranking Member when I chaired this subcommittee
    several Congresses ago, Ms. Woolsey, mentioned that corn had
    gone up. From September to December, it almost doubled in
    price, and then, as you said, gee, that is an easy fix, we will
    just plant more acres of corn. Sir, all the land that should be
    planted in corn is now planted in corn. And what is going to
    happen is that land is going to be taken out of agricultural
    preserve, and it is going to be farmed, and corn is one of the
    greediest crops we have. It is the one of the worst for
    erosion. It is certainly one of the worst for sucking up
    nutrients out of the soil, and for the relatively small impact
    we have on the environment, because each gallon of ethanol, if
    you are really good, each gallon of ethanol will represent at
    least three-fourths of a gallon of fossil fuel in producing
    it--said it represents more than a gallon of fossil fuel in
    producing it. But let us say that you can be good enough to
    have only three-fourths of a gallon, which means that the small
    improvement you get in air quality may be overridden by the big
    decrement you are going to have in land, because if you plant
    more acres in corn, you have more acres in corn, it is going to
    be land that shouldn't be farmed, that is now not being farmed,
    because of agricultural preserve, and you are going to have a
    lot of erosion.
        I took your numbers, sir, five billion barrels of ethanol,
    gallons of ethanol last year, and 170--that saved 170 million
    barrels of oil. So, I multiplied the 170 million barrels of oil
    by 42 gallons per barrel, and I got seven billion. How in the
    heck can five billion gallons of ethanol save seven billion
    gallons of oil? It can't, of course. And the reality is that--
    the reality is even if you had those figures in sync, that each
    gallon of ethanol saves only three-fourths of a gallon of
    fossil fuel. You are really recycling fossil fuels, in large
    measure, when you are burning ethanol, are you not?
        See, my--I am a huge fan of renewables, but we have got to
    be honest with the American people. We face a really, really
    big crisis here, a big challenge, and this bill doesn't even--I
    am going to vote for it, because it is a little better than
    nothing, but it doesn't even nibble at the margins of the
    problem. You are going to get a relatively small improvement in
    air quality at a big decrement in land quality, if you plant
    more of our land in corn. And by the way, almost half the
    energy in producing a bushel of corn comes from the natural
    gas. An enormously important feedstock for a big petrochemical
    industry, and all of our nitrogen fertilizer today comes from
    natural gas, and almost half of the energy that goes into
    producing corn comes from the natural gas.
        I just want to be realistic with the American people.
    Making more ethanol is not going to solve our problem. We are
    not Brazil, thank you. They have far fewer cars. They have
    sugar cane, which is a better harvester of sunlight than we. We
    brag that we have a very efficient agriculture, because one man
    sits on a 150 horsepower tractor and feeds 50 people here and a
    bunch of others around the world. In terms of energy in, and
    energy out, we may have one of the least efficient agricultures
    in the world, because we have an incredible amount of energy
    that goes in, for some crops, ten calories in and one calorie
    out. It is better than that for corn, thank goodness. But if
    you look at all the energy constraint, don't you think that the
    American people will support us better if we were really honest
    with them?
        Mr. Dinneen. Congressman, I agree with you, and I think we
    have been honest with the American people.
        Mr. Bartlett. You know, a couple of you guys were just not
    honest. You do not save 170 million barrels of oil with five
    billion gallons of ethanol. It is silly.
        Mr. Dinneen. I will get to the analysis, and we can go
    through the numbers.
        Mr. Bartlett. You don't save even a fourth of that, sir.
        Mr. Dinneen. Congressman, I will go through the numbers
    with you, with the economist that did that analysis. And we
    will see where the differences----
        Mr. Bartlett. The economist did not count costs that he
    didn't know, I suspect. Go ahead.
        Mr. Dinneen. The point is, Congressman, I think the fact of
    the matter is, we have never told the American people that
    ethanol is the answer. It is part of the answer, and we need to
    do a lot more. We have not said that ethanol can replace all of
    gasoline. We have not said that you are going to use all of the
    Nation's corn crop to produce ethanol. We have said that there
    are limitations to what you can produce from grain. According
    to the National Corn Growers, they think you can get as much as
    15 billion gallons. Beyond that, you would have a detrimental
    impact on feed prices, and they don't want to go there, and
    neither does our industry. That is why our industry is working
    so hard on a range of technologies, new processes and new
    feedstocks.
        And I think the great thing about what is happening today,
    Congressman, is that you get a lot of new capital coming into
    the industry, and a lot of new intellectual capital coming into
    the industry. And the industry is going to be unrecognizable
    five years from now. Congressman, there are plants that are
    looking at biomass gasification to run those facilities. That
    would certainly improve the energy balance numbers. You have
    companies in Texas that are locating the ethanol facilities at
    feedlots, that are feeding the distillers dried grains directly
    to the cattle on the lot, capturing the methane from the
    feedlot to run the facility, and it is a very integrated
    process. That is the future of this industry. And it is not
    just grain, it is not just today's technology, but if you
    aren't doing everything that you possibly can to make sure that
    there are markets for these alternative fuels, you are not
    going to get a future where you have got cellulosic ethanol,
    and you have got more sustainable processes.
        I mean, nobody here has done more than you, Congressman,
    and I commend you for all that you have done to raise awareness
    about the dangers of our dependence on imported oil, and the
    risks that we, as a nation, face when we are looking at peak
    oil. I am not sure I have seen all 21, but I have seen, you
    know, 15 or 16 of them.
        Mr. Bartlett. Thank you.
        Mr. Dinneen. And they are not just entertaining, they are
    educational. And I try to get my teenagers to come and sit
    down, and say look at this guy. He is talking about the future.
    We are part of the future. We are not the entire answer, but we
    are part of it.
        Mr. Bartlett. A second round, Mr. Chairman.
        Chairman Lampson. We will talk about it in a minute. Thank
    you both. Mr. Diaz-Balart from Florida, five minutes.

           Ethanol Infrastructure and Environmental Impacts in Brazil

        Mr. Diaz-Balart. Thank you very much, Mr. Chairman. A very,
    very interesting hearing.
        A little while ago, somebody mentioned Brazil as a country.
    They use sugar, is that correct?
        Mr. Dinneen. Correct.
        Mr. Diaz-Balart. As their energy. Can you give me an idea
    of what are some of the environmental issues that Brazil has
    found that--with creating ethanol from sugar, number one, and
    number two is, are those issues that can be dealt with here,
    and number two is, where are we as far as cost, for developing
    ethanol from sugar in the United States versus corn, and is
    that something that could, as the market progresses, could
    improve--could progress to help solve the issue of some of the
    things that we have heard about corn?
        Mr. Dinneen. Brazil has built a tremendous ethanol industry
    through 30 years of tax incentives, government mandates,
    infrastructure, development, tariffs, and a range of--debt
    forgiveness, a range of programs. And I say that, commending
    them, because they have made a real investment in their ethanol
    industry, and today, a combination of ethanol production and
    increased oil production, Brazil is energy independent, and I
    think that that is terrific.
        We can't replicate the Brazilian model here for a whole
    host of reasons, some of them having to do with our labor
    market, some of them having to do with our climate, some of
    them having to do with our population and our industry. But I
    think it is a model to look at to see what can be done, in
    terms--if there is real commitment to renewable fuels, and to
    alternative fuels. There are environmental consequences from
    Brazilian production. They don't have the emissions control at
    the plant that we have. They don't have the kind of controls
    that EPA places on our facilities, and those might be some
    issues. They don't have some of the labor standards that we
    certainly have, and--but I say that in terms of what is going
    on at the plant. In terms of emissions at the--when used as a
    fuel, their experience is going to be the same as ours, because
    as Mr. Eichberger said, ethanol is ethanol is ethanol, no
    matter the feedstock, and ethanol is going to help reduce
    emissions by the vehicles.
        Brazil has built a heck of an industry, in part, because
    they have incentivized consumers to purchase flexible fuel
    vehicles. And about 50 percent of the vehicles in Brazil today
    are flexible fuel vehicles that can run on E-85. The other 50
    percent of those vehicles are running on a blend of between 20
    and 25 percent ethanol, a level that changes, and the
    government sets it, but it has been a very successful model.
        Mr. Kassel. Yeah, if I can just add a couple of thoughts. I
    think what we can learn from the Brazilian experience is two
    things. First of all, setting a goal for energy independence is
    something that is achievable, if the country actually gets to
    work to actually do it. And they set that goal, and the
    combination of their domestic production and their ethanol
    production has allowed them to achieve it. It didn't happen
    overnight, but it did happen.
        Second, the thing that we can learn from the Brazilian
    experience is the importance of the infrastructure. If you go
    to a service station in San Paulo, you see gasoline and you see
    ethanol. You also see diesel. But you see the gasoline, you see
    the ethanol. Consumers make a choice if they have the flex fuel
    vehicle, based on the price. Which one are they going to buy
    today? And the prices fluctuate, and the consumption patterns
    fluctuate, but the key thing is that the infrastructure is
    there. So, we can sell all the E-85 vehicles we want, but if
    there is not E-85 tanks at the service stations, then we are
    not going to be able to maximize what we can do with ethanol.
        I think there are two things, though, that we can also
    learn from Brazil that are not so good. The first is the land
    use and forestry issues. Now, the first time I looked at the
    Brazilian situation, somebody said to me, oh, there is no
    rainforest issue there. There is no rainforest. Look at the
    map, and this is not a map of Brazil, but I will use it. They
    said the rainforest is over here, and the sugar production is
    over here. Oh, that sounds pretty good. But then, I asked where
    is the cattle? And the cattle is over here next to the
    rainforest. What is actually happening? The sugar is pushing
    the cattle north. The cattle is moving into the rainforest. So,
    there is--so, without adequate controls, valuable rainforest is
    indirectly being cut down. We have got our own version of that,
    in terms of CRP land and forestry issues and so on. We have to
    make sure whatever we do with biofuels, we are taking all those
    into account.
        The second, I think, lesson we can learn from them is they
    had one goal. It was energy independence. They secured it. It
    is great. But now, the world we know is much more complicated,
    and achieving energy independence, if we don't also tackle
    global warming, is going to be a half victory at best. If we
    achieve energy independence by a strategy that relies on coal
    to liquids that doesn't actually help, and maybe moves us
    backwards on global warming, that is not a victory. If we
    achieve energy independence by pushing and pushing and pushing
    on corn, but we don't get to the cellulosic, we don't advance
    the sugar, we don't move forward on vehicle efficiency, we
    don't move forward on transit, on smart growth and so on, we
    won't actually achieve those goals.
        So, I think we, as a country, have to look at this much
    more synergistically, and that is part of the lesson two.

                         The Ethanol Market in the U.S.

        Mr. Eichberger. Congressman, if I may, real quick, not on
    the environmental issue, but Mr. Kassel raised a good point
    about the cost comparison between E-85 and other products in
    Brazil. Let us talk about the United States for a minute. The
    typical American consumer reports that for one penny a gallon,
    they will turn left across a busy street, just to save a penny
    a gallon. They will drive five miles, five minutes out of their
    way to save a penny a gallon. When talking to E-85 retailers,
    they tell me that when E-85 is priced $0.20 below gasoline,
    they sell quite a bit. One individual told me at two locations,
    they were selling 12,000 gallons a month. When E-85 increased,
    and became on par with gasoline, his sales dropped to 500
    gallons a month. That is a 97 percent reduction based upon
    price. Consumers want to be green, but as I have been telling
    people for a long time, the green in their wallets are really
    what is driving this, and I caution Congress, as you look at
    alternative fuels and renewable fuels, think about the ultimate
    cost to the consumer.
        Moving to a new generation makes a lot of sense for a lot
    of reasons, but keep in mind, you all receive a lot of letters
    and calls from your constituents when gas prices go up. Keep
    that in mind as you start thinking about alternative fuel
    programs.
        Chairman Lampson. Thank you very much. Votes on the current
    suspension had 40 minutes of debate, but it is going to--it
    started at 3:00, so we should have votes called at about 3:40.
    We have two more presenters I will call first on. Mr. Lipinski
    from Indiana--Illinois--I will get it out.
        Mr. Lipinski. One of those corn states out there in the
    Midwest. We have a lot of corn in Illinois, yet in Chicago, I
    drive around and see very, very few stations that have E-85.
    Why is it? Is it lack of supply of ethanol, or there are other
    reasons? Mr. Eichberger, I think--we have--I have seen you
    before at the Small Business Committee, so Mr. Eichberger,
    what----
        Mr. Eichberger. There are several reasons, Congressman. And
    Illinois, supply is probably not the driving force. You have a
    situation where what is--each retailer has to ask themselves
    what is the level of demand, in terms of how many flexible fuel
    vehicles are in my market, and how many of those drivers really
    want to buy E-85? Do my customers want to buy this product?
        If they do, then it is a question is what is the cost of
    putting in E-85. In my testimony, I commented that the cost can
    range from pretty simple, if all your equipment is certified as
    compatible with the fuel, to pretty expensive if it is not. So,
    you need to make a decision on your investment of capital.
        Second, you need to think about this. If you have four
    dispensers, and you take one of them out of service and put in
    E-85 in, now, you only have three gasoline dispensers. Will you
    continue to have as much customer traffic coming in to fill up
    if there are three dispensers and one E-85, as you did when you
    were selling nothing but gasoline, in order to get customers in
    your store to buy coffee, doughnuts, or as Mr. Dinneen likes to
    say, beef jerky, because that is where retailers really make
    their profit.
        The fuel is an attraction. That is what generates traffic
    to your store. So, all of those things combine. In Illinois,
    supply is probably not going to be an issue. I bet money that
    is not going to be your number one issue. The issue is going to
    be what is my competitive angle if I do this. Can I sell it at
    a competitive price? Will my customers continue to come, and
    will I continue to generate the bottom line sales I need to to
    stay in my business?
        If all the economics add up, and I can afford the
    investment to bring E-85 into my station, chances are, I will
    make that decision. But we are still at pre-infancy in terms of
    demand for E-85, and that is really what is kind of dragging
    the heels of the industry.
        Mr. Dinneen. Congressman, if I might, there are three
    things that need to happen for the E-85 market to become a more
    meaningful component of our business. Last year, we produced
    five billion gallons of fuel ethanol, 50 million gallons were
    sold as E-85, a fraction of a fraction, because ethanol today
    is a blend component with gasoline, and refiners have
    recognized that it has value in that market.
        To be a meaningful part of an alternative fuel market for
    E-85, you need more vehicles. There are six million, or five
    million vehicles on the road today capable of running on E-85.
    That is a big number, no question. But it is still less than
    three percent of the total vehicle car park in this country.
    And to convince John's members, Mr. Eichberger's members to put
    in the infrastructure necessary to refuel that, when you are
    telling them it is less than three percent of his potential
    consumers, and only a fraction of those realize that they have
    the vehicles, it is awfully hard.
        With more vehicles, and with the commitment of Ford and
    General Motors and Chrysler to dramatically increase their
    flexible fuel production, I think that there will be more
    vehicles coming, and over time, a more meaningful market will
    develop.
        The second thing you need is a wider infrastructure. I do
    believe that the infrastructure will follow the marketplace.
    There are 1,000 stations out there today, and that is a good
    one. We ought to concentrate those stations where there is
    going to be a significant market, and where we can build the E-
    85 market significantly. In Minnesota, there are about 500 E-85
    stations, and it is the most meaningful E-85 market in the
    entire country.
        But the third thing that you also need, you need more
    ethanol. And you can't get to a meaningful E-85 market with
    grain-derived ethanol. You have got to have cellulosic ethanol,
    so that you can be talking about the kind of volumes that could
    actually satisfy the demand for ethanol coming from 20 or 30 or
    40 million vehicles that could be on the road in five or ten
    years. So, I mean, you need all three of those.
        I might also add, however, that the E-85 technology that is
    out there today is not really taking advantage of the
    properties of ethanol. There is a mileage penalty. That impacts
    the economics that Mr. Eichberger's members are so concerned
    with.
        Mr. Lipinski. What is the mileage penalty? Numbers----
        Mr. Dinneen. About 20 or 25 percent. I mean, it is
    certainly significant. And with the technology that the
    automakers are using today, you are always going to have that.
    But there are, on the horizon, some technology. General Motors
    has the Saab 9-5, that has a turbocharged engine, that realizes
    no mileage penalty when ethanol is used. And that would
    dramatically improve the economics. So one of the things that
    we would like to see is that the flexible fuel technology that
    you are incentivizing auto manufacturers, to optimize the
    vehicle to look at fuel performance and fuel economy issues.
    Because it impacts, ultimately, the economics of the fuel that
    will build the bigger market.
        Mr. Lipinski. Thank you.
        Chairman Lampson. I thank the gentleman. Now, we will call
    on the former Chairman of this committee, Judy Biggert from
    Indiana. Illinois, I am sorry. I did that again.

                             Cellulosic Ethanol R&D

        Ms. Biggert. I think it is looks like it is going to fade.
    Thank you very much, Mr. Chairman.
        My first question is for Mr. Dinneen. You said that all of
    your member companies are doing some degree of research on
    cellulosic ethanol, materials to make that. Can you tell us a
    little bit about their research efforts?
        Mr. Dinneen. Sure. I don't think--any of this is not public
    knowledge, but a company in your state, Archer-Daniels-Midland,
    is looking at producing ethanol from fiber that is already
    coming into the plant, and they believe that if they are able
    to convert that fiber, which is a cellulosic material, they
    could increase their yields by 15 percent. Another one of my
    member companies, the Broin Companies, has announced that they
    are going to build a facility in Emmetsburg, Iowa that will
    produce ethanol from corn stover. There is another ethanol
    company I represent, Abengoa, they have got plants in Nebraska
    and New Mexico and Kansas, and they are building a pilot plant
    in Europe today to produce ethanol from wheat straw and grain.
    So, I mean there are a number of companies. There is a company,
    Iogen, a Canadian firm, looking to produce ethanol from wheat
    straw. There is a California company, BlueFire, that is looking
    to produce ethanol from municipal solid waste in California.
    So, I mean, it is happening all across the country. Just
    popping into my head, New York, Northeast Biofuels, is looking
    to produce ethanol from woody biomass.
        The future of ethanol is going to be founded on grain,
    because it is been building the industry, but the structure is
    going to be different technologies, different feedstocks, and
    it is a very exciting future.
        Ms. Biggert. The--so much of what has been talked about is
    sugar cane, which I thought was really difficult--would be for
    the United States, because we don't have the soil to grow it.
    So that--are there other--are there greater promise for some of
    these others, that--over other ones, or is that still in the
    research effort?
        Mr. Dinneen. It takes 13 pounds of sugar to produce a
    gallon of ethanol, and at the U.S. sugar price of $0.22 a
    pound, the economics of that just aren't very attractive.
        But there are opportunities with sugar processing, because
    you have byproducts from the sugar process that--the gas, that
    could also be utilized in the processing of ethanol, and there
    is actually a company in Hawaii that is looking to do just
    that.
        Ms. Biggert. I see.
        Mr. Dinneen. So, you may have some synergistic----
        Ms. Biggert. It is the one place that it seems to grow.
        Mr. Dinneen. Potentially, yeah. But for the most part, the
    climate in this country isn't that conducive to sugar.
        Ms. Biggert. Are federal cellulosic research efforts
    helpful to the companies that are doing this?
        Mr. Dinneen. Yes, if they are indeed, you know, fully
    funded.
        Ms. Biggert. Yeah. I think--are the member companies
    working with DOE?
        Mr. Dinneen. Department of Energy and the Department of
    Agriculture have been terrific in working with the industry on
    a variety of cellulosic research programs.
        Ms. Biggert. Does the cellulosic ethanol or materials
    have--create the same ethanol as from corn. I mean, once it
    gets to be that, it doesn't----
        Mr. Dinneen. At the end of the day, as Mr. Eichberger said,
    ethanol is ethanol is ethanol.
        Ms. Biggert. Okay. Does cellulosic ethanol require less
    water to produce than from corn?
        Mr. Dinneen. I am not sure anybody knows yet, because the
    technology is varied, and is yet not proven.
        Ms. Biggert. Would that be important?
        Mr. Dinneen. Oh, sure. Absolutely. All these resource
    issues are important. And not just for the cellulosic industry.
    I mean, the existing grain ethanol industry is always looking
    for process improvements to reduce not just energy inputs, but
    water inputs as well.

                           Ethanol Fuel Availability

        Ms. Biggert. Well, also coming from Illinois, and I don't
    see too many stations in the metropolitan Chicago area, but
    there certainly are in southern Illinois, where it seems to be
    used quite a bit, but--question for Mr. Eichberger, another
    factor I would think that affects the availability of fuels
    like E-85 is because most all of the--most petroleum
    distributors don't want to put E-85 in--under their canopy
    because, first of all, their suppliers don't make it, and won't
    guarantee it. Do you think that is a factor?
        Mr. Eichberger. That is an issue. Think about this. If you
    sign a contract, and keep in mind, 95 percent of all retail
    locations are independently owned and operated, not affiliated
    with the refining company. If you sign a contract with a
    supplier to sell their brand and they put their canopies up,
    you have to honor that brand. It is just like if you are a fast
    food restaurant and sign a contract with Coke. You can't sell
    Pepsi through a Coke dispenser, so you--a lot of retailers can
    go to a supplier, and get special consideration to put in an E-
    85 dispenser, but really, the primary factor that comes into a
    retailer's decision is what will it do to my bottom line? Take
    into consideration my costs of investment, take into
    consideration what is it going to do to my customer traffic?
        Ms. Biggert. Well, how do we overcome this factor, then?
        Mr. Eichberger. The marketplace factor?
        Ms. Biggert. Well, I--no, I think with the distributors not
    wanting to put it under the canopy in the first place. Are we
    going to have to create a whole new distributor of E-85, or a
    new gas station, or ethanol station, or whatever?
        Mr. Eichberger. No, I don't think there are very many
    retailers out there who have actually been told absolutely no
    by their supplier. If they want to put in E-85, they can talk
    to their supplier, and possibly renegotiate the contract to
    allow it to happen. And that is the reason there are 1,000
    retailers out there that have E-85. They are either privately
    branded, or they are branded with the supplier, but there is
    some room to work with their supplier to do this, but you have
    to talk to them. If you have a contract to sell their brand of
    product, and in order to get out of that contract, you need to
    renegotiate the terms of that contract.
        Ms. Biggert. Which I think might be a factor that makes it
    difficult, and why we are not seeing more of them, but thank
    you, Mr. Chairman. I yield back.
        Chairman Lampson. You are welcome. Thank you very much.
    Before you go, Mr. Bartlett, let me--I am going to give each--
    the privilege of the Chair is going to give each--Mr. Bartlett
    and Mr. McNerney one minute to wrap this thing up, and if you
    all will forgive me for doing a second round today, but I think
    we are going to have opportunity.
        Let me let Mr. McNerney go first.

                         More on Cellulosic Ethanol R&D

        Mr. McNerney. Thanks for your indulgence, Mr. Chair, and
    Ranking Member.
        During the State of the Union, the President sort of held
    out for a long-term hope, and I want to be a part of that hope,
    but the promise of cellulosic ethanol looks to me like
    something that we are not really that close to yet, and what I
    am hoping is that H.R. 547 will help us get there.
        Now, in your opinion, how far does this get us? I mean, is
    it true that in cellulosic ethanol, you need specific
    technology for each kind of crop, or--I mean, there is a lot of
    questions in my mind about how viable this is, in sort of a ten
    year timeframe, or are we actually closer than I am afraid that
    we are not?
        Mr. Dinneen. Congressman, I think we are a lot closer to
    having cellulosic ethanol commercialized than anybody realizes,
    and it may be a variety of technologies. I mean, you could have
    enzymatic conversion of biomass. You could have acid
    hydrolysis. You could have gasification. Those are essentially
    the three different types of technologies, and there are a
    number of companies looking at all three with different
    approaches, and we don't know who is going to be the first to
    crack the code, but it is inconceivable to me, with the amount
    of government and private effort that is going into this that
    it will not happen very soon.
        Chairman Lampson. Thank you, Mr. Dinneen. Mr. Bartlett. Dr.
    Bartlett.

                          More Ethanol Source Concerns

        Mr. Bartlett. Thank you very much. Fifty years ago this
    year, Hyman Rickover gave a very interesting talk, I think in
    Minnesota, to a group of physicians. I think there is a link on
    our website to that. In there, he made two cautions.
        One was when you are going to the bio-world to get fuels,
    and he predicted we would be here today, by the way, you are
    going to the bio-world to get fuels, note that you are going to
    be competing with either food--we are already doing that with
    corn, the price has doubled, because we are competing with
    animal food. Or for the cellulosic ethanol, you are going to be
    competing with the requirement to return organic material to
    soils. Our topsoils are today not increasing in quantity and
    quality, so I am having a little trouble understanding how we
    are going to rob our topsoils of all of this enormous amount of
    biomass to make cellulosic ethanol.
        We will get some, sir, from things that end up in the
    landfill, but be very careful that you are not mining our
    topsoils, and pulling off of them--corn stover, I notice you
    mentioned, you know, that now generally is returned to the
    soils to keep erosion down next year, and to provide till thin
    soils, which holds moisture and holds nutrients for the plant.
    We are going to get something from cellulosic ethanol, but
    nothing near what most exponents of this indicate we will get.
        Mr. Dinneen. Congressman, those are certainly issues that
    we are indeed looking at. Those people that have talked about
    corn stover, for example, aren't talking about taking the
    entire plant. They are talking about taking a third of the
    stover, and returning the rest of it to the soil. Farmers need
    that material for the nutrients that it provides, and they are
    not going to kill the golden goose. So, the industry is very,
    very interested in those issues. And some of the cellulosic
    material that could ultimately be converted would be municipal
    solid waste. So, I mean there are opportunities, and the
    marketplace will ultimately determine what makes the most
    sense, but I believe that ethanol is not the total answer, but
    it is a part of the answer.
        Chairman Lampson. Well, I want to thank all of you for
    appearing before this subcommittee this afternoon.
        Based upon the testimony of this hearing, and the letters
    of endorsement for this legislation, I believe that our
    subcommittee is comfortable with this legislation moving to
    consideration by Full Committee tomorrow morning.
        I understand the bill is likely to be scheduled for
    consideration by the House during the week of February 5 under
    a rule.
        So, at this time, I would also ask unanimous consent to
    have letters of endorsement and other extraneous materials
    related to H.R. 547 included in the record. [The information
    appears in the Appendix.]
        Chairman Lampson. Without objection, so ordered.
        This hearing is adjourned. Thank you all very much.
        [Whereupon, at 3:36 p.m., the Subcommittee was adjourned.]
                                   Appendix:

                                  ----------

                       Additional Material for the Record

    Endorsements