[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


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                                 ______

                  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:

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                   Additional Material for the Record




Endorsements



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