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

                 ALTERNATIVE TRANSPORTATION FUELS: AN OVERVIEW

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

                                    HEARING

                                   BEFORE THE

                     SUBCOMMITTEE ON ENERGY AND AIR QUALITY

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED TENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 APRIL 18, 2007

                                   __________

                               Serial No. 110-31

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

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                        COMMITTEE ON ENERGY AND COMMERCE

        JOHN D. DINGELL, Michigan,       JOE BARTON, Texas
                 Chairman                    Ranking Member
    HENRY A. WAXMAN, California          RALPH M. HALL, Texas
    EDWARD J. MARKEY, Massachusetts      J. DENNIS HASTERT, Illinois
    RICK BOUCHER, Virginia               FRED UPTON, Michigan
    EDOLPHUS TOWNS, New York             CLIFF STEARNS, Florida
    FRANK PALLONE, Jr., New Jersey       NATHAN DEAL, Georgia
    BART GORDON, Tennessee               ED WHITFIELD, Kentucky
    BOBBY L. RUSH, Illinois              BARBARA CUBIN, Wyoming
    ANNA G. ESHOO, California            JOHN SHIMKUS, Illinois
    BART STUPAK, Michigan                HEATHER WILSON, New Mexico
    ELIOT L. ENGEL, New York             JOHN B. SHADEGG, Arizona
    ALBERT R. WYNN, Maryland             CHARLES W. ``CHIP'' PICKERING,
    GENE GREEN, Texas                        Mississippi
    DIANA DeGETTE, Colorado              VITO FOSSELLA, New York
        Vice Chairman                    STEVE BUYER, Indiana
    LOIS CAPPS, California               GEORGE RADANOVICH, California
    MIKE DOYLE, Pennsylvania             JOSEPH R. PITTS, Pennsylvania
    JANE HARMAN, California              MARY BONO, California
    TOM ALLEN, Maine                     GREG WALDEN, Oregon
    JAN SCHAKOWSKY, Illinois             LEE TERRY, Nebraska
    HILDA L. SOLIS, California           MIKE FERGUSON, New Jersey
    CHARLES A. GONZALEZ, Texas           MIKE ROGERS, Michigan
    JAY INSLEE, Washington               SUE WILKINS MYRICK, North Carolina
    TAMMY BALDWIN, Wisconsin             JOHN SULLIVAN, Oklahoma
    MIKE ROSS, Arkansas                  TIM MURPHY, Pennsylvania
    DARLENE HOOLEY, Oregon               MICHAEL C. BURGESS, Texas
    ANTHONY D. WEINER, New York          MARSHA BLACKBURN, Tennessee
    JIM MATHESON, Utah
    G.K. BUTTERFIELD, North Carolina
    CHARLIE MELANCON, Louisiana
    JOHN BARROW, Georgia
    BARON P. HILL, Indiana

                               Professional Staff

     Dennis B. Fitzgibbons, Chief of
                   Staff
    Gregg A. Rothschild, Chief Counsel
       Sharon E. Davis, Chief Clerk
       Bud Albright, Minority Staff
                 Director

                                      (ii)
                     Subcommittee on Energy and Air Quality

                        RICK BOUCHER, Virginia, Chairman
    G.K. BUTTERFIELD, North Carolina,    J. DENNIS HASTERT, Illinois,
        Vice Chairman                         Ranking Member
    CHARLIE MELANCON, Louisiana          RALPH M. HALL, Texas
    JOHN BARROW, Georgia                 FRED UPTON, Michigan
    HENRY A. WAXMAN, California          ED WHITFIELD, Kentucky
    EDWARD J. MARKEY, Massachusetts      JOHN SHIMKUS, Illinois
    ALBERT R. WYNN, Maryland             JOHN B. SHADEGG, Arizona
    MIKE DOYLE, Pennsylvania             CHARLES W. ``CHIP'' PICKERING,
    JANE HARMAN, California                  Mississippi
    TOM ALLEN, Maine                     STEVE BUYER, Indiana
    CHARLES A. GONZALEZ, Texas           MARY BONO, California
    JAY INSLEE, Washington               GREG WALDEN, Oregon
    TAMMY BALDWIN, Wisconsin             MIKE ROGERS, Michigan
    MIKE ROSS, Arkansas                  SUE WILKINS MYRICK, North Carolina
    DARLENE HOOLEY, Oregon               JOHN SULLIVAN, Oklahoma
    ANTHONY D. WEINER, New York          MICHAEL C. BURGESS, Texas
    JIM MATHESON, Utah                   JOE BARTON, Texas (ex officio)
    JOHN D. DINGELL, Michigan (ex
        officio)

                               Professional Staff

                         Sue D. Sheridan, Chief Counsel
                           Lorie J. Schmidt, Counsel
                        Bruce C. Harris, Policy Advisor
                      David J. McCarthy, Minority Counsel

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Rick Boucher, a Representative in Congress from the
      Commonwealth of Virginia, opening statement....................     1
    Hon. J. Dennis Hastert, a Representative in Congress from the
      State of Illinois, opening statement...........................     3
    Hon. G.K. Butterfield, a Representative in Congress from the
      State of North Carolina, opening statement.....................     4
    Hon. John Shimkus, a Representative in Congress from the State of
      Illinois, opening statement....................................     5
    Hon. John D. Dingell, a Representative in Congress from the State
      of Michigan, opening statement.................................     6
    Hon. Charles W. ``Chip'' Pickering, a Representative in Congress
      from the State of Mississippi, opening statement...............     6
    Hon. Jane Harman, a Representative in Congress from the State of
      California, opening statement..................................     7
    Hon. Joe Barton, a Representative in Congress from the State of
      Texas, prepared statement......................................     9
    Hon. Jay Inslee, a Representative in Congress from the State of
      Washington, opening statement..................................    13
        Submitted material...........................................    15
    Hon. Michael C. Burgess, a Representative in Congress from the
      State of Texas, opening statement..............................    18
    Hon. Darlene Hooley, a Representative in Congress from the State
      of Oregon, opening statement...................................    18

                                   Witnesses

    John Ward, vice president, Headwaters Incorporated...............    19
        Prepared statement...........................................    22
    Donald W. Maley, Jr., vice president, Leucadia International
      Corporation....................................................    33
        Prepared statement...........................................    35
    Brian Foody, chief executive officer, Iogen Corporation..........    49
        Prepared statement...........................................    51
    Scott Hughes, director, government affairs, National Biodiesel
      Board..........................................................    57
        Prepared statement...........................................    60
    Phil Lampert, executive director, National Ethanol Vehicle
      Coalition......................................................    65
        Prepared statement...........................................    67
    Alexander E. Farrell, assistant professor of energy and
      resources, and director, Transportation Sustainability Research
      Center.........................................................    72
        Prepared statement...........................................    75

                 ALTERNATIVE TRANSPORTATION FUELS: AN OVERVIEW

                                  ----------

                           WEDNESDAY, APRIL 18, 2007

                  House of Representatives,
                         Subcommittee on Energy
                                       and Air Quality,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:15 a.m., in
    room 2123 of the Rayburn House Office Building, Hon. Rick
    Boucher (chairman) presiding.
        Members present: Representatives Butterfield, Barrow,
    Waxman, Wynn, Doyle, Harman, Gonzalez, Inslee, Baldwin, Ross,
    Hooley, Matheson, Dingell, Hastert, Hall, Upton, Shimkus,
    Shadegg, Pickering, Burgess and Barton.
        Staff present: Bruce Harris, Lorie Schmidt, Laura Vaught,
    Chris Treanor, Margaret Horn, David McCarthy, Tom
    Hossenbochler, and Peter Kielty.

      OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN
               CONGRESS FROM THE COMMONWEALTH OF VIRGINIA

        Mr. Boucher. The subcommittee will come to order.
        This morning we begin a series of hearings on ways to
    achieve a higher degree of American energy self-reliance. Our
    goal is to make a legislative contribution to the Independence
    Day measures which the Speaker has announced that the House
    will consider in the mid-summer time frame. This committee's
    contribution to that effort will consist of legislation to
    encourage domestic alternatives to petroleum for transportation
    fuels and energy efficiency and conservation measures that will
    reduce energy consumption.
        Until today, the subcommittee has been focused exclusively
    on a U.S. response to the challenge of climate change. I would
    underscore again this morning that we will propose a mandatory
    control program for greenhouse gas emissions and later this
    year report that measure for consideration by the House during
    the fall time frame. The climate change control program will
    not be a part of the mid-summer energy independence agenda.
    Instead, climate change legislation will be taken up during the
    period September-October this year, taken up on the floor
    during that period.
        Today, as we begin our focus on this committee's
    contribution to energy independence, we examine transportation
    fuels and ways to develop domestic alternatives. Later hearings
    in this series will focus on energy efficiency and
    conservation.
        Our Nation has an unhealthy reliance on petroleum, 60
    percent of which is imported from other countries and much of
    that importation comes from some of the least politically
    stable places in the world. In my view, our need to protect the
    flow of petroleum ties our hands diplomatically and makes it
    difficult for the United States to assert its larger national
    interests in a broad range of international policies. Our
    reliance on oil imports involves us in conflicts that we would
    be better served to avoid. And so both for our economic
    security and for our national security, we must exert maximum
    effort to develop domestic alternatives to petroleum for
    powering transportation.
        Over the long term, we can anticipate that more of
    transportation will be electrically powered through fuel cells
    and through plug-in hybrids. In the near term, ethanol, both in
    the corn-based and cellulosic varieties, holds great promise.
    The future use of biodiesel also holds promise. This morning we
    will examine this role this committee can play in advancing
    those promising alternatives.
        We will also focus this morning on another promising
    alternative. In the coming days, I will join with our Illinois
    colleague, Mr. Shimkus, and other interested members of this
    subcommittee, our full committee and the House in introducing
    legislation to promote the launch of a domestic industry to
    produce a liquid fuel derived from coal. Since the days of
    World War II, coal-to-liquid processes have been in use. Today
    South Africa derives a substantial portion of its
    transportation fuels from coal. The technology to convert coal
    to a liquid fuel is well understood and the process is
    commercially feasible when the world price of oil is at $40 per
    barrel or higher. While today's process is well above $40,
    there is hesitation in the investor community about the long-
    term outlook for oil prices. A large portion of today's oil
    price is political risk. The resolution of diplomatic
    differences in the Middle East, for example, could lend greater
    assurance to the future export of oil to the world market and
    create downward pressure on the world price of oil. This
    uncertainty about future oil prices has inhibited the
    investment of private capital in coal-to-liquids facilities in
    the United States. Legislation which Mr. Shimkus and I will
    introduce will serve to bolster investor confidence and pave
    the way for the launch of a U.S.-based coal-to-liquids
    industry.
        I want to thank Mr. Shimkus for his partnership with me on
    this measure, which is an important step in our effort to
    achieve a higher degree of energy self-reliance.
        This morning we will welcome testimony from our witnesses
    on the future of ethanol, coal-to-liquids and biodiesel, and
    suggestions for the role of Government policy in order to
    advance each. President Bush announced, in his State of the
    Union address, a goal of consumption in this Nation of 35
    billion gallons of alternative fuel per year by the year 2020.
    Today we consume approximately 5\1/2\ billion gallons of
    ethanol and so the President's goal is ambitious but in my
    view, it needs to be achieved. Each of the approaches we will
    examine this morning can help us to achieve it.
        So I want to say welcome to our witnesses. Thank you for
    joining us and sharing your views. We will hear from you
    shortly.
        Now it is my privilege to recognize the ranking Republican
    member of our subcommittee, the gentleman from Illinois, Mr.
    Hastert.

     OPENING STATEMENT OF HON. J. DENNIS HASTERT, A REPRESENTATIVE
                 IN CONGRESS FROM THE STATE OF ILLINOIS

        Mr. Hastert. Thank you, Chairman Boucher, for holding this
    important hearing on the future of alternative transportation
    fuels.
        Let me begin by expressing my condolences to the families
    and students of Virginia Tech. That university has certainly
    suffered. My thoughts and prayers are with those victims, the
    families and all your constituents. Mr. Chairman, I know you
    will find the strength and your folks will find the strength as
    a community to cope with this horrific event.
        I would like to thank again each of these witnesses today
    for being here to share their thoughts and insights and
    increasing our Nation's use of alternative transportation
    fuels. I have always believed good energy policy is good
    environmental policy and that the reverse is also true. Good
    environmental policy should be good energy policy. Increasing
    the use of alternative transportation fuels accomplishes just
    that. It provides our Nation with greater energy independence
    while at the same time offering a positive environmental
    impact.
        The key to our future energy security is technological
    innovation and commercial deployment. Take coal, for example.
    There is more coal underneath Gillette, WY, or southern
    Illinois or western Virginia or southern Indiana than anywhere
    in Iran or Saudi Arabia but that energy happens to be coal.
    With the abundance of coal in this country, we need to continue
    to push the development and deployment of coal-to-liquid
    technology. And although CTL technology is not new, there are
    still uncertainties regarding its economic viability. Most of
    the uncertainty centers on the fact that the U.S. has not built
    a large-scale commercial CTL facility. It is my belief,
    however, that we can solve this problem and prove the long-term
    viability of this fuel.
        As many of you know, the Air Force is currently testing the
    use of CTL fuels in their planes. So far these tests have been
    successful. Congress should step forward now and allow the
    Defense Department to enter into a long-term agreement to
    purchase CTL fuel. Such an agreement will provide the economic
    certainty needed to draw investment into CTL facilities. As
    these facilities are built, economies of scale will then work
    to lower the cost of the fuel and make it available for others
    to use in commercial aircraft, trains and passenger cars. For
    the long-term security of America, I would much rather worry
    about who is the next mayor of Gillette, WY, instead of who is
    the next ruler of Iran. Imagine the benefits of being able to
    rely on millions of barrels of clean diesel produced right here
    at home to meet our transportation needs rather than oil from
    an unreliable foreign source.
        Like coal, America has an abundant source of renewable
    clean bio-based fuels like ethanol and soy diesel. In the past
    few years we have made tremendous strides in the use of these
    fuels yet we can still do more. In order to make ethanol a
    larger part of our fuel mix, we need to continue research into
    increasing the yield of ethanol from corn, push the development
    of cellulosic sources of ethanol and get the infrastructure in
    place to make the ethanol more widely available. America
    already has the energy resources it needs for its future energy
    security. It is in every cornfield in Illinois and every coal
    mine in Virginia. The question becomes whether we do what is
    necessary in the form of policy to provide the means to make
    these sources more widely available and economically viable.
        In the long run, Mr. Chairman, energy security is national
    security. Loan guarantees, long-term purchase agreements,
    investments in research and other incentives to increase the
    sources of domestically produced alternative fuels gives
    America an opportunity to claim our energy independence back
    from the unstable foreign sources we have become so reliant
    upon. It refocuses our priorities on cleaner, safer, less-
    expensive sources of energy and puts us on the path of energy
    independence.
        Thank you, and I yield back the balance of my time.
        Mr. Boucher. Thank you very much, Mr. Hastert, and I
    particularly appreciate your expression of condolence for the
    loss that we experienced earlier this week.
        I have to go to the floor in order to take part in the
    passage of a resolution about that very subject and I am going
    to ask the vice chairman of our subcommittee, the gentleman
    from North Carolina, Mr. Butterfield, to assume the chair and
    he actually will be giving the next opening statement and can
    begin by recognizing himself.

    OPENING STATEMENT OF HON. G.K. BUTTERFIELD, A REPRESENTATIVE IN
               CONGRESS FROM THE STATE OF NORTH CAROLINA

        Mr. Butterfield [presiding]. Thank you very much, Chairman
    Boucher, and we wish you well as you go to the floor to pay
    tribute to those lives that were lost in the State of Virginia.
        I too want to thank the chairman of this committee for
    convening this important hearing today. It is absolutely
    critical that we begin this discussion and debate. We cannot
    afford to delay it any longer.
        I want to thank the witnesses for coming forward today. I
    have looked at each one of your bios and each of you brings a
    credential to this committee that is very important. We are
    committed on this committee to develop bipartisan legislation
    that will put us on the path to energy independence and to do
    it within the foreseeable future and so I want to thank you for
    your testimonies. I look forward to what you have to say. We as
    a government cannot do this alone. We are going to need the
    participation of the energy sector to resolve this problem.
    Certainly we are going to do our part in making the resources
    available and developing the policy that needs to be developed
    but we are going to have to depend on each one of you to help
    us in this process, and so thank you very much for coming.
        The American people are beginning to pay attention to this
    issue. We in this country are 5 percent of the world yet we
    consume 25 percent of the energy, and in the transportation
    sector, 28 percent of transportation fuels are being used or
    devoted to transportation fuels and we must reduce this figure
    and we must do it significantly, so thank you very much for
    coming.
        We are now going to have opening statements from some of
    the other members. At this time the chair recognizes Mr. Upton,
    the gentleman from Michigan.
        Mr. Upton. I am going to defer and claim the 3 minutes
    later. Thank you, Mr. Chairman.
        Mr. Butterfield. The gentleman defers.
        Mr. Shimkus, and as the chairman mentioned a moment ago,
    you are going to see legislation introduced any day now, the
    Boucher-Shimkus Act. Is that what we call it?
        Mr. Shimkus. I hope we get you as an original cosponsor.
        Mr. Butterfield. I look forward to joining with you. The
    gentleman is recognized.

      OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF ILLINOIS

        Mr. Shimkus. Thank you. I hesitate to do an opening
    statement, but when I read the committee briefing, the full
    committee briefing, it really reminded me about how we can as
    legislators affect public policy in a very important way. If
    you believe that we are over-reliant on imported crude oil, you
    don't have to go back very far in history to see some
    successes. The 1992 Clean Air Act really was a segue for
    ethanol to get its foot in the door. I wasn't here then. But I
    was here in 1997-98 and I think it was 1998 that I joined with
    Karen McCarthy, Democrat from this committee, and we were
    successful in changing EPACT to include biodiesel as a credible
    item for fuel mix, which really changed the dynamics of that
    industry and I think have got a long way to go to catch up with
    the success we have done in the ethanol area but it is a great
    product that we should take great credit. And I wanted to
    remember Karen in this debate because that was one that
    President Clinton signed. I remember walking over to the Senate
    floor with Karen to lobby an Arkansas Senator to let the bill
    move and so that was a success, and I hope that in this world
    environment when we are really frustrated with our reliance on
    imported crude oil that we can use the same type of work that
    we have in other past pieces of legislation and really help
    make another dent in our reliance on imported crude oil, and
    that is why I am honored to be working with the chairman of the
    subcommittee who everyone acknowledges is an expert in the
    field, a diligent legislator and a good friend. As we move that
    legislation, we do hope that people will get a good look at it
    and that we work with them to help perfect it to a point where
    we can move it expeditiously to the floor.
        I am a supply guy, and the more supply you have, the lower
    the cost, and we are just tired of being held hostage by the
    international community, especially areas of the world. I am a
    big democracy freedom guy. I talked at a class last night and I
    said, if we are going to be all over the world to fight for
    democracy, freedom and the global war on terror, let us let it
    be about that issue, and let us not have another side debate,
    well, we are really there for oil, and you all can help us get
    there. I look forward to your testimony.
        Mr. Chairman, I yield back my time.
        Mr. Butterfield. The gentleman yields back.
        At this time the chair is pleased to recognize the chairman
    of the full committee, my friend from the State of Michigan,
    Mr. Dingell.

    OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF MICHIGAN

        Chairman Dingell. Mr. Chairman, I thank you for your
    courtesy and I commend you for holding this important hearing.
        Today the committee will turn its attention to alternative
    transportation fuels, a topic that has frequently been at the
    center of the committee's work on energy issues. Our country's
    dependence on foreign sources of energy is a well-known
    deficiency in our energy policy and has been so for decades.
    According to the Energy Information Agency, EIA, in 2005 the
    U.S. consumed approximately 20 million barrels of crude oil per
    day, 60 percent of which was imported. Alternatives to
    petroleum-based transportation fuel are a critical component of
    enhancing our Nation's energy security.
        This committee advanced the cause of alternative fuels in
    the Energy Policy Act of 2005 by creating the renewable fuel
    program which required that a certain percentage of our retail
    gasoline supply be comprised of renewable fuel. By most
    assessments, that program has been a success. For 2006, the
    program required gasoline supply to contain a minimum of 4
    billion gallons of renewable fuel. Thanks to the productivity
    of American agriculture and the ingenuity of the entrepreneurs
    who joined this emerging market, the number of gallons actually
    produced in 2006 was 5 billion gallons. Most analysts agree
    that we will meet the 2012 requirement for 7.5 billion gallons
    much sooner than required by law. All this is good news. The
    question now becomes what else should we do to encourage the
    use of alternative fuels. I note the vast majority of ethanol
    produced in the country is derived from corn kernels but there
    are other feedstocks that can play an important part in ethanol
    production such as cellulose. In addition, there are other
    alternative fuels that we should examine to see what role they
    can play in our fuel mix including biodiesel and liquids fuels
    derived from coal. We have witnesses here today who can speak
    to these issues. Another witness will examine the various
    impacts of alternative fuels on climate change, a critical
    perspective given this committee's focus on climate policy, and
    I look forward to their testimony.
        There are other issues that I hope the subcommittee will
    continue to examine in future hearings. We must find ways to
    increase biofuels infrastructure so that more than 6 million
    consumers who already own flexible-fuel vehicles can actually
    purchase the alternative fuel and that the alternative fuel is
    available in the marketplace. We must also continue to examine
    ways to increase the number of flexible-fuel vehicles. Any
    action on these issues must also account for how they can
    affect our broader efforts to address climate change and
    enhance energy security.
        I want to thank you again, Mr. Chairman, and I look forward
    to the testimony of our witnesses, whom I welcome at this time.
        Thank you. I yield back the balance of my time.
        Mr. Butterfield. Thank you very much, Mr. Chairman, and the
    gentleman yields back.
        At this time the chair recognizes Mr. Pickering from
    Mississippi.

      OPENING STATEMENT OF HON. CHARLES W. ``CHIP'' PICKERING, A
        REPRESENTATIVE IN CONGRESS FROM THE STATE OF MISSISSIPPI

        Mr. Pickering. Mr. Chairman, I thank you for this hearing
    and I look forward to the testimony of the panel.
        This is a critical issue of gaining energy independence and
    security and enhanced supply. In my home State of Mississippi,
    we are doing everything from ethanol to clean coal to nuclear
    to traditional fuels to animal waste, to fish waste, poultry
    waste, wood waste. Mississippi State has the leading patent on
    converting wastewater, sewage, into a biofuel. This is an
    exciting time for us to have a transformation of energy in the
    country that powers the way our country runs, our homes, our
    lives, and I think that this is a good time to find common
    ground and consensus on both sides of the aisle to achieve a
    very important security and economic objective for the country.
        Thank you, Mr. Chairman.
        Mr. Butterfield. Thank you.
        At this time the chair recognizes the gentlelady from
    California, Ms. Harman.

      OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Ms. Harman. Thank you, Mr. Chairman, and good morning to
    our witnesses. The tragedy at Virginia Tech shows us just how
    fragile we are, a campus in a peaceful part of the country
    could all of a sudden be the site of a violent massacre.
        The subjects we are addressing today may not be as sudden
    but surely they show us too how fragile we are, and it is our
    responsibility, and I hope we will rise to it on a bipartisan
    basis to do something about it. I drive hybrid vehicles on both
    coasts and I applaud the breakthroughs the auto industry has
    made in recent years, many of them actually developed at Toyota
    and Honda facilities in my district.
        As my colleagues have pointed out, transportation in the
    age of global warming and in the age of terrorism requires a
    wholly new approach to how we power our cars and trucks. The
    automakers can give us the engines but the fuel producers must
    meet them halfway. Bringing alternative fuels to market depends
    on fuel production and fuel infrastructure. Without more
    ethanol pumping stations--presently there are only about 1,100,
    mostly located in a handful of midwestern States--we cannot
    expect to see more flex-fuel vehicles on the road.
    Manufacturers won't make them and the public won't buy them.
        We should also explore synergies between transportation
    fuels and other clean energy initiatives. In Carson,
    California, just outside my district, BP and GE are building a
    carbon capture and sequestration coal power plant that can also
    produce hydrogen. Plants like these can produce raw materials
    for hydrogen fuel cell vehicles and lay the groundwork for
    their commercialization years from now. This kind of creative
    thinking should color our policymaking. I look forward in the
    near future to driving my granddaughter Lucy around in a
    vehicle fueled with cellulosic ethanol and other alternative
    fuels. I hope that by the time she is old enough to drive
    herself, the alternative will be the mainstream.
        I yield back.
        Mr. Butterfield. Thank you.
        I understand that we have been joined by the ranking member
    of this committee, the distinguished gentleman from Texas, Mr.
    Barton.
        Mr. Barton. Thank you, Mr. Chairman. I will put my
    statement in the record and pass.
        I do want to extend my prayers with everybody else's for
    Congressman Boucher and his constituents at Virginia Tech.
        I yield back.
        [The prepared statement of Hon. Joe Barton follows:]

        [GRAPHIC] [TIFF OMITTED] T0203.001

        [GRAPHIC] [TIFF OMITTED] T0203.002

        [GRAPHIC] [TIFF OMITTED] T0203.003

        [GRAPHIC] [TIFF OMITTED] T0203.004

        Mr. Butterfield. I thank the gentleman for his comments.
        At this time the chair recognizes the gentleman from the
    State of Washington, Mr. Inslee.

       OPENING STATEMENT OF HON. JAY INSLEE, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF WASHINGTON

        Mr. Inslee. Thank you. I just hope that we look at these
    hearings with a sense of great optimism. I think it is
    warranted. The technological advances are truly remarkable and
    we are going to be able to skin this cat of global warming, I
    believe, with the technologies, some of which we will hear
    about today.
        I think I am the first Congressman to drive on the Hill a
    plug-in hybrid 2 weeks ago. You get 150 miles per gallon on the
    gasoline and have electricity for the first 40 miles at a penny
    a mile, and that will be commercially available this fall from
    A-123 Battery Company, and of course, GM has plans several
    years from now. There are just tremendous things going on. But
    the one caution I want to note is that all men are created
    equal but not all fuels are created equal, and right now we
    have a renewable fuels standard that essentially doesn't
    distinguish in the global warming characteristics of fuel, and
    I think that is an enormous loophole that we have to close. I
    will be introducing a bill here shortly to introduce a fuel
    standard to make sure that our alternative fuels are
    alternative with a capital A when it comes to global warming.
    We do have limited resources to invest in our future and we
    have to do it with fuels that will in fact skin the cat of
    global warming as well as national security, and I think we
    will need to have a standard that recognizes that.
        Now, that leads to this discussion of coal-to-liquids, and
    I hope that my fellow members will educate themselves about
    what this really means because I will be putting into the
    record a document from the EPA that shows that coal-to-liquids
    without sequestration actually has 118 percent more carbon
    dioxide, more global warming gas, comes out from a gallon of
    coal-to-liquids than gasoline, 118 percent in the wrong
    direction. If you do sequester the CO\2\ that is generated
    during the process of making a gallon of coal-to-liquid, you
    are still, according to this chart, 3.7 percent worse than
    gasoline on CO\2\, and I have to tell you, I have great qualms
    about spending large amounts of taxpayer dollars to develop a
    whole new industry that is going to be worse than gasoline. We
    have to reduce our CO\2\ emissions by 80 percent ultimately by
    2050 to avoid distinct problems in our climate, and to start a
    new industry that will actually go backwards on carbon dioxide
    emissions. I have real qualms about that, and I think we are
    going to have to have a discussion about that and I hope our
    members will acquaint themselves. Coal-to-liquids with existing
    technology, and I stand to be educated if I am wrong, cannot be
    considered a green technology. It can help us with our energy
    security issues, but to do one but go backwards in the other, I
    have great concerns about. That is even assuming we can
    sequester all the CO\2\ during this development, which is an
    unknown at this point. I am hopeful that we can but it is still
    an unknown.
        So I think that is worthy of discussion. I look forward to
    the testimony today and get to a point where we can really
    develop alternative fuels that will deal with global warming.
        Thank you.
        [The EPA document follows:]

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        Mr. Butterfield. Thank you.
        The gentleman from Texas, Mr. Burgess.

    OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE
                  IN CONGRESS FROM THE STATE OF TEXAS

        Mr. Burgess. Thank you, Mr. Chairman.
        It is really exciting to sit on this committee and hear all
    of the initiatives that are happening across the country, so I
    am going to tell you one that is happening in my backyard in
    Denton, TX, with Biodiesel Industries. This is a real exciting
    time for me because this small company uses the recovered
    methane gas from a landfill to power their heaters that
    saponifies the fat in the process, and I don't completely
    understand but what a great deal. In Texas, a well-prepared
    chicken-fried steak--I am a physician so I can say this with
    medical authority but a well-prepared chicken-fried steak will
    count as two of our five servings of vegetables on a daily
    basis so we do have a lot of restaurant grease to dispose of,
    and the great thing about Biodiesel Industries is, they go
    around to restaurants around the Dallas-Fort Worth metroplex,
    collect this restaurant grease and recycle it and sell it as B-
    20. The primary customers are people who want the B-20
    biodiesel because of the lubricity that the bio part of the
    biodiesel provides in the diesel engines that are manufactured
    to run on low-sulfur diesel, so in fact there are flex-fuel
    vehicles already coming off the lines and even our Peterbilt
    plant there in Denton is starting to use the new Cumins engine
    which will accept biodiesel. So this is a great story that is
    happening back home. My one concern is that the renewable
    diesel is eligible for $1 per gallon tax credit while the
    biodiesel created from restaurant grease is only eligible for a
    50-cent-per-gallon tax credit. So I introduced legislation,
    H.R. 927, that would provide parity for biodiesel produced from
    recycled restaurant grease and of course we have got a lot of
    that in Texas.
        Cellulosic ethanol, I love the concept. Humans ought to be
    smart enough to do what a termite can do with its salivary
    gland. All the time we start our presidential processes in
    Iowa. I suspect we are going to have a starch-based source of
    ethanol but I am excited about the prospect of being able to
    use the more abundant cellulosic feedstock for ethanol
    production in this country. But it is an exciting time and it
    is because of American exceptionalism, it is because of
    American ingenuity. I applaud the work that you all do.
        Mr. Chairman, I will yield back.
        Mr. Butterfield. Thank you, Dr. Burgess.
        At this time the chair recognizes the gentlelady from
    Oregon, Ms. Hooley.

     OPENING STATEMENT OF HON. DARLENE HOOLEY, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF OREGON

        Ms. Hooley. Thank you, Mr. Chairman. I too would like to
    add my words of sympathy to not only the Members that serve
    that area but all the families of the students, the horrible
    tragedy that happened.
        I would like to thank all of our witnesses for being here
    today. There is just really one thing I want to say. As we talk
    about becoming energy independent for national security
    reasons, I think it is absolutely imperative as we look at new
    technologies, we look at new ways of making fuels that we look
    at not only the upside but the downside. Right now corn is a
    hot commodity. We have a lot of people making a lot of money
    off of corn, they are turning it into ethanol. But at what
    point are we driving up the food prices and how much land do
    you have to put in to really provide enough corn to produce
    enough fuel so it is a viable source. I just think it is
    important whether we are looking at coal-to-liquids, we are
    looking at ethanol, looking at biomass, we are looking at any
    of the alternative fuels that we also understand not only the
    upside of it but the downside of it, and we understand what the
    consequences are and I think it is really important as we go
    through all of these issues because not only are we looking at
    energy independence for security purposes but we are also
    looking at global warming and how to deal with that, and I
    would hope today that as you testify, that you talk about not
    only the great things that can happen with this but also what
    some of the downsides are that can happen with it.
        So I look forward to your testimony today. Thank you very
    much for being here.
        Mr. Butterfield. I thank the gentlelady.
        Are there any other opening statements that we have
    omitted?
        That completes the opening statements. At this time I am
    pleased to introduce our panel for this morning. First we are
    going to hear from Mr. John Ward, who is the vice president of
    Headwaters Incorporated, and incidentally, he is also a
    constituent of our good friend from Utah, Mr. Matheson.
    Following Mr. Ward's testimony, we will hear from Mr. Donald
    Maley, Jr., who is the vice president of Leucadia
    International. Next will be Mr. Brian Foody. Mr. Foody is the
    chief executive of Iogen Corporation. I am from the South, I
    may not have pronounced that correctly, but I think it is Iogen
    Corporation. We will then hear from Scott Hughes, who is the
    director with the National Biodiesel Board. Then we will hear
    from Mr. Phil Lampert, who is executive director of the
    National Ethanol Vehicle Coalition. Finally, we will hear from
    Dr. Alexander Farrell, who is assistant professor and director
    of the Transportation Sustainability Research Center at the
    University of California at Berkeley. Gentlemen, your full
    statements will be made part of the hearing record and at this
    time you will each be recognized for 5 minutes.
        Mr. Ward, we will begin with you.

    STATEMENT OF JOHN WARD, VICE PRESIDENT, HEADWATERS INCORPORATED

        Mr. Ward. Thank you, Mr. Chairman. Honorable members of the
    committee, I am John Ward, vice president of Headwaters on
    whose behalf I am testifying today. I also serve as immediate
    past president of the American Coal Council and as a member of
    the National Coal Council as appointed by the Secretary of
    Energy.
        Headwaters is a member of the Coal-to-Liquids Coalition.
    This is a broad group of industry, labor, energy technology
    developers and consumer groups. The coalition is interested in
    strengthening U.S. energy independence through greater
    utilization of domestic coal to produce clean transportation
    fuels.
        The opening statements have done an excellent job of
    reminding us of the hazards of dependence on foreign oil and
    the abundance of our own coal here in the United States and
    also the need to develop future energy resources in an
    environmentally responsible way. Coal-to-liquids has an
    opportunity to help us in all of those areas. My written
    testimony includes more detailed information about the history
    of coal-to-liquids technology and the types of technologies
    that exist today.
        I will summarize by pointing out that any product that can
    be made from oil can be made from coal. Coal-to-liquids
    technologies are already proven and they are being deployed at
    commercial scale overseas. They are economically competitive
    when oil prices are above about $40 a barrel, and oil prices
    are above $60 a barrel today. In the United States, potential
    coal-to-liquids projects are being discussed in at least 15
    different States. From a product perspective, coal-to-liquids
    refineries make the same range of products as petroleum-based
    refineries. This includes gasoline, diesel fuel, jet fuel and
    chemical feedstocks. These fuels can be distributed in today's
    pipelines. They can be used directly in today's cars and trucks
    and buses and trains and airplanes without modifications to the
    engines. Fuels produced by coal-to-liquids processes are
    exceptionally clean when compared to today's petroleum-derived
    transportation fuels. Coal-to-liquids fuels contain
    substantially no sulfur and exhibit lower particulate and
    carbon monoxide emissions. These fuels also contribute less to
    the formation of nitrogen oxide then the petroleum-derived
    fuels and they are readily biodegradable. Coal-to-liquids
    refineries generate carbon dioxide in a highly concentrated
    form that allows for carbon capture and storage. Coal-to-
    liquids refineries equipped with carbon dioxide capture and
    storage can produce fuels with life cycle greenhouse gas
    emissions profiles that are as good as or better than
    petroleum-derived fuels.
        Although coal-to-liquids projects are economically viable
    in today's oil price environment, there are still significant
    hurdles to get the first projects built. For the first plants,
    financial institutions will be reluctant to fund multi-billion-
    dollar projects without significant technology and market
    performance guarantees. This includes some assurance that
    plants will not be rendered uneconomic by oil-producing nations
    or cartels that may seek to artificially reduce oil prices just
    long enough to prevent the formation of this new competitive
    industry.
        Other nations are moving forward more aggressively than we
    are to deploy coal-to-liquids technologies. In China, for
    instance, the government has already committed more than $30
    billion to commercialization of coal liquefaction technologies
    and the construction of the first plants has already begun.
        Now, as long as oil prices remain high or climb higher,
    market forces will lead to the development of a coal-to-liquids
    infrastructure in the United States but that development will
    come slowly and in measured steps. If for energy security
    reasons the United States would like to speed the development
    of a capability for making transportation fuels from our most
    abundant domestic energy resource, then incentives for the
    first coal-to-liquids projects are appropriate.
        Now, one example of incentives, Chairman Boucher and
    Congressman Shimkus have publicly discussed an approach that
    would establish a oil-price collar to guide the government's
    investment. If oil prices were to drop below a specified level,
    the United States would make payments to coal-to-liquids
    projects that are participating in the program to ensure their
    viability, and alternatively, if oil prices rose above a
    certain level, those projects would pay back to the Federal
    Government. Properly constructed, such a program could have a
    meaningful impact on addressing the market risks associated
    with fluctuating oil prices.
        The Coal-to-Liquids Coalition has also identified five
    specific actions the Federal Government can take to overcome
    deployment barriers. More-detailed descriptions are in my
    written testimony, but in summary, they include front-end
    engineering and design assistance, providing purchases of fuels
    by the Department of Defense and other Federal agencies,
    extending the excise tax credit treatment for coal-derived
    fuels, loan guarantees and investment tax credits.
        The advantages to developing a coal-to-liquids capability
    in the United States are numerous. Some of the billions of
    dollars we now send overseas to buy oil would be kept at home
    to develop American jobs using American energy resources. We
    could expand and diversify our liquid fuels production and
    refining capacity using technologies that are already proven.
    We would produce clean-burning fuels that can be distributed
    throughout existing pipelines and service stations to fuel our
    existing vehicles with no modifications to their engines and we
    would take a real and immediate step towards greater energy
    security.
        Thank you for the invitation to testify and for your
    interest in this important topic. I will be happy to answer any
    questions at the appropriate time.
        [The prepared statement of Mr. Ward follows:]

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        Mr. Butterfield. The witness is thanked.
        Mr. Maley.

      STATEMENT OF DONALD W. MALEY, JR., VICE PRESIDENT, LEUCADIA
                INTERNATIONAL CORPORATION, NEW YORK, NY

        Mr. Maley. Good morning, Mr. Chairman and members of the
    committee. My name is Don Maley. I am a vice president at
    Leucadia National Corporation based in New York. First of all,
    I would like to apologize for my attire. I was in Indianapolis
    yesterday expecting to fly home to New York last night before
    coming down here, and the weather in New York caused a 3-hour
    delay and then cancellation of my flight and so here I am today
    in casual attire, which is all I had.
        Mr. Butterfield. If there is any group that would
    understand, it is this group, so it is alright.
        Mr. Maley. Thank you very much, Mr. Chairman.
         Leucadia National Corporation is a holding company with
    investments in a wide variety of different industries. Energy,
    mining, manufacturing, real estate, health care are a few
    examples of some of our investments. My background, I have been
    with Leucadia for 7 years now. I am responsible for our energy
    investments. Prior to that time, I spent 22 years as an energy
    banker working on large energy projects around the world. For
    the last 5 years I have been focused on gasification as a
    technology that we think holds a lot of promise. Some of the
    things that we like about gasification is that it promotes
    economic development. When we go into a community, we see
    strong support for the development of these kinds of projects.
    It is using out natural energy resources in the United States
    so it is promoting energy independence and the technology is
    doing it in an environmentally advanced way, which we think is
    an important part of the puzzle.
        Currently, we are in development of four projects around
    the United States. One of our projects is a coal-to-liquids
    project located in Illinois. We are working on a pipeline-
    quality natural gas project in Indiana using Indiana coal, that
    we gasify that coal. We are working on a similar project in
    Louisiana. That project, however, would take petroleum coke to
    make the pipeline-quality natural gas. And then lastly, we are
    working on a project in Texas that would again take petroleum
    coke but use it to make feedstocks for chemicals for industrial
    use.
        What I would like to address today is, I would really like
    to differentiate the three other projects we are working on
    from the coal-to-liquids project in terms of the challenges of
    trying to get these projects financed, and there are really two
    key areas to focus on. One is with coal-to-liquids a perception
    in the financial community of a greater technology risk than
    would be inherent in some of the other applications of
    gasification technology. The second area is what we see
    currently as the inability to achieve price certainty on a
    coal-to-liquids project where on the other hand for some of the
    other projects we are finding that there is an opportunity to
    get long-term contracts that provide the kind of price
    certainty that you need for these projects that are very high
    capital investment program that need long-term price stability
    in order to assure the adequate return of the investment, the
    repayment of the loan and have a successful project.
        With existing gasification technology, you have over 100
    gasification plans operating around the world. They have been
    operating for over 20 years. You have over 300 individual
    gasifiers or gasification units operating at these different
    facilities, so as an old banker I can go around and say I can
    touch and feel and see these facilities and get reasonably
    comfortable that this technology is a proven technology and is
    going to work. When you start to look at coal-to-liquids
    technology, while it has been around for a long time, there is
    really only one large commercial-scale operation in the world
    and that is in South Africa. It was constructed over 20 years
    ago. And so on Wall Street and the financial community and
    equity investors like ourselves, we are quite concerned about
    building this next generation of facilities and how we raise
    the dollars in the financial community to support the
    construction of these plants. So I think with this particular
    risk, we do see the benefits of loan guarantees and these kinds
    of programs to help these projects get through the construction
    phase, get some of the bugs worked out and get them into
    commercial operations. But we don't really see that kind of
    program addressing the question of price certainty and the lack
    of price certainty in the transportation fuels markets.
        We see many ways that could potentially be addressed but I
    agree with my colleague that the legislation introduced last
    fall by Chairman Boucher and Mr. Shimkus is an excellent way to
    promote the development of this technology. It would become a
    basis on which not only the Wall Street community could finance
    these projects but another key portion of it is that developers
    like ourselves need to spend $35, $50 million to develop these
    projects. We are not going to spend that money unless it is
    going to lead to a successful project.
        Thank you very much.
        [The prepared statement of Mr. Maley follows:]

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        Mr. Butterfield. Thank you very much.
        Mr. Foody.

        STATEMENT OF BRIAN FOODY, PRESIDENT AND CHIEF EXECUTIVE
          OFFICER, IOGEN CORPORATION, OTTAWA, ONTARIO, CANADA

        Mr. Foody. Good morning, Mr. Chairman and members of the
    committee. Thank you for the opportunity to testify, and I will
    be talking about cellulosic ethanol.
        My name is Brian Foody. I am the CEO of Iogen Corporation.
    We are one of the leading companies in cellulosic ethanol. We
    have been working in the field since the late 1970's and have
    designed, built and now run a cellulosic ethanol demonstration
    plant, and it has been making cellulosic ethanol since April
    2004. On the corporate side, we have both Shell and Goldman
    Sachs as important strategic investors in our business.
    Finally, for myself, I have been working in the field of
    cellulosic ethanol development for over 25 years, so I have
    been around some time with this.
        Now, in regard to the role of cellulosic ethanol and what
    it can play in advancing America's energy security, my key
    messages are first, it is very realistic to expect cellulosic
    ethanol to make a major contribution to U.S. energy security,
    and second, what investors are looking for is clarity about the
    future rules. If you want to encourage cellulosic ethanol or
    other alternative fuels, make sure people in the investment
    community know what to expect.
        Now, one of the important innovations in the Energy Policy
    Act of 2005 was the introduction of renewable fuel standards,
    or the RFS. There has been a lot of talk about expanding the
    RFS and I would like to offer our perspective. First, we
    believe this type of approach can and will make a major
    contribution towards driving the market forward, establishing
    the expectations and clarity needed to see significant flows
    into advanced biofuels and other alternative fuels. A revised
    Renewable Fuels Standard could play a big role in helping build
    the secure domestic fuel supply America is looking for.
        Now, in respect to an expanded RFS, there are several
    recent proposals that call for producing roughly 20 billion
    gallons of advanced biofuels or alternative fuels beyond what
    is being made from corn by the 2017-2022 time frame. I believe
    certainly within the 15-year time frame these targets are
    realistic and doable, and let me explain why. First, I will be
    speaking principally about cellulosic ethanol. The DoE and USDA
    recently completed a study called ``Billion Ton Study'' that
    asks the question, ``does America have the capability to
    produce enough cellulosic biomass resources to displace 30
    percent of its present petroleum consumption?'' Now, that is
    three times what those targets I told you about were and the
    short answer to that question was yes, America has the capacity
    to deliver on these targets. Second, cellulosic ethanol is not
    some far-off esoteric technology. It is real, practical and
    being made today. When I drove to the airport, I drove in a car
    fueled with cellulosic ethanol, the same cellulosic ethanol
    that fuels our company's fleet of flex fuel vehicles, so this
    is a product which is actually in cars. It is not just
    theoretical. Now, I have been doing this for last 3 years, so
    cellulosic ethanol is real. If anyone doubts this, I would be
    pleased to invite them out to our Ottawa demonstration plant.
    We had the pleasure to host Chairman Boucher on a visit last
    year.
        Finally, if you are concerned about the ability to build
    these facilities, let me say that the energy industry has an
    enormous capability to deploy energy technology. Just as one
    small example to put this in context, you may have heard about
    the tar sands in northern Alberta in Canada. Well, last year
    over $30 billion was invested in developing this unconventional
    resource. The capacity commitments in 2006 alone would add 10
    billion gallons per year of annual production capacity. Now, I
    have to say if the energy industry can build 10 billion gallons
    in northern Alberta in just 1 year, they can certainly build 20
    billion gallons in America over a decade. So cellulosic ethanol
    really can make a major contribution and an expanded RFS would
    be a major impetus for the market.
        Now, with respect to crafting legislation for an expanded
    Renewable Fuel Standard, I would like to make one key point. I
    believe it is crucial to establish clarity about what happens
    if things go wrong, what are the safety valves. Now, by safety
    valves I mean, what do you do if the prices go too high and
    what do you do if there is just not enough volume to meet the
    target. There is a whole range of approaches that have their
    advantages and disadvantages. Take as a specific example the
    notion that the Secretary of Energy would have a discretionary
    waiver. In essence, if things go wrong he could suspend the
    program. That will certainly work to protect against shortages
    and price gouging but it creates a tremendous uncertainty in
    the market and risks robbing any bill of its power to spur
    investments. Remember what I said about priority being crucial.
    If the rules can change, it is hard to expect investors to come
    to the table.
        There are a number of ways to tackle this problem and let
    me just illustrate one. As to volume, it doesn't make sense to
    force people to buy a product that isn't there. If volume
    doesn't materialize, the safety valve has to adjust to the
    volume that is there. And as to price, the safety valve might
    be in the event some waiver is needed, permitting the Secretary
    to sell credits under a pre-established buyout formula. That is
    simple, it would solve the problem and would create much more
    certainty for investors.
        Now, as I said, there are many approaches you can take but
    one thing you should keep in mind, the more clarity and
    certainty you can provide in your policy, the more investments
    and the more energy security you will be able to get.
        Thank you.
        [The prepared statement of Mr. Foody follows:]

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        Mr. Butterfield. Thank you.
        Mr. Hughes.

      STATEMENT OF SCOTT HUGHES, DIRECTOR, GOVERNMENTAL AFFAIRS,
                NATIONAL BIODIESEL BOARD, WASHINGTON, DC

        Mr. Hughes. Good morning, Mr. Chairman, Ranking Member
    Hastert and members. It is a great pleasure to be here and we
    really want to thank you all for holding this, what we think is
    a very important hearing.
        My name is Scott Hughes and I am the director of
    governmental affairs for the National Biodiesel Board. NBB is
    the national trade association representing the commercial
    biodiesel industry as a coordinating body for research and
    development in the United States. Our membership encompasses
    over 400 members and is comprised of biodiesel producers, fuel
    marketers and distributors, State and national feedstock
    processor organizations and technology providers.
        We are here today to examine alternative transportation
    fuels and the roles that they can play in helping enhance our
    Nation's energy security, and I would like to focus my comments
    this morning on the contributions that we see biodiesel making
    to the national energy pool. Biodiesel is a diesel fuel
    replacement that is made from agricultural fats, oils and
    recycled cooking oils and meets the specific commercial fuel
    definition and specifications established by the American
    Society for Testing and Materials. It is one of the best tested
    alternative fuels in the country and the only alternative fuel
    to meet all of the testing requirements of the 1990 amendments
    to the Clean Air Act.
        Our industry's roots are based in agriculture, and to date,
    farmers have invested more than $50 million of their check-off
    dollars to conduct research and development on biodiesel. Our
    industry has shown slow but steady growth since the early
    1990's. However, in the past 2 years it has grown
    exponentially. In 2004, there were approximately 25 million
    gallons of biodiesel sales. That increased to around 250
    million gallons this past year. Likewise, we have seen
    significant additional investment in production facilities.
    Back in 2004, we had 22 biodiesel plants online, and at the end
    of last year we had 105 plants currently in operation, and that
    represents about 865 million gallons of production capacity,
    and there are 77 more plants currently under construction or
    under an expansion and that growth will account for an
    additional 1.7 billion gallons of production capacity.
        Biodiesel is marketed primarily as a blended product with
    conventional diesel fuel and it goes through the existing fuel
    distribution infrastructure with most of the blending occurring
    below the rack by jobbers. We are seeing biodiesel now being
    offered at petroleum terminals around the country and we have
    space at about 35 terminals right now. Our industry has
    committed funds and is looking at the technical needs required
    to move biodiesel through U.S. pipelines. We are seeing
    biodiesel moving through pipelines in Europe today in low
    blends and we believe extending that capability to the U.S.
    would be substantial.
        As far as energy security goes, the National Biodiesel
    Board has a vision of the future that by 2015 biodiesel will be
    viewed as an integral component of a national energy policy
    which increasingly relies on clean domestic renewable fuels and
    that will meet 5 percent of the Nation's demand for diesel
    fuel. Biodiesel and ethanol can be the first tools used to
    reach our goals of energy security because they are liquid
    renewable fuels that are available right now and ready for
    blending into our existing fuel supply and our existing
    vehicles.
        On economic development, biodiesel can add significantly to
    the United States economy. A vibrant biodiesel industry will
    positively impact the economy in multiple ways. Conservative
    modeling of biodiesel growth indicates our industry will add
    $24 billion to the U.S. economy over the next decade. Biodiesel
    production will create 40,000 new jobs in all sectors and
    additional tax revenues from biodiesel production will more
    than pay for Federal tax incentives provided to the industry to
    date. Equally as important, it will keep billions of dollars in
    America that would otherwise be spent on foreign oil.
        Biodiesel contributes to cleaner air and life cycle
    reductions of greenhouse gases. Biodiesel is the only
    alternative fuel to voluntarily conform to EPA's Tier 1 and
    Tier 2 testing requirements to quantify emissions
    characteristics and health effects. That study found that we
    reduce harmful exhaust pollutants including potential cancer-
    causing emissions.
        We can also help meet the national goals for the net
    reduction of atmospheric carbon. As a renewable fuel derived
    from organic materials, biodiesel and blends of biodiesel
    reduce the net amount of carbon dioxide. A Department of Energy
    study found that biodiesel production and use in comparison to
    petroleum diesel produces 78.5 percent less CO\2\ emissions on
    a life cycle basis. This makes biodiesel an extremely positive
    technology currently available for heavy-duty diesel
    applications to reduce atmospheric carbon, and when you talk
    about energy balance, that same study noted that for every one
    unit of energy that was needed, fossil energy that was needed
    to produce a gallon of biodiesel, 3.2 units of energy are
    gained. So that high energy balance I think really is in favor
    of our ability to help add to our domestic energy security.
        On regulatory and public policy, it will play a very strong
    role, we think, in the future maturity of the biodiesel
    industry for years to come. The volumetric biodiesel tax credit
    that was put in place in the Jobs Act of 2004 has really been a
    primary driver for our industry's growth and investment in that
    industry and so seeing a long-term extension of that credit is
    our top priority.
        So in closing, Mr. Chairman, rising crude oil prices and
    political uncertainties in strategically sensitive regions of
    the world are focusing the public's attention on the need to
    enhance our Nation's energy security. Biodiesel is a viable
    option to begin retaking control of our energy future.
    Biodiesel can be a substantial tool in the Nation's overall
    move toward security as it adds new net gallons to the
    distillate fuel pool, adds new U.S. fuel production capacity,
    directly replaces imported finished diesel fuel, utilizes
    agricultural products, stimulates rural and urban economies and
    creates jobs, and helps potentially create new chemical
    industry jobs and activities here in the United States.
        So Mr. Chairman, we appreciate you having this hearing and
    we appreciate you inviting the biodiesel industry to
    participate, and I would be happy to answer any questions.
        [The prepared statement of Mr. Hughes follows:]

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        Mr. Boucher [presiding]. Thank you very much, Mr. Hughes.
        Mr. Lampert, we will be pleased to hear from you.

    STATEMENT OF PHIL LAMPERT, EXECUTIVE DIRECTOR, NATIONAL ETHANOL
                 VEHICLE COALITION, JEFFERSON CITY, MO

        Mr. Lampert. Thank you, sir. I appreciate the opportunity.
        Mr. Chairman, Ranking Member Hastert, members of the
    committee, my name is Phil Lampert. I am the executive director
    of the National Ethanol Vehicle Coalition and we have been
    doing E-85 before E-85 was cool. Back in 1993, General Motors
    produced 272 flexible fuel vehicles, very limited in their
    distribution. At the end of this model year, we will have more
    than 6 million flexible fuel vehicles on the Nation's highways.
    The automakers appeared with the President in the Rose Garden
    March 30 and indicated that if infrastructure was going to be
    available, that by model year 2012, 50 percent of their total
    production would be flexible fuel vehicles. A flexible fuel
    vehicle can run on zero percent alcohol or 85 percent alcohol
    with no switches to flip, with no characteristics change for
    the driver, absolutely transparent to the driver.
        The issue today is, there are 168,000 locations in our
    Nation where you can purchase unleaded gasoline. As of this
    morning, there are 1,182 locations where you can purchase E-85.
    We obviously need to increase the numbers of E-85 fueling
    stations. We believe that the most appropriate way to do that
    is through the additional provision of incentives, not
    mandates. We do not believe it appropriate to require the
    petroleum industry or the transportation fuel industry to sell
    E-85 but rather if we continue to incentivize the sale of that
    fuel, the entrepreneurs will make the fuel available to
    customers. We like to say that the majors have never innovated
    anything, it is the little guys that do, and it is the little
    guys that will take advantage of the Federal income tax credits
    that are available today and that we would encourage you to
    consider as we draft new energy legislation. Today's tax credit
    provides 30 percent, up to $30,000 of the total cost to build
    an alternative fueling station. We would suggest that that
    potentially be reviewed up to 50 percent, maybe 75 percent for
    a very short period of time.
        Second, it doesn't take hundreds of thousands of dollars as
    many of our colleagues from the API and others would have you
    think to put in an E-85 fueling system. In most cases, last
    year our organization helped foot the establishment of 569 new
    E-85 fueling stations. Each of those was a conversion of a mid-
    grade product or premium product to use E-85. We assist the
    vendor with determining whether their equipment can handle E-
    85. We help them find an organization that can assist them with
    cleaning the tank. We put on some different equipment. We can
    do that for less than $5,000. It is not necessary to dig a hole
    and to build gold-plated E-85 fueling systems and to spend
    $200,000. I have never in the 1,182 E-85 fueling systems that I
    have personally been involved with--because our organization
    has supported through Federal appropriations each of those new
    stations with marketing materials, with imaging materials, with
    technical assistance. That is what needs to be provided to the
    small entrepreneurs. They are the ones who will find this as a
    new profit center and they will put it in very voluntary
    fashion.
        Finally, we would believe that additional flexible fuel
    vehicles could and should be manufactured by the automakers but
    we do need to look at the financial situation of our domestic
    three or Detroit three, however, we want to characterize those
    today. We do not believe that we should require every vehicle
    to be a flexible fuel vehicle. There is a cost associated with
    the upgrade to an FFV. It is arguable that is $50 or $500. It
    is somewhere in between. We believe that additional incentives
    could and should be made available. I believe the staff
    provided you some copies of slides.
        The last point that I would make, even if we open 15,000
    new E-85 fueling stations this year, we will not do that
    because we do not have the resources to do that. If we had all
    those facilities and we had all the vehicles, unless the
    product is priced correctly, a consumer is not going to use it,
    and I have I think on the last page of that handout a
    photograph of two stations, one that is pricing E-85 20 percent
    above the cost of regular unleaded, the other one a picture of
    an E-85 fueling station, same date that those photographs were
    taken, one in Minnesota, one in Missouri, where the price of E-
    85 is 20 percent less than regular unleaded, and we have to
    acknowledge that there is a BTU deficiency or difference in
    ethanol. It is simply the chemistry of it. So to make E-85 a
    mainstream transportation fuel rather than an alternative fuel
    in the future, we need to address the issue of this BTU
    differential.
        I would be happy to answer any questions, and thank you so
    much for the opportunity.
        [The prepared statement of Mr. Lampert follows:]

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        Mr. Boucher. Thank you very much, Mr. Lampert.
        Dr. Farrell, we will be pleased to hear from you.

    STATEMENT OF ALEXANDER E. FARRELL, ASSISTANT PROFESSOR, ENERGY
      AND RESOURCES, AND DIRECTOR, TRANSPORTATION SUSTAINABILITY
                     RESEARCH CENTER, BERKELEY, CA

        Mr. Farrell. Thank you, Chairman Boucher, and Chairman
    Boucher, on behalf of myself and UC Berkeley, I extend our
    condolences to the students and the staff and the faculty at
    Virginia Tech.
        Chairman Boucher, Ranking Minority Member Hastert and
    members of the subcommittee, thank you for the opportunity to
    come and talk with you today about alternative fuels. My main
    point today is that the United States must act to address all
    three challenges in the transportation fuel sector, strategic,
    economic and environmental, or it faces the prospect of failing
    to solve any of them.
        My second point is that by themselves, requirements for
    alternative or renewable fuels are inadequate and can even make
    the problem worse. Strong environmental regulation is required
    to ensure good environmental performance. As was mentioned
    earlier, alternative fuels are not all created equal and they
    can either improve or degrade the environment. Research from my
    group shows that the current set of laws and regulations do not
    give the private sector adequate incentive to produce
    environmentally friendly fuels. But it is my belief that the
    American energy and agriculture industries can do so if
    properly motivated.
        My third and final point is that a sectoral approach to
    managing greenhouse gas emissions will be far more successful
    in addressing the three challenges in transportation fuels than
    a single economy-wide approach. I will mention one such policy,
    California's low fuel carbon standard, and I will invite
    subcommittee members to attend an international symposium on
    this topic at the Lawrence Berkeley National Laboratory to be
    held on May 18 to discuss how this policy may be implemented.
        For reference, I am an assistant professor of energy and
    resources at the University of California Berkeley and director
    of the Transportation Sustainability Research Center. I
    published over two dozen peer-reviewed papers and journals such
    as Science, Energy Policy and Environmental Science and
    Technology. While most of my recent work is on energy and
    climate change policy, as a graduate of the U.S. Naval Academy
    and former submariner, I can assure you that I take national
    security very seriously. My background is why I find current
    policy so disappointing. Two important goals of the United
    States, national security and economic growth, are frustrated
    by failing to act responsible on environmental protection and
    in particular on climate change. Let me be clear: failing to
    adequately address climate change increases the national
    security and economic risks facing America.
        A transition in transportation energy has begun. This
    transition involves a shift to alternative fuels as substitute
    for conventional petroleum and it is critical to understand and
    manage the three risks that this transition will bring.
    Importantly, this is an integrated problem. As we act to
    achieve one goal, we unavoidably affect our prospects in
    dealing with the others.
        Some aspects of the security implications of alternative
    fuels are obvious. Energy security is enhanced by diversifying
    both the types of resources we use and the geographic locations
    they come from. However, there is more to it. Developing
    alternative fuels without a strong climate change policy brings
    additional strategic risk. Specifically and directly, this is
    because climate change itself presents strategic risk as has
    been noted recently by CNA Corporation study and others. In
    addition, continuing to ignore climate change will make the
    national consensus on energy policy more difficult to achieve,
    delaying any policies that might reduce our strategic risks.
    And finally, the current path also tends to encourage
    disrespect for international processes and disrespect for
    international agreements on common problems which lessens the
    security of all countries, United States included. Regarding
    the economic risks, many of these have been mentioned. They are
    largely complementary. In my view the key economic policy of
    alternative fuels is how to manage the complementary risks to
    consumers and investors.
        Environmental risks posed by the production and use of
    alternative fuels are, has been mentioned, quite many. This
    includes water use, soil erosion, land disturbance such as
    mountaintop removal, air pollution, land use and many other
    issues. In this testimony, I will focus only on the risks of
    climate change due to greenhouse gas emissions. All alternative
    fuels entail tradeoffs among positive and negative
    environmental effects and amongst cost and convenience as well.
    I believe you were distributed a color copy of figure 1, which
    is on page 3 of the written testimony. This provides some
    representative values for the life cycle greenhouse gas
    emissions of three categories of fuels: fossil-based liquid
    hydrocarbons, which are on the left, biofuels in the center,
    and electricity on the right. To focus on the fuel qualities
    themselves, these values hold vehicle technology constant so
    the same vehicle is using the fuels. In this figure, emissions
    from different sites of activities are shown differently. So
    for instance, you can see that gasoline made from petroleum,
    upstream emissions which are caused by crude oil production,
    transport and refining are equal to about 50 grams per mile
    while tailpipe emissions are over 180 grams per mile, and I
    would also note in passing there are a number of caveats and
    notes to this figure. What figure 1 most importantly
    illustrates is that there is no automatic relationship between
    any particular fuel and greenhouse gas emissions. It all
    depends on how the fuel is made. Gasoline produced from tar
    sands, for instance, has emissions about 25 percent higher than
    gasoline made from ordinary petroleum and coal-to-liquids have
    emissions that are about 75 percent higher. As has been noted,
    greenhouse gas emissions made from tar sands and coal-to-
    liquids could be about the same as those from conventional
    gasoline production if much of the upstream emissions were
    captured and sequestered using CCS technology but they would
    not get much better than ordinary petroleum.
        Therefore, the use of fossil-based alternative fuels in a
    way that addresses all three challenges, strategic, economic
    and environmental, will require careful consideration and
    balancing. For instance, the requirement that all fossil-based
    alternative fuels use CCS and have in addition their greenhouse
    gas emissions accounted for in a mandatory planet policy would
    enhance domestic energy production----
        Mr. Boucher. Dr. Farrell, if you could wrap up in just a
    bit. You are well over your 5 minutes.
        Mr. Farrell. I apologize.
        Mr. Boucher. Thank you.
        Mr. Farrell. Encourage technological innovation and signal
    to other countries that the United States is taking its area in
    this responsibility seriously.
        Thank you very much.
        [The prepared statement of Mr. Farrell follows:]

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        Mr. Boucher. Thank you, Dr. Farrell, and the committee
    thanks each of the witnesses for joining us here. Mr. Maley, we
    particularly thank you for your presence, given your difficulty
    in making all of our flight connections, and even though you
    are a little differently attired from the rest of us, we very
    much welcome you here today.
        Let me begin my questions with you, if I may. I think you
    are generally familiar with the price guarantee legislation
    that Mr. Shimkus and I will be introducing very shortly for
    coal-to-liquids technology.
        Mr. Maley. Yes, I am.
        Mr. Boucher. I know that your company is interested in
    building a coal-to-liquids facility in the United States. Our
    price guarantee is designed to give confidence to the investor
    community that if the price of petroleum declines below the
    benchmark of about $40 per barrel, that facilities that are
    constructed to manufacture coal-to-liquids would not be
    stranded. Would our legislation in your mind achieve that
    result, and would it create the confidence necessary for you to
    go forward and construct a coal-to-liquids facility in the
    U.S.?
        Mr. Maley. Yes, it would. I believe the volatility, the
    historic volatility of oil prices is a major impediment to
    investment, and being able to--but over time, when you see the
    long-term price trend, we believe that between the lows and the
    highs that you have a viable project and the legislation allows
    that project to survive those good times as well as the bad
    times.
        Mr. Boucher. Are you aware of other companies that might be
    considering making coal-to-liquids facility investments in the
    U.S.?
        Mr. Maley. Yes, I am.
        Mr. Boucher. Have you had any conversations with them about
    any reluctance that they have today borne of uncertainties
    about the future price of oil and whether or not the passage of
    our price guarantee provision would give them the confidence
    they are seeking?
        Mr. Maley. Yes. We have had conversations with a number of
    major U.S. industrial companies and investment companies and
    they view that as the major impediment to developing this
    technology.
        Mr. Boucher. And our legislation would overcome that
    impediment?
        Mr. Maley. Yes, I believe it would.
        Mr. Boucher. Thank you, Mr. Maley. Those were great
    answers.
        Mr. Maley. Thank you.
        Mr. Boucher. Mr. Ward, you probably are aware of the back-
    and-forth competing statements, controversy, if you will, over
    whether or not a gallon of liquid fuel created from coal has a
    carbon content that is any greater than a gallon of traditional
    diesel. The research that I have seen suggests that there is
    certainly no greater carbon content in a gallon of coal-to-
    liquids fuel than there is in traditional diesel and some of
    the studies even suggest that the coal-to-liquid variety has a
    lower carbon content than does traditional diesel. I know you
    have looked at this subject and you have some expertise on it.
    Can you enlighten us about the relative carbon content of coal-
    to-liquids fuel versus traditional diesel?
        Mr. Ward. Yes, sir. Thank you, Mr. Chairman. We have looked
    at that, and one of the things to preface the answer would be
    also to remind the members that the fuel itself in terms of all
    the other criteria pollutants far exceeds the standards that
    have been set by petroleum fuels. So when you are talking about
    sulfur and nitrogen oxides and particulates and all the other
    things that come out when you burn fuel in an automobile, from
    that perspective the coal-to-liquids fuels are much, much
    cleaner. From a carbon perspective, in my testimony on page 7,
    I refer to a Department of Energy study that looks at it from a
    life cycle assessment perspective, from the well to the wheels
    all the carbon emissions that go into producing the fuel and
    then using it in different products. If you look at that on a
    life cycle basis, the coal-to-liquids fuels are going to be--
    and if you capture the carbon in the manufacturing process, the
    coal-to-liquids fuels are going to be no worse and probably a
    little better than petroleum-derived fuels. Depending on the
    type of coal-to-liquids technology that you use, you can
    actually end up with a more energy-dense fuel from the coal-to-
    liquids projects that will give you more power when you use it
    in the engine and that is also in effect where you are getting
    more power for approximately the same amount of carbon.
        Mr. Boucher. Thank you very much, Mr. Ward.
        Let me ask a question of Mr. Foody about Iogen and its
    plans. I know that you have under consideration the
    construction of a commercial-scale cellulosic ethanol
    manufacturing facility, I believe in the State of Idaho. Is
    that correct?
        Mr. Foody. Yes, that is right.
        Mr. Boucher. Can you give us a sense of where you are in
    the development of that plan and at the same time talk about
    your potential interest in building other commercial-scale
    cellulosic facilities in the U.S.? And finally--and I will turn
    the balance of the time over to you to answer these questions--
    what do you think the overall capacity in the United States for
    the creation of cellulosic ethanol is measured in number of
    gallons per year that could be produced?
        Mr. Foody. OK. Let me first of all talk about where we are
    at with our project in Idaho. We are developing a site based
    upon the development work at our demonstration facility. We
    have acquired the site. We have already got contracts with
    farmers to supply all the feedstock that is necessary. We have
    undertaken a significant engineering program. As you might be
    aware, we were selected by the U.S. Department of Energy for an
    award of up to $80 million in support of that facility. We also
    have filed a pre-application for a loan guarantee for another
    portion of the financing with the Department of Energy. We have
    begun negotiations on the grant and look forward to hearing
    back about the state of the loan guarantee. We anticipate that
    within a period of about 30 months from the time at which we
    have full clarity of our funding we will be able to have a
    project up and running. So that is a quick picture of the
    situation in Idaho. Following on that, it is our company's
    intent and plan to be the leading supplier of cellulosic
    ethanol in America. We are committed to doing a large-scale
    deployment of technology in North America and we believe we can
    build a significant industry.
        As to America's overall capacity, I would point to the
    Billion Ton Study conducted by the U.S. Department of Energy
    and USDA that estimated that America has the capacity to
    produce about 30 percent of its total petroleum resources from
    cellulosic biomass on a continuing basis. That is roughly 60
    billion gallons a year. During my testimony, I outlined that
    there are a number of proposals to increase the Renewable Fuel
    Standard to a range of something like 20 billion gallons that
    would point to cellulosic ethanol, and I believe that that 20
    billion gallons is very doable and very realistic.
        Mr. Boucher. Thank you very much, Mr. Foody. My time has
    expired.
        The gentleman from Illinois, Mr. Hastert.
        Mr. Hastert. I thank the chairman, and I have more
    questions here than I think I am going to have time for
    answers, but let me just say, Mr. Lambert, last August I went
    out and bought a flex fuel vehicle, a pickup truck. I thought
    that was a good thing to do. My problem is, I have to drive 40
    miles round trip to fill it up, and if you start to look at the
    numbers, sometimes that doesn't pay. A recent Wall Street
    Journal article highlighted certain policies and practices that
    are making it more difficult for franchise service stations to
    install E-85 pumps. Are you aware of these practices, and if
    so, what is the impact and what we can do about it, briefly?
        Mr. Lampert. We have certainly been made aware of franchise
    issues and how they have prohibited--just very quickly as an
    example, if I were to own the corner gas station, my personal
    family owned the canopy, owned the equipment, owned the tanks
    and I was supplying a major brand for purposes of credit card
    receipts and marketing, et cetera, in most cases I would not be
    able to install an alternative fueling system even if I paid
    for all of it and if I wanted to because of the franchise
    restrictions. So yes, Congressman, that has been a great burden
    to overcome. The State of New York and the State of Iowa have
    addressed that in franchise laws within their----
        Mr. Hastert. So you are saying the big guys, the big three
    or big four, big five, whatever, if you are--and I will use
    names. If you have a Shell or a BP or whatever station, you
    can't sell this stuff?
        Mr. Lampert. That is correct.
        Mr. Hastert. OK. Let me ask you another question. What
    about--here is something that I have experienced. If you go out
    and talk to the Wal-Mart people or if you talk to the Circle K
    or if you talk to 7-Eleven folks, they are very reticent about
    putting these pumps in because they haven't got UL
    certification and there is a liability issue. Have you found
    that to be true?
        Mr. Lampert. Yes, sir, absolutely, and you are well aware
    of that. We have worked on this issue for a year and a half.
    For the members of the committee, Underwriters Laboratory
    rescinded the previous certifications that we had received for
    E-85 fueling equipment on October 5 of last year. Underwriters
    Laboratory indicated that there was no evidence of failure, no
    evidence of corrosion, no anecdotal evidence, but, however, the
    certifications were rescinded and we now expect to have a new
    process in place by the end of the year. I still do not believe
    that we will have any E-85 equipment available until mid-2008.
        Mr. Hastert. Do you know why that rescinding took place?
        Mr. Lampert. No, sir, I have not been able to determine
    that.
        Mr. Hastert. Let me ask you another question. I had a
    meeting with Underwriters Laboratory and the head of
    Underwriters Laboratory said that they weren't even asked to do
    an E-85 discovery or certification until last June. Do you know
    who asked them to do that?
        Mr. Lampert. Well, CleanFuel USA, one of our members, along
    with Gilbarco and Dresser Wayne had been working with UL for
    some period of time.
        Mr. Hastert. But prior to June, right?
        Mr. Lampert. Oh, absolutely, yes, sir, and our
    organization, through Federal appropriations actually provided
    financial resources to assist that effort.
        Mr. Hastert. Do you know of many major oil companies that
    made contributions to Underwriters Laboratory to redo this
    study?
        Mr. Lampert. Not to my knowledge.
        Mr. Hastert. Would that be possible if somebody didn't ask
    them until June that this June date became a request by a major
    oil company?
        Mr. Lampert. I suppose that is possible. It is certainly
    coincidental.
        Mr. Hastert. Wouldn't it be strange that we were promised
    to have Underwriters Laboratory certification by June of this
    year, a new request came in and then all of a sudden this stuff
    is rescinded?
        Mr. Lampert. It is quite unusual.
        Mr. Hastert. Is there a skunk in the woodpile someplace?
        Mr. Lampert. That is--I will leave that to your nose, sir.
        Mr. Hastert. In your testimony, you mentioned that leading
    U.S. car manufacturers made a commitment to have 50 percent of
    their vehicles flex fuel by 2012, the infrastructure is there.
    Besides issues surrounding E-85 pump certification, what other
    barriers exist to meeting this infrastructure demand? Do you
    believe you have appropriate steps to removing these barriers?
        Mr. Lampert. The primary issue is lack of technical
    support. The Department of Energy has provided large numbers of
    grants. There are funds available through competitive
    processes. We applied for money last year. Our project did not
    rank high enough. We applied with the States of Illinois, Iowa,
    Wisconsin, Minnesota in a corridor project. Our program did not
    rank high enough. Michigan was included in that. Technical
    support, marketing materials, education, promotional materials,
    when you drive to that station, sir, we want to be able to have
    one sign, and when Mr. Boucher drives to a station we want him
    to see the same sign so there is consistency there, and that is
    lacking.
        Mr. Hastert. Thank you.
        Mr. Foody, very quickly, my time is running out, but I want
    to ask you a question. The new cellulosic plant, and I am in
    support of cellulosic ethanol, but the new cellulosic plant
    that you are talking about is in Idaho. Is that correct?
        Mr. Foody. That is right.
        Mr. Hastert. There happens to be a growing season in Idaho,
    and while I was in Idaho in the wintertime, it is pretty cold,
    not a lot of grass is growing. So you have to have a feedstock
    that is continuous, right, to keep these plants running 12
    months a year?
        Mr. Foody. No, actually in most cases we are targeting on
    using agricultural residue that is harvested just at one time
    in the year so----
        Mr. Hastert. So you didn't actually put hay or silage-type
    materials----
        Mr. Foody. We put hay or silage--in the case of Idaho, it
    will be weed and barley straw, or if it was in Illinois, it
    would be corn stocks and corn stover. We collect after harvest
    season, store at a central location and then use throughout the
    year.
        Mr. Hastert. And you can take like saw grass and store that
    and make hay out of it whatever?
        Mr. Foody. Yes, absolutely. I think the big vision for
    cellulosic ethanol includes using corn stover as well as
    switchgrass as a major energy source.
        Mr. Hastert. Thank you.
        Mr. Boucher. Thank you very much, Mr. Hastert.
        The gentleman from Georgia, Mr. Barrow, is recognized for 5
    minutes.
        Mr. Barrow. I waive.
        Mr. Boucher. The gentleman waives.
        The gentleman from Utah, Mr. Matheson, is recognized for 5
    minutes.
        Mr. Matheson. Thank you, Mr. Chairman.
        Mr. Ward, in your testimony at the end you list several
    possible incentives to help with the development of coal
    liquefaction. In a constrained world, what would be your
    priority out of those incentives? What do you think is the most
    important for us to be looking at from a public policy
    perspective?
        Mr. Ward. Well, clearly we have already discussed the
    pending bill coming from Chairman Boucher and Congressman
    Shimkus which if it is administered correctly--the key to that
    bill will be where the price collar is set, and if the price
    collar is set in such a way and the program is administered,
    that could be a very powerful incentive. Another of the
    incentives that is on the table is the extension of the Excise
    Tax Credit, which was given to coal-to-liquid fuels as part of
    the SAFETEA-LU Act in 2005 but it expires in 2009. This is a
    very powerful incentive. It addresses the market price risk
    associated with fluctuating oil prices and there is a minimal
    amount of opportunity for what you might call bureaucratic
    impediments that may be able to creep into the program. So I
    think those would be the two top priorities.
        Mr. Matheson. Mr. Hughes, I was going to ask you, what do
    you think about the importance of fuel specification standards?
    Is the National Biodiesel Board working with any engine
    manufacturers to assure reliable operation of today's ultra-
    low-emission diesel engines and biodiesel?
        Mr. Hughes. Congressman, that is a great question, and the
    answer is absolutely. We see full quality as, in the words of
    Ford, job one, and we have been working since day 1 to provide
    industry with the ASTM, the American Society of Testing
    Materials, with the engine makers, automakers, petroleum
    industry in the development of a fuel specification and ASTM
    standard for biodiesel. There is one in place. It is ASTM
    D6751. That is for B100, used as a blend stock with
    conventional diesel fuel. We are continuing to work with all of
    those entities under the ASTM umbrella for a finished fuel
    specification for finished blends and are moving that ball
    forward as quickly as is absolutely possible.
        Mr. Matheson. Do you have a sense what the time frame might
    be on that?
        Mr. Hughes. Well, sometimes they say ASTM moves at a
    glacial pace but that is a good thing because all of the
    stakeholders that are involved look at the issue from many
    various angles. I would say probably maybe within the next year
    you might see a finished spec for a finished blend of biodiesel
    up to B-20.
        Mr. Matheson. Dr. Farrell, we have had a lot of climate
    change hearings before this subcommittee and most witnesses
    that come before us from different sectors and whatnot have
    discussed the need for economy-wide action and your testimony
    says the opposite. Can you expand on why you think we shouldn't
    be doing it economy-wide?
        Mr. Farrell. I do think we should do an economy-wide
    approach. That is correct. But a unified, single economy-wide
    approach is probably not appropriate, and the reason is that
    the U.S. economy is very diverse, and one of the key things
    that we need is technological innovation across the entire
    continent, and a single approach that has, for instance, put a
    cap on the entire economy essentially would put the same price
    on the transport sector, the electricity sector, manufacturing
    sector. Because of differences in cost structure, in the
    ability for fuels to compete head-on-head on tax structure and
    regulation, you get very differential responses and most likely
    very little technological innovation in some sectors of the
    economy and particularly possibly in the transport sector,
    which would in the long run lead to the detriment of achieving
    the goals of both energy security and climate policy.
        Mr. Matheson. We also had the previous question from the
    chairman about the conflicting information we are getting about
    potential carbon emissions from fuel derived from coal-to-
    liquids. You put out a table here that really shows it being
    exceptionally high. How do we resolve these differences we are
    hearing about of carbon emissions from coal-to-liquids?
        Mr. Farrell. Thank you, Mr. Matheson. I am pleased to try
    and resolve this. I don't think there is that much of a
    difference. In the figures that I show, the top half of the
    figures were this fossil-based fuels are the upstream
    emissions, and I would agree. If those are largely captured and
    sequestered, then you will end up with the tailpipe emissions
    that are essentially the same as gasoline.
        Mr. Matheson. So you would submit that with that caveat,
    that the DoE information referred to earlier is consistent with
    what you are talking about?
        Mr. Farrell. That is correct.
        Mr. Matheson. That is real helpful.
        Thanks, Mr. Chairman.
        Mr. Boucher. Thank you, Mr. Matheson, and thank you for
    obtaining that clarification.
        The gentleman from Texas, Mr. Barton, the ranking member of
    the full committee, is recognized for 5 minutes.
        Mr. Barton. Thank you, Mr. Chairman. I don't think I will
    take that much time.
        I am obviously, as all of us are, a supporter of
    alternative fuels and I think debate and let the marketplace
    determine the best ones or the multiples of ones is good, but I
    just read something this morning that I didn't know, and I am a
    little bit troubled by it so I am just going to ask the panel
    this question. This is an AP story. It is from the Washington--
    it is reprinted in the Washington Post this morning, and the
    headline is ``Study: Ethanol May Cause More Smog Deaths,'' and
    I will just read the top paragraph

        Switching from gasoline to ethanol, touted as a green
    alternative at the pump, may create dirtier air, causing
    slightly more smog-related deaths, a new study says . . .  it
    is not green in terms of air pollutant, said study author Mark
    Jacobson, a Stanford University civil and environmental
    engineering professor. If you want to use ethanol, fine, but
    don't do it based on health grounds. It is no better than
    gasoline, apparently slightly worse.

         His study based on a computer model is published in
    Wednesday's online edition of the peer-reviewed Journal of
    Environmental Science and Technology and adds to the messy
    debate over ethanol.
        Mr. Lampert, what is your take on that?
        Mr. Lampert. Thank you so much for the question. We were
    aware of that study, Congressman, and had been working with the
    author for some period of time. The first couple paragraphs
    makes a notation if 100 percent of the Nation's automobiles
    operated on E-85, then these next steps may occur. We have no
    more interest in having 100 percent of the Nation's vehicles
    operate on E-85. We don't believe that any more prudent than we
    believe it is prudent today to have our Nation depend on one
    form of transportation fuel. So I think that the prerequisite
    there is that if all of our Nation operated on E-85, that is
    not going to happen, so I just--frankly, I think that it is a
    very nice research analysis and will leave it at that.
        Mr. Barton. Does anybody else want to comment?
        Mr. Foody. I would like to just say something from the
    perspective of people developing cellulosic ethanol. We are
    generally of the view that the growth of this industry
    shouldn't result in a stepping back on environmental standards,
    and to the extent that the massive studies which go on in all
    sorts of different directions point to certain revisions in the
    regulations for fuels, we would support those.
        Mr. Farrell. Mr. Barton, I had a chance--thank you for the
    question. I had a chance to read that paper carefully. The very
    end of the paper, in my opinion, is the most important part
    where he observed that--the author notes that he has done one
    study and that over time regulations change, technologies
    change, and he says as you quoted, that ethanol will be
    probably no better than gasoline and I think that the processes
    that we have, whether they are sips or standards for new
    catalysts for flex fuel vehicles can ensure that we develop,
    whether they are biomass-based or fossil-based or whatever that
    we can assure that the health of the American public is
    maintained.
        Mr. Barton. My last question goes to the gentleman that is
    the cellulosic ethanol expert. Let us assume that we get your
    technology in full production and we work out all the kinks and
    we get it down the learning curve, however long that takes.
    Once we get to that great day, what is the price per gallon of
    cellulosic ethanol most likely to be?
        Mr. Foody. Well, first I would say we don't talk about our
    own technology cost but I would call your attention to the U.S.
    Department of Energy's studies through National Renewable
    Energy Laboratories. They projected that the technology target
    by 2012 about $1.10 a gallon. Reflecting as a person developing
    the technology----
        Mr. Barton. That is a wholesale cost or retail cost?
        Mr. Foody. That would be a plant gate cost.
        Mr. Barton. OK.
        Mr. Foody. Reflecting on this as a developer of technology
    though, I would say that ultimately the price that you will see
    for these products will be linked to what the price of oil and
    how energy markets develop and that to the extent that the
    price is higher than the absolute cost, you will see greater
    investment in the technology and greater reduction in the
    consumption of petroleum and better energy security.
        Mr. Barton. So a good round number 5 years from now is $1 a
    gallon wholesale?
        Mr. Foody. I think that is the price that the DoE
    estimated. I think though you really have to keep in mind, if
    the wholesale price of gasoline is $2 a gallon, that will
    probably determine the ultimate selling price.
        Mr. Barton. I understand how a market works. You are not
    going to give your product away. OK. But it is not going to be
    $4?
        Mr. Foody. No, it is not going to be $4.
        Mr. Barton. Thank you, Mr. Chairman.
        Mr. Boucher. Thank you very much, Mr. Barton.
        The gentleman from Washington State, Mr. Inslee, is
    recognized for 5 minutes.
        Mr. Inslee. Thank you. I appreciate your testimony. Thanks
    for being here all of you, and I missed some of it. We have
    another global warming hearing over there in another building I
    have been sitting in so there are a lot of places to deal with
    global warming.
        I wanted to ask you particularly, Mr. Ward, about some of
    the things I talked about earlier about coal-to-liquids and I
    am looking at a chart and I will try to get a copy to you, but
    basically it is an EPA evaluation of percent change in global
    warming gas emissions from a variety of fuels, and it shows for
    cellulosic ethanol there would be a 90 percent reduction in
    global warming gas reductions per unit. For biodiesel, there
    would be a 67.7 percent reduction. For corn ethanol, and this
    is an average, there would be a 20 percent reduction. For coal-
    to-liquids without carbon sequestration, there would be 118
    percent increase, and with sequestration there would be a 3.7
    percent increase compared to today's operating situation which
    is basically gasoline. So the first question I have, are those
    number real? Are those the best assessment that we have at the
    moment? And second, if they are and if we do have a limited
    resource base to invest in new technologies, why would we--
    assuming you accept the premise that there is a problem with
    global warming, why would we go with a technology that without
    sequestration almost doubles or more than doubles CO\2\ and
    goes up a little bit with sequestration when as an alternative,
    and I think a probably successful alternative, to burn coal
    cleanly, sequester the CO\2\, produce electricity and feed our
    plug-in hybrids that I drove a few weeks ago--you get 150 miles
    a gallon of gasoline and a penny a mile for electricity in non-
    peak hours--why would that not be a better use of our coal, a
    cleaner use of our coal and more sensible use for our coal as
    opposed to coal-to-liquids?
        Mr. Ward. I will answer the second question first and then
    go back to the first one. Plug-in hybrid vehicles are a cleaner
    solution. They are absolutely a good technology and it is a
    technology that this country needs to pursue. The challenge
    with plug-in hybrid vehicles is that you need to build a new
    infrastructure and a new fleet of vehicles in order to get that
    done. What coal-to-liquids does for you is produces a fuel that
    works in the existing fleet of vehicles and can serve as a
    bridge for us to whatever future vehicle economy it is whether
    it is plug-in hybrids or hydrogen economy or whatever that
    future is.
        Mr. Inslee. Can I stop for you for a second because I want
    to understand your answer. You said plug-ins would require a
    new infrastructure. What are you referring to?
        Mr. Ward. You are going to have to make the plug-in
    vehicles themselves. You are going to have to get them into the
    market and distributed. I don't think we can do plug-in
    airplanes. I don't think we can do plug-in locomotives. I don't
    know that we can do plug-in over-the-road trucks. There is
    going to be an existing fleet of petroleum-fueled vehicles on
    the roads for a very long time. As the inventory wears out,
    coal-to-liquids fuels will work in all of those vehicles as
    well. So coal-to-liquids is not the end solution but it is a
    very important strategic bridge to be able to fuel the fleet we
    have using the resources that we have in the United States.
        Mr. Inslee. So you are saying there would be some segment
    that we couldn't get to with electrification basically. So I
    think I understand what you are saying. Assuming that that is
    true and assuming that we have a limited amount that the
    Federal Government has, and there are limits even here on what
    we can spend, thankfully, if we had $100 to spend and if we
    could spend $100 developing cellulosic ethanol that reduces
    CO\2\ emissions by 90 percent or on biodiesel which reduces
    emissions 67 percent, why would we spend that limited Federal
    investment on a technology that best-case scenario increases
    CO\2\ emissions by 3 percent, worse-case scenario doubles it?
    Why should we use our limited resources for a technology that
    goes backwards when we have these other alternative fuels that
    can almost cut CO\2\ emissions by 90 percent? Why would we do
    that? Other than there is--well, anyway, go ahead.
        Mr. Ward. Well, I would make a couple of comments with
    regard to that. Number 1, I think the dollars that we are
    looking to spend on coal-to-liquids are not to develop the
    technology, the technology is ready to go, and in my testimony
    I point out in some more depth in the written testimony that we
    will likely have a coal-to-liquids infrastructure in this
    country whether we provide incentives for it or not. It will
    just happen--it will respond to market forces. It will happen
    slowly. The plants will come on slowly. The reason for spending
    Federal dollars on coal-to-liquids technologies now is to build
    that bridge that we need to get us through the energy security
    issues of bringing that capability of using coal-to-liquids
    fuels up faster. So, we don't need incentives to improve the
    technology and I would also point out in my testimony that we
    got Department of Energy studies that would indicate that if
    you do capture carbon from your process making coal-to-liquids
    fuels, you can actually improve----
        Mr. Inslee. Just in closing, my time is up. I want to make
    closing comments. As far as speed, we are building the largest
    biodiesel plant in the western hemisphere. It is under
    construction right now in Grays Harbor, Washington. We are
    ready to go. We don't have to wait. As far as speed, we got six
    cellulosic ethanol plants that are going to start construction
    now that the loan guarantees are going. I do question your
    argument that somehow this would be faster when we have two
    industries up and running now, at least the first steps of it.
    Thank you very much.
        Mr. Boucher. Thank you very much, Mr. Inslee. Just for your
    information, in a second round I am going to come back to this
    question that you have raised, and in fairness to you I thought
    I would let you know that in case you want to stay and take
    part in that conversation.
        The gentleman from Michigan, Mr. Upton, is recognized for 8
    minutes.
        Mr. Upton. Thank you. That second round will start about
    what, 3 p.m.?
        Mr. Boucher. A little sooner, I think.
        Mr. Upton. Thank you, Mr. Chairman, and I want to say to
    Mr. Maley too, I liked your answers as well to Chairman Boucher
    and I think that I will likely add my name as a cosponsor to
    that legislation when you introduce it, which I know is in the
    next couple of days, so please keep me in mind.
        Mr. Ward, you indicated that China is spending $30 billion
    on a coal-to-liquid plant and I am just wondering if you can
    elaborate on that a little bit, how many facilities and where
    are they in terms of development, and what level of assistance
    do we have other than perhaps Mr. Boucher's bill in terms of
    the Department of Energy looking for that same type of
    assistance?
        Mr. Ward. In China there are over a dozen projects that are
    in the active stage that I would classify as doing front-end
    engineering, design or putting them into construction. Probably
    the farthest along plant is the world's first commercial-size
    direct coal liquefaction plant. We have licensed our direct
    coal liquefaction technology to Shenwa Corporation, which is
    the largest coal producer in China, the first 20,000-barrel-
    per-day direct coal liquefaction train, and that plant will be
    coming online in 2008. China has made a strategic decision to
    invest in coal-to-liquids technologies. They can either spend
    billions of dollars to build pipelines from the coasts to their
    interior to make them more dependent on foreign oil, as we are,
    or they can build facilities to rely on their domestic
    resources, which is what they have chosen to do.
        Mr. Upton. And as they proceed on that path, are they
    intending to use carbon sequestration?
        Mr. Ward. Not to my knowledge.
        Mr. Upton. Myself and Mr. Doyle have introduced legislation
    in the last Congress as well as in this one that would require
    a 10 percent renewable mandate by the year 2012. We have a
    number of Republican and Democratic cosponsors on that
    legislation and I just wonder, Mr. Ward, Mr. Foody, Hughes and
    Lampert, do you think that we can actually--if we are able to
    pass that legislation, do you think that it is actually
    achievable by 2012 to reach 10 percent renewable mandate?
        Mr. Lampert. Well, Congressman, I certainly think that is
    capable. We have last year burned about 140 billion gallons of
    unleaded gasoline. As you know, every motor vehicle in the
    United States today can run on 10 percent ethanol so we could
    hit that threshold pretty quickly with the 6 million flexible
    fuel vehicles we have on the road today. We could use another 5
    to 6 billion gallons should the infrastructure be available to
    fuel those vehicles. So I would respond in a very positive
    manner, yes, that would be possible.
        Mr. Upton. Mr. Hughes, I am glad to say that we have got a
    biodiesel plant in my district now that is operating and it is
    online now.
        Mr. Hughes. Great. That is fantastic. I echo Mr. Lampert's
    comments. I think that would be optimistic to be able to do
    that and the biodiesel industry has set a vision for ourselves
    to be 5 percent of the diesel fuel by 2015. We look to be a
    very substantial player and actually are working with the
    trucking industry. We are looking at the idea of maybe coming
    forward to you all in the Congress with some kind of a standard
    for biodiesel in the diesel pool and that would be something on
    the order of around 1 billion gallons by 2012.
        Mr. Upton. Mr. Foody?
        Mr. Foody. I would say we believe that a 10 percent
    renewable fuels by 2012 is very doable. However, cellulosic
    ethanol by that time probably will not be a major contribution
    to that number. Cellulosic ethanol--by 2012, that is about 15
    billion gallons. That will be about the time that we are ready
    to build very large projects and within the next 10 years
    cellulosic ethanol could deliver another 10 percent or another
    15 percent on top of that number again.
        Mr. Upton. I talked to Mr. Barton before he left after his
    questions. I too was a little bit surprised to see that report
    availed in the Washington Post yesterday or today, and one of
    my thoughts, perhaps, and I wonder if you might comment on
    this, Mr. Lampert, was it is because of the transportation of
    ethanol, not being able to go into a pipeline so you have
    actually got to put it on rail or send it by truck, that
    perhaps that factor might have been one of the reasons why in
    fact the pollution would be the same or perhaps higher because
    you are not able to take advantage of what I think would be
    otherwise lower emissions.
        Mr. Lampert. Well, lower emissions and certainly lower
    cost. Shipping transportation fuel by pipeline is certainly the
    cheapest. We do send ethanol by barge as well, but I think in
    this particular study, what we are looking at is toxicity.
    Clearly, when you consume ethanol in a motor vehicle, you
    increase the aldehyde emissions that come from tailpipe, acid
    aldehyde, acetyl aldehyde, other forms of aldehyde. Those are
    toxic chemicals. What you are doing, however, is reducing the
    benzene, the xylene, the toluene, the other very harmful
    chemicals. It is an issue of toxicity and with our respect to
    the author, we believe as does EPA and the California Resources
    Board that some of these toxicity levels that the author has
    characterized may be misplaced.
        Mr. Upton. Now, doesn't Brazil send most of their ethanol
    to their distribution facilities by pipeline?
        Mr. Lampert. A large amount of it is, and that is not to
    say, sir, that we cannot send ethanol by pipeline but typically
    a pipeline is owned and operated by a major petroleum company
    so they don't have a great deal of incentive to assist with
    that, first. Second, a pipeline is used to ship crude oil,
    propane, kerosene, et cetera, and you have got a lot of
    distillates that are going to be left in there. If you wanted
    to clean the inside of that petroleum, you would use ethanol to
    do so. And thirdly, there are some metallurgical
    characteristics that may not allow some of the older pipelines,
    but that is not to say that we cannot do so.
        Mr. Upton. Mr. Hughes, with the transportation of
    biodiesel, is there the same trouble as there is with ethanol
    in terms of water and therefore pipeline distribution problems?
        Mr. Hughes. In Europe right now, you have biodiesel moving
    through pipelines and it is moving primarily at a low blend,
    about like a 5 percent biodiesel blend. Our industry has
    committed some significant resources to working with the
    pipeline companies to explore the issue, any kind of technical
    issues that might be associated with moving biodiesel through
    the pipe here in the U.S. So some of the preliminary reports
    that we have gotten show that it is likely to happen, favorable
    and, just stepping through some of those hurdles, but our
    intent is to eventually have biodiesel moving through the pipes
    here in the United States.
        Mr. Upton. The last question I have as my time is expiring
    is, I am just interested from Mr. Foody, Hughes and Lampert in
    terms of your association with the auto industry. Has there
    been good coordination? I know that every vehicle can take the
    10 percent ethanol. I know that E-85 obviously needs a
    different engine, which is not all that much more expensive and
    actually I think it is the same price at least for General
    Motors, but has the coordination been good between the auto
    industry and your fuel?
        Mr. Lampert. Well, Congressman, our organization, National
    Ethanol Vehicle Coalition, our board of directors is composed
    of General Motors, Daimler Chrysler, Nissan and Ford Motor
    Company along with the National Corn Growers, ethanol
    producers, et cetera, so yes, our coordination is outstanding.
        Mr. Upton. Mr. Hughes?
        Mr. Hughes. We have a wonderful working relationship with
    the automakers, and in fact some of them, Daimler Chrysler is
    using biodiesel to factory fill some of their vehicles coming
    off the lines here in the United States so we have a very
    positive relationship with them.
        Mr. Upton. Mr. Foody?
        Mr. Foody. If I might say, we have worked with a number of
    automakers as well and have a good relationship with them. I
    would give you a quick caveat though. We also have Shell as a
    major investor in our firm and certainly as we look towards
    increasing the total amount of alternative fuels in the pool,
    one sees a different vision of the future sometimes coming from
    the oil companies than you do from the car companies. I
    recently heard a fellow from API testify that the oil industry
    could see increasing the amount of renewable fuels from a 10 to
    a 15 percent as at least for them a lower-cost way of wrapping
    up alternative fuels content and I am not really sure where the
    automakers stand on that.
        Mr. Upton. I yield back.
        Mr. Boucher. Thank you very much, Mr. Upton.
        The gentleman from Texas, Mr. Gonzalez, is recognized for 5
    minutes.
        Mr. Gonzalez. Thank you very much, Mr. Chairman. I am
    trying to limit the discussion on oil independence because I
    think there are other considerations of the climate change and
    how we get those basically to benefit one another when we are
    looking at different alternative fuels.
         I cut this article out and it says Texas is top State for
    alternative fuels. Now, what do you think of that? And
    California is second. I hate to tell you, the alternative fuel
    is diesel, and you know what we drive in Texas. This question
    is--let me see. I think the best--Mr. Lampert, it will be
    directed to you. And not setting aside but recognizing some
    considerations, because I am going to read from an article that
    was written by Mr. Robert Samuelson in the Washington Post on
    the 24th of January, because ethanol seems to be getting all
    the attention. There are considerations. One of course is
    transportation of the materials to produce ethanol, and by
    rail--I mean, it really is a significant consideration. The
    transportation of the fuel itself, ethanol, and I think Mr.
    Upton has touched on that, and then the fueling stations, we
    have talked about that.
         The cost of producing the alternative fuel, ethanol, and
    there has been some discussion about the added cost per unit,
    and then the energy or the fuel economy, the energy value of
    ethanol which my understanding is less than gasoline. You get
    less miles, less power and so on. All that into consideration.
    This is Mr. Samuelson's article, Blindness on Biofuels, and
    then I want your opinion on his deductions or his comments.

        Let's do some basic math. In 2006, Americans used 7.5
    billion barrels of oil. By 2030, that could increase about 30
    percent to 9.8 billion barrels, projects the Energy Information
    Administration. Much of that rise would reflect higher gasoline
    demand. In 2030, there will be more people, an estimated 365
    million versus 300 million in 2006, and more vehicles, 316
    million versus 225 million. At most, biofuels would address
    part of the increase in oil demand. It wouldn't reduce our oil
    use or import dependence from current levels. Suppose we reach
    the administration's ultimate target of 60 billion gallons in
    2030? That would offset less than half of the projected
    increase in annual oil use. Here is why. First, it is necessary
    to convert the 60 billion gallons into barrels because there
    are 42 gallons in a barrel. That means dividing by 42. Further,
    ethanol has only about two-thirds of the energy value of an
    equal volume of gasoline. When you do all the arithmetic, 60
    billion gallons of ethanol displaced just under 1 billion
    barrels of gasoline. If that merely offsets increases in oil
    use, it won't cut existing important dependence or greenhouse
    gases.

         And I guess what I am asking, Mr. Lampert, do you dispute
    the deductions reached by Mr. Samuelson?
        Mr. Lampert. I don't have those available, sir, for close
    review. I would only respond by saying that our organization
    supports all forms of alternative fuels--compressed natural
    gas, propane, biodiesel, electricity, plug-in hybrids. We don't
    believe that we want to be any more dependent on just E-85 or
    just biodiesel but that my grandchildren I hope drive into the
    fuel station in the future, not the gas station but the fuel
    station and they may get a quick charge on their little
    electric vehicle or they may buy E-85 or they might buy
    biodiesel. So I think we are going to have a vast mixture of
    different forms of fuels, and I would be happy to review the
    article and provide a response to you in regard to Mr.
    Samuelson's statements but I am not available to do that this
    point, sir.
        Mr. Gonzalez. I think what it is with Mr. Samuelson is that
    if we have legislative mandates and the President is talking
    about targets regarding the use of alternative fuels,
    especially ethanol, in his State of the Union that those
    numbers may be totally off and not realistic, and this
    committee of course needs to work with real numbers and real
    facts, and I think that is the point made by this particular
    columnist. That is the reason that I would ask that question. I
    understand, and I think I have about 9 seconds but I believe
    that--is it Mr. Foody?
        Mr. Foody. Yes. If I may, I would like to just respond to
    those points very briefly. I think that it is certainly true
    that there is a potential for substantial growth in petroleum
    use in America. If we had 60 billion gallons of alternative
    fuels being used in America by 2030, that would mean we would
    have less imports than if we didn't. It is simply by nature
    going to be beneficial. I think another point that was
    mentioned in the article was that that wouldn't reduce
    greenhouse gas emissions. It is very important to ask the
    question about what the type of alternative fuel there is. We
    just heard testimony earlier that said if it is corn-based
    ethanol, it is something like a 20 percent reduction in
    greenhouse gas emissions. With cellulosic ethanol, there is
    something like a 90 percent reduction in greenhouse gas
    emissions. But there is a potential for that large volume of
    alternative fuels to help on the greenhouse gas emissions front
    as well.
        Mr. Gonzalez. My time is up. Thank you very much.
        Mr. Boucher. Thank you very much, Mr. Gonzalez.
        The gentleman from Illinois, Mr. Shimkus, is recognized for
    5 minutes.
        Mr. Shimkus. Thank you, Mr. Chairman, and I appreciate the
    testimony here, and just to follow up on Mr. Lampert's
    comments. Those of us who have been pushing renewable fuels and
    alternatives, we want everybody at the table.
         We want the more, the merrier, and I think as we move in
    this debate, that would help us all and we want--hopefully the
    market will push all the players to be more efficient and
    competition and I like that. I also want to mention, as I
    mentioned Karen McCarthy and biodiesel, I want to clarify, when
    we talk about biodiesel, of course, my initial interest was
    soy, soybeans and crushing, and that is what brought me to that
    debate, but how we were able to move to pass legislation was,
    we said reformulate a cooking oil--beef tallow, and another
    colleague who was helpful is recently deceased, Patsy Mink from
    Hawaii, was very involved in this, and it is that bipartisan
    nature, and as we do on the cellulosic debate, the benefit--and
    you talk about ethanol transportation issues.
        That is the benefit of the cellulosic debate. Let us get
    these refineries in the local areas where you can have local
    refineries with local products and then just transport it for
    that regional market. We are in a great age of really
    addressing this reliance on imported crude oil and the public
    is itching for it for the reasons I said in my opening
    statement.
        Let me ask--what is fun here is because I have also been
    working with the chairman on the coal-to-liquids legislation,
    Mr. Ward, Mr. Maley, you both have mentioned it and I
    appreciate your strong comments. I want to give you a minute to
    address--and I had to step outside for some meetings--again let
    us take a few minutes and talk about our big opposition will be
    the environmental community and I think they should not be for
    the reasons you have already highlighted. Can you briefly tell
    two or three things each why the environmental community should
    look at this more positively than we seem to be hearing? Mr.
    Ward?
        Mr. Ward. The fuel that comes from a coal-to-liquids
    refinery is exceptionally clean compared to the fuel that comes
    from a petroleum refinery today in terms of those criteria
    pollutants.
        In terms of carbon, if we capture and store the carbon that
    comes out of the production process, these fuels are about as
    good or possibly a little better than the fuels that come from
    petroleum-based refineries.
        Mr. Shimkus. And the ability to capture the carbon is
    easier or harder under our coal-to-liquids refinery?
        Mr. Ward. In coal-to-liquids refineries, the carbon comes
    off in a concentrated stream and it is relatively easy to
    capture. I would point out that carbon capture and storage is
    going on today in large scale. Just down the road from the
    North Dakota coal-to-liquids project we are working on is
    Dakota Gasification. They capture their carbon dioxide, they
    put it in a pipeline, they send it to western Canada where it
    is used for enhanced oil recovery and stored in that method. We
    have studies coming from western Canada where they have been
    looking at this process over the years and it is being done
    safely. The carbon is staying in the aquifers and not escaping.
    So while there is a lot of issues still to work out about
    carbon capture and storage and the different modalities for
    that, clearly it is already going on on a large scale and it is
    something we can do.
        Mr. Shimkus. Mr. Maley?
        Mr. Maley. I guess my reaction is that when we look at the
    estimates on global carbon emissions over the next 20 or 30
    years, it is almost regardless of what we do. If we do a great
    job here, global carbon emissions are going to grow
    dramatically and so our view is that the United States should
    be taking the lead in developing the capture technology, the
    storage technologies, the other maybe potential benefit use
    technologies to deal with this problem because it is a global
    problem, we can't just solve it here.
        Mr. Shimkus. So if we are going to move on two bills, one
    an energy security bill, the other one on global warming,
    climate change, and those of us who really are supportive of
    this, if we had to as part of the negotiated compromise move to
    carbon capture and carbon sequestration in advancing coal-to-
    liquid capabilities, you think that would be a risk that the
    financial people and the association would, I would say
    grudgingly accept?
        Mr. Maley. Yes. I think on the four projects we are
    developing, we are anticipating that we will up front capture a
    pure stream of CO\2\ in our projects. We expect in some markets
    where in Texas or Louisiana, there may be a beneficial use,
    enhanced oil recovery. In other markets, say in the Midwest, we
    would be looking to use our pure stream of CO\2\, which there
    are not many of today, to work on projects, demonstration
    projects or other alternatives, to help to advance the
    technology that will ultimately provide some solutions.
        Mr. Shimkus. And being from a part of the country that also
    has a lot of marginal wells, central and southern Illinois, the
    west Texas experience is that using carbon capture in enhanced
    oil recovery, they are recovering more oil than they did in the
    initial find. I think we are going to be able to do that in the
    oil fields of Illinois and we look forward to using that
    technology, but they have to be located and be able to be
    piped, so this is a great time and I appreciate the hearing,
    and thank you, Mr. Chairman. My time has expired.
        Mr. Boucher. Thank you very much, Mr. Shimkus.
        The gentlelady from Wisconsin, Ms. Baldwin, is recognized
    for 5 minutes.
        Ms. Baldwin. Thank you, Mr. Chairman.
        Just a quick question for Mr. Lampert. I know you have been
    asked a lot about--and I am very struck by the image here, and
    being from Wisconsin, of course, I have significant constituent
    access to E-85 but we would of course like to see a lot more.
    But there has been a lot of questions directed to you about how
    do we ramp up the fewer than 1 percent stations nationwide to
    greater percentages. I am interested in hearing a little bit
    more about the geographical distribution and obviously the
    population centers of the country, many of which are not
    served, and what sort of discussions and leadership are you
    hearing from the States in that regard?
        Mr. Lampert. Excellent question, and a number of States,
    Wisconsin for one, have really done a lot in the last several
    months to advance E-85 and different forms of alternative
    fuels, biofuels, and this has not necessarily just been a
    Midwest phenomenon. The State of New York is very active. The
    State of California obviously very active. The State of
    Washington has been active in alternative fuels. If you look at
    that map where E-85 stations are, we very intentionally
    identified Chicago, Minnesota and the front range of Colorado
    to learn to determine what the success would be, what the
    failure rate would be of the E-85 fueling stations, and now we
    are ready to take that out across the country and I believe we
    do have stations in 41 States across the country. So we think
    that the next step with that is not the largeness of the
    Federal grants but rather the Federal income tax credits and
    the support that again an entrepreneur will choose to utilize
    rather than is made to utilize because we feel like a mandate
    is going to result in poor pricing, poor marketing, poor
    performance and ultimately poor customer satisfaction.
        Ms. Baldwin. Thank you.
        Dr. Farrell, a couple of questions for you. I know your
    testimony got cut off a little bit and there is one aspect I
    would like you to address at least briefly and then I have a
    larger question on sort of research and development and sort of
    how we should attack that, but on the quick one, you mentioned
    in your written testimony sort of a combination of coal-to-
    liquids with carbon capture and sequestration and advanced
    biofuels is a new concept. I would like to hear just a little
    bit more about what you are hinting at there, and then the
    larger question that I would like to hear, as we try to
    incentivize innovation both near term and long term, how do we
    set that up? Do we do an NIH-like creation in the energy
    sector? How do we make sure there is peer review going on in
    both public and private sector research and innovation? I think
    we have to do it right, and I would love to hear your thoughts
    on that bigger question.
        Mr. Farrell. Thank you very much. The first question you
    asked was about the possibility of using both coal and biomass
    as the feedstocks for the gasification process. This has been
    done. It has been done for some years in the Netherlands in the
    Burgenhem project, and the interesting thing is that it is now
    hypothesized and there is some data which are in the beginning
    parts of the scientific process. It is just you can actually
    grow biomass, grasses most likely, that not only produce
    biomass but actually improve the soil quality by putting carbon
    into the soil, and by doing so you would actually be able to
    produce fuels with this biomass that have either zero or
    slightly negative carbon content.
         If you were to combine that biomass with coal and then
    capture and sequester the CO\2\ stream from the process, you
    could get significantly large quantities of domestically
    produced fuels very much like the fuels we have today at
    potentially a very low carbon footprint, potentially negative
    but rather slightly, and this is an area I think in which to go
    to your second question, R&D is very necessary. One of the
    things that is most important about research in this area is
    that there are a myriad of different technologies and a myriad
    of different possibilities. I mentioned in the written
    testimony that we really need across the board, across the
    entire economy approach to incentivizing innovation, and in my
    view, strict or tough environmental goals as well as
    performance goals like we have begun to introduce in California
    with our low-carbon fuel standard would incentivize the private
    sector where the bulk of the research is often done as well as
    programs that would be appropriate whether is through the
    Department of Energy or the EPA for the university sector as
    well. But I do think that a sectoral approach is the best way
    to go after the innovation question.
        Mr. Boucher. Thank you very much, Ms. Baldwin and Dr.
    Farrell.
        The gentleman from Arizona, Mr. Shadegg, is recognized for
    5 minutes.
        Mr. Shadegg. Thank you, Mr. Chairman, and thank you again
    for holding this hearing. I think these series of hearings have
    been very helpful and I applaud you for conducting them.
        Mr. Foody, let me begin with you. I would like you to give
    me a straightforward and simple explanation if you can on the,
    I will use the word efficiency differences between cellulosic
    ethanol and let us say corn ethanol or ethanol produced from a
    fermentation process. Is there a substantial differential in
    the cost involved and in the energy produced?
        Mr. Foody. First of all, let me address the basic
    technology for cellulosic ethanol. Corn ethanol has been around
    for many, many years. Cellulosic ethanol is new technology.
    There are relatively small commercial operations but it is new
    technology moving forward. It is in some ways intrinsically
    more complex and at least more capital intense at the factory
    although you are working with much lower cost feedstock. You
    are working with agricultural residues or waste. That is why
    there is potential for very cost-effective production. When
    people talk about the greenhouse gas balance difference between
    the two, one of the fundamental reasons for that is that when
    you power a facility, a cellulosic ethanol facility, most
    designs actually use some of the residue from the biomass
    itself. So no fossil fuels actually come into the process. It
    is entirely renewable. Not only is the molecules in the fuel
    themselves so to speak renewable but also the manufacturing
    process is entirely renewably fuel. The actual ethanol that you
    get out at the end is the same fuel, used in the same cars. It
    couldn't be told apart.
        Mr. Shadegg. Mr. Lampert, would you agree with that
    statement?
        Mr. Lampert. Absolutely. You bet.
        Mr. Shadegg. In most corn ethanol plants, a natural gas is
    used to process the plant?
        Mr. Lampert. That is the majority. We have a plant in
    Nebraska now that is actually using livestock manure going into
    a digestion system to produce almost 95 percent of the total
    energy needed for the facility.
        Mr. Shadegg. Mr. Foody, you would say that there is no net
    energy gain through cellulosic ethanol opposed to corn ethanol.
    It is just that the fuel stock is a biofuel stock, or is there
    a net energy differential?
        Mr. Foody. The finished product is the same.
        Mr. Shadegg. So then you are looking at the amount of
    energy?
        Mr. Foody. You might look at the amount of fossil-fuel
    energy that goes into the production, either into the
    production of the feed stock itself, the fertilizers for making
    corn or whatever, or that go into the manufacturing operations.
    So when people talk about well-to-wheels studies and particular
    carbon that is emitted during the production process, they try
    to effectively capture or identify all the sources by which
    fossil carbon goes into the process, and because cellulosic
    ethanol creates residue that itself has energy and that can be
    used, most of the balances that have been done around this
    process work as well. I might also say just a brief addition to
    this. Both cellulosic ethanol and conventional ethanol
    processes also produce concentrated CO\2\ process streams
    coming off their fermentation and the numbers that you have
    heard about haven't incorporated the potential for capture of
    that CO\2\.
        Mr. Shadegg. Mr. Ward, coal gasification has been around
    for a very long time, hasn't it? Wasn't it in fact used by
    Germany in World War II?
        Mr. Ward. Yes. Actually the coal gasification portion goes
    back even farther than that. That is how they made the lamps in
    Dickens' London. But the use of gasified coal to make liquid
    fuels goes back to--the original work was done in the late
    1920's in Germany and then it was implemented during World War
    II.
        Mr. Shadegg. Because I serve on both this committee and on
    the Select Committee on Global Climate Change and Energy
    Independence, I spent a lot of the break trying to look at some
    of these issues, and it is my understanding that there is not--
    I think people think of coal gasification as a single process
    but a point of fact is, there are lots of different processes
    that are being used, that the process used by, say, Germany in
    World War II to create fuel for its war machine has been
    improved upon dramatically since then and we are still doing
    improvements since that point in time. Is that correct?
        Mr. Ward. That is correct. There are two basic ways of
    doing coal liquefaction. There is either indirect coal
    liquefaction where I take the solid gas, I turn it into a gas
    version and then recombine the gas into a liquid so it is
    indirect, or direct coal liquefaction where I take the solid
    coal and convert it directly into a liquid that I can then
    refine. Germany used both of those technologies back in the
    1940's and actually one of our predecessor companies was
    founded by a scientist from the Manhattan Project, who was
    dispatched by the United States Government to Germany to learn
    how they did these things, and those technologies both direct
    and indirect coal liquefaction have been improved greatly over
    the last several decades. Where we are now is not needing more
    research and development. What we need now is to overcome the
    phenomenon of everyone wants to be the first person to build
    the fifth plant. So if we can get the first few plants in and
    get it commercially accepted, then the market can take over and
    finance the construction of these things like any other kind of
    refinery.
        Mr. Shadegg. My time has expired, but briefly, with coal
    gasification being done by different mechanisms, do you have
    any argument with statistics that are cited here for its
    greenhouse gas emissions as opposed to other technologies not
    necessarily being precise or correct or would you say they are
    pretty accurate regardless of which technology is used?
        Mr. Ward. Well, I think the key thing for coal-to-liquids
    is that the---if you deal with the carbon in the process
    whether you are doing gasification or you are doing direct goal
    liquefaction, if you deal with it by taking the concentrated
    stream that comes out of the process and you store that carbon
    or you use it for a specific purpose, it pretty clearly shows
    you that you can make liquid fuels with the same kind of carbon
    signature or less than what we are doing right now with
    petroleum, which is what we are trying to replace.
        Mr. Shadegg. Thank you.
        Mr. Boucher. Thank you, Mr. Shadegg.
        The gentleman from California, Mr. Waxman, is recognized
    for 5 minutes.
        Mr. Waxman. Thank you very much, Mr. Chairman.
        It seems to me that we have two overriding energy concerns.
    First our dependence on oil poses a tremendous national
    security, economic and environmental challenge, but second,
    perhaps even more importantly, uncontrolled emissions of
    greenhouse gases threaten the very stability of the planet's
    climate and ecosystems. So it seems to me we should do is,
    Congress should establish policies that address our oil
    dependence but would not reduce our greenhouse gas emissions.
    This could result in wasted public expenditures and failed
    government policies. I think it is critical to address both of
    these issues with any energy legislation considered during this
    Congress. Otherwise we could adopt policies that could make our
    job of addressing global climate change more difficult. The
    effect would be to increase pressure, perhaps unfairly, on
    other sources of emissions such as electric utilities and the
    automakers. One way to reduce greenhouse gas emissions while
    reducing oil use is to ensure that the emissions from
    transportation fuels decline over time. With this type of
    constraint in place, all fuels could compete on a level playing
    field. I would like to get the views of each of the witnesses
    to whether they would support a declining cap on carbon
    emissions from transportation fuels. We will start with Mr.
    Ward and go down the table.
        Mr. Ward. As we deal with coal-to-liquids commercialization
    issues, our company as a developer and all the other companies
    that I know of are only evaluating projects where carbon
    capture and storage is capable. What the regulatory framework
    looks like in terms of how Congress decides to deal with the
    regulation is something that we are going to respond to but we
    are not taking a position on it at this time.
        Mr. Waxman. So you are not advocating or opposing a cap on
    carbon emissions in transportation fuels?
        Mr. Ward. My company is not. We are focused on trying to
    process the commercialization gap and deal with the energy
    security associated with where our fuels come from.
        Mr. Waxman. Next gentleman.
        Mr. Maley. I guess as a company, we are committed to doing
    what is technically feasible in the marketplace, and as the
    technologies advance we are committed to implementing those new
    regimes so we are always at the state of the art of what is
    technically and economically possible and we would certainly
    encourage public policy that would support a sensible
    development of those regimes.
        Mr. Foody. Let me just say, I start from the perspective of
    representing a company who is producing a fuel that people
    describe as leading to a 90 percent reduction in greenhouse gas
    emissions and we are very happy about being able to contribute
    to that. I think the question of whether one sets targets on
    the overall fuel declining amount of greenhouse gases or
    alternatively sets targets, for instance, for the nature of
    what advanced fuels might be I think depends upon the specific,
    most efficient way of implementing legislation and we wouldn't
    have a view, and I am sure you have heard much more learned
    testimony about all the different options than we have.
        Mr. Waxman. Thank you.
        Mr. Hughes. Congressman, I represent the National Biodiesel
    Board. In our trade association, we have fuel producers that
    make a fuel that DoE has demonstrated as 78.5 percent
    reduction, life cycle reduction in greenhouse gases and so that
    is what we are focused on is just getting that out there and
    reducing those emissions. As an association, we have not as a
    matter of policy, discussed how the various carbon options,
    carbon reduction policy options, so we don't have a position
    for it.
        Mr. Waxman. Do either of the last two of you have a
    position one way or the other?
        Mr. Farrell. Yes, sir, I do. Thank you for the question,
    Congressman Waxman. I think that you are quite right, that not
    only are these linked but in fact failing to adequately address
    climate change increases the security risk and increases the
    economic risk. I think that a declining cap does the crucial
    task, which is it focuses our attention on identifying what we
    are care about in this particular domain, which is
    concentration of greenhouse gases in the atmosphere, and it
    sends a signal that those values will go down in the right
    direction, and that is the crucial task.
        Mr. Waxman. Thank you. While carbon capture and
    sequestration appears very promising for coal-based electricity
    generation, the technology for coal-to-liquids doesn't seem
    ready for a carbon-constrained world. Maybe there is a coal-to-
    liquids technology that can really deliver low-carbon fuels but
    so far, I don't know that anyone appears to be discussing that
    technology. Do we have any response whether we are dealing with
    both of those issues from the coal technology side?
        Mr. Ward. Yes, sir. I would point out that the gasification
    technology at the core of an IGCC plant that we talk about for
    capturing and sequestering carbon for power generation is the
    exact same technology that is employed in a coal-to-liquids
    plant so to the degree that we are able to make coal-fueled
    power stations through gasification cleaner from a greenhouse
    gas perspective, the coal-to-liquids refinery is exactly the
    same.
        Mr. Waxman. And you think we accomplish the lower carbon
    fuels as well as displacement of oil for fuel?
        Mr. Ward. There are a number of strategies that we can do.
    As my testimony points out, if we capture the carbon and store
    it from the production process, we can produce a fuel that on a
    life cycle basis is equal to or a little better than the
    petroleum fuels that we are replacing. As Dr. Farrell pointed
    out, there are additional technological improvements that will
    come into play over time such as the co-gasification of biomass
    to give us the opportunity to lower those carbon emissions even
    farther.
        Mr. Waxman. Thank you.
        Thank you, Mr. Chairman.
        Mr. Boucher. Thank you very much, Mr. Waxman.
        We will embark now on a second round of questions, and
    given the fact that there is relatively limited attendance of
    Members at this stage, it should go rather quickly.
        I want to come back to the question that Mr. Inslee raised
    about whether or not a gallon of coal-to-liquids fuel has a
    carbon content that is any greater than a gallon of traditional
    diesel. The EPA has released a study that contains a chart
    which Mr. Inslee refers to that shows that even with carbon
    capture and sequestration, the coal-to-liquids technology
    results in a 3.7 percent greater carbon content in the fuel
    than would be true for a petroleum-based fuel. I don't know
    where that number comes from. That information is at odds with
    what Mr. Ward has said based on his extensive examination. It
    is at odds with what Dr. Farrell has testified to here today,
    both of whom have said that the fuel coming from coal-to-
    liquids has no greater carbon content than the petroleum and
    potentially, according to Mr. Ward, could have a lower carbon
    content, and so my first question is this: Does anyone know why
    the discrepancy between this EPA study showing a 3.7 percent
    differential with the greater carbon content for the coal-to-
    liquid product and what you, Mr. Ward and Dr. Farrell, are
    saying? Dr. Farrell, you are nodding your head. Would you like
    to take an attempt at that?
        Mr. Farrell. Thank you, Mr. Chairman. I would suggest, I
    would offer that the value of 3.7 percent, given the wide range
    of various technologies that Mr. Ward referred to and the fact
    that technologies are advancing so when we build the second,
    third, fourth of these plants, they will be different than what
    we are thinking about today, and our comments that the
    emissions if the carbon is captured from these processes are
    approximately the same that those are all within the range of
    these potential studies so I think there is no conflict among
    these three.
        Mr. Boucher. So you are saying there is really no conflict,
    this is kind of an average of the technologies that we know
    about?
        Mr. Farrell. I would say this is one study, this EPA study.
    They have made some assumptions in doing their analyses. You
    could make slightly different assumptions and come up with a
    number that would be slightly different, maybe plus two or
    minus three, and all those are within the range of what we can
    do with this type of analysis.
        Mr. Boucher. That is a good answer.
        Mr. Ward, would you like to supplement that?
        Mr. Ward. Yes. I think the thing to keep in mind when you
    are looking at any of these kind of analyses, particularly the
    life cycle analyses, is the assumptions that go into what
    externalities you include in your studies have a lot to do with
    where the studies come out. I am not familiar with this
    particular study. I don't know if they are taking into account
    the relative energy densities of the different fuels that are
    being included here. I don't know if this is a study that looks
    at the well-to-wheels perspective of how far do I have to
    transport my raw materials to do this stuff, what type of oil
    feedstock going into the refining and then comparing to all of
    those variables shift around. That is why in my testimony we
    try to say that if you capture and store the carbon, you are
    going to be about the same or a little better than the
    petroleum fuels you are trying to replace.
        Mr. Boucher. Thank you very much. Let me simply say that
    the legislation that Mr. Shimkus and I will soon put forward
    that will provide a Federal price guarantee for coal-to-liquids
    facilities will contain a requirement that in order to
    participate in the price guarantee program, any applicant for a
    price guarantee must agree to capture the carbon that comes
    from the process and permanently sequester it, and so there
    will certainly be no greater carbon contribution from the
    manufacturing process, and if what you are saying is accurate
    and there is no greater carbon contribution from the fuel
    itself, then we should have the confidence that the coal-to-
    liquids technology as facilitated by the new price guarantee
    program once our bill passes will not increase the greenhouse
    gas burden. So let me thank you for these very helpful answers,
    and I would recognize the gentleman from Illinois, Mr. Hastert,
    for 5 minutes.
        Mr. Hastert. I thank the chairman. I was a little bit
    perplexed by some of the testimony and some of the answers. I
    am glad we have this last round.
        One of the questions was, I think either to you, Mr. Ward
    or Mr. Maley, that when you are talking about the efficiency of
    liquidized coal or gasified coal, that fuel, and whether it had
    more carbon than gasoline or some of these other fuels we
    talked about, I think when you look at it and even take this
    list even though the EPA study--the different fuels that we
    have, the question and the answer is there is no one fuel that
    is going to supply or replace petroleum in this country but
    there are two things that we want to do. We want to have
    cleaner air, a better environment and at the same time relieve
    ourselves on the dependability of petroleum that comes from
    overseas, not only coming off from offshore but also the
    manipulation of prices and cartels and those types of things,
    that if we have this production domestically, we have a better
    supply of quote, unquote, fuel, and not only better but we have
    a better cost focus and not we hope manipulated and I want to
    say to you, Mr. Foody, that I think one of the things that we
    need to really look at is to working together in a North
    American energy strategy and certainly you folks would be a
    very important part of that.
        That being said, one of the questions was I think to you,
    Mr. Ward, and discussion that hybrid vehicles are better
    because basically you plug in and it is much more efficient
    than the fuel that you are talking about. I question, I think
    most hybrid fuel vehicles when you plug them it, that is
    electricity, right? That is the basic fuel of that. And my
    question is, where does electricity come from. Well, it can
    come from nuclear energy. We are about our limit of nuclear
    capacity right now and we haven't built a nuclear plant in this
    country for 25 years. That is fairly clean. It could come from
    natural gas, which is fairly clean too but we have a shortage
    of natural gas and that is why we need to look at other fuels.
    And then we go back to where 50 percent of our electricity is
    generated from and it is coal, isn't it, and that is just coal-
    fired plants, so it seems to me that what you are talking about
    is a clean plug-in hybrid basically when that energy comes from
    coal-fired plants. Maybe it isn't as clean as some people
    purport it to be. Do you want to comment on that?
        Mr. Ward. Well, clearly my boss doesn't pay me to promote
    plug-in hybrid vehicles but the advantage to doing them is that
    you are using--yes, you are probably using coal-fired power to
    do that but you are using coal-fired power generally being
    recharged in the off-peak hours when it is most efficiently
    produced and at the least cost, and the vehicle itself while
    you are operating on the batteries has essentially zero
    emissions so----
        Mr. Hastert. So the vehicle side is clean?
        Mr. Ward. Correct, but there are emissions associated with
    it.
        Mr. Hastert. The coal-fired emissions, whether you are for
    it or against it, aren't any less on off-peak than they are on
    peak, are they?
        Mr. Ward. Well, you have moved some of the emissions
    profile back to the generating plant. Overall it is probably a
    cleaner approach. But the limitation with those vehicles though
    is that works for passenger cars and those of us who drive a
    few miles a day but it doesn't work for trucks and plants.
        Mr. Hastert. I understand that. Thank you.
        Mr. Lampert, again we got into the discussion of
    transportation of ethanol and the pollution that you use to
    transport. If you blend ethanol at the refinery, wherever that
    refinery would be, move it through the pipes, you still have to
    transport the ethanol to the refinery, right? So you have this
    whole issue. Isn't the issue of ethanol, the efficiency of it,
    part of the cleanness of it, is that you produce ethanol in a
    lot of different places and so when you have to splash-blend
    ethanol, there is going to be an ethanol plant very, very close
    to where you are splash-blending? Isn't that a fact?
        Mr. Lampert. I believe of the 106 or 107 operating ethanol
    facilities that are located in over 33 or 34 States with
    facilities coming online in Washington, Oregon, Louisiana,
    planned in Florida, Vermont, Connecticut, New Jersey, et
    cetera, I think it is not only that, but a national security
    issue as well to have these refineries spread out across the
    Nation.
        Mr. Hastert. But the essence of the ethanol refineries when
    you spread them are close to the splash-blending places as
    well?
        Mr. Lampert. Yes, sir.
        Mr. Hastert. The second part of that question, if I could,
    where is the blend mix if you know it? Right now we are at 10
    percent ethanol, and I know when I put the E-85 into my truck
    and drive it, I probably get maybe 50 miles less or 30 miles
    less mileage than I get when I put pure gasoline in it--I think
    it is pure gasoline at least, or 10 percent blend is what it
    is. So what is the difference? Could you go to 25 percent blend
    or 15 percent blend or a 30 percent blend or a 40 percent blend
    and not lose efficiency?
        Mr. Lampert. Yes, sir, absolutely. If we put a gallon of
    diesel fuel and a gallon of gasoline and a gallon of alcohol
    here on the table, the BTU, the energy latent heat content is
    135,000 for the diesel. That is why all our farmers now operate
    diesel tractors. It is 114,000 for gasoline, 87,000 BTUs for
    ethanol. It is just the chemistry of it. So as we use 85
    percent of this, obviously if you go down to 50 percent ethanol
    you are going to have a reduction in the reduction of BTU
    content. Clearly we could use E-50, E-40. We are very
    supportive of blending pumps in the future. But to answer your
    earlier question, ethanol is denatured or poisoned, if you
    will, at the production facility and then it is shipped in a 98
    percent pure form to the terminal, to the big tank farms where
    it is mixed at that point.
        Mr. Hastert. I understand. Thank you for your answer. I
    yield my time back.
        Mr. Boucher. Thank you very much, Mr. Hastert.
        The gentleman from Washington State, Mr. Inslee, for 5
    minutes.
        Mr. Inslee. Thank you. I just wanted to tell the committee,
    I checked on this EPA report of April 2007. It does consider
    the life cycle costs as far as this analysis. It also does take
    into consideration various energy equivalents of BT units, so
    those were important questions and I think it does handle both
    of those issues for us. I just want to tell you, looking at
    this report, listening to Dr. Farrell, listening to Mr. Ward,
    the sort of conclusion I come out to is that we have some
    biofuels that have potential for very significant savings from
    a CO\2\ perspective and I am going to define under the Janesely
    rule significant as being 30 percent, let us just figure, and
    there are several biofuels that have that capacity. I don't
    think coal-to-liquid has that capacity to have a significant
    CO\2\ improvement whereas other biofuels do. Do people agree
    with that? Does anybody disagree with that at the table?
        Mr. Farrell. If I might, Mr. Inslee, thank you for the
    question. I think technologies that include coal-to-liquids but
    also use biomass as the input to the gasification process and
    so they would be combined biomass and coal-to-liquids could
    reach this 30 percent reduction but I would have to bend your
    rule a little bit in order to do that.
        Mr. Inslee. And how would you bend the rule?
        Mr. Farrell. By defining the coal-to-liquid process as a
    process that was a gasification process that used both coal and
    biomass as the feedstock, not coal by itself.
        Mr. Inslee. Mr. Ward, is that anywhere in anybody's
    thinking at the moment?
        Mr. Ward. Yes, sir. In fact, there is a great deal of work
    going on in that area in Europe and that is a capability. If
    you get to that point, what that would have the effect of doing
    would be to greatly increase the volumes of fuels you would be
    able to produce because you are able to use the coal----
        Mr. Inslee. I would be interested in reading any of that
    material you could provide me. I would be very interested in
    that.
        Mr. Lampert, I wanted to ask you about mandates on pumping
    stations. I talked to a gentleman who is sort of the majordomo
    of the Brazilian ethanol program over 30 years and what he told
    me was, you will have to do something very strong to get the
    oil and gas industry to put in ethanol E-85 pumps, and the
    reason is, they are competing with the E-85 industry, if you
    will. They have no interest in sort of helping their competitor
    to get going by making those services available, and he says
    the one piece of advice I will give you is, you will have to do
    something very strong to change that dynamic, and so I want
    to--you suggested not to have a mandate but to increase the tax
    advantage but I am concerned that even that will not inspire
    those oil and gas distributors, who are not in the ethanol
    business, to go help their competitors sell a product to break
    their domination in the industry right now and I think it is a
    pretty small percentage of service stations that are truly
    independent from the oil and gas refining industry so why
    should we think that increased tax incentive will be enough to
    really inspire a timely industrialization of this, put these
    pumps in?
        Mr. Lampert. Congressman, we hear a lot about the Brazilian
    example, if you will, and just anecdotally speaking, the
    Brazilian ethanol program was implemented under the auspices of
    a military dictatorship and in that sense it was much easier to
    establish public policy. Well, obviously we don't have an
    interest in that here but we think that profit is a very strong
    motivator for the petroleum industry and I would use another
    example of the bottled-water industry of 20 years ago, and I
    try to characterize myself as a bottled-water salesman, come
    into a gas station and say let us have 5 feet of your
    refrigerator space to put in bottled water. Well, the major oil
    companies laughed the bottled-water salesman out of the door 20
    years ago and the independents saw that as a new profit center
    and today indeed it is a very a valuable profit center and we
    feel like as this profit center is established that again the
    petroleum industry, the majors are not the innovators, it is
    that little guy, that they will see the loss of profit. Their
    shareholders may force them into doing that at some point.
        Mr. Inslee. And just real quickly because I want to ask
    another question. What percentage of distributors are
    independent from the refining industry roughly?
        Mr. Lampert. Eighteen to 20 percent.
        Mr. Inslee. I will just tell you, I am still troubled by
    that. If we only have 18 to 20 percent of the independents, is
    that really going to be enough. I wanted to ask Mr. Foody,
    there was a question asked about production of cellulosic
    ethanol and I am not sure the answer and the question matched.
    My understanding, I have been told there is hope for cellulosic
    on an energy-per-acre basis can increase productivity of BTUs
    per acre, if you will, once we go to cellulosic as opposed to
    corn. Could you comment on that?
        Mr. Foody. Sure, although if you don't mind, I would like
    to spend 30 seconds addressing that earlier question. I had a
    very interesting discussion with the CEO of one of Brazil's
    largest ethanol companies and he offered me effectively this
    free advice for America. He said look, the first thing you need
    to do is have a lot of ethanol in the system, permit people to
    increase their blend levels to 20 percent or something like
    that and then he said if there is ethanol in the marketplace
    and there are flexible fuel vehicles around, all of the people
    distributing fuel will see that money in flexible fuels. With
    respect to the question of, can we see rises in the energy
    density per acre, I think the answer is yes. Numbers of people
    are developing crops that will grow faster, essentially capture
    the energy from sunlight better and I think there are great
    prospects in pushing up the land efficiency so to speak by
    which cellulosic ethanol would operate.
        Mr. Inslee. Thank you.
        Mr. Boucher. Thank you very much, Mr. Inslee.
        The gentleman from Illinois, Mr. Shimkus.
        Mr. Shimkus. Thank you, Mr. Chairman. I wanted to stay just
    to follow my friend Jay Inslee and be prepared to rebut, but he
    was kind in his series of questions.
        You mentioned the profit word and that is kind of a tough
    thing to do in Washington, DC, these days because profit is
    kind of defined as being bad. I think profit is good. I think
    it encourages us to invest and take risks and get a return on
    the investment. The other thing is, opponents like to have this
    divide-and-conquer strategy. I want to put on the table, the
    corn guys are not in opposition with the cellulosic guys. In
    fact, we want them, we want to encourage them in. In all
    honestly we get a two-for. We can sell the corn and we can sell
    the stover. So we are looking forward to this advancement.
        Let me go to Mr. Foody first. When we started working on
    this bill on energy security, I think a lot of us have been
    hearing stuff about well, we are 10 years away from cellulosic
    development. If we put in a lot of money in research in
    development, maybe we can speed that up to 5 years, and I think
    that has been part of our thought process. I think part of your
    testimony says we should be able to go faster than that. Is
    that correct?
        Mr. Foody. Yes, that is absolutely true. I drive on
    cellulosic ethanol. It is manufactured at a significant scale.
        Mr. Shimkus. So what we will want to do is get
    encouragement and information from the associations of what we
    need to do. I will tell you, 18 to 20 percent of the retailers
    being independents--I have, as many of you have heard through
    these hearings year in and year out, I have over 22 stations
    that sell E-85. I can guarantee that 20 of them are
    independents. They are the ones that take the risks. They are
    the ones concerned about the local community and they are the
    ones that are putting them in and for a very nominal cost. So I
    love the independents and I see the large retailers starting to
    because there is a demand there. The market is pushing that. I
    think the water example is a perfect example, especially in
    southern Illinois. People are looking for it. We are trying to
    know where the stations are and we drive off the intersection
    just to get there. So again, I want to applaud my independent
    retailers.
        The other issue is, we do not have the ability, or maybe
    correct me if I am wrong, either in corn or in cellulosic to
    produce aviation fuel. Is that correct?
        Mr. Foody. I think that is generally true. I would like to
    respond to something you said at the start of your discussion
    though and just say I believe the corn guys support the
    cellulosic ethanol and the cellulosic ethanol guys support
    corn. I think that the advance of ethanol in the marketplace
    generally is a positive thing.
        Mr. Shimkus. Again, that reminds me on the RFS standard.
    When we did the EPAct, which I am glad in the committee print
    it gave credit to the energy bill we passed, and if you
    remember the debate, we were struggling on this committee for a
    5 billion RFS standard and we had to get our Senators to help
    and they proposed an 8 billion and we settled in conference to
    7.5 billion. That has been really the key legislative movement
    to now us having this debate and to have the President come
    with an RFS standard and have everybody--it is a great time.
    People are tripping all over themselves to be renewable-fuel
    folks and we like that, and that is why I am not going to let
    anybody divide anybody up at this panel, especially from the
    supply end, because if we want to decrease import of crude oil
    and meet our environmental challenges for the future and the
    future demand, we need all of you at the table and we are going
    to try very diligently not to disincentivize, which you all are
    doing based on policies that we establish here.
        So the last question I have, I wanted to just highlight,
    because there is an issue, because I also, like my colleague
    and friend, Mr. Hastert, have been driving around in flexible
    fuel vehicles for a long time and there is a decreased miles
    per gallon issue and I believe technology, science and research
    will address that. Mr. Lampert, can you give us an example of
    Brazil and a GM product that might be addressing the miles per
    gallon issue?
        Mr. Lampert. Not necessarily in Brazil. We do have some
    evidence of a turbo charged Saab, which is a General Motors
    product in Sweden that actually increases the turbo charge or
    the compression ratio to take advantage of the high octane. E-
    85 has been around 100 octane and very high-compression-ratio
    engines could take advantage of that much better so we do have
    that product available. I believe the Department of Energy
    actually flew a Saab into the U.S. to get some testing done at
    Oak Ridge recently but there is technology available. We can
    get the same mileage out of that gallon of ethanol if we want
    to spend the money for it.
        Mr. Shimkus. And Mr. Chairman, that might be another issue
    that we want to address and how to work with DoE and the
    research. I can defend my use of the E-85 because it is pretty
    much like 30 cents cheaper a gallon so just the offset ratio of
    cost makes it doable but if we really address the miles per
    gallon issue and see what we can do at the Federal level to
    help incentivize that research and develop and that technology,
    I think that is another good addition to the energy security
    bill.
        I yield back.
        Mr. Boucher. Thank you very much, Mr. Shimkus. It was a
    very interesting set of questions.
        The gentleman from Arizona, Mr. Shadegg, is recognized for
    5 minutes.
        Mr. Shadegg. Thank you, Mr. Chairman.
        I want to begin, Dr. Farrell, with you. You said something
    very interesting earlier and I think you got a brief amount of
    time to explain it but not enough. I would like to hear it a
    little bit more clearly. And that is, it was pointed out that
    you do not believe that a single across the entire economy
    mechanism for dealing with carbon emissions is the correct way
    to go. I hear a lot of discussion in this committee and all the
    hearings we have heard about cap and trade. I see a lot of
    abuses of cap and trade. I see a lot of government involvement
    in setting the initial caps and trying to set these trade
    values and I think a part of the problem that I see with cap
    and trade has to do with the diversity of the economy. In
    Europe, for example, I don't believe their cap and trade
    addressed mobile sources which are a major contributor. And so
    I was interested in, as an alternative to that, I have looked
    at well, maybe the simpler mechanism would be a carbon tax.
    Now, of course politicians are never supposed to the word
    ``tax'' but if that makes the distribution of whatever societal
    price we have to pay in this area to address climate change
    fairer and more transparent, then perhaps that is the right way
    to go. But you threw a whole new dynamic in saying that you
    kind of think we should--and your testimony about it was
    contradictory to what we have heard here so far, that we should
    be looking at, well, for electricity generation it is one set
    of calculations, for transportation it is perhaps another, for
    industrial use it is perhaps another. I would like to give you
    a chance to extend on that.
        Mr. Farrell. Thank you very much, Congressman. I am happy
    to do so. For those of you who are interested, I am going to
    use some figures that are on page 8 of my testimony. What this
    table does is, what if we put a policy in place across the
    economy that we could model as a $25 tax? What would happen to
    the price of generating electricity in various ways, what would
    happen to the price of gasoline. A $25 tax on the per ton of
    CO\2\, because there is fuel-on-fuel competition in the
    electricity sector and because carbon capture and storage
    begins at $25 or $30 to become economical just from a straight
    cost basis, we would begin to see in that sector very big
    changes. That same tax or a cap that resulted in the same would
    result in increasing gasoline prices of about 24 cents, and if
    all you wanted was to reduce greenhouse gases to some lower
    value and some nominal value without requiring much change in
    the rest of the economy, without also requiring at the same
    time technological innovation and change across the entire
    economy, that would be fine, but we do want technological
    innovation and a change across the entire economy. So a single
    tax or a single cap across the entire economy is unlikely to
    induce change and significant innovation across the entire
    economy. I will remain agnostic for the moment about whether a
    cap or a tax would be right but I think there may be some role
    for dividing up the economy into sectors and I suggest that at
    least the transportation sector may be a place where you would
    do that. The low carbon fuel standard that has been discussed a
    little bit already has this property. It can be designed in a
    way that will induce innovation in the transportation sector
    without raising costs necessarily a great deal and also be
    compatible with a cap for electricity and stationary sources.
        Mr. Shadegg. Thank you. I appreciate that.
        Now, for the both conventional and cellulosic ethanol
    representatives, there have been some problems with ethanol.
    Ethanol has destroyed fiberglass fuel tanks. There are some
    reports of dissolution of resin in the fiberglass. There is
    some question about its effect on all types of other engine
    parts. I believe some industries, the motorcycle industry and
    others, are concerned about mandated higher quantities of
    ethanol. I believe Minnesota or one of the other States in the
    Midwest is trying to go right now to an E-20 standard. That is
    being opposed. I think it being opposed by the marine industry,
    the motorcycle industry. How do you propose to address that and
    would you in the world you envision since we have to embrace
    all of these alternatives, and I certainly support that
    including ethanol, how do you envision dealing with some
    subsets, aircraft being one that has been mentioned so far, but
    others that don't believe they can adapt to higher
    concentrations of ethanol. Would you envision that other fuels
    also remain in the market and that the extra cost for that be
    there, Mr. Lampert and Mr. Foody?
        Mr. Lampert. Congressman, I have been very involved with
    the Minnesota program, and specifically what it calls for is
    that 20 percent of their fuel use will be a renewable fuel, not
    for 20 percent ethanol in their fuel. Today they have a 10
    percent mandate. All the fuel in Minnesota other than those
    used for marine and aviation and antique vehicles has 10
    percent ethanol in it. They want to take that to the next step
    but it is not use of 20 percent ethanol, they want to bring in
    more E-85 vehicles and use more alcohol in total rather than in
    each vehicle, if you will.
        Mr. Shadegg. Before you comment, Mr. Foody, I have heard
    directly from the motorcycle and marine industries that they
    are concerned that they are not going to be able to get fuels
    that don't have higher concentrations of ethanol. You believe
    that is not accurate?
        Mr. Lampert. No. The president of General Motors last week
    at the New York auto show--I don't want to misquote him. I
    believe his statement was that the use of E-20 in a vehicle
    designed and engineered to operate on E-10 only will cause
    catastrophic damage to the engine. So we do not support the use
    of any level blend of alcohol in any form of machinery other
    than that which has been designed for.
        Mr. Shadegg. Mr. Foody?
        Mr. Foody. I think if one sets a target as people have to
    see renewable fuels or ethanol go beyond the 10 percent level,
    you need to take the question of infrastructure very seriously,
    and we have essentially before us a number of examples of
    routes that people have taken. Brazilians, for instance,
    basically stepped up the concentration in their main grade of
    fuel up to 20 percent and the vehicle makers made the
    modifications in the cars that allowed that to be workable.
    Alternatively, one could go for E-85, keep E-10 and have E-85
    in the distribution channel. I think it is an open question
    about which would be more effective. Clearly, there are people
    on each side of the fence saying it will be more costly for me
    to do one thing or the other. I know from the oil industry,
    they believe it will be more costly for them and more difficult
    to set up E-85 pumps and less likely to succeed than moving
    ethanol up in the main grade of gasoline. On the other hand,
    one has to work with assuring that consumers have vehicles and
    vehicles are on the road that actually can handle that because
    we don't want to have a problem of a fuel that causes
    catastrophic destruction of people's vehicles. I think that it
    is an important question you should consider as you look at the
    issues of moving renewable fuel use up. It is a question that
    has been addressed though in at least Brazil and there is
    probably substantial experience to be gathered there.
        Mr. Shadegg. Thank you.
        Mr. Boucher. Thank you very much, Mr. Shadegg, and again
    the committee's thanks to our witnesses today. This has been an
    extremely interesting conversation and we appreciate your
    contributions to it. We may have some follow-up questions for
    you as we continue our examination in which case we will
    communicate with you and pose those questions. For today
    though, let me just express our thanks for your very valuable
    information. This hearing stands adjourned.
        [Whereupon, at 1:00 p.m., the subcommittee was adjourned.]