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

                       ALTERNATIVE FUELS: CURRENT STATUS,
                          PROPOSALS FOR NEW STANDARDS,
                       AND RELATED INFRASTRUCTURE ISSUES

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

                                    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

                                   __________

                                  MAY 8, 2007

                                   __________

                               Serial No. 110-42

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov
                                   ----------
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    40-701 PDF                       WASHINGTON : 2008

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                        COMMITTEE ON ENERGY AND COMMERCE

                           JOHN D. DINGELL, Michigan, Chairman

    HENRY A. WAXMAN, California          JOE BARTON, Texas
    EDWARD J. MARKEY, Massachusetts         Ranking Member
    RICK BOUCHER, Virginia               RALPH M. HALL, Texas
    EDOLPHUS TOWNS, New York             J. DENNIS HASTERT, Illinois
    FRANK PALLONE, Jr., New Jersey       FRED UPTON, Michigan
    BART GORDON, Tennessee               CLIFF STEARNS, Florida
    BOBBY L. RUSH, Illinois              NATHAN DEAL, Georgia
    ANNA G. ESHOO, California            ED WHITFIELD, Kentucky
    BART STUPAK, Michigan                BARBARA CUBIN, Wyoming
    ELIOT L. ENGEL, New York             JOHN SHIMKUS, Illinois
    ALBERT R. WYNN, Maryland             HEATHER WILSON, New Mexico
    GENE GREEN, Texas                    JOHN B. SHADEGG, Arizona
    DIANA DeGETTE, Colorado              CHARLES W. ``CHIP'' PICKERING,
        Vice Chairman                      Mississippi
    LOIS CAPPS, California               VITO FOSSELLA, New York
    MIKE DOYLE, Pennsylvania             STEVE BUYER, Indiana
    JANE HARMAN, California              GEORGE RADANOVICH, California
    TOM ALLEN, Maine                     JOSEPH R. PITTS, Pennsylvania
    JAN SCHAKOWSKY, Illinois             MARY BONO, California
    HILDA L. SOLIS, California           GREG WALDEN, Oregon
    CHARLES A. GONZALEZ, Texas           LEE TERRY, Nebraska
    JAY INSLEE, Washington               MIKE FERGUSON, New Jersey
    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          TIM MURPHY, Pennsylvania
    JIM MATHESON, Utah                   MICHAEL C. BURGESS, Texas
    G.K. BUTTERFIELD, North Carolina     MARSHA BLACKBURN, Tennessee
    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, Senior Counsel
                        Bruce C. Harris, Policy Advisor
                              Margaret Horn, Clerk
                           David J. McCarthy, 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. Michael C. Burgess, a Representative in Congress from the
      State of Texas, prepared statement.............................     3
     Hon. John D. Dingell, a Representative in Congress from the
      State of Michigan, opening statement...........................     4
    Hon. Darleen Hooley, a Representative in Congress from the State
      of Oregon, opening statement...................................     5
    Hon. Tammy Baldwin, a Representative in Congress from the State
      of Wisconsin, opening statement................................     6
    Hon. Joe Barton, a Representative in Congress from the State of
      Texas, prepared statement......................................     8

                                   Witnesses

    Robert Meyers, Associate Assistant Administrator, Office of Air
      and Radiation, Environmental Protection Agency.................    13
        Prepared statement...........................................    16
        Answers to submitted questions...............................   187
    Alexander A. Karsner, Assistant Secretary, Energy Efficiency and
      Renewable Energy, U.S. Department of Energy....................    23
        Prepared statement...........................................    25
        Answers to submitted questions...............................   177
    Elizabeth A. Lowery, vice president, Environment, Energy and
      Safety, General Motors Public Policy Center....................    66
        Prepared statement...........................................    68
    Warren I. Mitchell, chairman of the board, Clean Energy..........    70
        Prepared statement...........................................    72
    Paul D. Reid, president and chief executive officer, Reid
      Petroleum Corporation..........................................    76
        Prepared statement...........................................    78
    Robert Greco, group director, Downstream and Industry Operations,
      American Petroleum Institute...................................    89
        Prepared statement...........................................    91
    Charles T. Drevna, executive vice president, National
      Petrochemical and Refiners Association.........................   107
        Prepared statement...........................................   109
        Answers to submitted questions...............................   172
    Daniel A. Lashof, Climate Center science director, Natural
      Resources Defense Council......................................   122
        Prepared statement...........................................   124
        Letter of March 27, 2007 to Members of Congress..............   167
    Bob Dinneen, president, Renewable Fuels Association..............   143
        Prepared statement...........................................   145

                               Submitted Material

    ``Ethanol's Impact Multifold'', AP article of May 7, 2007,
      submitted by Mr. Shimkus.......................................   164
    ``List of Alternative Fueling Station Total Counts by State and
      Fuel Type,'' U.S. Department of Energy, submitted by Mr.
      Dingell........................................................   170

      ALTERNATIVE FUELS: CURRENT STATUS, PROPOSALS FOR NEW STANDARDS, AND

                          RELATED INFRASTRUCTURE ISSUES

                                  ----------

                              TUESDAY, MAY 8, 2007

                      House of Representatives,
                Subcommittee on Energy and Air Quality,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:00 a.m., in
    room 2123 of the Rayburn House Office Building, Hon. Rick
    Boucher (chairman) presiding.
        Members present: Representatives Butterfield, Melancon,
    Barrow, Markey, Gonzalez, Inslee, Baldwin, Hooley, Matheson,
    Dingell, Hastert, Upton, Whitfield, Shimkus, Shadegg, Buyer,
    Bono, Walden, Rogers, Sullivan, Burgess, and Barton.
        Also present: Representative Green.
        Staff present: Bruce Harris, Lorie Schmidt, Laura Vaught,
    Chris Treanor, Jonathan Brater, Margaret Horn, C.H. Bud
    Albright, David McCarthy, Tom Hassenboehler, and Matthew
    Johnson.

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

        Mr. Boucher. The subcommittee will come to order. This
    morning the Energy and Air Quality Subcommittee is turning its
    attention to alternative fuel. Increasingly, our Nation's
    energy independence is a goal which we all share and given that
    we currently import approximately 60 percent of the oil which
    we consume in the United States, it is appropriate and
    necessary that we explore and encourage all possible means of
    increasing the domestic production of fuels which will lessen
    our dependence on foreign sources of oil.
        While corn-based ethanol is currently the primary
    alternative fuel produced in the United States, other biofuels,
    including cellulosic-based manufacturing for ethanol and
    biodiesel holds great promise for increasing the contribution
    of domestically produced fuel. Also promising is the potential
    of coal-to-liquids, regarding which we heard testimony at a
    previous hearing. Today our focus is on a broader range of
    alternatives to petroleum other than coal-to-liquids.
        The Energy Policy Act of 2005 established a mandatory
    amount of renewable fuel that must be contained within the
    United States' gasoline supply. The amount of the mandate
    increases over time with 7.5 billion gallons required in the
    year 2012. For each year after 2012, the Act requires that EPA
    determine, in consultation with the Secretaries of Energy and
    Agriculture, the mandatory renewable fuels volume amount with a
    minimum of 250 million gallons of renewable fuel to be derived
    from cellulosic biomass each year.
        The program started last year with an interim rule. The EPA
    issued a final rule for the Renewable Fuel Standard on April
    10, 2007, just about 1 month ago. The final rule included a
    mandate that 4 billion gallons of renewable fuels be used the
    first year, but actual production in that first year was almost
    5 billion gallons. The Department of Energy projects that more
    than 11 billion gallons of renewable fuels will be used in
    2012, a number well above the 7.5 billion gallons mandated by
    EPAct 2005.
        Today's hearing we will explore recent proposals to change
    the Renewable Fuels Standard by increasing the amount of
    renewable fuels that would be required, expanding specific
    requirements for renewable fuels using cellulosic feedstock,
    broadening the mandate to cover other types of fuels and
    possibly changing the Renewable Fuels Standard to a low carpet
    standard. Increasing the amount and type of fuels mandated are
    the two primary components of the fuels portion of President
    Bush's proposed 2010 Initiative to reduce gasoline consumption
    by 20 percent by the year 2017.
        The President's proposal would convert the Renewable Fuels
    Standard into an Alternative Fuels Standard, expanding both the
    volume of fuel to be produced and the type of fuels that would
    qualify. This proposal would require 35 billion gallons of
    alternative fuels by 2017; by most accounts, an aggressive
    target. One consideration for both current and future fuels
    mandates is the state of the renewable fuels infrastructure.
    Currently, all automakers warranty their vehicle engines to run
    on ethanol blends up to E-10. Automakers also produce flexible
    fuel vehicles that can accept ethanol blends of E-85.
        There are more than 6 million flexible fuel vehicles on the
    road today and Ford, General Motors and the Chrysler Group have
    also pledged to double their annual production by 2010 and to
    make one-half of all vehicles that they manufacture biofuel
    capable by 2012. Although the number of flexible fuel vehicles
    has increased, the availability of E-85 at retail outlets has
    not increased accordingly. There is a wide range of estimates
    for the cost of converting existing infrastructure or
    installing new E-85 infrastructure at all service stations,
    with estimates ranging from $5,000 to $20,000 to convert
    existing equipment and from $2,500 to $75,000 to install new
    equipment, a very wide range of estimates.
        The availability of the appropriate infrastructure is
    necessary for the wide scale deployment of alternative fuels,
    so an examination of the current status, as well as obstacles
    or opportunities surrounding the alternative fuels
    infrastructure is clearly appropriate for this morning. I look
    forward to hearing from our witnesses regarding the expansion
    of use of renewable and/or alternative fuels, as well as the
    related infrastructure issues.
        And we will turn to testimony from our first panel
    momentarily. Before I do that, I am pleased to recognize other
    members for their opening statements and would note that any
    member who elects to waive an opening statement will have the
    time allotted for that opening statement added to that member's
    question period for the first set of witnesses. I am not
    pleased to recognize the ranking member designate for today, my
    good friend, the gentleman from Michigan, Mr. Upton, for 5
    minutes.
        Mr. Upton. Well, thank you, Mr. Chairman, and I am going to
    take the opportunity to defer and as I did not know I was going
    to be in this seat, Mr. Hastert is on his way, so I am going to
    ask unanimous consent that he may defer, as well.
        Mr. Boucher. Without objection, so ordered.
        Mr. Upton. Thank you.
        Mr. Boucher. And I thank the gentleman. The gentleman from
    Illinois, Mr. Shimkus, is recognized for 3 minutes.
        Mr. Shimkus. I will also defer, Mr. Chairman.
        Mr. Boucher. The gentleman defers his opening statement.
    The gentleman from Indiana, Mr. Buyer, is recognized for 3
    minutes.
        Mr. Buyer. I will defer.
        Mr. Boucher. The gentleman defers. The gentleman from
    Oregon, Mr. Walden, is recognized.
        Mr. Walden. Mr. Chairman, I, too, will defer.
        Mr. Boucher. Mr. Walden defers. The gentleman from
    Oklahoma, Mr. Sullivan, is recognized for 3 minutes.
        Mr. Sullivan. I will defer.
        Mr. Boucher. The gentleman from Texas, Mr. Burgess, is
    recognized for 3 minutes.
        Mr. Burgess. Mr. Chairman, I will submit my statement for
    the record and save time for questions.
        [The prepared statement of Mr. Burgess follows:]

      Prepared Statement of Hon. Michael C. Burgess, a Representative in
                        Congress from the State of Texas

        Thank you, Mr. Chairman.
        Mr. Chairman, this is probably one of the most crucial
    issues facing our country today.
        I firmly believe that America's energy security should be
    this committee's top priority.
        Home-grown fuels, such as biodiesel, cellulostic ethanol
    and coal-to-liquids, can help move the United States towards
    greater energy independence, and can even help to clean the
    environment.
        As we begin work on energy independence legislation, I look
    forward to working with the chairman to include a provision
    that I'm working on which would incentivize clean diesel.
        Diesel engines get an average of 30 percent greater fuel
    efficiency as gasoline engines, so putting more diesel cars on
    the road instead of a gasoline engine is like dramatically
    increasing the CAFE Standard.
        Using biodiesel in those diesel engines can further reduce
    our demand for petroleum.
        And, which this is not in our committee's jurisdiction, I
    hope that the energy independence legislative package will also
    include my bill H.R. 927, which would provide parity for
    biodiesel produced from recycled restaurant grease--something
    that we have in abundance in the Dallas-Fort Worth Metroplex.
        There are numerous challenges to be met as we seek to
    increase our use of alternative transportation fuels--both in
    terms of technology, biology and chemistry, and in terms of
    supporting infrastructure. I appreciate our witnesses appearing
    before us today to discuss these issues.
        Mr. Chairman, I yield back.
                                  ----------

        Mr. Boucher. The gentleman from Michigan, Mr. Rogers, is
    recognized for 3 minutes.
        Mr. Rogers. Mr. Chairman, I would defer.
        Mr. Boucher. Well, the Republican side of the aisle gets a
    blue ribbon today for perfect consistent performance. The
    gentleman from Michigan, Mr. Dingell, the chairman of the full
    committee, is recognized for 5 minutes.

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

        Mr Dingell. Mr. Chairman, thank you. I commend you for
    holding yet another important hearing regarding energy security
    and climate change. You have been showing extraordinary
    leadership in this matter and I think the committee has reason
    to be very grateful to you.
        Today's examination of alternative fuels is particularly
    important to the committee's ongoing work on these important
    issues. Consumers deserve to have vehicles capable of operating
    on alternative fuels and to have these fuels readily available
    for their use. Ethanol has already helped clean the air as an
    additive to gasoline, 10 percent ethanol blended with 90
    percent gasoline. It is not as an additive, however, that
    ethanol has its greatest potential. Its greatest contribution
    is improving national security and addressing climate change
    will be realized when low carbon ethanol is available at the
    marketplace as a true alternative, 85 percent ethanol blended
    with 15 percent gasoline, commonly known as E-85.
        I look forward to hearing from our witnesses today what
    obstacles remain towards achieving this objective and what we
    can do to overcome it. In addition to E-85, other biofuels such
    as biodiesel, offer unique opportunities to improve efficiency
    and would consume less petroleum. Diesel fuel performs more
    efficiently than gasoline. These properties make diesel fuel
    excellent for heavy duty applications both on and off the road.
    Biodiesel expands upon diesel's natural efficiency by making a
    portion of it renewable. Additionally, biodiesel has fewer
    pollutants than traditional diesel fuel. Without a standardized
    fuel specification for biodiesel, engine and vehicle
    manufacturers have been reluctant to warrant their products
    when used with bigger concentrations of biofuel.
        The potential benefits of biodiesel extend well beyond the
    light duty passengers cars and trucks. If biodiesel is
    standardized and widely available, it has significant potential
    to save petroleum and reduce emissions of carbon dioxide from
    freight, rail, maritime and other transportation sectors, which
    are often overlooked. Establishing a single national
    specification for biodiesel in concentrations of 20 percent and
    greater should be part of any package addressing these issues.
        It is also wise to examine longstanding regulations of both
    fuels and vehicles in the context of alternative fuels.
    Government regulations should encourage alternatives to
    petroleum, not provide disincentives. For example, a corporate
    average fuel economy program regulates how efficiently a
    vehicle burns its fuel. It does not take into consideration,
    however, what fuel it is burning or the level of carbon dioxide
    it is emitting. Assuming our national objectives are to consume
    less petroleum and reduce greenhouse gas emissions, it is the
    efficiency with which a vehicle burns non-petroleum based fuel
    and emits few greenhouse gases. E-85 is less efficient than
    gasoline, yet it displaces petroleum and can significantly
    reduce greenhouse gas emissions.
        We must continue to ask these questions as we proceed with
    new legislation and review existing policies. Biofuels are
    considered in the context of energy security and climate change
    and it is important that we continue to examine how they can be
    made available to consumers true alternatives to petroleum.
    Anything short of that objective will fall short. Thank you,
    Mr. Chairman. I yield back the balance of my time.
        Mr. Boucher. Thank you very much, Mr. Dingell. The
    gentleman from Massachusetts, Mr. Markey, is recognized for 3
    minutes.
        Mr. Markey. I will waive.
        Mr. Boucher. The gentleman from Massachusetts waives. The
    gentleman from Texas, Mr. Gonzalez, is recognized for 3
    minutes.
        Mr. Gonzalez. I will waive.
        Mr. Boucher. The gentleman from Washington State, Mr.
    Inslee, is recognized for 3 minutes.
        [No response]
        Mr. Boucher. The gentlewoman from Oregon, Ms. Hooley, is
    recognized for 3 minutes.

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

        Ms. Hooley. Thank you, Mr. Chairman I would like to welcome
    all our witnesses and thank you for being here today. I look
    forward to your testimony. I won't take up my full time, but I
    would just like to say a couple things regarding biofuels.
    While I am 100 percent supportive of the pursuit of development
    of biofuels, I would like to encourage my colleagues on this
    committee to not let it divert us from taking other steps to
    limit our dependence on foreign oil.
        One of the most effective ways we can do this is through
    production of more fuel efficient vehicles. Biofuels, while
    worthy of pursuit, and certainly part of the solution, will not
    be a panacea. Biofuels need to be viewed as one piece of a bold
    strategy to begin to move our country toward our goal of energy
    independence. In the President's State of the Union address, he
    proposed his 2010 Initiative to reduce gasoline consumption by
    20 percent by 2017.
        He called for biofuels from ethanol made from wood chips
    and switchgrass to be practical and competitive within 6 years.
    I applaud the President for setting these worthy goals, but I
    question how achievable it is. Corn harvests won't be large
    enough to meet either of the President's 35 billion or 60
    billion gallon targets and alternatives to corn-based ethanol
    aren't yet economically viable, but I hope they will be. As we
    are going to hear today, the U.S. currently doesn't have the
    infrastructure in place.
        While the U.S. continues on its pursuit of alternative
    energy, I would like to remind my colleagues of the good we can
    do and the gains we can make from simply making our vehicles
    more fuel efficient. I hope our witnesses today will be able to
    shed light on the progress that is being made in relation to
    biofuels and what we can do to advance its development in hopes
    of meeting or exceeding the President's goals.
        Thank you, Mr. Chairman, and I yield back the remainder of
    my time.
        Mr. Boucher. Thank you, Ms. Hooley. The gentlewoman from
    Wisconsin, Ms. Baldwin, is recognized for 3 minutes.

     OPENING STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF WISCONSIN

        Ms. Baldwin. Thank you, Mr. Chairman. I am pleased that we
    are continuing our alternative fuels discussion that we began a
    few weeks ago. Our Nation is producing renewable fuels at
    record rates and we now have the ability to expand our
    projection even more. It is time for us to take significant
    advantage of this opportunity to advance our use of home-grown
    biofuels and in turn, reduce our dependence on foreign oil and
    prepare ourselves for a post-petroleum economy of the future.
        Renewable fuels have been good for our environment, our
    economy and our farmers and our Nation's energy future. The
    standard included in the Energy Policy Act of 2005 has led to
    significant growth in the ethanol and biodiesel industries. In
    my home State of Wisconsin, we are well on our way to producing
    more than 500 million gallons of ethanol annually and we will
    still be producing more than 70 million gallons of biodiesel.
    These production levels have reinvigorated rural Wisconsin and
    similar production levels across the country have revived rural
    America.
        But if we are going to use the opportunity presented to us
    today and expand on renewable fuels production, we must ensure
    that it is done with clean and environmentally friendly
    transportation fuels, those that lessen our greenhouse gas
    emissions and protect our air, water and natural resources. I
    have significant concerns about replacing the Renewable Fuels
    Standard with an alternative fuel standard. By altering the
    standard, we are opening up our Nation's mandate to an entirely
    new source of energy production, coal-to-liquid. And while
    coal-to-liquid may be a domestic fuel source, its greenhouse
    gas emissions could be as much as twice as high as petroleum
    based fuels.
        At a time when our committee is prepared to take bold
    action to reduce the greenhouse gas emissions causing climate
    change, I am at a loss for why we would support increased
    production of a fuel that would increase CO\2\ levels. I am
    hopeful that this hearing will shine a light on the truth about
    coals to liquid so that we can move forward with policies that
    will promote our environmental stewardship and our energy
    independence.
        I also look forward to hearing from the witnesses about
    ways in which we can improve the infrastructure that is
    supporting the renewable fuels industry. For instance, is our
    transportation infrastructure, such as rail, able to handle the
    increased supply of ethanol while providing reasonable shipping
    rates? What incentives can we provide to promote consumer
    awareness about the availability of clean fuels and what role
    do Federal, State and local governments play in encouraging the
    use of flex fuel vehicles and E-85 fuel?
        Thank you and I yield back the balance of my time.
        Mr. Boucher. Thank you very much, Ms. Baldwin. The
    gentleman from Georgia, Mr. Barrow.
        Mr. Barrow. Mr. Chairman, I will waive.
        Mr. Boucher. Mr. Barrow waives.
        Any statements for the record will be accepted at thsi
    time.
        [The prepared statement of Mr. Barton follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Boucher.I am pleased now to recognize our first panel
    of witnesses and we welcome to the subcommittee this morning,
    representing the administration, first, Mr. Bob Meyers, who is
    the Associate Administrator of the Office of Air and Radiation
    of the Environmental Protection Agency, certainly no stranger
    to this committee. And Mr. Meyers, we welcome your return to
    the committee this morning. We also welcome Mr. Andrew Karsner,
    the Assistant Secretary for Energy Efficiency and Renewable
    Energy for the U.S. Department of Energy, who testified before
    our subcommittee last week. We enjoyed your testimony so much,
    we decided to have an encore this morning and we welcome you,
    as well.
        Without objection, your prepared written statements will be
    made a part of the record. We would welcome your oral summaries
    and ask that you keep those to approximately 5 minutes. Mr.
    Meyers, we will be pleased to begin with you.

    STATEMENT OF ROBERT MEYERS, ASSOCIATE ASSISTANT ADMINISTRATOR,
     OFFICE OF AIR AND RADIATION, ENVIRONMENTAL PROTECTION AGENCY,
                             WASHINGTON, DC

        Mr. Meyers. Thank you, Mr. Chairman and members of the
    subcommittee. I also appreciate the opportunity to come before
    you today and testify on how the expanded use of renewable and
    alternative fuels supports the President's goals of enhanced
    energy security and strengthen environmental protection. Your
    letter of invitation asks three questions and I am going to try
    to attempt to address each one in the order that they were
    asked.
        First, with regard to the status of the Renewable Fuels
    Standard, or RFS, on April 10 Administrator Johnson signed the
    RFS rule and the rule published just a few days ago, on May 1.
    Initial compliance with the RFS rule will be required on
    September 1, 2008. This rule implements section 211(o) of the
    Clean Air Act established by the Energy Policy Act of 2005.
    Although the rule and its accompanying analysis run many
    hundreds of pages, this wide-ranging rule actually accomplishes
    a very direct and straightforward result. It essentially
    provides the rules of the road for our best implementation,
    including a credit trading program that works within existing
    market structures.
        EPA estimates that by 2012, the transition to renewable
    fuels will result in reductions of between 2 and 3.9 billion
    gallons of petroleum consumption per year. In the same year, we
    estimate that the RFS and increased use of renewable fuels will
    achieve reductions in carbon dioxide and equivalent greenhouse
    gas emissions between 8 and 13.1 million metric tons. Further
    effects on the air quality are detailed in my written statement
    and included in the agency's accompanying regulatory impact
    statement.
        I should note that EPA's analysis of the rule acknowledges
    that renewable fuel use in the transportation sector will very
    likely exceed the mandates established in the RFS. Experience
    to date has warranted this out. However, it should be
    emphasized that the promulgation of a final rule allows such
    use to occur with the existence of a flexible credit trading
    and banking system and with proper verification. In addition,
    section 211(o) only specifies RF levels through 2012; years
    following are subject to administrative determination. Thus,
    the RFS rule will remain a vital part of the renewable fuel
    implementation for the foreseeable future at what volumes are
    experienced.
        You also requested views with respect to proposals to
    change the RFS by increasing the amount of renewable fuels
    required or to expand specific requirements on feedstock will
    burden the overall mandate. My written testimony and the
    testimony of Assistant Secretary Karsner details the
    administration's legislation to enact the Alternative Fuel
    Standard or AFS. Along with the legislation the administration
    has on reformed CAFE, the AFS responds to the President's
    challenge in the State of the Union address to reduce gasoline
    consumption by 20 percent in the next 10 years.
        The AFS builds off a structure of the RFS and specifies
    that 35 million gallons of alternative fuel be used in the
    Nation's transportation fuel by the year 2017. The AFS would
    include all fuels that are currently part of the RFS. It would
    include fuels currently classified as alternative fuels under
    the Energy Policy Act, as well as other fuels that can qualify
    as alternative fuels.
        On a fundamental level, then, this structure should provide
    additional competition to the alternative fuel marketplace. The
    AFS defines ethanol, butanol, natural gas, liquefied petroleum
    gas, hydrogen, coal-to-liquids and electricity among its
    included fuels. As proposed by the administration, the AFS
    would replace the RFS in the year 2010, but would retain the
    flexible credit and banking and trading mechanisms pioneered in
    the RFS. The legislation provides for an accelerating schedule
    for AFS requirements in the years 2010 through 2017.
        Although different AFS fuels will serve to offset
    greenhouse gas emissions by different amounts, increasing the
    use of fuels under an AFS program could result in greater
    greenhouse gas emission reductions in our current mix of fuels.
    For example, one advantage of the longer timeframe provided by
    the President's proposal, along with market incentives it
    creates, is allowing for commercial development of cost-
    competitive cellulosic ethanol.
        Cellulosic ethanol may achieve very large greenhouse gas
    reductions, up to 90 percent compared with petroleum based
    gasoline. Other fuels like electricity, compressed natural gas
    and liquefied natural gas can achieve substantial greenhouse
    gas reduction. Ultimately, the level of greenhouse gas
    reductions achieved by the AFS will depend on the
    implementation of the program, market forces, the incentives
    available for the development of various renewable and
    alternative fuels and the mix of fuels used to meet the target.
        Finally, you asked about policies that Congress could enact
    that would hasten the development and deployment of necessary
    infrastructure. Obviously, I will point to Twenty in Ten and
    the legislation the President has put forth and the very real
    incentives that this legislation can produce by expanding and
    building upon the structure Congress enacted in the RFS. We
    stand ready to work with this committee and Congress as you
    move to consider Twenty in Ten and related legislation.
        In addition, I would be remiss if I also did not note that
    EPA's initiated a voluntary partnership that can lead to
    greater penetration of the E-85 structure. The initiative is
    designed to expand our existing program to promote the
    introduction of E-85 in transportation quarters and among
    fleets.
        Thank you, Mr. Chairman and members of the subcommittee,
    for this opportunity. This concludes my prepared statement and
    I would be pleased to answer any questions that you might have.
        [The prepared statement of Mr. Meyers follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Boucher. Thank you very much, Mr. Meyers. Mr. Karsner.

    STATEMENT OF ALEXANDER A. KARSNER, ASSISTANT SECRETARY, ENERGY
      EFFICIENCY AND RENEWABLE ENERGY, U.S. DEPARTMENT OF ENERGY,
                             WASHINGTON, DC

        Mr. Karsner. Chairman Boucher, members of the committee,
    thank you for the opportunity to present the administration's
    views on its Twenty in Ten goal and to discuss programs under
    way at the Office of Energy Efficiency and Renewable Energy,
    EERE, at the Department of Energy to accelerate the development
    and deployment of renewable fuels and alternative fuels that
    will reduce our Nation's dependence on oil and enhance our
    energy security.
        In his 2007 State of the Union address, President Bush
    challenged our country to reduce gasoline consumption by 20
    percent within the decade, the Twenty in Ten plan. The
    President called for a robust Alternative Fuel Standard
    requiring the equivalent of 35 billion gallons of renewable and
    alternative fuels. The goal is a significant expansion of the
    7.5 billion gallon target now in law for 2012 under the
    Renewable Fuels Standard. The Twenty in Ten plan holds the
    promise of diversifying our sources, types and volumes of fuels
    we use, while reducing our vulnerabilities and dependencies on
    oil. Only through transformational technological change can
    these goals be achieved and we believe the administration's
    proposals provide the tools to achieve them.
        The Department's portfolio of research, development and
    commercialization activities support the Twenty in Ten and
    longer-term clean energy goals. The Department is particularly
    focused on solving technical problems to overcome the barriers
    to biofuels growth through a strategic cost-shared partnership
    with private industry and collaboration with other agencies.
    Together, with the financial tools already included in EPAct
    2005, we believe that this multi-pronged effort will expand the
    role of domestically produced biofuels in our Nation's energy
    supply and our economic future.
        Our biomass program is focused on making cellulosic ethanol
    cost competitive by 2012, a target put forth in the President's
    2006 Advanced Energy Initiative. Just last week, Secretary
    Bodman announced the availability of up to $200 million for
    cellulosic bio-refineries at 10 percent of commercial scale,
    subject to appropriations. The 10 percent scale demonstrations
    have the potential to reduce the overall cost and risk to
    industry and contribute to the quicker commercialization of
    larger scale facilities.
        Additionally, DOE will invest up to $385 million for as
    many as six commercial scale bio-refineries over the next 4
    years, subject to appropriations. The development and
    deployment of a biofuels distribution infrastructure in the
    United States is fundamental to providing for displacement of
    gasoline and increased consumer choice.
        To bring these issues into focus, the Department has
    developed a biofuels infrastructure team to support greater
    convergence between our vehicle technologies and biomass
    program. As a result, the Department is pursuing a growing
    number of infrastructure activities, including analyses of
    feedstocks, pipelines, terminal facilities, storage and vehicle
    technologies. The President's Twenty in Ten goal holds the
    promise of accelerating penetration of cellulosic ethanol and
    other alternative fuels into the marketplace and bringing the
    benefits of a clean, renewable and alternative energy source
    more quickly to the Nation.
        To meet these challenges, cutting edge research,
    development, deployment and commercialization must indeed be
    supported by transformational policy changes, the types of
    proposals that the President in the State of the Union. The
    administration looks forward to working with Congress to shape
    these policies and legislation that can make this happen.
        This concludes my prepared statement and I would be happy
    to answer any questions the committee may have.
        [The prepared statement of Mr. Karsner follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Boucher. Well, thank you very much, Mr. Karsner, and
    thank you, also, Mr. Meyers. My questions are propounded to
    both of you or to either who chooses to answer.
        The President's target of 35 million gallons of alternative
    fuels by 2017 is certainly an aggressive target and I note that
    in order to meet that, the President is proposing to encompass,
    within the category of alternatives, both those fuels that are
    currently part of the Renewable Fuels Standard and other fuels,
    as well. I would assume that within the category of the other
    fuels encompassed would be coal-to-liquids. Is that correct,
    Mr. Meyers?
        Mr. Meyers. Yes. The bill uses EPAct definition of
    alternative fuel, which currently includes coal-to-liquids.
        Mr. Boucher. Do you have, within the proposal, any specific
    targets for each type of fuel that would be covered?
        Mr. Meyers. No, the legislation does not establish specific
    targets for any one fuel.
        Mr. Boucher. Cellulosic ethanol will obviously be a large
    part of how this new mandate would be fulfilled. Currently,
    there are no commercial cellulosic ethanol production
    facilities, so at what point do you anticipate that cellulosic
    ethanol will be commercially viable and added to the
    production? And then looking over a 10-year period, to the end
    point of your mandate, how much do you think cellulosic ethanol
    will contribute to achieving that 35 billion gallon per year
    total? Mr. Karsner.
        Mr. Karsner. Mr. Chairman, I agree with the premise of your
    question that cellulosic ethanol can and likely will be amongst
    the largest contributors to such a mandate being fulfilled. As
    Bob indicated, we don't like to choose what the balance would
    be between the technological pathways that would get us there.
    We have very deliberate plans at the Department of Energy to
    stand up competitive commercial-ready cellulosic ethanol
    facilities by 2012. At that point the question is at what rate
    can they be replicated across the Nation? What is the policy
    environment? Is it durable and predictable enough for investors
    to amass sufficient capital to replicate commercial scale
    facilities that will matter?
        Mr. Boucher. And so just picking a number, do you have a
    sense of how much contribution to this 35 billion gallon
    mandate cellulosic ethanol will be?
        Mr. Karsner. I don't have such a number because it is
    impossible to isolate exclusively the viability of the
    technology away from what the policy environment conditions are
    that will ultimately drive the capital market investments. All
    three of those factors have to work in harmony. What I can say
    is that I do believe cellulosic ethanol is sufficiently
    technologically mature and not requiring technological
    breakthroughs, that if the policy environment were correct, it
    could accelerate much faster.
        Mr. Boucher. So in order to derive this 35 billion gallon
    annual number, you did not assign specific projected volumes to
    individuals fuels, including cellulosic ethanol or coal-to-
    liquids. You simply assume that the combination of all of them
    could get us to 35 billion gallons. Is that accurate to say?
        Mr. Karsner. I think it is correct to say that rather than
    taking any one fuel type, it was the President's objective to
    take a top line objective, which was 20 percent reduction in
    our gasoline supply within the decade and create as open a
    platform as possible to enable as many alternatives to gasoline
    to compete.
        Mr. Boucher. One of the major problems that we confront is
    the adequacy of the infrastructure for alternative fuels in the
    United States at the retail level. Service stations don't have
    sufficient availability of ethanol and E-85 pumps in order to
    satisfy the flexible fuel vehicle demand that is anticipated.
    There are issues about the availability of flexible fuel
    vehicles. Does your proposal encompass any infrastructure
    upgrades and to what extent have you treated this obvious need
    in the recommendations coming from the administration?
        Mr. Karsner. The alternative fuels proposal does not
    directly address how to bring about the infrastructure
    necessary for retail delivery. There is an underlying
    assumption of market adaptation. We, of course, have the Clean
    Cities program that works, really, on a voluntary basis with
    mainly downstream independent retailers to bring on that
    infrastructure. To give you an idea, last year was a record
    year. We added 450 stations on top of the Nation's 750
    stations, so with about a 70 percent growth rate, we are, as of
    yesterday, at 1,200 stations that can serve E-85. At that
    record rate, were we to maintain it, it would still take more
    than 100 years to get to critical mass, up to about 50,000
    stations that are needed to make a difference for E-85
    infrastructure.
        Mr. Boucher. So how do we address that challenge? I
    understand that your initial proposal does not make specific
    infrastructure improvement recommendations for our
    consideration, but do you have recommendations for us or will
    they be forthcoming from you?
        Mr. Karsner. I think it is a worthy issue for the Congress
    to deliberate on, to try to examine what forces will enable
    either voluntary uptake of E-85 distribution predominantly
    amongst the majors that have been thus far recalcitrant to
    bring it on board, or whether further policy stimulus is
    necessary. But if E-85 is to be a primary pathway, we will need
    a substantially larger growth rate than current mechanisms
    provide.
        Mr. Boucher. OK. Thank you both very much. My time has
    expired. The gentleman from Illinois, Mr. Hastert, is
    recognized for 5 minutes.
        Mr. Hastert. Thank you, gentlemen. Thank you, Mr. Chairman,
    for having this hearing today.
        Mr. Karsner, I just listening to your testimony. You said
    you assume that the market would be able to readapt, in your
    statement. Is there anything that is causing problems, in your
    mind, that is causing the market not to readapt?
        Mr. Karsner. Yes. The market is like anything else in
    society, it has imperfections. And there are certain
    imperfections in the scenario of planning the profitability of
    private corporations that would not lead them to think in 20-
    and 30- and 50-year cycles that the Nation requires for this
    magnitude of adaptation. And so the inherent nature of
    investing and the net present value calculations needed would
    lend ourselves towards shorter-term calculations, so there are
    just limitations inherent in the marketplace.
        Mr. Hastert. What about the ability for the marketplace to
    work has to have kind of free flow supply and really a free
    flow of demand. What if there are actual impediments to the
    demand side? What happens?
        Mr. Karsner. I'm not sure I understand the question. What
    type of impediments?
        Mr. Hastert. Well, let us say, for something like
    Underwriters Laboratory insists on not bringing forward a
    standard for pumps. That would impede a gas station, an oil
    company or a delivery company for gasoline retail can't get the
    liability clearance to put in a pump, so does that impede the
    market?
        Mr. Karsner. Only nominally, only marginally, if at all.
    How do you mean?
        Mr. Hastert. Nominally or marginally. Well, if you can't
    buy the gasoline at the station, how do you deliver the
    product?
        Mr. Karsner. Well, with regard to that specific example,
    sir, the Underwriters Laboratory issue has largely been
    bypassed by the State regulators, the fire marshals in the
    counties and so we haven't seen any significant impediment to
    the growth of E-85 relative to the examination period for UL to
    certify those pumps.
        Mr. Hastert. I think you are really off base, because I can
    tell you, delivery companies won't put in pumps unless they get
    legal liability. If you can't get legal liability unless they
    are certified by Underwriters Laboratory. So you got somebody
    with a fist around the pipeline. Aren't you aware of that?
        Mr. Karsner. Not only are we aware of that, we are working
    very closely with our laboratories, with Underwriters
    Laboratories to resolve the issues and we would expect it to be
    resolved and behind us by the end of this year.
        Mr. Hastert. Well, let me ask you a question. If you are
    going to resolve the issue and they had every piece of the pump
    certified last year, then they completely withdrew all those
    certifications. How are you moving forward? I don't understand
    that.
        Mr. Karsner. Well, I think it is a question of, as you
    indicate, the insurance companies, oil distributors that are
    interested in installing that infrastructure very much value
    the Underwriters Laboratory's seal of approval. Underwriters
    Laboratory has its own processes for determining that that seal
    of approval is. It is not a governmental process, inherently.
    They had previously, as you indicated, certified independent
    parts and components, but the very growth rate and nature of E-
    85 compelled them to take another look at it and say that they
    wanted to certify the systems holistically. When they did that,
    we urged them to do that with haste and opened up the national
    laboratories in a collaborative way to try and get on a very
    deliberate schedule to do this in a timely manner and we worked
    with the States and the fire marshals to assure that growth
    would continue unabated. I do agree with you that it is a
    constraint, but it is a constraint that I was indicating could
    be overcome in a very short order.
        Mr. Hastert. Well, Mr. Karsner, if somebody wanted to
    jigger the market and make sure that the supply wasn't
    available and so people who manufacture flex fuel cars have no
    customers because the customers can't find a gas pump, don't
    you think that is an impediment? Have you looked farther
    beyond, just the face of this? Who is holding this up? Why
    would an institution like Underwriters Laboratory take
    everything back off the table? That doesn't make sense.
        Mr. Karsner. Yes, I agree with your sense of urgency, sir,
    but I hesitate to make Underwriters Laboratory a culprit based
    on what their own processes for safety inspections, so forth,
    are. This is really a question of magnitude, so who it is
    affecting is the independent downstream retailers that are, in
    fact, very small participants in the distribution----
        Mr. Hastert. I understand that. What I am saying, have you
    ever thought about maybe having the Justice Department look in
    at who is doing the funding for Underwriters Laboratory?
        Mr. Karsner. I have not thought of that, sir.
        Mr. Hastert. Well, do you think that might be a good idea?
        Mr. Karsner. I am not sure I am qualified to put an opinion
    up for----
        Mr. Hastert. I pass.
        Mr. Boucher. Thank you very much, Mr. Hastert. The
    gentleman from Texas, Mr. Gonzalez, is recognized for 8
    minutes.
        Mr. Gonzalez. Thank you very much. I just wanted to make
    sure that not only am I efficient, but that I have enough fuel
    here. Let me ask you, Mr. Karsner, the concern here, in this
    committee, we are juggling two considerations. One is going to
    be oil independence, the other is climate change. I am not sure
    how you incorporate the climate change elements in your policy.
    The concerns I have, and I am going to play the devil's
    advocate, but it does not mean that I don't believe that we can
    forge some sort of policy that will adequately address both of
    those concerns, but nevertheless, it appears to me that not
    necessarily that you are putting in all of your eggs in one
    basket with ethanol, but that you are looking to ethanol as a
    primary source, as the large or a huge proponent of the
    solution when it comes to oil independence.
        This is my concern, how you factor all this in. Does
    ethanol provide you better gas mileage, which should be part of
    the equation? The answer is probably no because it is 20 to 30
    percent less efficient as far as a power source than gasoline.
    Does the production of ethanol increase the use of energies in
    the production cycle? And my understanding is that it does, but
    we, again, we are producing an alternative, but it is costing
    us more in investment in other energies to produce that.
        Does it provide advantages when it comes to climate change?
    Yes and no. My understanding is that, of course, it is one of
    those things where the benefits might be with carbon dioxide,
    but not necessarily with nitrogen oxide and other pollutants.
    Does it cost the Federal Government less in the way of an
    alternative, that is ethanol? My understanding is that there is
    a 51 cent a gallon tax credit that is extended to those that
    use and produce.
        The question of food versus fuel. And I know it is not all
    about corn, but nevertheless, the implications are great. My
    understanding that, in 2008, half of the United States corn
    harvest will be directed for ethanol use and of course, we have
    seen the price increase from $2 a bushel to $4 a bushel.
        Taking all that into consideration, how do you balance your
    policy making?
        Mr. Karsner. Is that for me?
        Mr. Gonzalez. Mr. Karsner.
        Mr. Karsner. Yes, sir. You brought up a number of very key
    issues and like any fuel source, ethanol will have its
    characteristics, its advantages, its relative disadvantages and
    all of those can be answered one way or--I will start by
    saying, first and foremost, it is not selecting ethanol for its
    endemic characteristics or choosing it as a primary technology
    pathway, because we don't like to choose technology winners.
    The reason why ethanol appears to significant is because
    quantitatively, it has the greatest capacity for volumetric
    growth relative to displacement of gasoline, so quantitatively
    rather than qualitatively, it stands out.
        With regard to the pricing of ethanol, the energy content
    question, it is not necessarily the miles per gallon that is
    really as important, per se, as the price parity for the energy
    content. In other words, if the pricing of the ethanol you
    purchase is relative or cheaper on a miles per gallon basis,
    then price parity is demonstrating that the consumers will take
    it on. There is a lot of mythology, misinformation and
    disinformation with regard to the energy content and loss with
    ethanol, in general, and it is mainly aimed at our conventional
    ethanol rather than future advanced generation ethanol,
    cellulosic ethanol, which has significantly different
    characteristics through biochemical and thermo-chemical
    platforms.
        But let me address it even in the conventional ethanol
    arena, it will depend on the power source that is used in a
    conversion process as to what the gains in the energy balance
    would be, but in all cases, that energy balance, when compared
    against the fossil energy or petroleum incumbents, should be
    better and one could make the same statement about ethanol
    versus gasoline on a greenhouse gas basis and that is, just
    again, taking the conventional ethanol and comparing it with
    gasoline, not even going to where we want to go, which is the
    cellulosic ethanol, which is substantial improvements across
    the board in all of these.
        I won't touch on the food versus fuel debate. It is really
    the domain of the Department of Agriculture and their
    economists, to a large degree, except for to say that we are
    seeing significantly more crop yields and planting, so there is
    some degree of adaptation and year on year adjustment in the
    market that is yielding more equilibrium, but of course, these
    things lag in time, so it is always difficult to take a
    snapshot in time when you have had a record growth of ethanol
    on one year and say what is the disparity to corn plantings. I
    think we will see more and more equilibrium as the fuel source
    grows.
        But the bottom line is for all of these reasons, we focus
    not on ethanol, but on all technology pathways that are
    domestic, that are clean and can be made affordable as
    alternatives to gasoline because that is what our energy
    security and our environmental needs demand.
        Mr. Gonzalez. My concern, the administration is joined with
    some Members of Congress in not looking at the overall picture
    and that is my concern. We are not taking all facets. My fear
    is we are going to be putting out--there is a feel good message
    and there is always an inclination to do that and that is a
    real concern. I wish that we could look at it holistically. I
    don't think that we are really doing that and I understand
    there is a whole lot of politics at play. And I have about 2
    minutes. And Robert Samuelson posted, on the 24th of January of
    this year, had an article--you probably read it and I want you
    to be able to respond to one of his assertions, which I don't
    know if it is totally accurate.

        Let us do some basic math. In 2006, Americans used 7.5
    billion gallons 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, bond fuels would address
    part of the increase in oil demand. It wouldn't reduce our oil
    use or import dependence from current levels.

         How do you respond to that?
        Mr. Karsner. I respond by saying that that is a fairly one
    dimensional mathematical exercise and that I am not sure I
    agree with your overall premise that we are not looking at this
    in a holistic, integrated way. It happens to be the primary
    focus of the subject again, quantitatively, volumetrically,
    near-term that ethanol and biofuels take up a larger piece of
    the conversation, but it does not take up a larger priority
    from the Department of Energy's perspective and the National
    Laboratory's perspective and so Mr. Samuelson didn't account
    for what the advances might in lithium ion batteries and the
    capacity to integrate better fuel injection and compression
    ratios in our engines and higher efficiency lightweight
    composites in our vehicles. And so all of these things combined
    will make up a better fuel future and biofuels will be a piece
    of it. It is certainly the piece that is nearest on the horizon
    that we can clutch and quantify greater, but it is only a piece
    of it and we are working on all of these things, not a single
    silver bullet, but really, silver buckshot.
        Mr. Gonzalez. And my time is up. Thank you very much and I
    yield back the 10 seconds.
        Mr. Melancon [presiding]. Thank you, Mr. Gonzalez. Mr.
    Upton for 8 minutes.
        Mr. Upton. Thank you, Mr. Chairman, and Mr. Meyers, welcome
    back to the committee. It is good to see you. I have a truck
    engine research facility, Eaton, in my district in Michigan,
    and they have done just some marvelous work on redesigning
    diesel engines so that they don't have to idle, so whether it
    is a UPS truck making deliveries or trucks making repairs on
    the telephone poles and truckers idling at night as they pull
    over; they don't have to turn on their engines with the new
    techniques and I would love to get you or the administrator out
    sometime this summer to look at what they are doing. I may
    submit a question, for the record, in terms of some of the
    difficulties that they are having, but it really is advanced
    and they think they can save millions of gallons, as we look
    down the road and you all, I think, have been helpful, but I
    would love to let you kick the tires a little bit. I have
    driven some of the trucks around and it would be great to have
    you come out----
        Mr. Meyers. I would happy to accommodate your request.
        Mr. Upton. I have cosponsored the legislation that is being
    submitted by Mr. Boucher and Mr. Shimkus which includes carbon
    sequestration. And with that carbon sequestration there is some
    pretty good evidence that harmful emissions are actually, maybe
    even lower than current fuels. I think the statistics show it
    is nearly above it. It can show that, in fact, the emissions
    are less than today and I am just curious to know, as we look
    to move this legislation forward, where are we in terms of an
    update in terms of regulations as it relates to carbon
    sequestration under the Safe Drinking Water Act?
        Mr. Meyers. Well, Mr. Upton, I am with the Office of Air
    and Radiation, so I wouldn't speak exactly to where we are with
    regard to safe drinking water regulations, but we have been
    working on that issue and the Office of Water and I would like
    for them to submit more information, but we worked on guidance
    for experimental wells that should allow basic R&D work that is
    necessary for carbon sequestration to move forward. There are
    longer-term issues in the UIC program, the Underground
    Injection Control program--to address those longer term--but we
    are moving forward, as an agency, on this issue.
        Mr. Upton. Great. Maybe you can provide something for the
    record or a comment. I look forward to seeing it. Mr. Karsner,
    we all want to help the auto industry, we all want more fuel
    efficient vehicles and a number of us are concerned about
    unfunded mandates in terms of how we get there. I was a
    supporter of this last year, of getting the chairman of the big
    three, actually even more than that, to come down and meet with
    the President.
        If you will remember, even recently, they had a number of
    the vehicles out on the south lawn and I thought we were well
    on the way to seeing pretty decent funding for the Advanced
    Battery Consortium project and as I saw those numbers last
    November, they were asking for about $100 million for that
    fund. And I was very surprised to see, in the President's
    budget, that they didn't ask for $100 million, which I thought
    that he had signed off on, but it was only $11 million in terms
    of the President's budget as it was submitted.
        I just wonder if you might comment on that in terms of
    where the administration is as we look to fulfilling that goal.
        Mr. Karsner. Yes, sir. I am not sure what component you
    were looking at for 11. It is a little bit tricky the way that
    we have reorganized, in the budgetary lines, the way hybrids,
    electrification and plug-ins have been characterized, but I am
    quite sure it is more than 11. I would be happy to report back
    for the record what those numbers are.
        Mr. Upton. Is it a lot more than 11?
        Mr. Karsner. It was more than doubling from the previous
    year, let me say that, and the substantial delta between what
    the automakers had proposed and what the national program is,
    is really, to a large degree, learning, demonstration and early
    deployment and manufacturing studies. So we are in general
    agreement. In fact, we work very closely with the automakers
    through our FreedomCAR and Fuel Partnership and are integrating
    plug-in and electrification technologies alongside of the
    existing hydrogen program.
        But we are working out the details and approaches to how we
    might work together with regard to manufacturing and
    demonstrations. We think it is very important that we don't
    over-invest in demonstrations that are very far ahead of their
    time and focus more exclusively on concept cars rather than
    cars that can be placed in people's garages. And so there isn't
    a big difference on the scope and direction, but maybe on some
    of the details of the program. But we are very enthusiastic
    about working together on battery technology.
        Mr. Upton. Mr. Doyle and I have introduced legislation that
    would require a 10 percent mandate on ethanol, very much along
    the lines of what some States have done. Minnesota has always
    been a real leader in that effort. Where is our delivery
    system, our pipeline system, in terms of being able to meet
    such an increase in renewable fuels mandate? Are they capable
    of doing that or is the Department looking at what stress or
    corrosion might be there? Where are we in terms of studying the
    current infrastructure and what needs to be done----
        Mr. Karsner. It is a great question and an essential part
    of the puzzle, is the delivery and transportation
    infrastructure from the facilities into wholesale and retail
    delivery systems. It is predominantly the domain of the
    Department of Transportation, but I am please to report that we
    have worked very closely with them. We recently had an off-site
    with the senior leaders, Deputy Secretary Admiral Barrett, and
    are going to work together on a program together on the issue
    of pipeline delivery systems. But as you know, ethanol is not
    particularly conducive to sharing that pipe, because of the
    water issues, with other fuel sources and that makes it a bit
    more difficult and challenging than future alcohols like bio-
    butanol, for example. But it is our understanding that the
    pipeline industry is very keen and interested in getting into
    more exclusive investment of ethanol dedicated pipelines.
        Mr. Upton. Thank you. I yield back.
        Mr. Melancon. Thank you, Mr. Upton. Next, Mr. Inslee for 8
    minutes.
        Mr. Inslee. Thank you. We were talking about the need to
    accelerate getting E-85 pumps in for consumers so we have a
    choice and I would offer one step forward. Today I will be
    introducing the Federal Low Carbon Fuels Act, myself and
    several other of my colleagues, that will basically set up a
    requirement that our fuels meet certain standards for reducing
    carbon dioxide emissions from their combustion and we think
    this is absolutely imperative if we are going to meet our
    national goal of reducing the threat of global warming, by
    increasing the efficiency of the reduction of CO\2\ from our
    various fuels and I believe it is necessary to have such a
    standard in addition to an RFS, because we are going to have so
    many different types of fuels, including electricity, and which
    is one of the things that gets credit in my bill.
        This is an approach that I hope you will give some thought
    to because one of the things we want to do is allow coal to be
    burned cleanly, the CO\2\sequestered, then the electricity can
    go through the wires through our garages into our plug-in
    vehicles and the coal fire-fired utilities would be able to
    earn credits under this standard. Here is a way to incorporate
    clean coal into our transportation sector in a way that reduces
    CO\2\, rather than increases it if you don't sequester the
    carbon and coal-to-liquid system or make it no better,
    marginally better, perhaps 2 percent better.
        This is a way to use electricity and get it into our
    standard. So I guess I hope that you will give some thought to
    this and we would like your input, of course, after you have
    had a chance to take a look at the bill. This is an approach
    that is starting to be used in California and Europe and the
    bipartisan National Commission on Energy Policy have suggested
    a low carbon fuel standard in that regard. So what are your
    thoughts about this idea, that we should be integrating
    electricity into our consideration of fuels? Have you thought
    about that? Is that in any of your plans at all?
        Mr. Meyers. Well, within the AFS legislation that was
    submitted, electricity is a qualified fuel, so within the
    President's bill, electricity could participate in the AFS
    system.
        Mr. Inslee. Now, my understanding, my concern of your
    proposal for an alternative fuels, my reading of it, it goes
    backwards on a CO\2\ or a global warming provision. And the
    reason I say that is, in the original RFS, you essentially have
    most all the fuels are going to have some CO\2\ benefits to
    them. But then what you essentially opened the door and you
    said now we are going to give credits to these non-CO\2\
    reducing fuels. You essentially go backwards from the step
    forward we took to move forward on CO\2\ reduction. How can we
    think other than it is a step backwards when it comes to CO\2\
    reduction?
        Mr. Meyers. Well, Congressman, I think first you have to
    look at the types of fuels that are in the AFS and if you go
    down the list through cellulosic ethanol, biodiesel,
    electricity, gaseous hybrids and compressed natural gas,
    liquefied natural gas, corn ethanol, liquid bio-petroleum gas,
    methanol, they are all positive--according to our most recent
    estimates. With respect to CTL, I certainly would acknowledge
    the issue of carbon emissions from CTL. I think that is
    something that is well known. We have analyzed that, also, and
    our figures are with carbon sequestration--so you have a small
    increase----
        Mr. Inslee. What size?
        Mr. Meyers. 3.7 percent.
        Mr. Inslee. Do you consider that less than small? We
    certainly do. We have to get an 80 percent reduction of CO\2\
    by the year 2050. Three percent is nothing. I guess I am going
    to ask you this question. If we are serious, if we are serious
    in this country about getting to an 80 percent reduction of
    CO\2\ by 2050, are you seriously suggesting that a 3 percent
    reduction, starting a whole industry--instead of going to a
    technology that can reduce it, which is ethanol or electricity,
    burning coal cleanly, creating electricity, putting it in our
    cars, using coal in a clean way that reduces our CO\2\
    somewhere between 45 and 90 percent, depending on how you
    count, wouldn't you think that the preferable way is to use
    coal if we want to reduce CO\2\ emissions?
        Mr. Meyers. I didn't mean to suggest it was a small
    increase. What I meant to suggest was our currently analysis
    and the assumptions projected that percentage increase. Under
    different sets of assumptions, higher carbon capture rates, it
    might be possible for CTL to be actually negative. Regardless
    of that, the other aspect of this is in terms of where the fuel
    will be used. If you assume a CTL production which produces a
    very high quality diesel, when diesel is used in the market, it
    expands the diesel market. Diesel engines inherently are more
    efficient. So it depends on how you approach the issue--how you
    look at the mix of the fuels that are used in transportation--
    --
        Mr. Inslee. Well, let me just ask you about coal. To me, we
    have two opportunities in coal. One is to burn it in combined
    cycle plants, sequester the CO\2\, run the energy through our
    lines into our garages, put it into our plug-in cars, run them
    for 40 miles at 1 cent a mile--it costs 9 cents for gas today--
    1 cent a mile. After 40 miles you use ethanol or gas after
    that. If you use coal in that way, which my bill would suggest
    we should, you can reduce your net life cycle CO\2\ emissions
    by somewhere between 45 and 90 percent, depending on what else
    you burn with the electricity.
        The alternative way to use coal is to make it into a
    liquid. If you don't sequester it, you increase CO\2\ 118
    percent. If you do sequester it under the scenario you
    suggested, maybe we can reduce it by 3 percent. Which of those
    alternatives would be preferable to reduce our global warming
    gases? In your opinion.
        Mr. Meyers. Well, Congressman, it accommodates both. And
    exactly what you just described----
        Mr. Inslee. I would like to direct you to my question.
    Which of those two approaches do you think would be better if
    we have to solve global warming?
        Mr. Meyers. Congressman, I think the approach to global
    warming is a complicated issue in terms of the variety of
    inputs----
        Mr. Inslee. Let me ask you a different question. If one way
    of using coal will reduce CO\2\ by 45 to 90 percent and one way
    of using coal will reduce it by 3 percent in the best case
    scenario, how could you conclude other than that the better way
    to use coal is by turning it into electricity cleanly in
    running our plug-in hybrids? How could you conclude anything
    but that?
        Mr. Meyers. Under the parameters of just looking at
    emissions, you might make that conclusion. However, I think the
    issue of climate change has an economic component to it. What
    is unstated here is the economics of each avenue. I can't
    present you with analysis right now what the economic tradeoffs
    would be in each avenue of supplying the market. The one thing
    the AFS tries to do is not pick winners and losers on the
    economic marketplace and to that extent, we strove for economic
    efficiency in the proposal. But I am not trying to avoid your
    question. Obviously, if one method produces less GHG per gallon
    per mile, that, on the emissions standpoint, is something that
    has better a profile than one that doesn't. But the issue of
    climate change and how to approach it is much more complicated
    than just the emissions. You have to look at the----
        Mr. Inslee. I appreciate your time, gentlemen. We are going
    to try to get you more R&D dollars. We have had a 65 percent
    reduction in your R&D dollars since 1979. We are going to try
    to do better for you. It is ridiculous when we have this
    existential threat to be cutting your R&D budget. Thank you.
        Mr. Melancon. Thank you, Mr. Inslee. Mr. Barton up to 5
    minutes.
        Mr. Barton. Thank you, Mr. Chairman. It is always good to
    see our two witnesses here, one who used to be counsel to the
    committee and the other, who is doing a good job in the
    Department of Energy.
        Before I get into questions, I want to make a statement
    about something that is not material to this hearing, but I
    think is material to this Congress. Dr. Michael Burgess, who is
    a member of this committee, told me, when I walked in this
    morning that he had an appointment just last evening at 4
    o'clock to look at the Intelligence bill, which is supposed to
    be on the floor later this week and that when he got over to
    the Intelligence Committee for his scheduled appointment, he
    was told by a majority staff person that he couldn't look at
    the bill.
        Now, to me that is an outrage. We ought to be able,
    especially bills that are scheduled to be on the floor, if you
    take the time to make an appointment--now obviously, an
    Intelligence bill is a little bit different breed of cat than
    just a run-of-the-mill bill, but a Member of Congress in good
    standing who has an appointment should be able to look at the
    bill. And I am going to take this up with the chairman of this
    committee, who is a man of honor and integrity, Mr. Dingell,
    and then if need be, I am going to ask for a meeting with the
    Speaker, but I just think it is an outrage that this new
    majority that talked about openness and operated on a different
    plane won't let a member of the minority take the time to go
    and have an appointment and actually read a bill, to me it is
    just an abomination and I wanted to--that is not the purpose of
    this hearing, but I want to put that on the record.
        With regard to this hearing, Mr. Boucher is not here, but
    this is a good hearing and something that obviously we need to
    work together on. I would ask the gentleman from the Department
    of Energy what the prospects are of having technology that is
    actually commercially implementable for cellulosic ethanol and
    how soon we could hope to have that technology?
        Mr. Karsner. Thank you, Congressman. We take the view that
    there is a need for a technological breakthrough right now for
    cellulosic ethanol in the applied science, research and
    development portfolio, where we sit, we are actually working
    more on standing it up to be commercial and have a very
    specific timetable for that by 2012 and so our focus is on
    process integration and coming up with the commercial paradigms
    that will regularly attract positive returns for the investors
    in facilities that can scale at a timeframe that matters. But
    2012 is what we are looking to for that.
        Mr. Barton. What is the chief impediment right now to the
    scale of the commercialization? What is it that they haven't
    figured out?
        Mr. Karsner. I think right now it is the capital cost.
    Fundamentally, the capital cost is about three times what
    conventional ethanol is and that is because each of these is a
    one-of-a-kind process that we are standing up. We know how to
    convert, through biochemical and thermo-chemical platforms into
    cellulosic ethanol, but each time you do it, it is standing up
    an experiment. That is why we have these two separate
    solicitations brought to 16 facilities that will give us a
    diversification of risk to try and lower that capital cost
    which the taxpayer is sharing on these first ones, so that we
    can reliably replicate these.
        Mr. Barton. Well, what is your expected best case learning
    curve to get the cost down? Do you expect to get it comparable
    to current cost for corn-based ethanol?
        Mr. Karsner. Yes, we do. It is about a third higher right
    now, based on both operational and installed cost and our goal
    is to get it to a parity with conventional ethanol, $1.31, by
    2012.
        Mr. Barton. OK. And Mr. Meyers, I listened, with great
    interest, to your answers to my good friend, Congressman
    Inslee. You obviously didn't need any help in answering his
    questions, but I would like to know, in a similar vein, why the
    Bush administration feels like its alternative fuel standard,
    which does not pick winners and losers, as you correctly
    pointed out, why you believe, as the spokesman from EPA, that
    that is a better approach than some of things that Mr. Inslee
    was talking about?
        Mr. Meyers. Congressman Barton, I want to be careful that
    the administration has not reviewed Mr. Inslee's legislation
    nor taken a position on the legislation.
        Mr. Barton. I am not accusing you at this point. Jay may,
    but I am not.
        Mr. Meyers. With respect to the AFS and the AFS question, I
    think what the administration did was adopt what Congress
    provided as a structure in the RFS. In the RFS, Congress
    provided an increased mandate, provided for a cap-and-trade
    system, but did not specifically say exactly what fuels were
    used.
        Mr. Barton. You actually helped put that together, as I
    recall.
        Mr. Meyers. I had some role.
        Mr. Barton. You did.
        Mr. Meyers. But in any event, the fuels effectively in the
    RFS compete in the marketplace. If cellulosic becomes more
    cost-dependent because of some reason, some feedstock or some
    breakthrough, some technology side and you can sell it for less
    than corn ethanol, it is going to win the race and vice versa
    for all of the other types of fuels that qualify--bio-butanol
    and different fuels. If they can compete, you measure them on a
    BTU value and energy content value, which is a good
    approximation of petroleum displacement. If they can sell it
    for less, they win. We adopted that structure in the AFS, where
    the marketplace really drives the selection of fuels and we did
    not adopt a segregated market where we would have individual
    mandates or sub-mandates within the overall mandate.
        Mr. Barton. Thank you. And thank you, Mr. Chairman, for
    extra time.
        Mr. Melancon. You are quite welcome. Ms. Hooley, 5 minutes.
        Ms. Hooley. Thank you, Mr. Chair. I am going to start out
    with Mr. Meyers. If you had to put together an energy
    independence program and taking into account, also, trying to
    do something about global climate change, what would that
    energy independent program look like, what is the mixture that
    you see and what areas would you put additional research
    dollars into?
        Mr. Meyers. Congresswoman, I am not going to be able to
    answer the entirety of your question because my role with EPA
    does not cover all the energy issues. We certainly have a
    greater role in looking at the environmental impacts of energy
    production and use and that is the role we play within the
    Federal Government. But my first suggestion was just those type
    of concerns were what led the administration to try to take a
    very hard target of 20 percent reduction in gasoline
    consumption off of projected use in 2017 and then try and put
    together a structure of policies that would get us to make that
    goal.
        I think the obvious answer to all the problems we have with
    energy dependence over several decades is a complicated problem
    requiring complicated solutions across a variety of these
    economic sectors. In the transportation sector, measuring it as
    a 20 percent gasoline consumption reduction, we consider it to
    be aggressive, but we thought it was a target which could lead
    to some very positive results for the economy and for the
    development of environmental fuels.
        Ms. Hooley. Mr. Karsner, do you want to take a stab at that
    question? What would it look like?
        Mr. Karsner. What would it look like? As I mentioned to the
    chairman, you cannot isolate exclusively the question of
    technology away from policy and away from capital markets. We
    tend to focus almost exclusively on the cultivation of
    technologies when, in fact, most of the technologies that would
    increasingly liberate us from our dependencies or from
    greenhouse gas emissions are readily available, but they have
    insufficient policy that is insufficiently durable with not
    enough longevity predictability or capital formation to occur
    at a rate that matters. And so I would throw all of my focus on
    doing what is necessary to offer those technologies and
    technology providers preferential access to markets and
    preferential access to capital rather than continuously focus
    on the silver bullet nature of one technology over another or
    its intrinsic characteristics.
        Ms. Hooley. I know, that as we look at alternative fuels,
    that you have to have a market for it and you have to have
    capital for it. What is going to cause someone to invest in
    alternative energy? What is it going to take to get the capital
    to get the markets for some of these alternatives?
        Mr. Karsner. Well, the simplest answer, putting on my
    business hat, would be a higher rate of return that is
    predictable over a longer period of time. And right now there
    are great returns in the alternative energy space and that is
    why you are having a substantial aggregation of capital. But
    people wonder does that mean is it in the seventh inning, is it
    in the eighth inning? Is this a boom and bust? What kind of
    policies can we put in place to reliably see these returns over
    a much more protracted period? So there is no question you can
    get the returns that make capital flow in that direction, but
    to make them flow greater, which I think is the essence of your
    question, you need the policies that will sustain those market
    conditions. There is a lot in the Energy Policy Act that can
    help that.
        Ms. Hooley. When you talk about sustaining that policy,
    what kind of timeline are we talking about?
        Mr. Karsner. Well, I think it is until it is done.
    Depending on how you define energy independence or reduced
    greenhouse gas emissions or economic competitiveness, the
    Nation should have certain measures. That is what really the
    President's policy seeks to do is give us a top line objective
    of 20 percent gasoline reduction within a decade, so we have a
    metric in timeframe and a metric in size and scope, and so it
    is not too much of us to focus, as a Nation, for a decade
    period. I would suggest that it is a reasonable timeframe. That
    is how most companies measure their long-term net present
    value.
        Ms. Hooley. Thank you. My time is up.
        Mr. Melancon. Thank you, Ms. Hooley. Mr. Shimkus from
    Illinois.
        Mr. Shimkus. Thank you, Mr. Chairman. I appreciate the
    panel being here and I think one of the big things that I think
    we are moving to is diversity in the transportation mix,
    whether that is an RFS, alternative fuels, plug-in hybrids and
    the like, that is the way our electricity generation today,
    that helps mitigate the big swings that you see and I think
    helps long-range cost projection, so there is a lot of great
    discussions back and forth, but I wanted to key on some of the
    comments.
        First of all, I just want to make a point. In the commodity
    markets there is always boom and bust. And to my friend from
    Texas, Mr. Gonzalez, we both have been here about 10 years. I
    remember when a barrel of crude oil was $10 a barrel and I was
    worried, you were probably worried about our marginal oil wells
    that were being capped because it cost more money to get the
    oil out of the ground then you got on return. And now it is at
    $60, six-fold increase in 10 years. So it is always funny to
    hear folks worry about corn.
        Ten years ago, corn was at $2 a bushel. It is at $4 now.
    Farmers are pretty resilient. They are used to boom and bust. I
    would like to unanimous consent to submit this article into the
    record from the AP. Basically, a couple issues.
         Corn prices had hovered around $2 a bushel for a decade,
    have nearly doubled in the last year due to ethanol demand. But
    others say prices could sink back to $2 a bushel with a record
    crop and could top $5 a bushel if there is a drought. We don't
    know what the price of a bushel of corn will be. They are
    planting record acres, but they also have yield. Bio-technology
    has been made great strides. So I don't underestimate the
    ability of the American farmer to produce to meet our Nation's
    demands both on food and fuel and I think they are going to be
    up to the task. I am very excited about the cellulosic debate,
    also, and of lot of this AFS, Alternative Fuel Standard, is
    predicated on the breakthrough on cellulosics.
        The first question I would like to ask is, because you
    said, Mr. Karsner, a couple times, it is dependent upon the
    policy environment initiated, so for us to do that, what should
    be the policy? That is what Chairman Boucher is really asking,
    as we move forward to move an energy bill. What else can we do?
    What policy initiatives do we need to take in this to obviously
    incentive-ize in this AFS and the cellulosic debate?
        Mr. Karsner. Well, the easy answer would be the President's
    policy, of course. The why is timeframe, size and scope. It is
    very important that we move beyond the aspirational and the
    rhetorical when we talk about energy dependencies and
    greenhouse gas emissions. We have got to, if we want to deal
    with this with urgency, put a timeframe to bear that is
    measurable and even in the Department, we have typically sort
    of looked at 30 percent within 30 years and the rate of
    technology flow over too long of a time frame can also throw us
    askew if you think of what the technologies were 30 years ago.
    A Princess phone was a technological breakthrough. So a 10-year
    timeframe, for the Nation to wrap itself around, with a very
    specific metric; in this case, the most ambitious in size and
    scope that we have yet asked for with force of law, is what the
    President is putting out.
        Mr. Shimkus. Because we need refineries, cellulosic
    refineries built. Now, we were fortunate to have testimony from
    a company from Ottawa, Canada that has a pilot plant. He
    testified driving on E-85, based upon cellulosic to the airport
    to get here, but this is very similar to the coal-to-liquid
    debate. When Chairman Boucher and I dropped a bill today, it is
    intended to incentive-ize the first six refineries because that
    is the breakthrough, once you have it. Let me ask it this way.
    Either one can answer. What locomotive engines can be used in
    plug-in hybrid technology right now? Do you know of any, Mr.
    Karsner?
        Mr. Karsner. We don't really have locomotives in our
    program, so----
        Mr. Shimkus. OK, how about aviation? How about planes? Do
    we have any planes that can fly on electricity, plug-in hybrid
    technology?
        Mr. Karsner. I am now aware of any.
        Mr. Shimkus. What about our major oceangoing vessels? Can
    they use plug-in hybrid technology?
        Mr. Karsner. Again, it is out of my scope.
        Mr. Shimkus. In Illinois, the great Mississippi River is a
    great transportation means to get our crops to the Port of New
    Orleans and of course, we have great barges run by boats that
    push these automobiles for 40 miles. But you are not going to
    do interstate transportation of 16-wheelers with plug-in hybrid
    technology. So I want to encourage him to join with us. This
    doesn't have to be a zero-sum game. I continue debate. This is
    a debate on supply. The more supply we have with different
    alternatives, the more competitive markets, the lower prices
    and our economy survives, especially in this carbon climate
    debate we are having here. Why not give the benefit to coal-to-
    liquid, on carbon dioxide, and why not give the benefits of
    electricity generation on coal-to-liquid by using this new
    technology and then sequestering it. Wouldn't that be a win-win
    for all of us?
        Mr. Karsner. Do you want to take that, Bob?
        Mr. Meyers. I think the AFS was structured to, as I think,
    referenced before, not pick the winners and losers in the fuel
    debate, so I think that allows the longer-term competition. The
    other thing about the AFS is that we provide a 10-year schedule
    can help drive market expectations in the longer term. Right
    now the RFS is limited at 0.12 and beyond that there is an
    administrative process to figure each year, or a series of
    years after that, what the landscape is going to look like.
    That is something that is hard to predict now in 2007.
        Mr. Shimkus. Can't we say that the RFS that we passed in
    the EPAct is very successful and really exciting to the
    renewable fuel industry?
        Mr. Meyers. I think experience has borne that out and in
    the testimony on the second panel, from Mr. Dinneen and others,
    references the large amount of investment that has occurred.
        Mr. Shimkus. Yes. And that is something we should take
    pride in and I think that is why there is really a bipartisan
    movement to really ramp it up. I think we have to be cautious
    and as we bring more fuels or venues to the bay, I do think we
    can get to a higher standard if we don't try to. I yield back.
        Mr. Boucher. Thank you, Mr. Shimkus. We appreciate it, Mr.
    Karsner. Thank you for reminding me about the Princess phone. I
    had long forgotten. I think I have got Ms. Baldwin for 5
    minutes.
        Ms. Baldwin. Thank you, Mr. Chairman. Secretary Karsner,
    both the Congress and the President are considering the
    adoption of very ambitious goals for ethanol production and use
    in the coming years. Based on reports from my constituents, and
    articles reported in the media, I have become very concerned
    about whether the infrastructure is or will be in place to move
    significant amounts of ethanol to our refinery and population
    centers in the United States. Since today we cannot use
    pipelines to move ethanol, we are dependent upon rail, truck
    and barge for transportation and given the location of the many
    of Nation's ethanol production facilities, rail is today the
    primary means of transportation of most of our Nation's
    ethanol. I have been very concerned about rail bottlenecks that
    are a problem and that rail system constraints may continue to
    be a problem for some time to come. In fact, I have introduced,
    along with several of my colleagues, legislation to address
    this issue. I wonder what your thoughts are on the adequacy of
    our rail system to move ethanol.
        Mr. Karsner. Congresswoman, it is a valid concern. Again,
    in our shop where we deal primarily with conversion platforms,
    we haven't deal specifically with that, but like you, we are
    aware of that constraint and it is pending nature to
    potentially become a bottleneck. We know that the shippers are
    concerned and so for that reason, as I said, we recently
    convened with the Department of Transportation and for the
    first time the administration has really convened, at the
    presidential appointee level and above, an interagency biofuels
    R&D board to take these holistic views at the supply chain
    management of ethanol as we grow the system, and biofuels in
    general.
        And again, of course, I think coal is somewhere in the area
    of 70 percent of all rail transport and so you have a
    competitive situation there of a burgeoning 300-percent growth
    rate in ethanol that we currently see, what our aspirations and
    what our mandate may be that imminently will bump up against
    that. And so I know the Department of Energy were also looking
    at ways to move that coal instead by wire with--clean coal
    carbon capture and storage and production in the Powder River
    Basin, by way of example. So the more of that you can alleviate
    by transmission modernization, you will allow for some
    additional rail capacity. But it is an issue and we would be
    happy to work with your office to explore that more.
        Ms. Baldwin. Great. Thank you. And you hinted at the answer
    to my second question, in terms of the formation of this task
    force. But do you think the Department has, currently,
    sufficient information on this issue, to avoid rail
    infrastructure constraints due to the movement of ethanol at
    this time?
        Mr. Karsner. Well, I am sort of the school that you can
    never have too much information and so it is predominantly the
    domain of the Department of Transportation. We are intrigued
    enough and interested enough that we are reaching out to them
    and saying we have to collaborate on this issue, and we have
    had a very cooperative effort, so there can always be more.
        Ms. Baldwin. Thank you. One of our witnesses, who will be
    testifying on panel II, indicated in his written testimony,
    this is Mr. Reid, that E-85 faces challenges in gaining
    popularity in the marketplace, primarily because it suffers
    from the chicken and egg factor. Does E-85 face roadblocks
    because of the relatively small number of flex-fuel vehicles,
    or because E-85's availability is still relatively limited? In
    encouraging the use of E-85, government fleets can set a real
    example for communities. They can help educate the public about
    environmentally friendly options that are available and they
    can create access to fueling stations that might not otherwise
    be available. What is the Department of Energy doing to
    encourage government entities, at the Federal State and local
    levels, to make investments in flex-fuel vehicles and E-85
    stations?
        Mr. Karsner. Well, specifically, I have a program in my
    office called the Federal Energy Management Program. That has
    responsibility for compliance and reporting of the executive
    orders. And the President, of course, has just issued an
    executive order on this subject, as well as building
    efficiency, that succeeded the previous Clinton era executive
    order that we had been seeking compliance with and I am proud
    to tell you that the Federal Government exceeds its compliance
    requirements for flexible fuel vehicle procurement across the
    board. And so to the extent that we are doing that, we have
    meant to be a model. That has been in legislation for some
    time. It is not proving to be enough to move the market. We
    will continue to be in compliance and exceed compliance, but it
    will not, in and of itself, resolve that chicken and egg
    dilemma that you spoke of.
        Ms. Baldwin. Well, how can farmers provide assistance to
    your agency to spur additional support for these vehicles and
    E-85 stations within governmental entities and beyond the
    Federal level?
        Mr. Karsner. It really needs to go well beyond the Federal
    level because of the critical mass. It matters how much a
    person has to look for E-85 before they say, well, I want this
    to be part of my life, let alone before you get to price
    parity. We have 170,000-plus gas stations in this country. We
    have 1,200 as of yesterday that are E-85 capable. At the
    current record clip, it would take more than a hundred years to
    get to a third of gas stations. So unless the majors decide
    that they want to bring this on board underneath their canopies
    and part of their fuel mix, it is unlikely that E-85 will make
    a significant dent in the future at the current rate and scale
    of it, even though we are moving at a record clip. The car
    companies will tell you that it is the oil companies and the
    oil companies will tell you it is the car companies; that is
    the chicken and egg. The truth is we need to understand whether
    or not we need further policy stimulus to encourage us to break
    out of that situation.
        Ms. Baldwin. But if local governments, universities and
    State governments were investing in----
        Mr. Karsner. All insufficient relative to the magnitude and
    the scale that is required for E-85 to be a substantial,
    competitive end-use product, which is something that we desire
    for it to be, commercially available across the Nation.
        Ms. Baldwin. Mr. Meyers, you had a comment on that?
        Mr. Meyers. I briefly mentioned in my opening statement
    regarding EPA's SmartWay Program and we have used this program
    very successfully to work on public private partnerships to
    encourage use of energy-saving technology in the transportation
    sector. Recently last year we expanded that partnership to the
    Grow and Go Program, which works with the transportation
    industry. We are focus on corridors and we are focused on users
    and we are trying to--we have goals of the 20 and 50-percent
    commitment to expand use through that marketplace of E-85 and
    try to get the chicken and egg program from that angle. Thank
    you.
        Mr. Boucher. Thank you. Mr. Walden for 8 minutes.
        Mr. Walden. Thank you very much, Mr. Chairman. During the 2
    weeks that we weren't in session here, I spent most if of it
    traveling around my district looking at potential facilities,
    either under construction or already developed or planned for
    various production compatibilities for ethanol and other
    biofuels, and there were some issues that came to light during
    that period that I would like your guidance on and your
    comments on. One, when it comes to ethanol itself, made from
    corn, what do you do with the distillers grain that is left
    over, both either wet or dry? My understanding is, if you leave
    it wet, there is less energy consumed in the production of the
    ethanol, but you have to feed it to somebody, cows, pretty
    quickly or it begins to distill.
        But I was amazed at the volume of distillers grain that was
    left and so if you can address that issue, as well as, then, I
    met in Pendleton, Oregon, grain growers. They have been
    analyzing and putting together a facility that would make agri-
    biodiesel out of canola or other plant seeds and yet to do--I
    am told, to do 100 million gallons of agri-biodiesel, you would
    need a million acres to grow the canola. You would end up with
    a million gallons of glycerin as a byproduct and enough
    distillers grain left over that you would have to have 570,000
    head of cattle to feed it to and you would have to supplement
    that with some sort of starch and protein to make up for what
    is taken out. But there are these unintended consequences, not
    to mention the price of corn and wheat that is going up as
    well, which I will get into next. But as you analyze the drive
    toward these alternative fuels, which I support like you do,
    what are we going to do with byproducts that are out there? Who
    is doing that analysis?
        Mr. Karsner. My quick answer would be we are going to
    profit from it, but I think that the question of how you profit
    from it, I will not be in as good a position as Bob Dinneen, on
    the next panel, to comment on, mainly because we focus almost
    exclusively on cellulosic ethanol rather than the conventional
    paradigms today. But I know that there is a substantial market
    for DBG as animal feed and byproducts on cellulosic ethanol is
    something that we are encouraging. We would like to have an
    integrated bio-refinery with multiple byproducts to allow for
    profitable income streams to those facilities.
        Mr. Walden. But I think the market, and I will look forward
    to the testimony from the next panel, but the market for that
    distillers grain is somewhat limited in some regions of the
    country, in terms of we don't necessarily have huge feedlots
    out in the west, in some parts like my district. Mr. Meyers,
    did you have a comment?
        Mr. Meyers. I couldn't comment specifically on your
    district and the distillers grain marketplace. There is
    general, though, my understanding from several sources, in
    terms of utilizing more of the corn plant in the process, and I
    think that is referenced in the testimony of the second panel.
    Instead of using some of the stalks, some of the product--with
    the corn, that may be the next incremental step here to using
    more of that resource, the advantages obviously being we
    already have the transportation structure involved and the
    plants are already located. But I think I would agree with Mr.
    Karsner, that the specific market conditions are best addressed
    through the private panel.
        Mr. Walden. All right. I would just--for you that, in some
    regions of the country, this may not be as good a solution as
    others, even though we are all trying to become more energy
    independent and with less emissions. Let me give you one
    anecdote as well. When I was down in the southern part of my
    district, a cattle rancher, when I raised the issue of ethanol,
    said let me tell you what ethanol has meant to me: a hundred
    thousand dollar higher feed bill to finish my herd. There are
    these unintended consequences that I think this committee needs
    to be aware of.
        Second, I have done a lot of work over the years in the
    Congress on forestry issues and the cellulosic research that is
    going on holds great promise for using woody biomass, which
    would help us reduce the fire threat in our forests, which, as
    you know, may burn a lot of greenhouse gases among other
    pollutants out there. Tell me about what efforts you are
    undertaking that would specifically utilize woody biomass out
    of the Nation's forests?
        Mr. Karsner. Well, I completely agree with you. Woody
    biomass, wood chips, urban wood waste and forestry residue we
    see as a primary pathway and many believe will be the
    predominate pathway for cellulosic ethanol and so we have
    sought as much diversification as we can in those pilot
    facilities that we have stood up and included that as an
    attractive pathway. It is a feedstock that we regularly run
    through our integrated bio-refinery facility at Golden,
    Colorado, to test its characteristics for output, but we are
    very optimistic about its prospects and potential to be a major
    contributor.
        Mr. Walden. One of the issues I have run into in some areas
    that I chaired last Congress, when it comes to the use of woody
    biomass for alternative fuel is the lack of ability in the west
    to get a long-term commitment of supply out of the Federal
    Forest Service, which is where most of the forestlands are,
    sufficient to justify to the investors a certainty level to
    cause them to invest in the facility, and the 10-year
    stewardship contracts are inadequate and that there really
    needs to be some longer-term commitment in order to both do the
    cleanup we need to do in the forest as well as provide
    feedstock to justify the investment in these facilities. I
    realize the Forest Service isn't necessarily in your purview,
    but as we work toward these alternative energy sources, this
    certainly is a problem we need to address. Do you have any
    comment on that, either one of you?
        Mr. Karsner. Yes, I would comment. I was a little bit in
    neglect with my comment to Chairman Barton, indicating that
    capital cost was almost the exclusive factor. Feedstock
    management utilization predictability is going to be another
    very specific gating factor to the commercialization of
    cellulosic ethanol. And again, if I put on a developer's hat, I
    would say, obviously the longer-term contract that would be
    available for predictability of supply and allowing me to
    invest in management systems of that feedstock, the better off
    we will be in terms of standing up a commercial cellulosic
    industry in general.
        Mr. Walden. Mr. Meyers, do you have any comments?
        Mr. Meyers. I wouldn't have any further comment on it.
        Mr. Walden. Then, finally, let me ask you this. If we
    implemented fully the President's recommendations regarding
    these alternative fuel sources, what percent of our fuel
    consumption would that amount to? What we consume today in
    fossil fuels, if we were to add this to the mix, what percent
    would we get to in ethanol cellulosic? I have heard it is very
    small percentage. Even if we did everything we are proposing
    today, it still amounts to a fairly small percentage of what we
    consume in terms of fuel, is that correct?
        Mr. Karsner. I will let Bob take a hit at it. I think, if I
    understand your question correctly, what percentage of gasoline
    are we displacing with the alternatives, and that is
    specifically calculated to be 20 percent. So we are aiming for
    a reduction of 20 percent of our gasoline consumption by 2017
    through the President's plan.
        Mr. Walden. Does that include the E-85, because you have
    talked about the distribution issues there. Does that take into
    account the difficulty in achieving that?
        Mr. Meyers. That is the overall policy goal measure. It is
    a number--the 2017 projected E-88 gauge for gasoline
    consumption. In terms of allocation--5 percent was with regard
    to reform CAFE proposal, 15 percent with regard to fuels. So
    what we are talking about is reducing the projected level of
    gasoline consumption, through our AFS proposal, by 15 percent
    from what would have otherwise occurred in 2017. In terms of
    what fuel mix will be there, that is based on many
    considerations. We certainly believe E-85 will be part of the
    equation and as a higher blend, E-85 fuels have some distinct
    advantages in terms of levels of volatility and emissions. And
    also, further penetration of E-85 allows for better
    optimization with regard to the vehicles. But we haven't,
    again, sort of predicted or set out a real statement to the
    market saying this what E-85 will be in 2017.
        Mr. Boucher. Thank you, Mr. Walden. The gentleman from
    Massachusetts, Mr. Markey, is recognized for 8 minutes.
        Mr. Markey. Thank you, Mr. Chairman, very much.
         Mr. Meyers, the administration has proposed adoption of an
    alternative fuel standard, mandating that 35 billion gallons of
    alternative fuels be used by 2017. According to the testimony
    submitted by the NRDC witnesses, who appear on our second
    panel, if half of this alternative fuels mandate were satisfied
    with coal-to-liquid fuels, our Nation's carbon dioxide
    emissions would be 175 million tons higher in 2017 than
    targeted by the administration. Why is the administration
    issuing an alternative fuels proposal that could make
    greenhouse pollution even worse?
        Mr. Meyers. Mr. Markey, I have not viewed the analysis
    behind the NRDC's testimony, although I did read it. There must
    be a chain of assumptions there. One, I would think, perhaps,
    behind the number would be that the CTLs produced without
    carbon sequestration. I think our figures show that, without
    carbon sequestration, there is a very substantial increase of
    greenhouse gas emissions, but with carbon sequestration, that
    that is down into the range of comparability to ordinary
    diesel. Secondarily, one misunderstanding of the analysis in
    the NRDC's testimony, with respect to how we measure diesel and
    I think they look at us, in terms of our GHG analysis, as
    having measured relative gasoline, when actually we measured it
    relative to diesel itself. So again, I guess to return to my
    point, that increased diesel use and increased use of diesel
    equipment----
        Mr. Markey. How substantial would greenhouse gas emissions
    be without carbon sequestration?
        Mr. Meyers. We predict that, comparing diesel to diesel, a
    118 percent increase on the CTL without sequestration.
        Mr. Markey. A 118 percent increase without carbon
    sequestration?
        Mr. Meyers. Right.
        Mr. Markey. OK, thank you. So without sequestration, you
    could not do this and meet the greenhouse gas emission targets?
        Mr. Meyers. I am not sure what we meant by we can do
    exactly what.
        Mr. Markey. I am saying wouldn't be wise to pose this as a
    greenhouse gas solution if there was no carbon sequestration
    which was in place?
        Mr. Meyers. I think that we are working on carbon
    sequestration with the Department of Energy. My understanding,
    in terms of the Air Force, look at CTLs, that they are looking
    at purchasing fuel that is derived from facilities with carbon
    sequestration.
        Mr. Markey. What if it is not ready, what if carbon
    sequestration technology was not ready, would it be wise to
    proceed?
        Mr. Meyers. I think there are many factors with regard to
    CTL. One of the factors that I know has drawn a lot of support
    with respect to the energy balance and national security
    elements of CTL, those were part of the President's policy, as
    well as greenhouse gas emissions.
        Mr. Markey. So you are saying that the administration
    reserves the option of moving forward with coal-to-liquids even
    if it increases by a hundred and eighteen percent greenhouse
    gas?
        Mr. Meyers. Congressman, we adopted the law that Congress
    passed in terms of defining alternative fuels. Congress right
    now defines alternative fuels as including carbon coal-to-
    liquids. That creates certain advantages for coal-to-liquids in
    the current marketplace established under law.
        Mr. Markey. We are in a global warming debate as well. The
    NRDC testimony further argues that ``even if coal-to-liquid
    synth-fuels fully deploy carbon capture and storage, fuel cycle
    greenhouse gas emissions from using these fuels will be
    somewhat worse than conventional gasoline, because the vehicle
    tailpipe emissions from liquid coal have the same carbon
    content as gasoline or diesel.'' And the ``residual emissions
    from a liquid coal plant employing CCS still is somewhat higher
    than emissions from a petroleum refinery.'' Do you agree or
    disagree with that?
        Mr. Meyers. In employing carbon sequestration?
        Mr. Markey. That is right.
        Mr. Meyers. I think that depends on the chain of
    assumptions that is involved. When we did our analysis, we
    assumed essentially a capture rate of about 85 percent from the
    CTL facility. I think you would have to compare that to what
    would be feasible in the petroleum refinery and also the
    indication is that, with regard to petroleum refineries, you
    would have to have a suitable geological repository and I am
    not sure if that exists for all petroleum refineries.
        Mr. Markey. OK. So 15 percent is not captured, is that what
    you are saying?
        Mr. Meyers. I am saying I cannot give you a relative for a
    carbon in/carbon out number for petroleum refineries versus
    coal-to-liquids. I think it depends on the assumptions for each
    facility.
        Mr. Markey. OK, I think it is important, though, that you
    submit for the record your assumptions based upon----
        Mr. Meyers. Sure. We would be happy to do that.
        Mr. Markey. And then we can analyze it to understand what
    the administration's view on that is. See, the problem that I
    have is that I think, rather than focusing on that, I think
    that the administration should be focusing on the deployment of
    plug-in hybrids, which would actually allow coal and other
    forms of electrical generation to contribute to powering our
    Nation's cars and SUVs, but not with a double whammy of carbon
    emissions in the coal-to-liquids conversion process and then in
    the vehicle itself. You wind up actually complicating this
    problem, because clearly want to increase--the goal is to
    increase our ability to back out oil from overseas without
    increasing global warming, while at the same time decreasing
    the threat of global warming without increasing our dependence
    upon imported oil. So it has to fit within that formula and
    what you have here is something that goes outside the formula,
    but it seems to me to be unnecessary, since just the burning in
    traditional coal plants would help with the plug-in vehicle
    issue and help us to solve that problem.
        Mr. Karsner, in Massachusetts there are 69,000 E-85
    vehicles driving around, but we have one E-85 pump in Chelsea,
    so you can imagine how long that ride is for many people in
    Massachusetts, 69,000 people with vehicles to get over to that
    pump. How long does the DOE think it will take before there
    will be, say, 500 E-85 pumps in Massachusetts? Because within 5
    or so years, we will have a half a million of these vehicles in
    our State. So how long before you think there will be 500 pumps
    in Massachusetts?
        Mr. Karsner. That is a very good question, Congressman
    Markey, and at risk of being redundant with some of my earlier
    answers, not focusing exclusively on Massachusetts, but the
    problem in general for the Nation.
        Mr. Markey. No, just take Massachusetts. Give me some idea
    of the timeframe to have it be an effective system of delivery
    of E-85 to the pumps, with the hundreds of thousands of
    vehicles by that point in time to have access to it.
        Mr. Karsner. We have 170,000 gasoline stations nationwide.
    The Department estimates that we need not less than 50,000 for
    E-85 to reach critical mass.
        Mr. Markey. What year is that?
        Mr. Karsner. At the current rate of growth, that is more
    than 100 years away.
        Mr. Markey. So that is very helpful to me. Since most of
    the stations our now centered in the Midwest, we will probably
    be at the end of it out here in Massachusetts and as my
    constituents are purchasing these vehicles, they still won't
    have anyplace to go to purchase this wonderful fuel, and it is
    something we would encourage, but we need a system here, if we
    are going to do it, to make sure that these pumps are in place,
    and I think any plan has to be realistic in talking about that.
    And the final question is, do you agree with the number, that
    even if we planted 70 million acres, every one of the 70
    million acres in which corn is grown in 2006 and it was used
    for ethanol, that it would only displace 12 percent of all the
    gasoline that we consume in the United States?
        Mr. Karsner. We don't focus at all on corn-based ethanol,
    almost exclusively on cellulosic, so I would have to report
    back to the record after consulting with colleagues at USDA on
    that.
        Mr. Boucher. I thank you, Mr. Markey. The gentleman from
    Oklahoma, Mr. Sullivan, is recognized for 8 minutes.
        Mr. Sullivan. Thank you, Mr. Chairman. And Mr. Meyers,
    currently, and you touched on this a little bit earlier, but
    currently the ethanol component of gasoline cannot exceed 10
    percent. Why is this the limit for ethanol/gasoline blends? Why
    can't we have blends greater than 10 percent? And what problems
    do we encounter with regard to air quality and engine
    performance, et cetera?
        Mr. Meyers. Congressman, we are looking at those issues in
    the context of Minnesota's E-20 initiative. First of all, with
    regard to E-10, that is our level that we have historically
    have approved, as part of our fuel certification program, as
    the legal fuel in this country. Beyond E-10, and I think our
    experience has been overwhelmingly good, we have to experienced
    problems in terms of vehicle performance, et cetera. With
    regard to E-20, we have to look carefully at those issues with
    regard to what is in the incumbent fleet. Not only do we have
    look at cars, we also have to look at smaller engines, small
    mowers, other types of vehicles that fuel and would buy it from
    the gas station down the road. So we have to look at those
    types of issues. We are involved a cooperative process now with
    the industry, that is both the ethanol industry and the
    equipment manufacturers, we are looking at those issues and
    right now it is too preliminary to tell you exactly what our
    conclusion would be as to whether E20 would meet the test that
    is laid out in the Clean Air Act.
        Mr. Sullivan. And Mr. Karsner--oh, go ahead.
        Mr. Karsner. I was just going to agree with our colleague.
    Of course, it is a multifaceted question and EPA would be the
    predominant agency to ultimately determine whether the
    emissions characteristics, et cetera, that would allow those
    limits. I just returned from Brazil where there is no blend at
    all in the Brazilian market that is less than E-22. So we, of
    course, are running through our vehicle technologies program to
    understand what higher intermediate blends may need to
    availability in the growth rate of ethanol and allowing for a
    more gradual rise in penetration of the overall Nation's fuel
    mix without having to wait that hundred years.
        Mr. Sullivan. And also, Mr. Karsner, can you take me
    through the supply chain, from feedstock to final consumer, for
    the average gallon of ethanol that is consumed today, please?
        Mr. Karsner. I probably couldn't do that question any
    justice because, as I said, the Department of Energy almost
    exclusively focuses on future energy, cellulosic ethanol,
    rather than the conventional ethanol industry, so we have very
    little nexus to it, so I am not in a good position. I could
    report back to the record and give you----
        Mr. Sullivan. But basically the corn is harvested, it is
    trucked, it is taken to a plant or a terminal and all of that.
    What I am getting at is if ethanol could be shipped by
    pipeline, would the total cost to consumers be reduced, and how
    long would it take and how much would cost to establish an
    ethanol distribution system that utilizes pipelines? And maybe,
    if there are any drawbacks on pipelines, if you could touch on
    that?
        Mr. Karsner. Well, there are characteristics of the ethanol
    and its water absorption issues that affect its capacity to
    share that pipe with anything else but ethanol, and so that has
    been the primary dilemma.
        Mr. Sullivan. Nothing can be shipped other than ethanol in
    the pipe?
        Mr. Karsner. I couldn't do this justice. It is the
    Department of Transportation domain. We have recently begun
    collaborating with them, exactly, to go through the supply
    chain issues and try to figure out, from our side, those skills
    that we have, what are the possibilities of blending bio-
    butanol, for example, that would allow for ethanol shipment
    more effectively. But it is my understanding today that you
    need dedicated pure ethanol pipeline facilities, because it
    can't easily share with other fuel sources.
        Mr. Sullivan. But don't you think that will reduce the cost
    if we had some pipelines in place that we could ship it on?
        Mr. Karsner. It is my understanding that the pipeline
    industry is divided on that question. Many of them are
    ambitious to get into ethanol delivery by pipeline and many of
    them are staying away. I just don't have sufficient expertise
    on whether it would lower cost.
        Mr. Sullivan. Well, thank you. I yield back the balance of
    my time.
        Mr. Boucher. Thank you, Mr. Sullivan. The gentleman from
    Georgia, Mr. Barrow, is recognized for 8 minutes.
        Mr. Barrow. Thank you, Mr. Chairman. At least in the area
    of transport energy, just the stuff we use to drive our trucks,
    our cars and our tractors around, it seems to me that we are
    dealing with a three-legged stool here. You have to got to have
    a supply of fuel, you have got to have an infrastructure to
    deliver it and you have got to have a supply of vehicles that
    can run on it. And so far, we have talked about, at least
    mostly today we are talking about what little we have gotten
    involved in this at the Federal level is to be fooling around
    with the level of supply of the fuel, and all kinds of
    questions arise in all of that. You all haven't got, for
    example, a formula as to how we can reach 35 billion gallons
    and told how much of it is going to be corn, how much of it is
    going to be cellulosic, how much of it is going to be coal-to-
    liquids. We haven't got a plan for that. We haven't got a plan
    for the infrastructure, when we talk about the infrastructure.
        One of you all testified earlier that we are assuming the
    infrastructure is going to be in place because the demand is
    going to be there down the road. It is a demand fixed by law
    and a demand fixed by the conditions that have gotten us where
    we want to be so far. You assume we are going to have the right
    mix of renewable fuels in the grid, if you will. We are
    assuming that is all going to be in response to Ms. Baldwin's
    question, it doesn't seem to me that the analogy of the chicken
    and egg does any justice to the situation. We don't have a
    chicken and egg problem, we have a chicken, we have a chicken
    feed, we have a henhouse, we have a rooster and an egg problem,
    at least, and that is not even dealing with the chicken hawks
    that are out there, that we will deal with with the next panel
    of witnesses. We are not even close to describing the problem.
        So the question I have got is, who is running the store?
    Who is actually coordinating in the executive branch of
    government a plan to not only get us a supply of clean fuel,
    but an infrastructure that is capable of delivering it from the
    producers to the consumers and making sure that there is a
    supply of vehicles out there that will generate the demand for
    the fuel when it is there? Who is coordinating this? I heard
    one of you all saying that, earlier on--just the other day and
    I don't want to be sarcastic or anything, but do we need to
    talk to who conducted that, in order to find out what the plan
    is? I hear you when someone says, ``what should we be doing?''
    You say, well, we are implementing the law as you pass it,
    Congressman. You make the laws and we are just carrying it out.
    We need a little guidance and a little leadership here and I
    want to know who is actually heading up the shop in the
    executive branch of government in trying to come up with a plan
    to make sure that we are not only going to have a supply of
    fuel, but an infrastructure that is capable of delivering it
    and a fleet of vehicles that is actually going to be needing
    it. Who is heading that up? Who wants to go first?
        Mr. Meyers. I will take it. I will take a crack. First of
    all, with regard to vehicles, most of the fuels we are talking
    about--E-85 has the E-85-capable vehicle, but the E-10 vehicle
    does not. Other fuels that are contemplated here, obviously are
    going to have some of the chicken and egg problem. Electric
    vehicles will have an introduction situation where they have to
    have consumer acceptance.
        Mr. Barrow. Mr. Meyers, I want to make sure I have
    explained the problem, though, because here is the problem in a
    nutshell. We have got folks back in my district selling trucks
    and there is an ad that I hear when I ride around in my
    district. Are you tired of high fuel prices? Come on down the
    road and we have flex-fuel trucks you can buy. And they are
    selling flex-fuel vehicles in my district. There isn't any E-85
    fuel for them to run on, so they are running on gas and the
    problem is summed up in that episode. How can we actually get
    the E-85 fuel that these trucks are selling--there is a demand,
    but that is an itch they can't scratch down there. That is the
    problem. Could you help me understand what we are doing to get
    that problem solved?
        Mr. Meyers. There have been efforts. The Energy Policy Act
    provides tax incentives for infrastructure development for E-85
    pumps.
        Mr. Barrow. Well, is that enough?
        Mr. Meyers. I think, according to my colleagues testimony,
    there is a substantial way to go in terms of E-85 penetration
    under the current incentives that exist.
        Mr. Barrow. So it is not enough?
        Mr. Meyers. Well, I don't feel qualified to give you an
    opinion on how much of a tax incentive----
        Mr. Barrow. Well, if my friend down in Vidalia, Georgia is
    buying a flex-fuel truck and it is going to take a hundred
    years for us to get the 50,000 stations that can carry it so
    that E-85 can carry it on its own in that marketplace, I guess
    he is going to be a little long in the tooth before he can get
    the benefit of the extra money he is paying for a vehicle that
    can't run on nothing that is there.
        Mr. Meyers. That is correct, although the incremental price
    on E-85 vehicles now is not absorbent.
        Mr. Barrow. Well, I am glad that he is not paying that much
    more for something he can't use. My point is he is still not
    getting what he needs and his problem, I can multiply that 300
    million folks and describe the problem of this country in a
    nutshell. Now all I want to know is what effort is being made
    in the executive branch to develop a game plan? They cannot
    deal with this problem in just one part, one part of a three-
    legged stool, but is going to actually try and bring all the
    pieces together so that it is going to come in for--because
    right now, when I hear Mr. Karsner talking about the market
    conditions, they need to create access to markets and access to
    capital, with respect to the policy we have got right now, it
    sounds like what we are doing is we are lying on a train wreck
    to create the market conditions to deliver all of this other
    stuff. The train wreck is we have got one vital link in the
    chain, it is fuel supply, we haven't got any idea as to how we
    are going to get there and what mix is going to be in it, but
    that is the thing we are going to mandate and so far, that is
    the only thing we are mandating and everything else is going to
    have to get in line and respond to that market incentive and
    what I see coming is something that is not going to be
    deliverable at the time that is going to be needed and we are
    either going to extend or we are going to basically not get
    anywhere. I want to know how I answer the folks back home,
    about how we are coordinating our response to this problem.
        Mr. Karsner. Well, we have to do it together. We have
    greater coordination than ever before at the administration's
    level.
        Mr. Barrow. Who is in charge of it?
        Mr. Karsner. Well, I co-chair with Under Secretary Dorr, at
    the U.S. Department of Agriculture, something called the
    Interagency Biofuels R&D Panel and so that involves the
    Department of Transportation, EPA----
        Mr. Barrow. That is the fuel leg of the three-legged stool.
    How about the infrastructure and the vehicle?
        Mr. Karsner. And we are taking on all of those issues of
    supply chain on board, so feedstock, the transport to
    facilities. But I think your pointing to a very real problem,
    which is we are operating on legacy systems of organization of
    government that have emanated out of World War II and we have
    21st century problems with urgency that we need to address by
    taking down stovepipes----
        Mr. Barrow. And I am looking to you guys for leadership.
    What is the solution? How do we plan our way out of this?
        Mr. Karsner. Any plan has to got to take into account how
    you are going to cultivate the market, because we are a market-
    based economy. We are not a politburo, ultimately, so we don't
    have 5- and 10-year plans in that way. So the question is how
    do you change the way investments are done for returns into
    those products and services that we desire that are tantamount
    to the Nation's interests? And ultimately, if I am an executive
    and I have a fiduciary responsibility to my shareholders to
    profit, it is unlikely that I am going to rapidly take aboard
    products that compete with my base in order to----
        Mr. Barrow. So if you won't create the market conditions
    that we want, how can we incentive-ize the players to invest in
    what we want to get at? If we wait for the money, the market
    will solve this problem. But I will tell you, my part of the
    country will dry up and blow away if we wait for the market to
    solve the problem in our part of the country the way it solved
    it down in Brazil. Well, we all drive long distances to do our
    work and to get to and from our jobs and just to get around and
    we are energy-dependent. If we wait for the market, the market
    will solve our problem, but I don't want it to be at the
    expense of my part of the country.
        Mr. Karsner. Or any part of the country. The bottom line is
    that what the President has sought to table and the
    conversation that we are now having with Congress on the
    legislation we hope that it will be returned to the President
    to sign, is significantly disruptive policy with enforcement by
    law. So it is more than disruptive technology, which has been
    our focus for a quarter of the century----
        Mr. Barrow. It sounds to me, though, Mr. Karsner, and I
    apologize for interrupting, but my time is running out. Sorry
    you had to stop. It sounds to me like you are restating the
    problem. I want to know what the solution is and I am still
    listening. Thank you, Mr. Chairman. I have to yield now.
        Mr. Boucher. Thank you very much, Mr. Barrow. The gentleman
    from Michigan, Mr. Rogers, is recognized for 8 minutes.
        Mr. Rogers. Thank you, Mr. Chairman. I appreciate you
    having this hearing. It is so very important. Unlike many, I am
    a complete optimist and fairly excited about where we are going
    on alternative fuels and when you look at where we have come in
    the last few years, it is really nothing short of remarkable,
    with hybrid buses in the cities which is reducing the emission
    and doubling the gas mileage in many cases. We started that in
    2001, to increase the number of hybrid buses. And I think we if
    we figured it out, you replaced 13,000 of them with a hybrid
    bus in the cities, that is an equivalent of 600,000 hybrid cars
    on the road, so that is a big impact and they are making an
    impact.
        And if you look at where the car companies are and I hear a
    lot of big government solutions to go and tell the car
    companies what to do, but I will use General Motors as an
    example. They just developed something called the Volt. Are you
    familiar with the GM Volt? That is pretty exciting technology
    in that car. Lithium ion batteries. We still have a little ways
    to go, but 540 miles on a tank of gas and the only thing that
    the fuel, either ethanol or gasoline, does is charge the
    batteries, so it has very low emissions, very high efficiency
    and we are close. I think they are looking somewhere between a
    2010 and 2012 for commercialization of that technology. When
    you look at ethanol, the car companies stepped up in a big way.
    There are some two million cars out there ready to run on E-85.
    I own one and it is great. We happen to have a station in my
    hometown, so it is readily available, it is cheaper, cleaner. I
    have no problems with the car and I really enjoy driving the
    car. Great stuff.
        So there has been a lot of progress. It seems to me, if we
    are going to have you all, which is the U.S. Government, get
    involved, I am not sure I want you all involved in such a huge
    way. Nobody told Ford, Chrysler and General Motors to make E-85
    cars. You didn't mandate that, did you? Was there a mandate to
    do that?
        Mr. Karsner. There is an incentive to do that.
        Mr. Rogers. But there is no mandate? You didn't say you are
    going to build 2 million E-85 cars?
        Mr. Karsner. Well, indirectly, the CAFE mandate serves as
    an incentive for those flexible fuel vehicles to be produced.
        Mr. Rogers. So it is the 0.08 incentive in there that you
    get credit for, but you didn't say E-85. You just gave them the
    alternative fuel credit, did you not? It is a pretty good way
    to do it, an incentive. But we are talking about Cap and Trade,
    which is a very big complicated system. It means brokers make a
    lot of money, it costs more to build stuff, and I am not sure
    the environment is cleaner. My argument is we ought to
    encourage them to do what they are doing now and we can do it
    for a little bit of money, not a whole bunch of new programs.
    If we look at the one problem between the farmer part is
    working. The research part is almost there in places like
    Michigan State University, as I am sure you are aware, right on
    the cutting edge of cellulosic research. As a matter of fact,
    they have extracted sugar on the bench. All as they need to do
    is figure out how to produce it in mass quantities. They are
    right there. They think, for something like $3 million, they
    can get to that next level. Three million bucks. We are talking
    about hundreds and hundreds of millions of dollars that are out
    here frequently. Refineries are being built because we built
    incentives into the energy bills. Build it and it will get this
    thing kick-started.
        The one that worries me the most is the distribution
    because, as you said, I think, halfway, we inherited a pretty
    old system. We are hearing some disturbing things, that large
    oil companies are saying you can't put ethanol under the tarp
    of which we pay for. Are you hearing any these stories out
    there? In other words, and I won't give any company name, but
    the company will go out and we hope would assist you and build
    the gas station. So anything under that footprint, you can't
    put an ethanol plant because we don't sell ethanol. That is a
    hurdle that wouldn't be a legal impediment but causes a problem
    in getting us more ethanol pumps. Are you familiar with the
    problem?
        Mr. Karsner. We have heard of that. We are familiar with
    that.
        Mr. Rogers. And what are we doing about that? Or what can
    we do about that?
        Mr. Karsner. I am not sure of what the full extent of what
    we can do about it. Secretary Bodman did pledge to investigate
    it and I am not sure what the extent of that investigation is.
        Mr. Rogers. That is an impediment that we have to get rid
    of, don't you agree?
        Mr. Karsner. It is a very complicated subject area, in the
    sense that it involves franchising contractual agreements, of
    which I am not an expert. But you know, fundamentally, if the
    question is what is necessary for a scale and rate of E-85
    access, then it will involve greater access to the major
    franchises.
        Mr. Rogers. So this is an important issue and you think
    that maybe policymakers might want to a look at. I am not for
    big government intervention, but we just ought to understand
    the problem. Fair enough? Just so we know it is a problem. So
    part of this problem of distribution isn't necessarily the
    system of which we talked about. As far as the ability to do
    it, it is a whole set of other unknown, under-the-radar type of
    problems that are head-scratchers, hard to get through it.
        Mr. Karsner. I was going to say I think you characterized
    it very well, that there is a great reason to be very
    optimistic about the technologies that the Nation is invested
    on and their capacity to manifest, but there are a lot of very
    practical impediments.
        Mr. Rogers. We passed a bill in Congress last year and I
    think we are taking another run at it for providing CAFE fines,
    turn that money around and allow grants to gas stations,
    independent gas stations to put in ethanol pumps. The
    government needs to be very careful where we intrude in the
    market, but that probably serves as a value to kick-start kind
    of an ethanol economy. Don't you think it is important that we
    get enough pumps out there so that this takes on an economy of
    scale? Is it not and don't you do that through Clean Cities now
    to some small degree?
        Mr. Karsner. We do it but as you indicated, it is to a very
    small degree and with programs like SmartWay, we chip away at
    this giant boulder. The question is can we do it fast enough
    and in effect, scale enough to make a difference?
        Mr. Rogers. Would the $20 million or so in CAFE fines every
    year from companies who don't meet our CAFE standards and pay
    those fines, would that be a better start than what you are
    doing now, if we dedicated all of that to increasing the number
    of pumps?
        Mr. Karsner. It would be a marginally additional chisel. We
    have $8.6 million in Clean Cities now and we did 450 gas
    stations last year, and so we could continue to invest in it
    through this way, through substantial grants, but the key
    really would be to make it a profitable proposition for the
    incumbents to take on board.
        Mr. Rogers. Well, isn't this back to that horrible chicken
    and the egg? But if you can't buy it at a gas station, it
    doesn't become part of your routine to even to seek that
    opportunity. It is very difficult for someone to take the
    business risk, not knowing where the scale of ethanol is going
    to go. It is not like petroleum, where everybody knew the car
    had to run on it. We are just not sure where this is going and
    it is probably in our national interest to encourage more pumps
    so that we can at least get some economy to scale, is it not?
        Mr. Karsner. Every bit helps, but that is pumps and flex-
    fuel vehicles and we would want substantial critical mass
    penetration of both and we would want it also so that we can
    look at all of the intermediate blends and what their
    possibilities may be upon EPA's review.
        Mr. Rogers. And I am going to run out of time here, so I
    want to switch gears very quickly. I think diversification is
    the key. Probably the Midwest is going to be able to head
    ethanol because it is close, but maybe the rest of the country
    is run on something else. I think that is OK. I don't think
    that is necessarily a problem. But lithium ion batteries, I
    think, are going to be a very important part of technology
    going into the future of alternative fuel vehicles. There is a
    patent problem with them now, as I understand it. Japan tends
    to hold and their companies to hold most of the patents, so our
    folks are trying to play catch up. Would it not be a great
    investment for us, rather than to do these big mandates, Cap
    and Trade, and we are going to tell Americans what kind of cars
    they can buy, to actually provide some assistance to companies
    like General Motors, who are trying to and desperately working
    furiously with their intellectual capital, end capital, to get
    these lithium ion. Isn't there some value in us doing this,
    from all of the problems----
        Mr. Karsner. We do that now and we do it in the very best
    way with our FreedomCAR and Fuel Partnership. It has largely
    been focused, particularly with General Motors and the other
    carmakers, on hydrogen over the last 5 years. We are
    increasingly more focused on how to move electrons, other than
    just the protons, through hydrogen fuel cells. So we see it
    integrating and growing in that collaboration, as you
    described.
        Mr. Rogers. But you didn't even come close. I guess what
    worries me and Mr. Upton mentioned it, the $100 million that we
    thought was agreed on to get us to that point where we could
    have robust research on something that we could commercialize
    as soon as 2010, with the right resources, that helps America
    out of a problem. We got, to your words, $11 million. Was that
    yours? So maybe it is even double that. So $20 million, which
    is 80 percent short of where we need to be, but I would hope
    that the administration would hold true to what we all believe
    was a commitment to meet that demand and I think they are going
    to help us solve a problem versus EPA and the Department of
    Energy sitting around a table trying to figure out it. I would
    rather have research and development at General Motors and Ford
    actually getting their hands on some science to work it out.
    Thank you very much, Mr. Boucher.
        Mr. Boucher. Thank you. The gentleman from Louisiana, Mr.
    Melancon, is recognized for 5 minutes.
        Mr. Melancon. Thank you, Mr. Chairman, I appreciate it. I
    guess, since I am from Louisiana, I am associated with the
    sugar industry and I want to talk about cellulosic ethanol or
    ethanol from sugar, but I have heard about hybrids, I have
    heard about coal, cellulosic, corn ethanol. I haven't heard
    anything about natural gas for vehicles and I know that the
    buses in the city run on natural gas. I don't know whether it
    is LNG or whether it is just regular, the gas, natural gas
    itself. Do we have numbers on efficiencies, costs and other
    items, that it is not become a topic of conversation, at least
    not in here today and I haven't heard it before anywhere.
        Mr. Meyers. We did do calculations with regard to
    greenhouse gas on CNG. I think, between the Department of
    Energy and the EPA, we could probably find some numbers on
    vehicles and distribution. I am not sure exactly what data sets
    we have to draw from, but we could work and provide that to the
    committee.
        Mr. Melancon. Has there not been a lot of discussion about
    either compressed natural gas or LNG?
        Mr. Meyers. Well, no. CNG has been very helpful in a lot of
    the situations. We have had situations where, for example, it
    was California where, in order to offset power plant
    construction emissions, investment was made in CNG vehicles for
    garbage trucks and that type of shortfall, urban environment.
    So the emission reductions occurred in the urban center and
    certainly the experience with regard to emission profiles with
    the CNG vehicles has been very good, so we don't have a qualms
    with the technology or the emissions from CNG vehicles.
        Mr. Melancon. And the only thing I understand is your
    population difference and actually, I believe you could run one
    or the other, and I don't know which one, whether it is
    gasoline or the compressed natural gas carburetion and vice
    versa. So if that is the case, you could have a tank of regular
    gas and a tank of compressed natural gas back there, and
    wouldn't it be more efficient?
        Mr. Meyers. I think there are some factory vehicles. I
    don't know the extent of that technology, but we would be happy
    to----
        Mr. Melancon. Yes, I am just curious because I keep hearing
    everything about ethanol and coal. and I don't hear anything
    about it. I had an uncle and he has been dead for 12 years and
    probably for 35 years before that was running his tractors on
    compressed natural gas, which as a kid I thought that is great.
    Why aren't we doing it?
        Mr. Meyers. Well, I think we are doing it in certain
    contexts. I think it is a market-driven situation. We referred
    earlier to E-85 chicken and egg problem. With some respect,
    some of that problem has occurred with regard to the fueling
    infrastructure for CNG and historically, I think that has been
    an issue. So it has been used in fleet applications where you
    have central refueling. And again, I think, within the context
    of our programs, we have funded some through the Clean School
    Bus Program. So again, the market sort of decides those issues
    in our current structure.
        Mr. Melancon. We are talking about natural gas and we are
    talking ethanol and the problem of delivery systems, pipelines,
    tank trucks, whatever, and Mr. Markey made the comment about
    not getting his market. Mr. Barrow, the same thing. I think
    maybe I heard it on the Republican side. There is CNG in every
    part of this country I have ever been to. There are
    distributors of CNG in every part of this country I have been
    to. Is there not some incentive that we ought to be giving
    maybe instead of to Ford Motor and the oil companies and all,
    to the local distributors to start putting up at their
    convenience stores, because they are the jobbers, they are the
    ones that own those facilities, the CNG and encourage the auto
    manufacturers to starting moving to it? Is there a downside
    that I am not understanding?
        Mr. Meyers. I don't see a downside, Congressman, and in
    fact, I think that is one of the goals of the AFS. The AFS
    gives CNG an incentive by making it qualified as an alternative
    fuel, which is subject to 35 billion mandated in the bill. So I
    think if you are looking for incentives, I think that is a very
    big incentive for CNG. The testimony you have from the second
    panel references certain costs of engines for the fuel, with
    respect to gasoline and gasoline prices and the combination of
    price, and the mandate, I think, could provide some significant
    incentives for the industry. Going back for a second to your
    question with regard to your vehicles using both, our role here
    would be with regard to the CNG conversions, that we have to
    ensure that those meet Clean Air Act requirements, so we see a
    number of conversion kits going to market and we are right now
    in the context of working with those issues with industry. So I
    think, as a whole, the EPA has tried to work these issues out
    and as a whole, I think we have seen emission benefits from CNG
    technology in the marketplace.
        Mr. Melancon. And I am running out of time. I didn't mean
    to pick on you, Mr. Meyers. I kind of threw it out for both of
    you all, but since you chose to take the ball and run with it.
         I thank you, Mr. Chairman.
        Mr. Boucher. Thank you very much, Mr. Melancon. The
    gentleman from Arizona, Mr. Shadegg, is recognized for 5
    minutes.
        Mr. Shadegg. Thank you, Mr. Chairman. And I want to follow
    up on that series of questions. As I understand the current
    definition of renewable fuel, it would include natural gas
    produced from landfills or sewage treatment facilities but not
    any other type of natural gas. And I share the gentleman's
    interest in the issue and I guess I want to make sure that, am
    I correct about that understanding, that it would not include
    other natural gas? And if so, is there a reason for that?
        Mr. Meyers. Well, I think the reason was that in the Energy
    Policy Act of 2005, the mandate that was constructed dealt with
    renewable fuels, so the renewable fuel definition comes to a
    number of different types of fuels, but sort of a bottom-line
    analysis, if it is derived from plant or animal waste and other
    renewable feedstocks, it can pretty much qualify as renewable
    fuel. If not, if it is still a fossil fuel, Congress did not
    incorporate that.
        Mr. Shadegg. The point we made earlier, that we were faced
    with policy choices, now one option would be to define
    alternative fuel as any fuel that reduces the use of petroleum-
    based fuels, rather than using the definition of something that
    comes from something renewable, at least in the short term. As
    the gentleman pointed out, there is a lot of potential for
    natural gas, in moving vehicles, that has already been proven
    and natural gas is already widely available in homes and there
    are small compressors that you can get. That market seems to be
    some degree down the road. Is there a cogent argument why that
    shouldn't be considered as an----
        Mr. Meyers. No, the administration agrees with that
    argument and we specifically adopted natural gas as a fuel
    qualifying for AFS. Additionally, within the definition of
    alternative fuel in the bill, there is a provision that would
    allow non-crude oil-based fuels to qualify also as alternative
    fuels in the future, subject to determination by the Department
    of Energy.
        Mr. Shadegg. Mr. Karsner, do you have any objection to
    that?
        Mr. Karsner. No, I agree completely.
        Mr. Shadegg. Mr. Karsner, I briefly met with Daniel Yergin
    and he had just been to Japan and he made the comment that the
    Japanese are as obsessed with battery technology as we are with
    ethanol. I have concerns about corn-based ethanol, some of the
    concerns about the corn market and the things it will do to our
    cost of food. I have fewer concerns about cellulosic ethanol.
    But I guess my question of you is are we doing enough, in this
    country, on battery technology, and are there things that this
    Congress should do to push us further down that road?
        Mr. Karsner. It is a great question, Congressman. I believe
    that electricity should become a primary pathway, a
    technological pathway and it is available under the Alternative
    Fuel Standard, just as natural gas would be. And so we would
    like to see as much upside as we can. Of course, this country
    took a different bend on our history with electrifying vehicles
    and electrifying trains and we are at somewhat of a competitive
    disadvantage. There are people on the second panel that can
    address this better than I. But as we restart our efforts
    towards electrification and first, we need to think in terms of
    what does it take to cultivate that industry here in the United
    States? We need much broader hybridization of the fleet in
    general, as a step-stone to plugging in a hybrid fleet in
    general and we need it for far more than just the luxury of
    feeling green with niche cars. We really need to hybridize
    efficiency across all of the vehicles that people want to buy
    and so we have doubled our investment in that. I think there
    are ideas out there about how we could go further and we are in
    emerging dialog with the car companies right now.
        Mr. Shadegg. I appreciate your suggestions perhaps as--I am
    running out of time and I want to ask another series of
    questions. I am aware of damage that has been done by fuel
    containing as little as 5 percent ethanol to the existing
    infrastructure and a lot of money being spent on that damage
    that has been done, ethanol levels of 5 to 10 percent doing
    damage to fuel tanks and fuel lines and lots of things. I am
    concerned that we are not studying the infrastructure issue
    enough. I believe it is Minnesota that is trying to go to a 20
    percent standard and I asked a witness before this committee
    sometime back about that and the witness essentially mislead
    the committee and said no, they are not going to go to a 20
    percent standard, when in fact they are. I believe there are
    serious issues with generators, chainsaws, lawn tools,
    motorcycles, the marine industry, ATVC.
        At a 20 percent mandate, my question of you is two things:
    one, is there any warning that is being given, because the
    stories I have heard indicate there has been no warning given
    of the potential for damage. And second, has anybody ever given
    any thought to the creation of an unanticipated consequences
    fund? We all are aware that MTBE, when it was brought on line
    to clean our air, we thought was a good idea. Then we
    discovered it has an unanticipated consequence of damaging our
    water supply and so we had to fix that and we had to come up
    with the money to fix it. I would suggest there are a lot of
    unanticipated consequences of higher proportions of content of
    ethanol and nobody's kind of looking down the road and saying,
    well, how are we going to fund dealing with those problems? And
    I would appreciate comments from both of you, if I could.
        Mr. Meyers. Sure, I can start. First, with regard to E-5 or
    E-10 problems, I am not personally aware--would be happy to
    receive--in terms of information. We would obviously be
    concerned if there are some issues there. Our experience, as I
    said earlier, generally has been that E-10 has been very
    successful in the marketplace and we have car standards now
    that were improved through the Mobile Source Air Toxics Rule,
    which even with the permeation standards, are applicable there.
    It will even reduce further some of the volatility emissions.
    But on a going-forward basis, I think we and EPA, in terms of
    looking at these fuel issues, take them very seriously and take
    the investigation and the analysis that is required very
    seriously and needs to occur.
        And with reference to what I said earlier with regard to
    Minnesota, we are trying to work now with the parties involved
    and try to look at that issue closely to make sure we have the
    type of information that is necessary. We certainly recognize
    that the moment that an E-20 blend would be legal, then it
    would be legal to use in a lawn mower, legal to use in a
    snowmobile, legal to use in all types of equipment. So those
    are factors that we have to take into account, as well as
    obviously the performance of the emission control system and
    our fundamental authority is with regard to emissions and
    interference with the emission control systems. So those would
    be all factors in our review.
        Mr. Boucher. Thank you very much, Mr. Meyer. And Mr.
    Shadegg, thank you. The gentleman from Utah, Mr. Matheson, is
    recognized.
        Mr. Matheson. Thank you, Mr. Chairman. In the development
    of the Alternative Fuel Standard list, can you share with me
    what the thinking was behind including natural gas as one of
    the alternative fuels?
        Mr. Meyers. Well, I think our initial cut, as I explained,
    was to try to adopt those fuels that Congress has defined as
    alternative fuels. With regard to natural gas, and I think we
    referenced earlier that, when the President announced this in
    the State of the Union address, we were talking about the
    energy security benefits as well as the environmental and
    greenhouse gas benefits that could be associated with use of
    the fuels. Most natural gas is much more domestic, I guess I
    would say, than our oil supply system, domestic and within
    North America.
        Mr. Matheson. Yes, you just hit the point I wanted to ask
    you about and that is I understand the environmental, but it is
    on the energy security benefits, based on the supply and demand
    dynamic we face today and looking forward. Did you consider the
    Department of Energy's projections about future increasing
    imports of LNG to meet our natural gas needs in this country,
    in terms of including it as one of the Alternative Fuel
    Standards for energy security purposes?
        Mr. Meyers. Not in my memory did we consider imported LNG
    specifically, but I don't think, in terms of the definitions
    that are applicable to the AFS right now and the fuels that are
    mentioned, that would be excluded.
        Mr. Matheson. I just want to get to the point that energy
    security was one of the rationales for adding it.
        Mr. Meyers. Sure.
        Mr. Matheson. And we are facing an future with increasing
    imports to meet our natural gas needs. I think that is
    something we ought to be talking about and figure out if that
    would make sense or not to have that included, the other fuels.
    One other question I wanted to ask about is fuel specification
    standards. Do you think these should be negotiated in the
    marketplace or should the government set standards?
        Mr. Meyers. We exert authority under the Clean Air Act to
    certify fuels, so we have current existing authority within
    211(c) of the Clean Air Act. And so in terms of anything being
    sold for use in a motor vehicle, we need to make that
    determination consistently to law, so it is decided by
    government.
        Mr. Matheson. OK. Thanks, Mr. Chairman.
        Mr. Gonzalez [presiding]. The chair recognizes Mr. Green
    from Texas.
        Mr. Green. Thank you, Mr. Chairman, for allowing me to
    participate in the hearing on fuels and as you know and the
    committee knows, I represent a lot of employees who
    manufacturer gasoline at our refineries and so it is very
    important that we do not do anything to put those jobs in
    jeopardy, particularly since we need that refined product.
    Gasoline has its drawbacks, but it is also the cheapest and
    most efficient fuel that we produce today, so if you disrupt
    that supply and production of gasoline to a significant degree,
    the consequences will be felt by every American.
        Mr. Karsner, what effect on food prices and other economic
    consequences if we continue or further increase our Renewable
    Fuel Standards to require greater and greater levels of
    ethanol, such as 20 to 60 billion gallons per year figures in
    some pieces of legislation?
        Mr. Karsner. Well, I am not an agricultural economist, sir,
    but what I could say is that we don't expect grain-based
    ethanol that competes in the food and feed market to take us
    substantially beyond 10 percent. There are people on the next
    panel more qualified to talk to that. So we expect the bulk of
    things to come from non-food edible feedstocks, like
    agricultural residues and woody biomass and urban green waste,
    for example.
        Mr. Green. Thank you. It is my understanding that the
    President's policy is assuming that cellulosic ethanol is going
    to supply that increase, as you mentioned just now, and it
    seems the President's proposal is pretty aggressive. It appears
    as a very complicated market rather than assurance of success.
    Instead of taking a leap and requiring more ethanol, when
    cellulosic ethanol is not yet ready, why would it be a more
    prudent course to wait until the current ethanol mandate is
    done in 2012, then decide whether to increase it further, if
    cellulosic ethanol is ready to market? Are we to that point now
    where we can pick up that 90 percent from cellulosic ethanol?
        Mr. Karsner. I would say we are certainly past the point
    where policy is required for future projections and
    installation of infrastructure that takes many years to erect
    and prove out. So you need a lead time, a substantial lead time
    for the market to react to invest the money that maybe 36 to 48
    months later would produce the product.
        Mr. Green. OK. So any bills we consider, we need to make
    sure we build in that lead time so investors and the market can
    adjust?
        Mr. Karsner. Well, in fact, I think that the President has
    tabled it now in 2007. We expect a working towards commercially
    competitive cellulosic ethanol by 2012. That is only one
    component, as are lithium ion batteries and the other
    technologies. So we think there is sufficient lead time right
    now built in if Congress were to act and give the President
    legislation he could sign.
        Mr. Green. Mr. Meyers, a later witness from the National
    Resource Defense Council will testify that biodiesel produces
    much less greenhouse gas emissions than corn-based ethanol. Do
    you agree with that assessment? And so is there a valid reason
    promoting biodiesel standards within the Renewable Fuel
    Standard?
        Mr. Meyers. Yes. In terms of GHG emissions, we certainly
    agree that our current analysis shows biodiesel creates more
    benefits than corn-based ethanol, given the assumptions we did
    in our analysis, which, with respect to corn-based ethanol, was
    based on an average plan.
        Mr. Green. Would that be a reason for promoting biodiesel
    as a Renewable Fuel Standard?
        Mr. Meyers. Yes, and Congress recognized that in the RFS
    and we recognize that in the AFS.
        Mr. Green. OK. What is the EPA's latest view on the
    relative emissions from biodiesel, ethanol and gasoline for
    smog and air toxics? Will any of these new fuels be an
    improvement over gasoline? Is ethanol, as we know it today,
    clean fuel and will cellulosic ethanol be different to a
    greater degree?
        Mr. Meyers. Our impact analysis that accompany the RFS rule
    indicate what we thought would be our current assessment of the
    air emissions effects of ethanol blended fuels. What they
    showed essentially was that some emissions go up and some
    emissions go down. Emissions that go down include carbon
    monoxide and benzene as well as, obviously, our analysis of the
    GHG benefits. With regard to emissions that go up in areas that
    are not using ethanol blended fuels right now, there will be
    increases in--but when we did further analysis based on
    computer modeling of air quality impact, we showed that to be
    essentially less than one-half of part per billion on a
    standard of 84 PPB. So in other words, there are some issues we
    have to look at in the future. There could be some ozone
    effects with use of ethanol and I think our opinion is that
    there are ways to address those.
        Mr. Green. It seems like our problem may be, and I know I
    am almost out of time, that if we want renewable fuels, it
    again limits our need to import hydrocarbons and at the same
    time, the committee's goal and the Congress' goal and I think
    we are getting there, is to deal with global warming. So it
    sounds like those are two goals that we can't match, using
    ethanol or even cellulosic technology.
        Mr. Karsner. I would say the overwhelming majority of all
    the alternative fuels available to meet our requirements would
    in fact be beneficial to greenhouse gas emissions, particularly
    if you consider the cellulosic ethanol will make up a
    substantial portion of that. We calculate, and Bob is in a
    better position to comment than I, but in excessive of 80
    percent decline in greenhouse gas emissions from the tailpipe,
    based on the use of cellulosic ethanol. I will oil the wheels.
        Mr. Green. Thank you, Mr. Chairman.
        Mr. Gonzalez. Thank you, Mr. Green. Mr. Meyers, Mr.
    Karsner, I want to go ahead and extend the thanks of the
    subcommittee for your testimony this morning. Please understand
    that Members may be submitting questions in writing and we
    would really appreciate a prompt response to those written
    inquiries. Again, thank you for your service.
        Mr. Karsner. Thank you.
        Mr. Meyers. Thank you.
        Mr. Gonzalez. We will proceed now with the seating of the
    second panel We extend a welcome to the second panel.
         The witnesses on our second panel, let me make sure I have
    them in the proper order, Elizabeth A. Lowery, vice president
    for Environment, Energy and Safety, General Motors Public
    Policy Center; Mr. Warren I. Mitchell, chairman of the board,
    Clean Energy; Mr. Paul D. Reid, president and chief executive
    officer, Reid Petroleum Corporation; Mr. Robert Greco, group
    director, Downstream and Industry Operations; Mr. Charles T.
    Drevna, executive vice president, National Petrochemical and
    Refiners Association; Daniel A. Lashof, Climate Center science
    director, National Resources Defense Council; and Mr. Bob
    Dinneen, president, Renewable Fuels Association.
        I think I have got everyone. I will caution everyone to
    please keep your testimony to the 5 minutes. Your written
    statements have been submitted and will become part of the
    record. But if you would keep to those 5 minutes so that--I
    know we will have Members coming in and out that will have
    questions. We will start off with the first witness and that is
    Ms. Lowery.

    STATEMENT OF ELIZABETH A. LOWERY, VICE PRESIDENT, ENVIRONMENT,
        ENERGY AND SAFETY, GENERAL MOTORS PUBLIC POLICY CENTER,
                              DETROIT, MI

        Ms. Lowery. Good afternoon. Thank you, Mr. Chairman and
    members of the subcommittee. My name is Elizabeth Lowery, vice
    president for Environment, Energy and Safety at General Motors
    and I am pleased to be able to speak to you today regarding
    GM's plans for expansion of vehicle offerings capable of using
    E-85 ethanol fuel and the need for ramping up the availability
    of this fuel and the infrastructure needed to make it available
    to American consumers.
        Today's automotive industry provides more in the way of
    opportunities and challenges than we have seen in its entire
    history. On the challenge side, there is serious concerns about
    energy supply, energy availability, sustainable growth, the
    environment, and even national security issues that
    collectively have been called energy security. For the global
    auto industry, that means that we must, as a business
    necessity, develop alternative sources of propulsion, based on
    alternative sources of energy in order to meet the world's
    growing demand for our products. The key is energy diversity,
    which can help us displace substantial quantities of oil that
    are consumed by U.S. vehicles today.
        This is a huge assignment, but it is also an extraordinary
    opportunity. But developing alternative sources of energy and
    propulsion, we have the chance to mitigate many of the issues
    surrounding energy availability. We will be able to better cope
    with future increases in global energy demand. We will minimize
    the environmental impact of the automobile.
        This means we must continue to improve the efficiency of
    the internal combustion engine, as we have for decades. But it
    also means we need to dramatically intensify our efforts to
    displaced petroleum-based fuels by building more vehicles that
    run on alternatives and accelerating our commitment to the
    development of electrically-driven vehicles.
        Today, I want to focus on our activities to accelerate the
    availability and use of alternative fuels. We believe that the
    biofuel with the greatest potential to displace petroleum-based
    fuels and provide carbon dioxide emission reductions in the
    U.S. is ethanol. As a result, we have made a major commitment
    to produce vehicles that run on E-85 ethanol. We believe there
    are many benefits of using E-85: it is renewable, it helps
    reduce greenhouse gas emissions, it helps reduce smog-forming
    emissions, and can help support the domestic agriculture
    industry in the United States.
        GM has produced more than 2 million E-85-capable vehicles
    that are on the road today. For the 2007 model year, we have 16
    flex-fuel models, from pickups and SUVs to full-size vans and
    minivans to our best selling Impala and Monte Carlo midsize
    family cars. But that is just the start. Along with
    DaimlerChrysler and Ford, we announced in June 2007 that
    America's three domestic auto companies will double our
    production of vehicles capable of running on renewable fuels by
    2010. And later last year we were prepared to make fully half
    of our annual production biofuel-capable by 2012, provided
    there is ample availability and distribution as part of an
    overall national energy strategy. If all of the E-85-capable
    vehicles on the road today, along with those that GM, Ford and
    DaimlerChrysler are committing to produce over the next 10
    years, were to run on E-85, we could displace 22 billion
    gallons of gasoline annually by 2017. Furthermore, if all the
    manufacturers made the same commitment, we could increase this
    displacement of gasoline to 37 billion gallons annually.
        So the potential biofuels, like E-85, to significantly
    displace petroleum is within our grasp today. The vehicles are
    on the road or in the works, but they are not being fully
    utilized because of the constraints on E-85 supply and
    distribution. To help address these constraints, we are
    partnering with government, fuel providers and fuel retailers
    across the United States. to help grow the E-85 ethanol fueling
    station infrastructure. In 2006, there were 600 E-85 refueling
    stations. Today, the number of stations has more than doubled
    to over 1200. Since May 2005, GM has helped to add 240 E-85
    fueling stations in 13 States, with more to come.
        In addition to our partnerships, GM is heavily engaged in
    the promotion and education side of developing the ethanol
    marketplace. We launched a national advertising campaign in
    February 2006, beginning with the ads during the 2006 Super
    Bowl. The visibility and viewership presented by the Super Bowl
    offered a great opportunity for us to launch a major marketing
    and advertising campaign that focuses on key energy
    diversification issues. Web traffic to our
    livegreengoyellow.com  Web site was in the millions as
    consumers investigated E-85, flex-fuel vehicles and station
    locations.
        In addition, GM has partnered with the Governors' Ethanol
    Coalition to loan E-85 flex-fuel vehicles to 28 States and
    organizations so that they may use them to educate the public
    and promote the benefits of using ethanol. This partnership has
    been extended through 2007. We have also provided $1,000 E-85
    fuel coupon available with a new vehicle purchase in Chicago
    and Minneapolis areas. And across the country, flex-fuel
    vehicle owners that are equipped with OnStar can simply press
    the blue OnStar button and get directions to the nearest E-85
    pump.
        We are also equipping our E-85-capable cars and trucks with
    yellow fuel caps and exterior flex-fuel badging. This will help
    consumers know that their vehicle is flex-fuel capable. This
    yellow cap will also be a regular reminder that these consumers
    have a fuel choice each time they go to fill up their tank.
        Importantly, as we pursue expansion of biofuel to the
    market, there are steps the government can take to help. First,
    we need a strong and sustained push from Congress and the
    administration to support biofuel production, including next-
    generation cellulosic ethanol. Second, the biofuels
    infrastructure should be significantly expanded. The market
    response to renewable fuels is encouraging, but it needs to
    reach a self-sustaining level that is not lessened when
    gasoline prices fall.
        Mr. Butterfield [presiding]. We are going to have to ask
    you to conclude, please.
        Ms. Lowery. Sure. Steps to increase the availability of
    biofuels should help increase its use. And third, government
    purchasing should set the example. Government fleets should be
    using E-85 ethanol.
        In summary, we believe tomorrow's automobiles must be
    flexible enough to accommodate many different energy sources,
    and part of that flexibility will be enabled by the continued
    focus on E-85. Thank you and I look forward to your questions.
        [The prepared statement of Ms. Lowery follows:]

                         Testimony of Elizabeth Lowery

         Good morning. My name is Elizabeth Lowery and I am Vice
    President for Environment, Energy, and Safety Policy at General
    Motors. I am pleased to be able to speak to you today regarding
    GM's plans for expansion of vehicle offerings capable of using
    E-85 ethanol fuel and the need for ramping up the availability
    of this fuel and the infrastructure needed to make it available
    to American consumers.
         Today's automotive industry provides more in the way of
    opportunities--and challenges--than we have seen in its entire
    history. On the challenge side, there are serious concerns
    about energy supply, energy availability, sustainable growth,
    the environment, and even national security issues that,
    collectively, have come to be called ``energy security.'' And
    the fact of the matter is that it is highly unlikely that oil
    alone is going to supply all of the world's rapidly growing
    automotive energy requirements. For the global auto industry,
    this means that we must--as a business necessity--develop
    alternative sources of propulsion, based on alternative sources
    of energy in order to meet the world's growing demand for our
    products. The key is energy diversity, which can help us
    displace substantial quantities of oil that are consumed by
    U.S. vehicles today.
         This is a huge assignment. But it's also an extraordinary
    opportunity.
        By developing alternative sources of energy and propulsion,
    we have the chance to mitigate many of the issues surrounding
    energy availability. We will be able to better cope with future
    increases in global energy demand. We will minimize the
    automobile's impact on the environment.
         This means that we must continue to improve the efficiency
    of the internal combustion engine, as we have for decades. But,
    it also means we need to dramatically intensify our efforts to
    displace petroleum-based fuels by building more vehicles that
    run on alternatives, such as E-85 ethanol, and, very
    importantly, by significantly expanding and accelerating our
    commitment to the development of electrically driven vehicles.
         Today I want to focus on our activities to accelerate the
    availability and use of alternative fuels. We believe that the
    biofuel with the greatest potential to displace petroleum-based
    fuels and provide carbon dioxide emissions reductions in the
    U.S. is ethanol. As a result, we have made a major commitment
    to produce vehicles that can run on E-85 ethanol.
         We believe there are many benefits of using E-85:

          Ethanol is a renewable fuel
          Using E-85 helps reduce greenhouse gas emissions
          Using E-85 helps to reduce smog forming emissions
          Using E-85 can help to support the domestic
    agriculture industry in the U.S. and support new job growth

         GM has produced more than 2 million E-85 capable vehicles
    that are on the road today. For the 2007 model year, we have 16
    flex fuel models, from pickups and SUVs to full-size vans and
    minvans, to our best selling Impala and Monte Carlo midsize
    family cars. But that is just a start. Along with
    DaimlerChrysler and Ford, we announced in June of last year
    that America's three domestic auto companies will double our
    production of vehicles capable of running on renewable fuels by
    2010. That's more than two million E-85 and biodiesel-capable
    vehicles a year by the end of the decade--the single largest
    commitment to renewable fuels in our nation's history. And
    then, later last year--in a meeting with President Bush--GM,
    Ford and Daimler Chrysler announced that America's domestic
    auto companies were prepared to make fully half of our annual
    vehicle production biofuel capable by 2012, provided there is
    ample availability and distribution, as part of an overall
    national energy strategy.
         Let me put the significance of these announcements in
    perspective. If all of the E-85 capable vehicles on the road
    today--along with those that GM, Ford, and DaimlerChrysler have
    already committed to produce over the next 10 years--were to
    run on E-85, we could displace 22 billion gallons of gasoline
    annually by 2017. Furthermore, if all manufacturers made the
    same commitment, we could increase this displacement of
    gasoline to 37 billion gallons annually.
         So, the potential of biofuels like E-85 to significantly
    displace petroleum is within our grasp today. The vehicles are
    on the road or in the works, but they are not being fully
    utilized because of constraints on E-85 supply and
    distribution.
         To help address these constraints, we're partnering with
    government, fuel providers, and fuel retailers across the U.S.
    to help grow the E-85 ethanol fueling station infrastructure.
    In 2006, there were 600 E-85 refueling stations, today the
    number of stations has more than doubled to over 1200. Since
    May of 2005, GM has helped add 240 E-85 fueling stations in 13
    states--with more to come. Some highlights include:

          In 2005, GM co-marketed fuel coupons and owner
    awareness in Sioux Falls, South Dakota.
          The Department of Energy awarded a grant to a
    team from GM, CALSTART, Pacific Ethanol, CleanFUEL USA,
    Community Environmental Council, and others to add 15 E-85
    pumps in California.
          GM has partnered with Kroger--in Texas and we've
    helped E-85 outlets grow from 1 to 27 in the past year.
          Through our partnership with Kroger pumps are in
    operation in Ohio with co-marketing events including a dealer
    breakfast.
          GM is supporting the state of Colorado with the
    recently announced opening of 40 additional stations including
    ``85 cent fuel days'' promotions.
          We have partnered with Meijer, CleanFuelUSA, the
    State of Michigan and the State of Indiana to introduce
    approximately 40 new retail outlets.
          We have similar partnerships in Illinois that
    launched 20 stations with VeraSun, Gas City and Shell; and in
    Minnesota with VeraSun and Erickson Oil accounting for 10
    additional stations.

        We need to do more of this--and we will.
         In addition to our partnerships to enhance availability
    and distribution, GM is heavily engaged in the promotion and
    education sides of developing the ethanol marketplace. We
    launched a national advertising campaign in February of 2006--
    beginning with an ad during the 2006 Super Bowl hosted in
    Detroit. The visibility and viewership presented by the Super
    Bowl offered a great opportunity for us to launch a major
    marketing and advertising campaign that focuses on key energy
    diversification issues. After the Super Bowl, the campaign
    continued through the 2006 Winter Olympics. Web traffic to our
    Livegreengoyellow.com website was in the millions as consumers
    investigated E-85, GM flex fuel vehicles, and station
    locations.
         In addition, GM has also partnered with the Governors'
    Ethanol Coalition to loan E-85 flex fuel vehicles to 28 states
    and organizations so that they may use them to educate the
    public and promote the benefits of using ethanol. This
    partnership has been extended through 2007. We have also
    provided a $1000 E-85 fuel coupon available with a new vehicle
    purchase in the Chicago and Minneapolis areas. And across the
    country, flex fuel vehicle owners of vehicles equipped with
    OnStar need to simply press the blue OnStar button and get
    directions to the nearest E-85 pump.
         We are also equipping our E-85 capable cars and trucks
    with yellow fuel caps and exterior flex fuel badging. This will
    help consumers know that their vehicle is flex fuel capable.
    The yellow cap will also be a regular reminder that these
    consumers have a fuel choice each time they fill up their tank.
         So, overall, technology, biofuels and energy diversity are
    the best answers to oil security concerns. And, as we pursue
    these technologies--and more energy diversity--there are steps
    the government can take to help.

          First, we need a strong and sustained push from
    Congress and the Administration to support biofuel production,
    including next-generation cellulosic ethanol.
          Second, the biofuels infrastructure should be
    significantly expanded. The market response to renewable fuels
    is encouraging, but it needs to reach a self sustaining level
    that is not lessened when gasoline prices fall. Steps to
    increase the availability of biofuels should help increase its
    use. Government should continue incentives for: the manufacture
    of biofuel-capable flex fuel vehicles and increased support for
    broad-based infrastructure conversion.
          Third, government purchasing should set the
    example. Government fleets can help lead the way to bringing
    new automotive technology to market and bringing down the cost
    of new technologies. The government should continue to purchase
    flex fuel vehicles, require maximum utilization of E-85 in the
    government flex fuel fleets and use Federal fueling to
    stimulate publicly accessible pumps.

         Before concluding, let me note the importance of the
    Underwriter's Laboratory process of certifying the safety of
    the dispensing equipment for E-85. Certification of the
    dispensing systems is critical for widespread development of E-
    85 infrastructure. Since the use of E-85 here and in other
    parts of the world is well established at this point, we are
    optimistic that this process can be completed quickly. Our
    technical experts are assisting UL and we know that UL is
    working hard on this project. We urge the Committee to stay
    abreast of this process as well--to make sure that no
    artificial hurdles arise to needlessly slow the UL approval
    process.
         In summary, we believe tomorrow's automobiles must be
    flexible enough to accommodate many different energy sources. A
    key part of that flexibility will be enabled by the continued
    focus on getting E-85 fuel and vehicles capable of using that
    fuel into the market quickly. We look forward to working with
    the Congress and the Administration to make this even more of a
    reality.
                                  ----------

        Mr. Butterfield. Thank you very much. Mr. Mitchell, you are
    recognized for 5 minutes.

     STATEMENT OF WARREN I. MITCHELL, CHAIRMAN OF THE BOARD, CLEAN
                         ENERGY, SEAL BEACH, CA

        Mr. Mitchell. Thank you, Mr. Chairman and honorable members
    of the Energy and Air Quality Subcommittee. I am Warren
    Mitchell, chairman of Clean Energy, which provides natural gas
    infrastructure and fuel to fleets and consumers. I am also
    retired chairman and president of Southern California Gas
    Company. I look forward to amplifying on some of the questions
    that were raised during the first panel.
        I believe that the 35 billion gallon goal for petroleum
    reduction for 2017 is certainly a stretching goal but it is one
    that I believe is achievable if we use renewables as well as
    alternative fuels. Because of declining oil production and our
    view that production and demand have hit peaks, at least
    production at 85 million barrels a day, and we are consuming
    worldwide about 85 million barrels a day. There is a real need
    to meet this 35 billion goal by 2017. Primarily because of the
    growth in China and India for oil demand, we believe oil prices
    will continue to increase, which will place greater pressure on
    gasoline and diesel prices.
        Ethanol and biodiesel, we agree, are good solutions to
    contributing to the 35 billion goal, but we think that they are
    capable of meeting about 18 billion gallons a year reduction by
    2017. Therefore we believe alternative fuels need to be
    included as part of the solution and we believe that natural
    gas is especially an important fuel for that consideration. It
    is clean, it is domestic, it is economic, there is a major
    infrastructure in place and it can make a strong contribution
    and I think, with some of the things that I cover in a few
    minutes, you will understand that we are not confronted with
    the chicken and the egg issue. When I said clean, light-duty
    vehicles meet near-zero emission standards and heavy-duty
    vehicles will meet the 2010 standards this year. They produce
    27 percent fewer of greenhouse gases when compared to gasoline,
    and 21 percent fewer greenhouse gases when compared to diesel.
    So they make a strong contribution to our global warming
    concerns.
        When I mentioned domestic, 98 percent of the natural gas
    demand in the United States is met by gas produced in North
    America. Seventy-seven years of resources remain in the United
    States, based on current usage and I want to put the
    utilization of natural gas for transportation in perspective.
    If 11 million vehicles were powered by natural gas, there would
    only be a 4 percent increase in our national throughput, but we
    would displace 8 billion gallons of imported petroleum.
        When I talk about infrastructure, you have a national
    pipeline system that reaches nearly every community in the
    United States. Now Clean Energy, my company, builds refueling
    infrastructure for fleets on a no-capital cost basis to the
    fleet operator. Because we have such a competitive fuel
    advantage, we can absorb the capital cost in the cost that we
    charge to the fleet owner. We are confident about the price of
    natural gas as we move forward and we offer fleet operators 3-
    to 5-year fixed price contracts for their fuel. And this is a
    major concern when you have the types of spikes we have when
    you look at gasoline and diesel. These infrastructures that we
    build for centralized refueling for fleets are also made
    available for public access so we can have smaller consumers
    utilize those as a place to refuel. Now the real breakthrough
    that hasn't been mentioned in the past very much is that there
    is a home refueling appliance that can be installed in any
    garage that has a gas piping system and 110-volt electrical
    plug to fill it in and it can slow fill a vehicle overnight
    with about 8 or 10 gallons. So the consumer that wants a
    natural gas vehicle doesn't even have to go to a refueling
    station.
        When I talk about economics, we are talking about $1.95
    cents a gallon, currently, for fleet operators, which covers
    all costs, including fuel. And we are talking about $2.17
    equivalent costs for diesel. If you look at the home refueling
    unit, it provides natural gas to the consumer for $1.36 a
    gasoline gallon equivalent.
         Current gas prices are $3.00 for gasoline and $2.95 for
    diesel. So what I want to say is we have a proven technology
    here with ample supply that can meet the air quality standards.
    What we need, we need the Renewable Resource Initiative to be
    including an alternative fuel component, we need to extend the
    current energy and highway bill benefits through 2017, and then
    natural gas can be a real player. We also would support
    incentives for automakers in the United States to build more
    natural gas vehicles, although there are about 180 vehicles in
    light, medium and heavy-duty applications available today.
         Thank you and I look forward to your questions.
        [The prepared statement of Mr. Mitchell follows:]

                        Testimony of Warren I. Mitchell

        Good morning Chairman Boucher and Honorable Members of the
    Subcommittee on Energy and Air Quality. My name is Warren
    Mitchell and I currently serve as the Chairman of Clean Energy
    - North America's leading clean transportation fuel provider.
    Before I joined Clean Energy's board, I served as Chairman and
    President of the Southern California Gas Company. I want to
    thank you for having me before you today to share my thoughts
    on this very timely national issue.
        Clearly, the country is facing an impending transportation
    fuel crisis, and it is appropriately challenging itself to fill
    a 35 billion gallon per year renewable fuel goal by 2017. The
    country is also coming to the realization that there is no one
    ``silver bullet'' that can solve our country's over dependence
    upon oil. More to the point, many alternatives that the nation
    has focused on to date can carry a premium, face significant
    air quality challenges with uncertain climate change benefits,
    require significant subsidies or have yet to even be produced
    at any substantive scale. This is why it is imperative that
    Congress widen its focus on renewable fuels to include other
    alternatives that can help promote greater energy independence,
    advance clean air and climate change goals, and bridge this
    country toward both a renewable and zero emission future.
        Although it is often overlooked, downplayed or
    misunderstood, there is a fuel that is largely domestic, low in
    carbon, historically exceeds vehicle emissions standards, and
    can be produced from a renewable feedstock. The fuel that I
    speak of also is price-competitive with petroleum, enjoys an
    existing national infrastructure that can fuel vehicles at
    stations or in the convenience of your own home, provides a
    bridge to a hydrogen future, and currently fuels cars, school
    and transit buses, refuse and port trucks by the thousands;
    displacing hundreds of millions of gallons of petroleum today.
    What is this miracle fuel you ask? It's natural gas, and yes,
    it's the same fuel that powers the range that you cook with,
    your water heater, and possibly generates electricity for your
    local utility.
        Today, Clean Energy fuels over fourteen thousand vehicles
    daily with clean, affordable, and domestically produced natural
    gas. Our company, with an annual growth rate of 28 percent over
    the past three years, operates over 170 fueling stations
    nationwide, and is on track to sell approximately 82 million
    gallons of natural gas in 2007. Unlike some fuels, natural gas
    can provide our nation with an immediate solution to foreign
    oil dependency, mounting urban air pollution challenges, and
    global climate change, while providing a direct bridge to a
    hydrogen future. Natural gas is in many ways an ideal
    transportation fuel solution and will remain so well into the
    future.

                               Global Oil Supply

        Clean Energy is no longer alone in the camp that believes
    that high oil prices are here to stay. The world recognizes
    that it is looking straight into a looming supply-demand
    problem. Oil is a finite and dwindling resource and the world's
    demand for it keeps on growing. There is no question that the
    world will continue to face stubbornly climbing oil prices for
    the long term.
        Let's take a look at the facts. In the Arab embargo back in
    the 1970s, we were importing approximately 25 percent of our
    oil. In the first Gulf War, we were importing 42 percent of our
    oil. Today we are importing 64 percent and we can only expect
    to be worse off if we fail to diversify our transportation
    fuels in the near term. We've been pumping oil out of the
    ground since 1859. The last time a world class oil field was
    found was in the Caspian Sea in the late 1990s. The easy oil
    has been found. There are no surprises out there. We've either
    peaked as far as oil production goes, or it's right around the
    corner.
        Demand is growing globally. China used 3.4 million barrels
    of oil per day a decade ago. Today they are currently over 6.7
    million barrels per day. There are forecasts showing them using
    11 million barrels per day a decade from now. Wait until they
    really start buying automobiles. We are using more than 30
    billion barrels of oil a year worldwide. The last time we found
    as much oil in a year as we consumed was 1985. Production
    worldwide remains steady at 84-85 million barrels a day.
    Current demand is about 85 million barrels a day and demand
    projections for 2008 are easily north of that given China and
    India's increasing demand.
        The treadmill is getting faster and faster. The decline
    curve for oil production is steady. Saudis say they can produce
    10.8 million barrels per day, but they're only producing 8.6
    million barrels per day. We all heard talk three years ago of
    Iraq production reaching 3 million barrels per day. They are
    producing roughly 2 million barrels. To make matters worse,
    we've also got some serious geopolitical problems: Iran,
    Venezuela, Nigeria, and Russia. They are all wild cards.

                              Alternatives to Oil

        We, as a nation, must look at all solutions and we need to
    get serious about fuel diversity now. We all have known that an
    oil shortage was coming. Even assuming optimistic new
    production sources coming on line, balanced with estimated
    production decline curves, the demand-production gap could be
    as high as 30 million barrels per day in 2020. Clean Energy
    agrees with many energy experts that there is no one ``silver
    bullet'' alternative that can solve our petroleum dependence.
    All renewable and alternative fuels must be encouraged because
    farm fuels, i.e., ethanol and biodiesel, cannot by themselves
    achieve the petroleum displacement goals that Congress and the
    President are considering today. Assuming that ethanol and
    biodiesel achieve their greatest forecasted production targets,
    they would fall 18 billion gallons short of a 35 billion gallon
    a year displacement goal for 2017. Even with a five year
    extension to 2022, it is unlikely that these fuels alone will
    reach Congressional targets. Therefore, we urge the Committee
    to expand the ``Renewable'' Fuel Standard to an ``Alternative''
    Fuel Standard, and allow natural gas to play a significant role
    in displacing petroleum in the transportation market.

                Natural Gas is Domestic, Abundant and Renewable

        Natural gas is a domestic source of transportation fuel
    with an estimated 77 years of additional supply or 30 years
    extra supply over oil. Over 98 percent of our current use of
    natural gas is produced in North America, which helps protect
    us from unstable geopolitical situations and helps our energy
    independence by not importing as much foreign oil. Over time,
    we believe natural gas will be moved out of the power
    generation business by coal, nuclear, and other renewables,
    further increasing the availability of domestic natural gas
    supplies for our country's transportation needs. Regardless,
    natural gas use in the transportation sector would have a
    negligible impact on supply. To put this into perspective, if
    we powered 11,000,000 light-duty vehicles or 5 percent of the
    U.S. light-duty fleet with natural gas today, it would only
    account for 4 percent of the country's current natural gas fuel
    usage. Further, with the advancements in pyrolysis to convert
    coal and biomass to methane, an already abundant national
    supply of natural gas could be augmented by a source capable of
    providing extraordinary climate change benefits.

                              Natural Gas is Clean

        Natural gas burns clean and efficiently. Natural gas
    vehicles meet near-zero emission levels for passenger car
    applications and already meet or exceed 2007 heavy-duty
    emission standards with some truck engines targeted to certify
    to the 2010 standard as early as this year. Not only is natural
    gas inherently cleaner than gasoline or diesel, it also
    provides a readily available low carbon alternative that can be
    implemented today. In fact, a recent California Energy
    Commission ``well to wheels'' analysis found that natural gas
    provides roughly a 27 percent reduction in greenhouse gases for
    light-duty vehicles and up to a 21 percent reduction for
    medium- to heavy-duty vehicles when compared to their petroleum
    counterparts.

                            Natural Gas is Economic

        Natural gas is economic. The price for natural gas as a
    transportation fuel is very competitive with today's gasoline
    or diesel fuels. In fact, natural gas was very competitive with
    oil at $30 a barrel, let alone at the market's current price of
    $64 a barrel. Clean Energy views natural gas as a commodity
    tracking at a discount to oil, especially when compared to
    diesel. For example, if you assume a natural gas price at $7.61
    per thousand cubic feet and $1.01 to cover transport,
    compression, taxes, and capital recovery costs, you can achieve
    a very competitive $1.96 gasoline gallon equivalent or a $2.17
    diesel gallon equivalent. As of Thursday, national gasoline
    averages ranged from $2.99 to $3.29 per gallon and diesel
    averaged at $2.92 per gallon.
        Historically, the overall market has suffered over a dozen
    global oil supply disruptions over the past half century
    lasting 1 to 44 months in duration with supply shortfalls of
    one to 14 percent of world demand, adding to the volatility of
    oil prices. Despite the reality of volatile oil prices and
    unlike any energy provider we know, our company is able to
    guarantee a fixed price per gallon of natural gas to our fleet
    customers below today's gasoline and diesel prices for up to
    five years on a energy equivalent gallon basis.
        In addition to the comparatively low cost of natural gas as
    a transportation fuel, Congress took an important step in
    passing the energy and highway bills two years ago. As the cost
    of uncertain diesel technology increases in an effort to meet
    new federal clean air emission standards, the 2005 energy bill
    provides up to a $32,000 tax credit for medium and heavy-duty
    trucks that can serve our refuse, transit, and goods movement
    industry sectors. This tax credit is helping to narrow the
    incremental cost differential between diesel and natural gas
    vehicles. When fuel price and operational maintenance savings
    are factored in, natural gas vehicles become even more cost-
    effective than their diesel counterparts. Because some of the
    incentives put in place are going to take awhile to have a real
    impact, we need Congress to continue to provide long-range
    policies that promote alternative fuels in the marketplace
    through 2017.

                           Natural Gas Infrastructure

        Perhaps the greatest challenge for any alternative to oil
    is the ability to distribute product to the end user. Natural
    gas, unlike other alternative fuels, enjoys the advantage of
    possessing a vast nationwide network of existing gas pipelines
    capable of delivering natural gas product to nearly every
    American community. Clean Energy has developed a strategic
    business model enabling the cost-effective development of a
    natural gas station network. This revolutionary approach
    creates a secondary station infrastructure to gasoline and
    diesel by leveraging private and public-private partnerships to
    create an extensive network. These turn-key partnerships enable
    high-volume fleet users to benefit from privately financed
    refueling stations while providing smaller volume users with
    public access at these stations. Further, consumers can
    immediately take advantage of natural gas as a transportation
    fuel with the simple installation of a low cost home refueling
    system that is currently on the market. Moreover, natural gas
    stations can provide an early introduction of hydrogen by using
    a 10 to 30 percent blend, reducing the immediate need for high-
    cost fuel cells to achieve near-zero air emissions.

                        Natural Gas Vehicle Availability

        Natural gas vehicles are currently available, proven, and
    tested in transit, refuse, shuttle, taxi, police, airport and
    municipal fleet applications throughout the United States.
    These applications were primarily driven by the clean air
    benefits inherently derived from the use of natural gas.
    However, for years, American and foreign auto manufacturers
    have produced an ever increasing selection of natural gas
    vehicle products in Europe, Asia and Central and South
    America--both dedicated and bi fuel--for natural gas vehicles
    to address concerns over high oil prices. These OEM-produced
    vehicles are fully integrated providing consumers the mileage
    range and conveniences of gasoline vehicles. Congress should
    join other world leaders by strongly encouraging auto
    manufacturers through incentives or mandates to produce a
    greater range of natural gas vehicles for the American
    consumer.

                              Natural Gas Markets

        Like all alternative fuels, natural gas as a transportation
    fuel satisfies several key niche markets that can provide
    significant petroleum displacement. As of December 31, 2006,
    Clean Energy had over 200 fleet customers operating over 14,000
    vehicles, including 3,000 transit buses, 1,200 taxis, 800
    shuttles and 790 refuse trucks. With the expansion of America's
    goods movement system, the San Pedro Bay Ports have already
    signaled an interest in purchasing over 5,300 liquefied natural
    gas class 8 trucks within the next five years, displacing
    approximately 80 million gallons annually of petroleum alone.
    If Congress were to require transit, refuse and taxi fleets to
    adopt alternative fuels into their portfolios, the benefits
    could be as great as 4.3 billion gallons displaced annually.

                         Natural Gas Bridge to Hydrogen

        Natural gas is also viewed as a bridge fuel to hydrogen as
    it continues to be the most cost-effective way to produce
    hydrogen and provides invaluable experience and knowledge to
    users on how to handle gaseous fuels. In addition, natural gas
    infrastructure can be leveraged to provide hydrogen as well as
    blended hydrogen/natural gas dispersing. In fact, the blending
    of hydrogen and natural gas, similar to our station in
    Vancouver, Canada, provides even lower near zero emission
    performance at the tailpipe. If the US possessed fully
    integrated OEM produced natural gas vehicles, these vehicles
    can operate on natural gas, hydrogen, and blended hydrogen/
    natural gas fuels.

                             Policy Recommendations

        Achieving the production goals of 35 billion gallons
    annually by 2017 and 50 billion gallons per year by 2030
    requires the addition of fuels beyond the renewable portfolio
    and the inclusion of alternative fuels to this portfolio is
    critical for the country's security and economic and
    environmental health. Clean Energy urges Congress to transform
    the Renewable Fuel Standard enacted under the Energy Policy Act
    of 2005 into an Alternative Fuel Standard to help avoid a
    potential 18 billion gallon production shortfall in 2017.
    Furthermore, and whenever possible, Congress should assure the
    public that all fuels within this portfolio do no harm to air
    quality or cause air quality backsliding prior to their
    implementation. Congress should also recognize and provide more
    research, development and deployment dollars toward biogas
    projects as pyrolysis and other advancements can certainly
    further our country's renewable and climate change goals.
    Congress should extend the tax credits for alternative fuels
    and vehicles established under the Energy Policy Act through
    2017 in an effort to provide added certainty to fleet owners
    who lead in early alternative fuel adoption. Further, we
    believe federal action requiring key public and private fleets
    to adopt and implement alternative fuel strategies will help
    foster the alternative fuel penetration required to achieve the
    nation's alternative fuel goals for 2017 and beyond.
        Natural gas vehicles offer a proven solution in light-,
    medium-, and heavy-duty vehicles that are ready for wide-scale
    implementation today. Our resources of natural gas can play a
    critical role in diversifying our nation's transportation fuel
    needs. Natural gas is a clean, inexpensive, and a potential
    renewable fuel that is domestically abundant and helps reduce
    greenhouse gases. In leveraging natural gas as a transportation
    fuel we not only take advantage of existing pipeline
    infrastructure but also foster the production of cleaner
    vehicles for our children's future. The societal experience of
    operating a natural gas vehicle is likely the only realistic
    approach to achieving a hydrogen economy. Clearly, Congress
    must enact more national policies like the 2005 Energy and
    Highway bills to help natural gas and other alternative fuels
    penetrate the marketplace and be made available to the public.
    One thing to do right now would be to extend the tax credits
    and other benefits to 2017 and require certain niche markets
    (i.e., transit, refuse, port, and taxi cabs) to use alternative
    fuels. Without the firm support of the Congress behind all
    petroleum alternatives, our nation's ability to free itself
    from its current oil dependence will most certainly put our
    nation's economy, security, and overall public health at risk.
    Clean Energy urges the expansion of the current Renewable Fuels
    Standard toward a broader Alternative Fuels Standard that
    includes clean, domestic and affordable natural gas as a
    transportation fuel.
                                  ----------

        Mr. Butterfield. Thank you very much. Mr. Reid, 5 minutes.

       STATEMENT OF PAUL D. REID, PRESIDENT AND CHIEF EXECUTIVE
           OFFICER, REID PETROLEUM CORPORATION, LOCKPORT, NY

        Mr. Reid. Thank you, Mr. Butterfield and members of the
    subcommittee, for holding this hearing today and inviting me to
    testify. I serve as the chief executive officer of the Reid
    Group based in Lockport, New York. The Reid Group distributes
    Mobil, Sunoco, Citgo, Coastal and unbranded motor fuels
    throughout upstate New York and northwest Pennsylvania.
        I appear today on behalf of the Society of Independent
    Gasoline Marketers of America, SIGMA, where I serve as
    president, and the National Association of Convenience Stores,
    NACS, of which I am a member. Together, SIGMA and NACS members
    sell approximately 80 percent of all motor fuels in the United
    States.
        At the outset, I would like to correct the record
    concerning some statements made regarding the composition of
    the retail motor fuel market during the subcommittee's hearing
    on April 18, 2007. A witness at that hearing mentioned that
    only 18 to 20 percent of the retail motor fuel locations are
    independently owned and operated. In fact, the composition of
    the retail marketplace is much more diverse than this. Of the
    more than 165,000 motor fuel retail locations in the Nation, 95
    percent are operated by independent businesses. Therefore, as
    the Nation transitions toward the sale of more renewable fuels,
    independently-owned businesses will be leading the charge.
        Congress should be pleased that the market is proceeding to
    offer renewable fuels ahead of the federally-mandated schedule.
    There is no reason to believe that this will not continue in
    the absence of increased mandate. SIGMA and NACS do not oppose
    the transition to a renewable fuel economy, however, we urge
    Congress, in its decisions, to be fully cognizant of the
    economic and consumer consequences associated with continuing
    mandates on the motor fuel business.
        To this end we recommend Congress: (1) make any increased
    mandate contingent upon a finding that there is enough supply
    and sufficient infrastructure to deliver this product; (2) that
    any Federal promotion of an alternative fuel focused on
    compatibility with existing infrastructure; and (3) that
    Federal policies represent the best interests of your
    constituents' economic welfare.
        To illustrate the complexities associated with non-
    compatible alternative fuels, let me talk for a moment about
    the challenges our industry is having with E-85. Although
    alternative fuel proposals under consideration may present even
    more complex compatibility issues, but we think the E-85
    experience serves as a good benchmark. Because E-85 is more
    corrosive than regular gasoline or fuel for the lower
    concentrations of ethanol such as E-10, it requires vehicles
    and equipment that are compatible with the fuel. The least
    expensive approach to sell E-85 is the retrofit of a pump
    system that are already has the compatible tank. Many older
    tanks are not compatible. This requires replacement of several
    components. For all of these conversions, including tank
    cleaning, I estimate the cost to be between $8,000 and $9,000.
    And again, this is still using the same pump or dispenser.
        To convert with a new dispenser specially manufactured to
    sell E-85, I would be facing an expense of something in the
    range of $20,000 to $25,000. Of course, that is a bargain
    compared to the installation of an entirely new system for E-
    85, with a new tank, for which I was recently quoted a price of
    $75,000. Other members have quoted much higher prices. As Mr.
    Hastert pointed out earlier, currently there are no systems
    that have UL approval, although we expect that in fairly near
    future.
        Also please keep in mind that the annual pretax operating
    profit for a convenience store in 2006 was a mere $33,000. The
    infrastructure cost to install alternative fuel systems,
    therefore, are so substantial that, ultimately, consumers will
    pay the price. And price is another very important factor for
    this committee to consider, as few other issues attract as much
    attention from consumers, the media and Congress as does the
    price of gasoline.
        NACS recently fielded a survey to assess consumer
    sensitivity to gasoline prices. This survey found that more
    than one-quarter of consumers will turn left across a busy
    intersection to save one penny per gallon, and half of
    consumers will do so for three pennies per gallon. What the
    NACS survey further revealed, however, is that while consumers
    want to promote a green economy, when they go to fuel their
    vehicles, the only green that truly matters is either the green
    in their wallets on their charge cards. Because more and more
    consumers are using their credit cards to buy gas, our
    marketing costs are rising dramatically; but we can leave
    credit card discussions for another day.
        In closing, as Congress considers policies to accelerate
    the market's transition, SIGMA and NACS urge you to keep in
    mind the nature of the retail marketplace and to remember the
    economic interests of your constituents. Government mandates
    are often antithetical to a free motor fuels marketplace and
    will typically wind up harming consumers in the short run and
    beyond. Thank you for the invitation to testify. I will be
    happy to answer any questions my testimony may have raised.
        [The prepared statement of Mr. Reid follows:]

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        Mr. Butterfield. Thank you, Mr. Reid. Mr. Greco, I believe
    it is your turn for 5 minutes.
        Mr. Greco. Thank you, Mr. Butterfield.
        Mr. Butterfield. Mr. Greco.

       STATEMENT OF ROBERT GRECO, GROUP DIRECTOR, DOWNSTREAM AND
    INDUSTRY OPERATIONS, AMERICAN PETROLEUM INSTITUTEWASHINGTON, DC

        Mr. Greco. Mr. Butterfield and members of the subcommittee,
    API welcomes this opportunity to present the views of the U.S.
    oil and natural industry on renewable fuels. We have also
    welcomed working with both the subcommittee and the full
    committee on global climate change. As research on the policy
    debate continue, our member companies have taken action now to
    reduce greenhouse gas emissions and are investing and
    developing technologies that will reduce them further in the
    future. API supports voluntary technology-based approaches that
    have produced substantial progress toward reducing emissions.
        Concerning renewable fuels, API supports a realistic and
    workable RFS. Our industry is the Nation's largest user of
    ethanol and is increasing the volume of renewable fuel in
    America's transportation fuel mix. The industry significantly
    exceeded the 2006 RFS requirement of four billion gallons of
    renewables and according to EIA estimates, should exceed the
    2007 requirement as well. The existing RFS requirement have
    attracted substantial and significant investment capital to
    increase ethanol production. At the same time, innovative new
    approaches to producing and utilizing biofuels for
    transportation are underway.
        The most economical and practical use of ethanol is as E-
    10, a 10 percent blend in gasoline. E-10 is already used in
    many parts of the country. It requires no modification to
    vehicles, no major changes to service station pumps and storage
    tanks, and has a long history of successful use by consumers.
    E-85, which contains 85 percent ethanol and 15 percent
    gasoline, is an alternative fuel that faces significant
    technological and economic hurdles. E-85 requires specially
    built flexible fuel vehicles, or FFVs, which currently comprise
    only 3 percent of the existing fleet of 220 million vehicles.
    EIA estimates that FFV penetration will not rise about 10
    percent of the entire vehicle fleet until sometime after 2030.
    E-85 also requires special service station pumps and storage
    tanks, as Paul mentioned, which represent a significant
    expenditure for our Nation's independent service station
    dealers that can range from $20,000 to as high $200,000.
        These small businessmen and women are in the best position
    to evaluate consumer demand for E-85 at their service stations.
    Currently there are over 1,200 retail outlets nationwide,
    located principally in the Midwest, that are equipped to
    distribute E-85. The number appears to be growing rapidly on
    its own, as we heard this morning, absent any government
    mandate. Contrary to the false claim by some industry critics,
    oil companies are not preventing the installation and use of E-
    85 pumps and storage tanks.
        Although no one knows the precise amount, at some point in
    the not too distant future, limits on domestic corn ethanol
    production will be reached. Too little attention is being paid
    to the transition from that point forward, especially on
    impacts associated with a delay in mass-scale production of
    cellulosic ethanol. Given the limited likelihood that
    cellulosic technologies can begin producing sizeable volumes of
    ethanol in 5 years, contingency provisions will likely be
    needed to avoid the potential for wasted resources and
    increased costs.
        API offers these specific comments concerning possible
    renewable fuels by--first, restrictions on Federal requirements
    in the Energy Policy Act of 2005, or EPAct, should continue. A
    Federal alternative or renewable fuels mandate should not have
    a per gallon requirement, it should not require any particular
    alternative fuel to be used to meet that mandate, it should not
    require an alternative fuel to be used in any particular
    geographic area, and should not require an alternative fuel be
    made from a particular feedstock or restrict the us of any
    feedstock or processing speed.
        Second, States and localities should be preempted from
    setting alternative or renewable fuels mandates. There should
    be an explicit and complete Federal preemption of States from
    setting alternative fuel standards or controls of any type. Or
    in lieu of an explicit preemption, restrictions on State
    latitudes could be enacted.
        Third, EPA should be provided the additional authority to
    grant temporary waivers during supply emergencies. There should
    be Federal preemption of existing State fuel and ASTM
    performance regulations when a waiver is issued during a supply
    emergency, such has happened during the Hurricanes Katrina and
    Rita. There should be emergency waiver of authority for up to
    90 days. The 20-day limit for waives provided in EPAct is
    adequate for most situations, but proved inadequate during
    Hurricanes Katrina and Rita. Waiver authority should also
    remain with the EPA Administrator. To change authority to the
    President would prevent speedy implementation of waivers, as
    was intended under EPAct.
        Lastly, any mandates for increased alternative ore
    renewable fuel usage should get accompanied by periodic
    technology and feasibility reviews that would allow for
    appropriate adjustments to ensure that energy companies and
    consumers are not penalized if economic and technical hurdles
    prevent us from reaching alternative or biofuels usage targets.
        In conclusion, API and its member companies stand ready to
    work with the subcommittee to provide additional information or
    assistance on the issues I have addressed. Thank you and I look
    forward to your questions.
        [The prepared statement of Mr. Greco follows:]

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        Mr. Butterfield. Thank you very much. I am going to
    expedite this. We have three votes coming up in a few minutes.
    Mr. Drevna.

       STATEMENT OF CHARLES T. DREVNA, EXECUTIVE VICE PRESIDENT,
    NATIONAL PETROCHEMICAL AND REFINERS ASSOCIATION, WASHINGTON, DC

        Mr. Drevna. Congressman Butterfield and members of the
    committee, thank you for the opportunity to testify. I am
    Charlie Drevna, executive vice president of NPRA.
         NPRA believes it imperative that Congress and the
    administration and all stakeholders work in a determined but
    nevertheless cooperative effort to develop policy that achieves
    the desired results of a balanced fuel supply and demand ratio
    that enforces necessary environmental protections. At the same
    time, these policies must ensure the continued economic growth
    and security of the country. These goals are not and cannot be
    deemed mutually exclusive. NPRA therefore pledges to do our
    part in developing a full understanding of all factors
    surrounding these issues.
        If members of this committee are experiencing some sense of
    deja vu, it would be understandable. Only two summers ago the
    Energy Policy Act of 2005 was signed into law. The Renewable
    Fuel Standard in that law won't even begin implementation until
    September 2007--weeks ago. But it is still too early to
    evaluate the 2005 law. That policy was years in the making and
    was consensus-based. While we have surpassed initial
    legislative targets for renewable fuels use, that is not bad
    news. It simply means that the market has worked. It shouldn't
    be used as a basis for readjust fuel policy even before final
    implementation.
        Now we are confronted with new initiatives to expand
    renewable fuel substantially. While a diverse fuel mix may
    enhance security, the energy content of ethanol, one-third less
    that than conventional fuels it replaces, greatly reduces
    ethanol's impact on foreign dependency. Our experience with the
    fuel market tells us that 6 billion gallons of ethanol is both
    necessary and complimentary to fuel supply. Mandates, and I
    stress the word mandates, beyond that level become problematic.
        While it is no secret that my industry, and especially my
    association, has a history of proposing fuel mandates. We would
    ask that further changes to policy be limited by a form of the
    Hippocratic oath: first do no harm. Mandates for alternative
    fuels do not exist in a vacuum. The time and expense dedicated
    to implementing new mandates directly competes with the ability
    of our industry to make investments in refinery expansions. The
    industry has responded by adding capacity to existing
    refineries. In fact, we have added the equivalent of one new
    world-class refinery each of the past years, each of the years
    for past decade. However, additional mandates may suppress such
    expansion significantly.
        While NPRA supports research into a broad array of
    renewable inputs, the foreseeable future for alternative fuel
    seems to be dominated by traditional starch-based ethanol,
    especially by corn and corn has a significant head start over
    its competitors. Even if corn only meets half of the
    President's 35 billion target, that would require dedication of
    about 40 percent of the crop to fuel. We wonder whether trading
    some increased fuel diversity for a fuel supply dependent upon
    good weather and reasonable fuel prices really makes sense.
        And of course, even as the U.S. gets the production
    economics just right, there is still a question of distributing
    fuel to market. Ethanol distribution is bedeviled by problems
    in using our existing infrastructure pipelines that provide a
    cost-effective mechanism to get fuel to market. Talk of a
    virtual pipeline system really means no pipeline system at all.
    Further, even assuming perfect distribution to the market, the
    current vehicle base is not equipped to handle the type of
    volume that is being discussed. In order to consume the 35
    billion gallons, we would need rapid replacement of some 237
    million vehicles currently on our roads that are not flex-fuel
    vehicles.
        There are additional infrastructure constraints and time--I
    want to move on here so we will probably have some questions on
    those. But NPRA would leave the committee with one request. If
    Congress does proceed with mandates beyond those contemplated
    in the 2005 Act, let us make sure we have one fair Federal
    policy and not a patchwork quilt of State and Federal mandates.
    As it did in the Clean Air Act Fuels Program, Congress should
    preempt State efforts that interfere with the cost-effective
    distribution of clean fuels.
        In short, the refining industry is the conduit through
    which alternative fuels may get to market. The industry is
    working hard to meet the 2005 program and so far, it has so far
    met with success. But we would ask that you not use that
    success as the basis for massive expansions and mandates. We
    ask instead that policymakers tread carefully, realizing that
    good fuels policy must balance supply, price, infrastructure
    and yes, even food concerns. While we realize that is a tall
    order, the American consumer deserves no less. Thank you and I
    will be happy to answer any questions that you may have.
        [The prepared statement of Mr. Drevna follows:]

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        Mr. Butterfield. Dr. Lashof.

    STATEMENT OF DANIEL A. LASHOF, CLIMATE CENTER SCIENCE DIRECTOR,
           NATURAL RESOURCES DEFENSE COUNCIL, WASHINGTON, DC

        Mr. Lashof. Thank you very much, I am Daniel Lashof. I am
    the science director of the Climate Center at the Natural
    Resources Defense Council. I appreciate the opportunity to
    share my views with the committee.
        As you know, U.S. energy policy must address three major
    challenges. We have to reduce our dependence on foreign oil, we
    have to reduce global warming and we have to support a robust
    economy through our policies. I believe that biofuels has the
    potential to contribute substantially to all three of those
    goals, but we have to do it right in order to achieve those
    goals. Sustainably produced biofuels used in efficient vehicles
    will reduce global warming pollution and it will reduce our oil
    dependence and will enhance our rural economies. But there is
    danger, a severe danger, in our view, to our forests, our
    public lands, our ecosystems, if we pursue biofuels on a large
    scale without appropriate guidelines and I want to share some
    views about the guidelines that I think are needed. And in
    summarizing my testimony, I would like to make four points and
    I think have about a minute for each.
        First, any expansion of the Renewable Fuel Standard should
    incorporate explicit environmental performance standards. There
    is a lot of justifiable excitement about cellulosic ethanol,
    but it is very important to recognize that the choice of
    feedstock is just one factor that goes into the overall
    environmental impact of a particular biofuel production
    process. If you look at my exhibit in my testimony, or the A
    chart that is also in my testimony, you can see a variety of
    greenhouse gas impacts for different fuels. It is possible to
    use corn as a feedstock and with efficient processing and
    biomasses to energy source, achieve substantial greenhouse gas
    benefits from a corn-based system. Conversely, although
    normally we think of cellulosic ethanol as preferable, if you
    clear a mature forest in order to get the cellulose that you
    put into ethanol, you put so much CO\2\ in the atmosphere, it
    would take many, many decades to get that back for the benefits
    of the fuel. So it is possible to do corn right and it is
    possible to do cellulosic ethanol wrong. So if you want to have
    greenhouse benefits for biofuels, you need to explicitly
    incorporate into the program a requirement to achieve those
    benefits. That is a way to get that. And a low carbon fuel
    standard that Mr. Inslee talked about earlier, in our view is
    the best way to do that.
        Second, turning to the administration's proposal, as Mr.
    Markey brought up earlier, there is a real risk that that
    proposal could increase rather than decrease global warming
    emissions. The administration cites it as contributing to
    reductions in global warming emissions, but nothing in their
    policy actually guarantees that result and that is because they
    open the door to alternative fuels that could have much higher
    greenhouse gas emissions than conventional fuel. They also
    claim some benefits from improving vehicle fuel economy
    standards, but again, their proposal there doesn't actually
    require an increase. It provides for--which they have already,
    but doesn't require an increase. In fact, I calculated that if
    half the alternative fuel mandate proposed by the
    administration was satisfied with coal-derived liquid fuel,
    which were produced without CCFs, without carbon capture, the
    CO\2\ emissions would be 175 million tons higher than the
    emissions targeted by the administration. And to offset that,
    if you were to offset that by higher fuel economy standards,
    you would have to raise fuel economy standards by more than 8
    percent per year rather than the 4 percent per year suggested
    by the administration.
        Third, my third point is that electricity for plug-in
    hybrid vehicles is the best way to use coal as a substitute for
    gasoline. I believe there is even better alternatives than
    coal, but if coal is to be used, plug-in hybrid vehicles can
    displace twice as much gasoline per ton of coal used and
    produce one-tenth the greenhouse gas emissions per mile as
    using that same coal to produce liquid fuels. So I believe that
    we ought to start with where we could use coal, if we are going
    to use it, to have the natural benefits and that is in the
    production of electricity at plants that capture carbon dioxide
    and put it under ground.
        Fourth and my final point is that EPA should be directed to
    protect air quality as it implements any expansion of the
    Renewable Fuel Standard. As we heard in previous testimony from
    Mr. Meyers, when you put ethanol in a vehicle, some emissions
    go up and some go down. There is no reason to allow a trade-off
    here. EPA should be directed with a very clear, very simple no
    backsliding rule that when alternative fuels are used in a
    vehicle, emissions that contribute to air quality degradation
    should not increase compared with conventional fuel.
        So in summary, Mr. Chairman, I do believe that biofuels
    hold great promise as a tool for reducing global warming
    pollution, breaking our dangerous addiction to oil and
    revitalizing rural economies, as long as appropriate standards
    and incentives are used to shape the Nation's bioenergy
    industry. Thank you very much.
        [The prepared statement of Mr. Lashof follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Butterfield. All right, Mr. Dinneen.

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

        Mr. Dinneen. Thank you, Mr. Chairman. Please, you will have
    to excuse me. I am having a serious deja vu experience here
    today, because I can remember not too long ago when I was
    testifying before this very committee with some of the same
    organizations testifying along side me that were very concerned
    about the 3 billion gallon Renewable Fuel Standard that this
    committee was at that time considering, and they were
    testifying with great passion about how much that was going to
    disrupt the marketplace and how the ethanol industry certainly
    couldn't produce that much ethanol and even if they could they
    wouldn't be able to distribute it across the country and what a
    disaster it was going to be for our Nation's gasoline
    infrastructure.
        Well, Mr. Chairman and members of the committee, we are now
    a few years later. This committee wisely put in place the
    Renewable Fuel Standard that imposed a 7\1/2\ billion gallon
    RFS by 2012, and as the testimony you have already heard today
    suggests, we have not only met it, we have exceeded it. Given
    the market signal that the Renewable Fuel Standard is
    providing, our industry began a rapid expansion. Wall Street
    recognized that this was a place to put their investment
    dollars. The refining community recognized that ethanol was a
    part of their future and I frankly give them great credit for
    working with our industry to build the infrastructure, to make
    the transition to an RFS such a success as it has been. But
    look at what you have today. We now have 116 ethanol plants in
    operation all across the country. Ethanol is blended in 46
    percent of our Nation's fuel. But we are not done yet. There
    are no less than 81 ethanol plants that are under construction
    all across the country, in areas far outside of the typical
    Midwest grain belt. We have got plants under construction today
    in California, in Arizona, Mr. Shadegg, in Florida, in Georgia.
    There are actually more plants under construction today in
    Texas than in Illinois. The industry is growing and growing
    rapidly and it is providing tremendous benefits and it is
    revitalizing rural communities all across this country. That is
    what this Congress foresaw; that is the reality that the RFS
    has been.
        The industry is evolving, it is changing as it grows. As
    new capital comes into the industry, new intellectual capital
    is coming into the industry as well, looking at new ideas and
    new feedstocks and new technologies. There is not an ethanol
    company that I represent that does not have a cellulose-to-
    ethanol research program underway today. Why? Because they
    already have cellulose coming into the facility and they
    recognize that that is going to be a significant part of the
    future, not as a replacement to grain, but certainly as an
    additional component of what we are able to get from our
    abundant agricultural and waste products across this country.
        Recently the Department of Energy, under grant program that
    the Energy Policy Act of 2005 provided, gave six different
    grants to six different companies in six different parts of the
    country, using six different technologies on cellulose. It
    ranges from processing ethanol from municipal solid waste with
    acid hydrolysis to processing ethanol from woody biomass using
    gasification to processing ethanol from corn stover and other
    waste off the corn field using intermatic conversion.
    Cellulosic ethanol production is far closer to a reality than
    conventional wisdom believes and it is going to happen soon.
    And that is a good thing, because our industry is going to
    continue to grow and we need to be able to look to other
    resources beyond just grain.
        As the industry grows, as our production base expands, the
    marketplace is also evolving. You now see ethanol largely being
    sold as a blend component in gasoline, but thanks to the
    leadership of U.S. automakers like General Motors and Ford,
    that have made a very real commitment to flexible fuel
    technology that will allow ethanol to be used as E-85 all
    across the country, we see an opportunity to grow beyond a
    blend market and to grow into those E-85 markets. The oil
    industry has certainly wrapped themselves around ethanol as a
    blend component in gasoline and I give them great credit for
    that. They continue to resist ethanol as a replacement fuel in
    E-85 and I guess if they did anything else, I would be somewhat
    confused. But that is the reality. That is where we need to be
    moving if we are indeed going to address our energy and
    environmental issues with the intensity and the focus that I
    believe this country and this Congress wants us to do. The oil
    industry will continue to oppose that, but that is a dog fight
    farmer story. I am intent on working with this committee to
    make sure that we move beyond that and we get to a future that
    is far more sustainable. Thank you, Mr. Chairman.
        [The prepared statement of Mr. Dinneen follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Butterfield. Thank you very much. Well, all the time
    has expired for the testimonies. We are going to start the
    questioning. The problem is we have three votes on the House
    floor at this moment. It looks about 10 minutes and 15 seconds
    remaining for us to get to the House floor. That means that we
    will reconvene in about 30 to 45 minutes. That would be 10
    minutes after the last vote. At this time, the committee is in
    recess.
        [Recess]
        Mr. Butterfield. I thank all of you for your patience. We
    are now ready to resume the committee hearing. At this time it
    is my pleasure to recognize the distinguished chairman of the
    committee, the gentleman from Michigan, for questions.
        Mr. Dingell. Mr. Chairman, I thank you for your courtesy.
         Gentlemen of the panel, these questions will be asked so
    that you can answer yes or no because of the great limitation
    on time. First question, Ms. Lowery, if you please,
    approximately how many vehicles are already on the road today
    capable of operating on alternative fuels such as E-85?
        Ms. Lowery. It is more than 6 million on the road today, 2
    million from General Motors.
        Mr. Dingell. Now in June, Ms. Lowery, General Motors
    announced and Ford announced and the Chrysler group announced
    that they would double their production of vehicles capable of
    operating on renewable fuels by 2010 and have committed to
    making half of all vehicles production biofuel-capable by 2012,
    is that correct?
        Ms. Lowery. Yes, it is.
        Mr. Dingell. Now, Mr. Greco, if you please, is it not true
    that E-85 accounted for only 1 percent of the alternative fuel
    consumption in the United States in 2004?
        Mr. Greco. I don't know the number.
        Mr. Dingell. You don't know the number?
        Mr. Greco. No.
        Mr. Dingell. Would I be incorrect if I said 1 percent?
        Mr. Greco. Or less, maybe. I don't know.
        Mr. Dingell. OK. Now, the Congressional Research Service so
    advised us and the committee. Mr. Greco, another question. Is
    it not true that out of 165,000 retail outlets selling motor
    fuels to consumers, there are only approximately 1,000 which
    offer E-85 to consumers?
        Mr. Greco. DOE mentioned 1,200 this morning, I guess about
    a 70 percent increase.
        Mr. Dingell. All right.
        Mr. Greco. About 1,200 this morning that DOE mentioned,
    yes.
        Mr. Dingell. OK.
        Mr. Greco. About 1,200.
        Mr. Dingell. Twelve hundred. I will deal with the
    correction. And out of these 1,000 or 1,200 stations,
    approximately 100 of these stations are branded by a company
    generally recognized as one of your members, so I would suspect
    that out of this number, only 10 percent of those affiliated
    with your member companies are included in the numbers, is that
    a correct statement?
        Mr. Greco. I don't know. I am not sure which brands are
    involved or what the market arrangements are for those
    companies.
        Mr. Dingell. Now, I will insert in the record a list of
    stations available in the United States and I ask unanimous
    consent, Mr. Chairman, that that be done.
         Mr. Greco, have your association or your member companies
    made a commitment comparable to that of Ford, GM or Chrysler,
    to facilitate the installation of E-85 pumps?
        Mr. Greco. We have made a commitment to use ethanol in
    gasoline to a maximum extent, as by law and that is what we are
    focused on.
        Mr. Dingell. So you are telling me you have not made a
    commitment of that kind?
        Mr. Greco. Our focus is on using E-10 in every gallon of
    gasoline that can be used by every vehicle on the road today.
    That is the focus of the membership.
        Mr. Dingell. I guess you are telling me your answer then,
    sir, is no. Now, Mr. Drevna, if you please, has your
    association or your member companies made a comparable
    commitment to facilitate the installation of E-85 pumps?
        Mr. Drevna. No, sir, we haven't made any commitment like
    that, but I will stand by the same response of Mr. Greco. We
    look at the market and what the market demands these days and--
    --
        Mr. Dingell. So the answer is?
        Mr. Drevna. The answer would be no, sir.
        Mr. Dingell. The answer is no. Now, Mr. Greco and Mr.
    Drevna, in the interest of solving the problem here which we
    have of the chicken and the egg, for once and all, if the
    Congress mandated that automakers produce flex-fuel vehicles,
    would you or your organizations support a corresponding
    mandate, accompanied by corporate financial support for small,
    independent retail outlets, to install E-85 pumps so that
    consumers can buy and use this alternative to petroleum? Would
    you please, first, Mr. Greco.
        Mr. Greco. No, our members are focused on E-10 and when the
    consumer wants E-85, the demand will drive the availability of
    that.
        Mr. Dingell. So the answer is you would not make that
    commitment.
        Mr. Greco. No.
        Mr. Dingell. Mr. Drevna, what do you have to say about this
    matter?
        Mr. Drevna. Basically the same, Mr. Chairman.
        Mr. Dingell. Thank you. So you are telling us that your
    organization would not make that commitment, either. Gentlemen,
    thank you, and Mr. Chairman, for your courtesy, thank you.
        Mr. Butterfield. All right, thank you, Mr. Chairman. At
    this time, the gentleman from Oklahoma is recognized for 5
    minutes.
        Mr. Sullivan. Thank you, Mr. Chairman. Mr. Dinneen, my
    understanding is that the current Federal tax incentives for
    ethanol fuels is provided to the producer of the gasoline,
    which includes some big oil companies. Can you explain how, if
    the tax incentive is provided to the producer of the gasoline,
    this incentive program has helped corn farmers and ethanol
    producers?
        Mr. Dinneen. We find that the gasoline marketers of blended
    ethanol are indeed given a tax incentive to allow them to pay
    more for the ethanol that they are buying. Now, how much of the
    tax incentives filters down to the producer is a discussion
    that the ethanol producer would have with their refiner or
    gasoline marketer or customer.
        Mr. Sullivan. OK. And Mr. Drevna, you suggest in your
    statement that substantially expanded the renewable fuels
    mandate could suppress refining expansion. Could you elaborate
    on that statement? Could the U.S. end up becoming a net
    exporter of gasoline if all of these proposals were to take
    effect?
        Mr. Drevna. I am glad you asked that question, Mr.
    Sullivan, because, first of all, any mandate, an increase of a
    mandate over today's EPAct 2005 volumes, it wouldn't actually
    give pause to refinery executives as to whether they should
    continue with capacity expansions. If we could talk for a
    moment, sir, about what the world would look like in 2017. And
    again, there has been a lot of ifs here. If cellulosic comes
    into play, if all of these other technologies come into play
    and we are required, as an industry, to reduce gasoline
    consumption 20 percent below projected 2017 levels, that
    equates to a figure that is below gasoline production today. So
    it would make little or no economic sense for refineries to
    expand.
        Now, in the same thing and a good thing I would suggest is
    that diesel demand continues to rise, which means the economy
    is chugging along fairly well. To illustrate, we can do a lot
    of things in the refinery business, but it is very difficult
    for us to make diesel without making gasoline. So what will
    happen in 2017, again, assuming all of these things, all of
    these ifs come into play, and those are big ifs, sir, the first
    thing we would do is we back out all imports of gasoline,
    because the United States would end up being a net exporter of
    gasoline. Now, I asked if that is the public policy we are
    attempting to achieve here, if we are producing domestic
    gasoline that we can't use here because we would be saddled
    with a 20 percent reduction figure. And then in the case of
    weather disasters such as we witnessed 2 years ago with Katrina
    and Rita, what saved the supply in this country was the
    imports. Baking out imports and having the U.S. be a net
    exporter of gasoline, again, I think those are questions that
    have to be looked at, the long-term impacts, the unintended
    consequences of these massive mandates.
        Mr. Sullivan. Thank you, sir. And Mr. Reid, is it true that
    oil companies are blocking wider use of E-85 by forbidding gas
    station owners to put in pumps? Are there any current legal
    impediments that prevent them from doing so?
        Mr. Reid. To the best of my knowledge, there is no blocking
    or preventing. There are legal impediments, in the sense that
    the retailers who are selling a branded motor fuel are required
    to identify their pumps with the trade name, trade address of
    their brand supplier. So if they are offering a product for
    sale at the outlet that is not supplied by their franchise
    contract supplier, they are obligated to protect the
    intellectual property rights of their supplier and ensure that
    the--let us just use as an example an E-85 pump--to make sure
    the consumer understands that the product they are selling is
    not a branded product of their supplier refiner company.
        Mr. Sullivan. Thank you, sir. And Mr. Mitchell, how does
    the fuel costs of natural gas compare to the price of gasoline
    or diesel fuel?
        Mr. Mitchell. Well, currently, using $7.61 for the price of
    natural gas and adding the amount to compress the fuel,
    transport it, collect margin and capital recovery, it is about
    $1.95. The average gasoline price as of last week ran between
    about $3.00 and $3.20 cents, depending on whether it was
    standard or super leaded fuel, or unleaded. And with diesel,
    diesel is about $2.95 and because of the BTU conversion, a
    natural gas equivalent gallon would be about $2.17. I also
    mentioned that, through the home refueling device, since there
    is no capital recovery component for the homeowner, or
    essentially none, there is no margin. Then they would receive
    the natural gas at a gasoline gallon equivalent of about $1.35,
    because that would be a home refueling unit installed in their
    garage.
        Mr. Sullivan. Thank you, Mr. Mitchell, and thank you
    panelists. I yield back.
        Mr. Butterfield. Thank you. The gentleman yields back. At
    this time, the chair recognizes the gentleman from Georgia, Mr.
    Barrow.
        Mr. Barrow. Thank you, Mr. Chairman. I want to follow up on
    Representative Sullivan's questions just for a second. These
    questions might be most directed to you, Mr. Greco, and Mr.
    Drevna, if you want to chime in, that would be fine.
        I heard Mr. Reid say earlier in his testimony that
    independent businesses are going to be leading the charge and I
    guess one of the questions is just how independent are
    businesses that are tied up in franchise agreements that end up
    constraining their choices and their options. For example, I
    heard you, Mr. Greco, talk about the importance of brand name
    protection, product ID and the importance of, I believe it was
    your, Mr. Reid, avoiding the problem of mis-fueling.
        You want to make to sure that all of these things are tied
    up and yet the article that I just mentioned talks about things
    like ExxonMobil Corp's standard contract with its Exxon
    stations, it bars them from buying fuel from anyone but itself
    and they don't make E-85, so it essentially bars them from
    getting any E-85 fuel. ConocoPhillips, a number of the
    franchisees says the company doesn't allow E-85 sales on the
    primary island. BP guidelines for stations that carry the
    company name bar any mention of E-85 on the gasoline
    dispensers, on the perimeter signs of the light poles.
        These are the sorts of things that franchisees encounter,
    so in addition to the problems we talked earlier about, just
    creating a sufficient supply of this stuff, we have franchise
    agreements which could effectively be getting in the way of
    people who might want to try and avail themselves of that
    option, so how independent can folks be if they are constrained
    in this way and basically what I am getting at is should
    Congress play a role in this? I am making the suggestion
    before--sometimes it is the best thing if the government is the
    heavy in the picture.
        You represent all of your members you have got to address
    the interests of your members, as a whole. But sometimes, like
    Harry Truman said, we spend 95 percent of our time up here
    trying to persuade folks to do what is in the best interest to
    do, anyway. And sometimes government can play that role. If you
    were to come in and sort of make it plain that agreements
    cannot constrain or restrict folks in certain ways. Might that
    help solve the problem? One of your members want to go first,
    but be constrained by being put at a competitive disadvantage
    vis-a-vis others pull back. Is there a constructive role for us
    to play getting everybody onto the same playing field in
    clearing away these impediments which pop up in one form or
    another, these agreements?
        Mr. Reid. Can I respond to that?
        Mr. Barrow. Yes, sure.
        Mr. Reid. As I mentioned, I don't believe that it is an
    issue, meaning there are contractual provisions. The Gasohol
    Competition Act of 1980 precludes the enforcement of those
    contractual provisions. As a business owner, I have the freedom
    to move forward with those opportunities if I so choose.
        Mr. Barrow. But if you are contracting with a big guy and
    you are using their name, you are a franchisee, you have got to
    play by the rules of the franchisor.
        Mr. Reid. I am obligated to eligible property rights.
        Mr. Barrow. Sure, but I am saying it goes beyond eligible
    property rights. If you say you can't buy anything from anybody
    else and they don't make it, it is not beyond the eligible
    property rights to make sure it can't be sold on a primary
    island. It has to be put somewhere. It is not allowing folks to
    get what they need if you tie it up in a contract. There may be
    no legal impediments in the sense that there is a statute
    prohibiting you from doing something, but if it is a contract
    that we enforce in a court of law, that ends up being a legal
    impediment.
        Mr. Reid. My point being that those contractual provisions
    are not enforceable in a court of law.
        Mr. Barrow. Why not? Who says?
        Mr. Reid. It is under the Gasohol Competition Act of 1980.
        Mr. Barrow. Well, if I am the owner of this independent
    business, I am not going to be able to fight that out in a
    court of law with Exxon. Mr. Dinneen, can you respond to this?
    Can you shed some light on this?
        Mr. Dinneen. I think there are some impediments to the
    marketplace moving toward E-85. There are some issues--pointed
    out to many of them. The suggestion that the Gasohol
    Competition Act of 1980 provides--wanting to go down this route
    some protection, I think is just not accurate. The Gasohol
    Competition Act of 1980 was very narrow. It only addressed
    credit cards exclusively and it didn't talk about prohibitions
    against putting an E-85 pump under the canopy.
        Mr. Barrow. I don't think there is any statute about that,
    is there?
        Mr. Dinneen. No.
        Mr. Barrow. OK.
        Mr. Dinneen. It might be something to look at, is how you
    could amend the Gasohol Competition Act to address some of
    these marketplace realities.
        Mr. Barrow. Well, it is a sensitive subject, but it really
    is a friendly suggestion and talked about how maybe Congress
    can play a role in being the heavy in the picture, where
    everybody wants to go their own way, but it is in their best
    interest for everybody to go the same way, but they are at a
    competitive disadvantage in going first. I have to yield, Mr.
    Chairman. Thank you.
        Mr. Butterfield. Thank you, Mr. Barrow. The gentleman
    yields back. Looks like we have no more members on the Minority
    side or the Majority side. I will conclude, ladies and
    gentlemen, with just a few questions.
         Let me start with Ms. Lowery. Ms. Lowery, Dr. Lashof has
    testified that the administration's Alternative Fuel Standard
    could increase greenhouse gas emissions, rather than decrease
    them. Do you agree that that is possible?
        Ms. Lowery. Actually, I think what is important is to look
    at the whole diversity of energy sources and look at the
    various streams and what the greenhouse gas emissions would be
    from those fuel sources. But from the Renewable Fuels Standards
    and the Alternative Fuel Standards, there could be great
    improvement in greenhouse gas emissions, so we need to look at
    all the different pathways.
        Mr. Butterfield. Thank you. Dr. Lashof, my understanding is
    that the maximum feasible amount of corn-based ethanol is 14 to
    17 billion gallons of ethanol per year by 2017. Do you agree
    with that number?
        Mr. Lashof. I have heard that number cited. I don't think I
    am in a good position to say whether that is true.
        Mr. Butterfield. What do you think is the maximum feasible
    amount?
        Mr. Lashof. I think it is a somewhat elastic issue. I think
    that there is a potential to grow additional corn. I do think
    if you hit those lines, you are clearly going to be starting to
    diversify away from corn into other feedstocks, if you can
    expand much beyond that. It doesn't mean that I don't know that
    there is an absolute maximum that the market can produce.
        Mr. Butterfield. Mr. Dinneen, do you want to take a stab at
    that?
        Mr. Dinneen. Yes, I think those analyses have been done and
    USDA has agreed with some of that, is looking at today's
    technology. But the fact of the matter is technology is
    evolving and there are companies working on biotechnology today
    that could potentially provide significantly increased yields
    on existing acreage that would allow that number to increase.
    But looking at today's technology where we are, yes, about 14
    to 17 billion gallons of ethanol from grain is about the upper
    balance of what you could responsibly achieve.
        Mr. Butterfield. Thank you. Mr. Greco, do you believe that
    it is reasonable to expect that the United States could meet a
    35 billion gallon per year alternative fuel standard by 2017?
        Mr. Greco. As I think I pointed out in my testimony, we are
    very concerned about this transition phase where we are talking
    10, 15 billion gallons that is realistic from corn. But beyond
    that, we are talking about billions of gallons from
    technologies that have not produced, commercially or
    economically, viable amounts yet. So if you are talking about
    doubling or tripling the known production capability of corn,
    which is a longstanding proven technology, it is hard to see us
    getting there in the next 5 years based on these assumptions
    and then ramping up as quickly as some of these proposals would
    suggest, which is why we are supportive of technology reviews.
    So if Congress decides to go down that route, they can take a
    step back and check periodically to see is the technology where
    we think it is and if not, we need to adjust accordingly.
        Mr. Butterfield. All right. Mr. Dinneen, let me go back to
    you for a moment. At our last hearing on alternative fuels,
    which was, I suppose, 2 or 3 weeks ago, a man by the name of
    Brian Foody, the president and CEO of Iogen, testified that the
    goals of 3 billion gallons of advanced fuels by 2016 and 21
    billion gallons by 2022, which are both included in the Senate
    version, are both ambitious and achievable. Do you agree or
    disagree with him?
        Mr. Dinneen. Mr. Foody is a member of Renewable Fuels
    Association, so I wouldn't be so foolish as to disagree with
    him. But seriously, yes, you can certainly get those numbers.
    As I indicated in my testimony, I think the movement towards
    cellulosic ethanol is coming fast and furious. It will be
    commercialized far sooner than conventional wisdom suggests and
    those are numbers that would be achievable. You have seen
    dramatic in the grain-based ethanol industry just since the
    Energy Policy Act of 2005 was enacted. We doubled in size since
    then. We are going to double in size in another 18 months. Once
    the marketplace understands there is technology out there that
    has a marketplace for the product, the marketplace can respond
    very quickly.
        Mr. Butterfield. Mr. Drevna, let me ask you a yes or no
    question. The Senate Energy Committee just voted on a provision
    that would require new--facilities to reduce the life cycle for
    greenhouse gas emissions from their fuel by 20 percent compared
    to conventional gasoline. Should all transportation fuels have
    to meet this standard?
        Mr. Drevna. Congressman, again, NPRA, we are oppose
    mandates. We think that on a going forward basis, as the
    technology is developed, as the right incentives, not
    giveaways, but the right incentives for individual companies,
    individual processes, technologies, feedstocks, it should be a
    level playing field for all. And if that happens, we believe we
    are going to get to where we should collectively want to go, as
    a nation, but to force feed things early on, and in all candor,
    without having the technologies available today, doesn't make
    any sense.
        Mr. Butterfield. Thank you. I believe my time has expired.
    At this time, I am going to recognize the gentleman, my friend
    from the State of Washington, who announced to this committee a
    few weeks ago that he, himself, has an alternative flex fuel
    vehicle. Am I remembering that correctly, Jay?
        Mr. Inslee. Thankfully, you are right. No, I do. I have a
    car, it is a Toyota Prius and it has been a very great car and
    this fall, A123 battery company is offering a conversion kit
    with a lithium ion battery. You plug it into a plug-in vehicle,
    it will get 150 miles a gallon, run it for 1 cent a mile for
    somewhere between 20 and 40 miles and it is available this
    fall. You have got to put some cash down to get the conversion,
    but we are hoping our manufacturers really follow through with
    their efforts to really come up with production models.
        I wanted to ask Dr. Lashof, my concern about going for a
    Renewable Fuels Standard to an alternative standard, it
    essentially allows you to swallow, if possible, if I understand
    the administration proposal, to swallow the fuels that would be
    CO\2\ reducers and go to fuels that were possibly even CO\2\
    increased. As I understand their proposal, they could have 90
    percent of the entire requirement filled by coal versus liquid
    that is non-sequestered and end up with an 118 percent increase
    for every gallon they sell. Is that your understanding?
        Mr. Lashof. Yes, it is, Mr. Inslee. If you actually look at
    the legislation--it is 35 billion gallons wide open, there is
    no environmental performance standard associated with it, there
    is no requirement that that fuel by renewable. We heard the
    testimony from the first panel that that was their intent and
    that they would sort of let the marketplace sort it out and
    although they have expressed the expectation that cellulosic
    ethanol would play a role, there is no environmental
    performance or other incentives built into the proposal that
    would ensure that result.
        And this juncture here is that they released an analysis
    when the President made his announcement of his policy,
    suggesting that their policy would reduce greenhouse gas
    emissions by about 170 million tons relative to the business-
    as-usual forecast, return gasoline based emissions to their
    current levels by 2017, so that is their projection. And the
    problem is that their policy doesn't really contain the
    performance standards that would in any way assure that you
    would actually achieve those numbers.
        Mr. Inslee. And I think you said something gracious about
    my bill that would plug that standard, so if you did, great. If
    you didn't, I hope you will put it in the record.
        Mr. Lashof. I did and thank you very much for your
    leadership in introducing that. I do think that if the goal is
    to get greenhouse gas reductions, the most effective and
    efficient way to do that is to actually have performance
    standard that requires that outcome and that is what your bill
    would do, so I think that is a very important way to----
        Mr. Inslee. Thank you. I appreciate that. I wanted to ask
    Mr. Drevna and Mr. Greco, what percentage of pumps today are
    controlled by companies, either by ownership or franchise
    agreements? What percentage of our pumps today are controlled
    by entities that do not distribute E-85? The number service
    stations today, what number of them, just percentage, ballpark
    figure, controlled by companies, refiners or distributors or
    whoever they are, who do not sell E-85?
        Mr. Drevna. I am going to defer to----
        Mr. Reid. I noted that approximately 95 percent of the
    motor fuel outlets in this country, of which there are
    approximately 165,000, are operated by independent businesses,
    not by vertically integrated major oil companies.
        Mr. Inslee. So you would say, you were saying 95 percent of
    these service stations are legally free to sell anything they
    want?
        Mr. Reid. That is correct.
        Mr. Inslee. So there are no franchise restrictions
    prohibiting them from selling E-85 or a competitor's product?
        Mr. Reid. Actually, 100 percent of these stations are free
    to sell what they want as long as it meets the EPA
    specifications.
        Mr. Inslee. I am really sorry I don't know the answer to
    this, because I should because I tried a case involving this at
    one time, but if I have a service station and I have a
    franchise from one of the big companies, let us just call it
    Acme Oil, there is nothing to prevent me from selling E-85
    distributed to me by Acme Oil's competitor in those franchise
    agreements?
        Mr. Reid. With respect, we covered this territory a few
    minutes ago.
        Mr. Inslee. I am sorry.
        Mr. Reid. And there is some confusion, apparently, about
    the affability of the Gasohol Competition Act of 1980 and my
    counsel has generously offered to provide the committee with a
    memo that fleshes out the provisions of that act and how it
    applies to the more modern environment.
        Mr. Inslee. OK, is there anything you can tell me, just
    generally, whether there is any----
        Mr. Reid. There are no legal impediments.
        Mr. Inslee. I see. OK. Thank you.
        Mr. Butterfield. I thank the gentleman. Looks like our
    final witness is the gentleman from Texas, Mr. Gene Green.
        Mr. Green. Mr. Drevna, following up on the questions
    earlier from my colleague from Oklahoma, he talked about
    expansion projects, refinery expansion projects being
    cancelled. Will we see, if we mandate other uses, whether it is
    E-85 or something else, do you see any concerns that these
    refineries will be cancelled?
        Mr. Drevna. Congressman Green, clearly--and I would be
    naive to sit here and say that the refining industry of 2007 is
    going to be the same refining industry that we are going to see
    in 2017. We are constantly evolving, we are constantly
    changing. However, given the fact that we have yet to, for lack
    of a better term, swallowed the 7.5 million gallons, which we
    will. We will surpass that, simply because it is needed.
    Ethanol is fine blend stock and it is wet, so we need all the
    blend stock we can get, given the supply situation we are in.
        But if you are a refinery executive or sitting in the board
    room of a major refiner, you have to take pause and think what
    am I going to look like in 5, 10, 15, 20 years from now? Those
    decisions have to be made today. And given the debate going on
    in Congress and other places these days, you would have to
    consider that these folks are going to take great pause before
    they commit huge capital to refinery expansion projects when we
    are being told on the other hand in 10 years from now, we want
    you to reduce gasoline consumption by 20 percent. So it is just
    a dichotomy of messages being sent to my industry.
        Mr. Green. One of the concerns I have is the impact on
    pricing. We are already hearing complaints from all over the
    country about the high price of gasoline right now. What impact
    would either cancellation of those expansion plans or
    additional closing of refineries have, even though we may have
    an alternative product coming on, whether it be ethanol,
    whether it be E-85, whether it be coal-to-liquids, do you see
    even more volatility in the price structure for what people pay
    at the pump?
        Mr. Drevna. Congressman, it with some trepidation that I
    even talk about what we think prices are going to be, because
    historically, not in my industry, but I think the rest of the
    country, has been very good at predicting anything like that.
    But given the fact that--and I only know what I know today and
    today and--if you look at where prices of gasoline, where the
    price of ethanol is and as more ethanol plans come on line, I
    think those margins are going to--that cost price should come
    somewhere soft. But who knows where? It is one of those things
    we are hearing--it is just around the corner, it is just around
    the corner. All this technology is just around the corner but
    again, that gives no great solace to refinery managers who have
    to make significant investments.
        The other thing we are talking about is E-85. On a unit-
    per-unit basis, right now ethanol is selling a heck of a lot
    higher than gasoline. That is just on a volumetric basis. When
    you compound the fact that it is a 25 to 30 percent fuel
    penalty, we are going to have to see ethanol come way down
    before it becomes a competitor in price to gasoline. Then you
    are going to have all these ethanol plants out there who are
    going to be coming back to Congress saying we are in financial
    straits here because we are not meeting our investment
    strategies. So these are the concerns that we have, as
    refiners. And again, I think it goes back to what Congressman
    Barrow said, it is just not a chicken and a egg thing, it is
    the whole barnyard.
        Mr. Green. Mr. Chairman, I have a number of other
    questions. I know I am almost out of time, but I would just if
    we could submit questions in writing. Let me follow up with
    that. Mr. Dinneen----
        Mr. Butterfield. Let me offer a suggestion to you. We are
    going to have a second round of 1-minute questions, so why
    don't you go ahead and take your 1 minute now?
        Mr. Green. OK, great.
        Mr. Butterfield. If that meets the approval of the
    committee. So you have an additional minute.
        Mr. Green. Mr. Dinneen, let me be brief. I have a very
    urban district and I don't hear from agriculture groups very
    often, but now that the farm bill has come around I am hearing
    more and more about agricultural interest in energy policy that
    are not ethanol producers. Livestock producers are having
    increasing feed prices and increasing--should we avoid further
    increases in renewable fuels mandate until we fully develop
    cellulosic ethanol so that we are not Peter's pantry to pay for
    Paul's gas tank?
        Mr. Dinneen. Congressman, thank you. Actually, I think the
    marketplace is already responding. You saw corn prices being
    reduced as soon as the Crop Intention Report came out last
    month, showing that farmers have responded to the market signal
    that was given and increased the corn planted or acres intended
    to be planted by more than 15 percent. The marketplace will
    respond, but I think you can't just look at this in a vacuum.
    My good friend, Mr. Drevna, just indicated that somehow that
    ethanol pricing today was significantly higher than gasoline on
    a volume basis and that is just flat out not true. Indeed,
    ethanol is significantly cheaper than is gasoline today, even
    before the taxes, but----
        Mr. Green. Dr. Lashof, you testified that without adequate
    guidelines, large scale biofuels production carries great risk
    to our lands, forests, et cetera, and I want to focus on that
    on the climate. Your testimony includes a chart that shows
    ethanol production actually produces more greenhouse gases than
    gasoline and that the amount of greenhouse gas emissions for
    ethanol in part depend on the source of the power used, coal,
    natural gas, et cetera. Do you think that the fact that using
    all natural gas in corn ethanol production raises natural gas
    prices--it is driving utilities to pursue new coal plants, such
    as the former TXU proposal and have major environmental
    organizations factored in their thinking on ethanol on this?
        Mr. Lashof. Well, thank you for the question. I do show one
    case where an ethanol plant is producing more greenhouse gases
    than gasoline. It is a coal fired plant that uses corn that was
    grown in a very energy intensive way. The other cases we see
    benefits relative to gasoline that varies depending on what
    energy source is used for the feedstock, so we would like to
    see the ethanol industry move away from natural gas as its
    process energy source. If it moves to biomass, which could be
    collected along with the corn, then there is an opportunity for
    much greater greenhouse gas benefits and we could avoid that
    negative impact on natural gas prices, so I think, again, the
    type of greenhouse gas performance standard that Mr. Inslee has
    proposed would create an incentive to move toward more
    efficient processes----
        Mr. Butterfield. The gentleman's time has expired. The
    gentleman from Oklahoma is recognized for 2 minutes.
        Mr. Sullivan. Thank you, Mr. Chairman. This question is
    directed to Mr. Greco, Mr. Drevna. If you would both answer
    this, please. Many States and even localities have implemented
    or are considering proposals to create their own biofuels
    mandates. What is wrong with letting States and localities
    implement their own renewable fuels mandates? If you could both
    comment.
        Mr. Greco. Well, thank you for the question. Individual
    State mandates fracture and reduce the flexibility of our fuel
    supply system. One of its strengths is the flexibility to move
    fuel around to meet needs, both anticipated and unanticipated
    and when you start having individual local biofuels or ethanol
    mandates, you are now creating localized markets that have
    their own requirements that are restricting the flow of
    commerce and are, in effect, a problem, particularly when you
    talk about a larger mandate. If you are focusing on a national
    fuels mandate, you really don't need the individual State ones,
    because they are just restricting the flow of fuel and an
    increase in price volatility.
        Mr. Drevna. I agree with everything that Bob has said
    there, Congressman, and in addition, what would we have to do,
    as refiners, depending upon individual States, we have a pretty
    sophisticated fuel distribution, supply and distribution
    network throughout the country and even as we saw and have
    seen, with the implementation of the ultra low sulfur diesel,
    it was a concern how we were going to add another product into
    an already, pretty constrained pipeline system.
        If we, as refiners, have to make different blend stocks for
    different States or different localities, that is going to put
    a major strain on the refinery system and be a real strain on
    the delivery system to these things. And it is going to be an X
    product going here, a Y product going there and it is just
    going to cost more to make. It is going to cost more to ship
    and it is an affront to a national policy, if indeed, a
    national policy is renewable fuels, again, NPRA says let the
    marketplace dictate where those fuels should be used in the
    best way possible.
        Mr. Butterfield. The gentleman's time has expired. The
    gentleman from Washington has 2 minutes.
        Mr. Inslee. Thank you, Mr. Chairman. Mr. Reid, I want to
    make sure I understood your answer about this issue. I
    understood you to say there was no legal impediment for the
    stations selling E-85 and I was just looking at a Wall Street
    Journal article of April 2, 2007 and it says, ``For instance,
    franchises sometimes are required to purchase all the fuel they
    sell from the oil companies. Since oil companies generally
    don't sell E-85, the stations can't either, unless the company
    grants an exception and lets them buy from another supplier.''
        It moves on to say, ``ExxonMobil Corporation's standard
    contract with Exxon stations bars them from buying fuel from
    anybody but itself and it doesn't' sell E-85. A spokesman for
    ExxonMobil says it makes exceptions case by case.'' Now, I
    don't mean any disrespect to Exxon, they just happen to be the
    one they quote in the article. Is that the situation that, in
    fact, the contracts bar these franchisees from selling unless
    they get specific approval? Is that generally the situation in
    the industry?
        Mr. Reid. I would submit that the Wall Street Journal
    reporter is incorrect in his story.
        Mr. Inslee. In what regard?
        Mr. Reid. OK, the Gasohol Competition Act of 1980 prohibits
    the enforcement of those types of contractual provisions. It is
    that simple.
        Mr. Inslee. How this story gets out that an Exxon
    spokesman, according to the Wall Street Journal, says they make
    exceptions to their contracts case by case?
        Mr. Reid. We have offered to prepare a memo which we will
    submit to the committee and hopefully, that will provide ample
    explanation.
        Mr. Inslee. Thank you very much.
        Mr. Butterfield. I thank the gentleman. The gentleman from
    Georgia, 2 minutes.
        Mr. Barrow. Thank you, Mr. Chairman. Ms. Lowery, I want to
    turn to the commitment that your firm has made to make sure
    that--I think that your testimony, you are prepared to make
    fully half of your annual vehicle production biofuel capable by
    2012 provided there is ample availability and distribution as
    part of an overall national energy strategy. What is the
    tripping point, what do you need in order to be able to meet
    your commitment?
        Ms. Lowery. Well, what we need, we are doubling our
    production through 2010, so that is making sure there----
        Mr. Barrow. Yes, but that is not half your vehicles.
        Ms. Lowery. Right.
        Mr. Barrow. It is doubling the small amount to twice the
    small amount.
        Ms. Lowery. Right.
        Mr. Barrow. What are you going to need out there in the
    economy, in the infrastructure world in order to be able to
    follow through and make half your production biofuel ready?
        Ms. Lowery. What we need is the E-85 infrastructure
    developed, so we need more E-85 readily accessible to our flex
    fuel----
        Mr. Barrow. How much is enough in the absence of a
    mandate--I am not proposing that, but in the absence of a
    mandate, how much is enough for you all to go ahead and do it
    on your own?
        Ms. Lowery. We don't have a specific number. What we think
    is important is that our customers that are driving that are
    driving those flex fuel vehicles today should have----
        Mr. Barrow. Do you have a general number? A percentage of a
    penetration in the market? We have heard 50,000 out of 170,
    165,000. Is that what you are going to have to have?
        Ms. Lowery. Well, right now what we have is we definitely
    made progress with the 1,200 stations. We certainly have to
    have certainly more than that. I don't have a specific number.
        Mr. Barrow. Mr. Reid, you represent an awful lot of people
    who are very important to the folks I represent, so I want to
    ask you, in following up on what Ms. Lowery said, what can we
    do in Congress to help you and your members make E-85
    infrastructure more available? What is the most important thing
    we can do to help you all deliver on that so General Motors can
    turn and can deliver on their commitment?
        Mr. Reid. In my opinion, before E-85 is widely available,
    there needs to be more supply. Even if we had E-10 available in
    every gallon of gasoline that sold in this country, we would
    need triple the current amount of ethanol that is being
    produced. That is 10 percent ethanol, 90 percent gasoline. E-
    85, 85 percent ethanol, 15 percent gasoline. I think we are
    just a little bit ahead of the power curve today.
        Mr. Barrow. You are waiting for the supply before you will
    build the infrastructure to deliver it, it sounds to me like.
        Mr. Reid. We need supply. We need vehicles that can utilize
    the supply, if you are focused on E-85. The flex fuel vehicles,
    even producing at the increased pace that they are projecting,
    will still only be, in 10 years, maybe 20 percent of the total
    vehicle pool. It takes time to turn over 140, 50 million
    vehicles.
        Mr. Barrow. I just wanted to know what we can do to help
    and you can amplify later on. Thank you, Mr. Reid. Mr.
    Chairman, I yield.
        Mr. Butterfield. Thank you, Mr. Barrow. I believe that
    completes the testimony today. I want to thank each one of you
    for coming forward and I apologize for the inconvenience this
    afternoon, but that is just the way the House works. Let me say
    to you that any follow-up questions that any of the members of
    the committee might have may be presented to you in writing and
    I would ask your courtesy in responding to each one of those
    questions. All right. I am a former judge, I will say court is
    in recess.
        [Whereupon, at 3:00 p.m., the subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]

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