[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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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
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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:]
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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:]
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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.]
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