[Senate Hearing 110-17]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 110-17
 
                    AGRICULTURE AND RURAL AMERICA'S
               ROLE IN ENHANCING NATIONAL ENERGY SECURITY
=======================================================================



                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION


                               __________

                            JANUARY 10, 2007

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry


  Available via the World Wide Web: http://www.agriculture.senate.gov



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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY



                       TOM HARKIN, Iowa, Chairman

PATRICK J. LEAHY, Vermont            SAXBY CHAMBLISS, Georgia
KENT CONRAD, North Dakota            RICHARD G. LUGAR, Indiana
MAX BAUCUS, Montana                  THAD COCHRAN, Mississippi
BLANCHE L. LINCOLN, Arkansas         MITCH McCONNELL, Kentucky
DEBBIE A. STABENOW, Michigan         PAT ROBERTS, Kansas
E. BENJAMIN NELSON, Nebraska         LINDSEY GRAHAM, South Carolina
KEN SALAZAR, Colorado                NORM COLEMAN, Minnesota
SHERROD BROWN, Ohio                  MICHEAL D. CRAPO, Idaho
ROBERT CASEY, Jr., Pennsylvania      JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota             CHARLES E. GRASSLEY, Iowa

                Mark Halverson, Majority Staff Director

                      Robert E. Sturm, Chief Clerk

            Martha Scott Poindexter, Minority Staff Director

                Vernie Hubert, Minority General Counsel

                                  (ii)


                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing(s):

Agriculture and Rural America's Role in Enhancing National Energy 
  Security.......................................................     1

                              ----------                              

                      Wednesday, January 10, 2007
                    STATEMENTS PRESENTED BY SENATORS

    Harkin, Hon. Tom, a U.S. Senator from the State of Iowa, 
      Chairman, Committee on Agriculture, Nutrition, and Forestry     2
    Chambliss, Hon. Saxby, a U.S. Senator from the State of 
      Georgia....................................................     5

                                Panel I

Collins, Dr. Keith, Chief Economist, U.S. Department of 
  Agriculture, Washington, DC....................................    10
Pacheco, Michael, Director, National Renewable Energy Laboratory, 
  Golden, Colorado...............................................    14
Sharp, Hon. Philip, Ph.D., President, Resources for the Future, 
  Washington, DC.................................................     7
Smith, J. Read, 25 X 25 Steering Committee, Wheat, Small Grains, 
  and Cattle Producer, Former President, National Association of 
  Conservation Districts, St. John, Washington...................    11

                                Panel II

Gourley, Gene, National Pork Producers Council, Iowa Pork 
  Producers Association, Webster City, Iowa......................    48
Kemp, Loni, Senior Policy Analyst, The Minnesota Project, Canton, 
  Minnesota......................................................    51
Miller, Ron, President and CEO, Aventine Renewable Energy 
  Holdings, LLC, Pekin, Illinois.................................    44
Sellers, John, Farmer-Member of Iowa State Soil Conservation 
  Committee; Member, Board of Directors, American Forage and 
  Grassland Council, Corydon, Iowa...............................    53
Webb, Roger, Director, Strategic Energy Institute, Georgia 
  Institute of Technology, Atlanta, Georgia......................    46
                              ----------                              

                                APPENDIX

Prepared Statements:
    Roberts, Hon. Pat............................................    70
    Stabenow, Hon. Debbie........................................    72
    Collins, Keith...............................................    73
    Gourley, Gene................................................    89
    Kemp, Loni...................................................   103
    Miller, Ron..................................................   109
    Pacheco, Michael.............................................   114
    Sellers, John................................................   120
    Sharp, Hon. Philip...........................................   122
    Smith, J. Read...............................................   133
    Webb, Roger..................................................   141
Document(s) Submitted for the Record:
Chambliss, Hon. Saxby:
    ``Cellulosic Diversity for Alternative Energy'', prepared by 
      Auburn University..........................................   150
Question(s) and Answer(s):
Harkin, Hon. Tom:
    Written questions for Mr. Gourley............................   154
    Written questions for Mr. Collins............................   154
Chambliss, Hon. Saxby:
    Written questions for Mr. Collins............................   155
    Written questions for Mr. Sharp..............................   159
    Written questions for Mr. Smith..............................   160
    Written questions for Mr. Pacheco............................   161
    Written questions for Mr. Miller.............................   162
    Written questions for Mr. Webb...............................   163
    Written questions for Mr. Gourley............................   164
    Written questions for Ms. Kemp...............................   166
Gourley, Gene:
    Written response to questions from Hon. Tom Harkin...........   167
Kemp, Loni:
    Written response to questions from Hon. Saxby Chambliss......   172
Miller, Ron:
    Written response to questions from Hon. Saxby Chambliss......   174
Pacheco, Michael:
    Written response to questions from Hon. Saxby Chambliss......   176
    Written response to questions from Hon. Blanche L. Lincoln...   177
Smith, J. Read:
    Written response to questions from Hon. Tom Harkin...........   179
    Written response to questions from Hon. Saxby Chambliss......   181
Additional Material Submitted for the Record:
American Forest & Paper Association, prepared statement..........   194
ArborGen, LLC, prepared statement................................   200
The National Corn Growers Association, prepared statement........   202



                    AGRICULTURE AND RURAL AMERICA'S



               ROLE IN ENHANCING NATIONAL ENERGY SECURITY

                              ----------                              


                      Wednesday, January 10, 2007

                               U.S. Senate,
                          Committee on Agriculture,
                           Nutrition, and Forestry,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 9:32 a.m., in 
room SR-328, Russell Senate Office Building, Hon. Tom Harkin, 
Chairman of the Committee, presiding.
    Present: Senators Harkin, Lincoln, Nelson, Brown, 
Klobuchar, Chambliss, Roberts, Coleman, Thune, and Grassley.
    Senator Chambliss. Good morning. As is customary at the 
first official get-together of the Agriculture Committee in a 
new session when we have had a change of power, it is the time 
to welcome the new Chairman--welcome, excuse me, the return of 
the new Chairman. Tom Harkin, obviously, has been very involved 
in this Committee's work for the entire service that he has 
given to the U.S. Senate and the great people of Iowa.
    Tom has also been a good friend to me. He and I had the 
opportunity to work very closely on the 2002 Farm Bill when you 
chaired the Committee over here then, Tom, as you remember. And 
over the last couple of years we have had a very good working 
relationship as Chairman and Ranking member, and I know that 
will continue.
    You know, being Chairman of this Committee has its 
privileges and it has its problems and challenges, and 
certainly this year, Tom, you are going to be challenged with 
reference to energy issues which we are going to talk about 
today with the Farm Bill and with trade issues, but with your 
experience, your knowledge, and your commitment, along with the 
good staff that you have in Mark and others, I know that 
certainly you are up to the challenge. My staff, as well as all 
members on this side look forward to working with you on 
addressing these issues, and particularly as we get into the 
Farm Bill negotiations.
    But Tom, I congratulate you as coming back in as Chairman 
and I look forward to a great year on the AG Committee.
    Chairman Harkin. Thank you very much.
    Senator Chambliss. With that, I will hand you the gavel.

STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM THE STATE OF 
   IOWA, CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND 
                            FORESTRY

    Chairman Harkin. Well, Senator Chambliss, thank you very 
much for those very kind and overly generous remarks. I thank 
you for your great leadership of this wonderful Committee, 
which we all love. Over the last couple of years, and I say 
that in all sincerity and candor, you have been exemplary as a 
Chairman. You have been fair and open. And again, I would be 
remiss--you know, it was Pat Leahy who used to always make the 
statement that Senators are a constitutional impediment to the 
smooth functioning of staff. And with that disclaimer, I want 
to say I want to thank Martha Scott. Martha has just been 
wonderful, and I am glad she is going to be continuing on. Both 
she and Mark Halverson have worked very closely together.
    Martha, thank you very much for your great leadership of 
the staff for the last couple of years. We look forward to that 
continuing relationship.
    I thank you again, for your leadership of this Committee 
and for really starting the process of the hearings on the Farm 
Bill last year. So much of the work that whoever was going to 
be Chairman this year has already been done by you. You had 
good field hearings all across the country. I thank you for 
that. You came to Iowa and we had a great hearing in Iowa. And 
you went to several other States, so you saved me some travel 
and I appreciate that very much, and getting set up.
    So we have got a good basis. We have some good hearings 
that you have started as a basis for moving ahead on the 
Agriculture Committee. It is, for me, again--I was thinking 
this morning as I came in. I think this is the fourth or fifth 
time that the gavel has changed in this Committee since I have 
been here. Pat, I think it is four or five. I cannot remember 
which. I will have to think about that again. And I think that 
is good. That has been over twenty years, so if you average it 
out, about five years per side. I think that lends itself to a 
closer working relationship, and it lends itself to a more 
bipartisan atmosphere on this Committee. I do think that this 
Committee, of all the Committees I have worked on in both the 
House and Senate, this Committee is the least partisan in terms 
of its approach. We may have regional differences, obviously, 
and we tend to protect our own regions, obviously, but it does 
not come down to partisan matters. It usually comes down to 
what our regional interests are. But we have worked those out 
in the past. We had a good bipartisan effort on the last Farm 
Bill in 2002. The Senate was run by Democrats then and the 
House was run by Republicans, and I think we worked out a 
pretty darn good Farm Bill. It seemed to work pretty well.
    And so I look forward to that same kind of working 
relationship this year. This is not going to be any kind of a 
Democratic bill or a Republican bill. It is going to a bill for 
all America, and for all of rural America.
    And so, with that, you mentioned the challenges and that 
type of thing. I have to, again, confess a little bit here that 
one of the biggest challenges for me now as Chairman is to be 
here on time. I am congenitally late for everything.
    [Laughter.]
    Chairman Harkin. I think I was born--I don't know. Maybe I 
was born late. I don't know, Pat. So now I have got to be here 
on time since I am Chairman. So to me that is going to be one 
of my biggest challenges is to make sure I beat Roberts here in 
the morning.
    Senator Chambliss. We will start without you the first 
couple of times.
    [Laughter.]
    Chairman Harkin. You probably will.
    Let me just, again, say, before I make my opening 
statement, just a couple of things. I will continue the same 
policy that Senator Chambliss had, that unless there is some 
real burning desire or some immediacy to a Senator's schedule, 
opening statements will be restricted to Chairman and Ranking 
Member. We will do 10-minute rounds of questions. We will ask 
our panelists who our here, our witnesses, to provide up to 6 
minutes and no more. Please do not read any statements. 
Summarize as best you can within that 6-minute timeframe. And 
those will sort of be the general ground rules which, 
basically, you had set up, and I think that is a good way to 
operate.
    So I will just, then----
    Senator Roberts. Mr. Chairman, can I just say one thing?
    Chairman Harkin. Yes, sir.
    Senator Roberts. I have three Committee meetings at the 
same time. I don't know how that worked out. I was usually up 
in the bubble up in the Intelligence Committee and did not know 
what was going on anywhere. At any rate, I just wanted to say 
something to you personally. I do not know in the history of 
this Committee if we have had a Chairman that came on and then 
rode off to other pastures and came back. I do not know about 
the history of that, but that may be unique. And I would just 
say that there is a space for your portrait up there if we want 
to reserve that for you and to welcome you back.
    I am going to date myself. One of my favorite movies was 
called Shane. And Brandon De Wilde told Alan Ladd after he 
killed the bad guy as he rode off into the mountains, ``Shane. 
Come back, Shane. Come back.'' So now we are saying, ``Tom. 
Come back, Tom. Come back.''.
    And so I want to welcome you back and I want to thank the 
former Chairman and our current Ranking Member. I have been 
riding shotgun with him. He has complained that I am a lot like 
the Vice President in terms of wielding a shotgun.
    [Laughter.]
    Senator Roberts. But I want to thank him for starting this. 
And I want to thank you for holding a hearing in regards to 
energy. I don't know if we are going to have an energy title or 
whatever. The biggest concern I have is that we do not 
compromise one title at the expense of another. It has to be 
part of a team effort.
    And with that, I would just ask permission to make my full 
statement part of the record, and that I am going to have to 
leave early.
    Welcome back, Tom.
    [The prepared statement of Hon. Pat Roberts can be found on 
page 70 in the appendix.]
    So I would just, again, proceed with my opening statement, 
then I will recognize our Ranking member, and then we will 
proceed to our witnesses.
    So I want to say good morning to all my colleagues, to our 
witnesses. I saw the huge audience out in the hallway, so 
obviously there is a great deal of interest in the subject of 
this hearing. I am pleased to welcome you this first hearing on 
the Senate Committee on Agriculture, Nutrition, and Forestry of 
the 110th Congress.
    And again, Senator Chambliss, as I said earlier, I look 
forward to working with you and Martha Scott, and all the 
staff, in providing leadership to this Committee.
    I also want to welcome our new members, Senator Sherrod 
Brown from Ohio, Senator Bob Casey--well, they are not here, 
but Lindsay Graham from South Carolina, Bob Casey from 
Pennsylvania, Amy Klobuchar from Minnesota, and John Thune from 
South Dakota.
    Our most important Committee task this year, of course, 
will be to formulate a new Farm Bill. When we wrote the last 
Farm Bill, which was titled the Farm Security and Rural 
Investment Act of 2002, we included an energy title for the 
first time. Since then, we have seen vigorous growth in energy 
production in rural America, especially in the form of biofuels 
and wind power, revealing a new and encouraging energy supply 
capability in rural America.
    During the same period, we have become increasingly aware 
of just how precarious our national energy situation is. Energy 
prices have gone up and appear to be staying up. Environmental 
impacts of energy use, especially from autos and power plants 
are still a major concern. The evidence of climate change is 
absolutely clear and very ominous. And we know that combustion 
of fossil fuels is the primary contributor to the greenhouse 
gases that drive global warming.
    On top of all that, our use of petroleum is rising 
steadily, and we are importing about 60 percent of that 
petroleum from foreign sources, many of whom are politically 
unstable or unfriendly to the U.S. In short, we need to 
initiate a major transition of our energy sector to one that is 
far more efficient, is much less reliant on fossil fuels and on 
imported oil, and is utilizing vastly more domestically 
produced renewable energy.
    This convergence of national energy needs and national 
security with agricultural sector energy capabilities 
represents a genuine opportunity for all of us: for farmers, 
ranchers, and all who call rural America home. We can, and I 
believe we must, formulate and pass a Farm Bill that encourages 
and accelerates the rural production of energy for the whole 
Nation.
    In other words, we have the opportunity now to move our 
agricultural sector from one that supplies food and fiber alone 
to a sector that supplies food, fiber, and energy. This is a 
convergence with a real win-win potential, to help the Nation 
with its pressing energy needs and national security needs 
while promoting rural development through business expansion to 
energy suppliers.
    Our new bill this year will not be a, quote, Farm Bill, in 
the classical, old-fashioned manner. It must be bold, 
innovative, challenging, and supportive of a transition to a 
bio-economy based on our rich resources of productive land, our 
agribusiness infrastructure, and our hardworking, patriotic, 
rural citizens.
    So that is why I wanted this first Committee hearing to 
begin to set the stage for bringing our agriculture and rural 
sector's renewable energy capabilities to bear on our national 
energy needs. That is why I have chosen to focus this first 
hearing on what is arguably our most critical energy need, and 
that is reducing our dependence on foreign oil.
    To that end, we have invited two panels of witnesses this 
morning to talk to us about significantly increasing the 
production of biofuels, and the challenges and implications 
associated with that expansion.
    And again, with that, I welcome Senator Chambliss. Again, 
thank you for your great leadership. I look forward to our 
close relationship, and I yield to you for an opening 
statement.

  STATEMENT OF HON. SAXBY CHAMBLISS, A U.S. SENATOR FROM THE 
                        STATE OF GEORGIA

    Senator Chambliss. Well thank you very much, Mr. Chairman, 
and I congratulate you again. I look forward to a very, as I 
say, challenging but interesting--a year in which we have some 
great opportunities for American agriculture, and we look 
forward to your leadership.
    But also I would like to welcome our new members. Senator 
Thune is kind of coming back since he served on the House 
Agriculture Committee with Senator Roberts and myself. And we 
are looking forward to leaning on our new members' experience 
in agriculture to bring us some fresh ideas to the Committee.
    The hearing today on agriculture and rural America's role 
in enhancing national energy security is timely and 
appropriate, and it is the first hearing before this Committee 
and the 110th Congress. Agriculture in the United States is 
undergoing one of the most profound changes we have ever seen 
and previously held assumptions about the role of farmers and 
ranchers across our country are radically changing.
    The Chairman is right to point out that agriculture and 
foreign policy are not only about food and fiber, but also 
fuel. Renewable fuels like ethanol, biodiesel, and wind are the 
centerpiece of our discussion today, and support for these 
sources of energy is indisputable.
    Biofuel production is helping to spur a rural renaissance 
in the Midwest as large amounts of capital are being spent to 
expand biofuel production. Other regions of the country can and 
need to share in this renaissance. Areas such as the Southeast 
are just beginning to build corn ethanol plants like one that I 
helped dedicate last week in Camilla, Georgia, and have 
tremendous potential for growing energy-dedicated crops.
    I am extremely excited about the research being conducted 
at Georgia Tech, the University of Georgia, Auburn University 
on woody biomass and switchgrass. It is my hope and intention 
that the energy title in the 2007 Farm Bill will accelerate 
this progress, in hopes of commercializing these feedstocks 
earlier to relieve some of the pressure on corn demand.
    The exuberance surrounding biofuels is evident in the 
aggressive growth of the industry over the past year. From 
January 1, 2006, the Renewable Fuel Standard went into effect, 
and since then the United States has used more than 5 billion 
gallons of ethanol, outpacing RFS requirements by more than 25 
percent. According to the RFA, in the next 18 months, the 
industry will add nearly 6 billion gallons of new production 
capacity.
    In short, in 2008, new capacity will exceed the minimum 
that is called for in the RFS. This progress is astounding to 
say the least; however, this expansion has not come without 
affecting the rest of the agriculture sector. For the first 
time in memory, corn prices increased during the 2006 harvest 
season, and exceeded a critical threshold of $4.00 per bushel 
on the Chicago Board of Trade just last week. This is far 
beyond the estimates of the U.S. Department of Agriculture just 
last year, and of the National Corn Growers Association, when 
that organization advocated a higher standard in the 2005 
Energy Policy Act. The 87 percent increase in the price of corn 
in just the last two years is a welcome development for corn 
growers, but it is increasing a critical input cost for cattle, 
dairy, hog, and poultry producers in my State and across the 
country.
    Mr. Chairman, the RFS is bidding corn and fuel grains away 
from traditional customers and beginning to affect the 
livestock and poultry industries. If corn prices continue to 
set new highs over the next year, the industry in my home State 
of Georgia will come under increasing pressure, and I fear 
continued price spikes will force some producers out of 
business.
    We find ourselves in the position of encouraging an 
industry that directly competes with another that is important 
in all our States, and I hope the end result is not a policy 
that encourages livestock operators to further integrate and 
consolidate. I strongly support the biofuel sector, and, like 
my colleagues on the Committee, want to find ways to expand 
their use in order to lessen our dependence on imported oil. 
However, doing so may require modification of existing 
incentives. The research community is tirelessly working on new 
processes to convert cellulosic biomass to ethanol.
    The expansion of the ethanol industry will depend on this 
critical research and future incentives, and I look forward to 
testimony today particularly my friend from Georgia Tech on 
this issue, and Mr. Chairman, I would like to give you a 
personal invite down to Georgia to see some exciting things 
that we are doing, both at Georgia Tech, as well as at the 
University of Georgia, and our research departments here on 
this conversion of cellulosic material into ethanol. It is 
pretty exciting to see what we are doing. And as we discuss 
these issues, perhaps we should focus more on feedstocks that 
do not compete with animal agriculture, while at the same time 
promoting innovation.
    I want to thank our witnesses in advance. I look forward to 
hearing their testimony. And at this time, Mr. Chairman, I 
would ask unanimous consent that written testimony from Auburn 
University be inserted into the record.
    Chairman Harkin. Without objection.
    Senator Chambliss. Thank you.
    [The following information can be found on page 150 in the 
appendix.]
    With that, we will turn to our panels. We have two panels. 
The first panel will cover America's energy security and the 
potential role that biofuels can play in our nation's future.
    We have, of course, Dr. Collins from USDA to testify on the 
economics related to increased biofuel production, and also a 
summary of the technology status and research potential of 
biofuels.
    Our first panelist is the Honorable Phil Sharp, President 
for Resources for the Future.
    Dr. Keith Collins, Chief Economist for the Department of 
Agriculture.
    Mr. J. Read Smith, Committee Co-chair of the 25 X 25 
Committee.
    And Dr. Michael Pacheco, Director of the National Bio-
energy Center from the National Renewable Energy Laboratory.
    Our first witness will be Phil Sharp, again, a longtime 
friend and colleague of mine. Phil and I came to the House 
together in 1974, so we were in that same class. I served 
together in the House with Phil for--well, I was there for 10 
years and then came to the Senate, and then Phil went on to 
serve for another 10 years in the House. I think until about 
1995. He was one of the key players during all that time on the 
Energy Committee on the House of Representatives.
    I just got to thinking, Phil, when I saw that you were 
going to be here this morning that there are not too many of us 
left from that Class of 1974. I was just thinking about, in the 
Senate, there is Chris Dodd, Max Baucus, Me, and Chuck Grassley 
are the only ones left from that Class of 1974.
    So I am glad that you have continued your involvement in 
this area of energy and renewable energy. And I congratulate 
you on taking the helm of the Resources for the Future. With 
that, we welcome you, Phil, to the Senate Agriculture 
Committee. It is good to see you again.

STATEMENT OF HON. PHILIP SHARP, PH.D., PRESIDENT, RESOURCES FOR 
                   THE FUTURE, WASHINGTON, DC

    Mr. Sharp. Well thank you very much, Mr. Chairman. I 
certainly appreciate the invitation. It is nice to be back with 
you. We were both Watergate babies, elected in 1974. And if I 
am accurate, both your family and mine had our first child in 
that first term. Not the wisest way to plan a family.
    Chairman Harkin. That's right.
    Mr. Sharp. But Mr. Chairman, I am President of Resources 
for the Future, which is a nonpartisan think tank and not 
engaged in advocacy. So what I say here are my own opinions. 
And I was asked simply to comment briefly on the energy 
challenges our Nation faces, and particularly with respect to 
oil.
    And, of course, as those in this Committee and elsewhere 
that have dealt with energy issues know, our first and foremost 
difficulty is always reconciling the various goals we try to 
get energy policy to serve. We clearly want cheap energy 
supplies to fuel prosperity. We do not want to damage our 
national security and we do not want to damage our environment 
in the process. And that is a very tall order, and there simply 
are no silver bullets, of course, for hitting that complex 
target.
    With respect to oil, the first couple of charts in my 
testimony demonstrate what everybody knows. We are scheduled to 
continue to grow in our import of foreign oil and in our 
general use of oil.
    The pie charts on Chart 3 most startlingly show the EIA 
projections for 2030 that suggest that we do not in any 
significant way alter between now and then the proportion of 
our energy that will come from petroleum products, roughly 40 
percent of everything we use now and then. This is in spite of 
the EIA's calculations of all the proposals in the law as of 
2005 that might make an alteration.
    Now, it is pleasant to note, however, that already those 
projections are off with respect to ethanol because it is very 
clear if what has been happening this last year is sustained, 
it will more than meet what is assumed in that model.
    Mr. Chairman, the oil dependency, of course, as you have 
articulated and others have articulated, brings a certain 
number of risks to us in terms of foreign policy: the 
possibility of a serious supply disruption, the pressure to 
compromise important foreign policy goals for the sake of oil 
supply, the possibility that global production will not keep 
pace with global demand, and therefore there will be intense 
competition between us, China, and others over short supplies, 
the pressure to militarily protect the oil markets.
    Many new groups have come into the American public arena, 
bipartisan in nature and nonpartisan in nature, reasserting the 
advocacy that we must act more forcefully in this regard: the 
Energy Futures Coalition, the National Committee on Energy 
Policy, the Energy Security Leadership Council, and recently a 
taskforce of the Council on Foreign Relations. None of this is 
new to members of this Committee. We have simply, in the past, 
not been able to change the course over the last 30 years 
because we have simply not been willing to pay the price that 
was necessary, and it was always more expensive than the cheap 
oil we were able to buy from abroad.
    The history also has been one of an up-and-down in world 
oil prices. When the prices go up, we find intense interest by 
consumers in fuel-efficient vehicles and alternative fuels. We 
find that same intensity among investors and government policy 
is asserted to try and make changes in both arenas. When prices 
go down, we see a withdrawal of that interest. And so we have 
had an on again, off again proposition, which means that, if we 
want to make a difference, we have to sustain policy to do so.
    Now, the newest of our energy goals, and it has not totally 
been accepting in this country, but I think increasingly the 
consensus is that we must do something over time about 
greenhouse gas emissions, which are very much the result of our 
burning of hydrocarbons. And what we see over the next decade 
here in the United States and abroad is not a pretty picture in 
this regard, because most of what is anticipated for 
investments in the electrical sectors as well as the oil sector 
are likely to increase significant greenhouse gas emissions.
    If we look at electricity, for example, in the United 
States, we are about to build a whole new wave of power plants, 
many of them planned to be coal combustion. This is even more 
dramatic a case in China and in India.
    In terms of our oil supply, we not only expect to use more 
here and abroad over the next twenty years, but also there be a 
shift to unconventional fuels, which, because they require so 
much energy to produce, they also create considerably more 
greenhouse gas emissions.
    If you look at Chart 4, that is a complex display of the 
alternatives to conventional gasoline or oil, whether it is 
biodiesel or it is oil shale. And that is displayed in terms of 
the generally estimated costs for the production of those 
alternatives, as well as the range of likely greenhouse 
emissions. In simplistic terms, let me say to you what the 
story there is, if the oil prices, the driving factor in what 
decisions that were made by investors, what we will see is 
investment in those energy sources that are highest in carbon 
emissions, rather than those that are lesser.
    Now, what is missing from that chart is the work that you 
folks have done here in the last few years that has already had 
a profound effect. The subsidies that the Federal Government 
has put into play has significantly reduced those cost figures 
for cellulosic ethanol, biodiesel, and corn ethanol so that 
they have come into the range of being competitive in the world 
market, or what is anticipated in world oil prices. The 
significant thing, I think, is that those policies or something 
like them have to be sustained if you expect for these fuels to 
play a significant role.
    I will leave it to more knowledgeable colleagues here at 
the table and on the panel to identify just how big a role and 
what the complex issues are surrounding each of those fuel 
developments.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Sharp can be found on page 
122 in the appendix.]
    Chairman Harkin. Thank you very much and I will have some 
questions for that chart. I looked at that last evening.
    Now we turn to Dr. Keith Collins, who is no stranger to 
this Committee or the House Committee. I am told that this is 
the 76th time Keith Collins has testified before the 
Agriculture Committee. Is that factual?
    Mr. Collins. That is about right, Mr. Chairman.
    [Laughter.]
    Chairman Harkin. Over how many years, Keith?
    Mr. Collins. I did my first hearing in 1993. And I can tell 
you when I did, my hair was black. You can see what it has done 
to Mr. Roberts.
    Senator Lincoln. Give him a plaque.
    Chairman Harkin. Yes, give him a plaque. Just nail it down 
there.
    Well, Dr. Keith Collins, who is the Chief Economist for the 
Department of Agriculture has been a great source of 
information on a bipartisan basis for this Committee for a 
long, long time. We just welcome you back, Keith. Thank you for 
your great service and your continued service. I look forward 
to your testimony.

     STATEMENT OF DR. KEITH COLLINS, CHIEF ECONOMIST, U.S. 
           DEPARTMENT OF AGRICULTURE, WASHINGTON, DC

    Mr. Collins. Thank you very much, Mr. Chairman, and I 
appreciate that personal comment, and thank you for the 
invitation today to discuss the implications of bio-energy for 
U.S. agriculture.
    I think there is nothing more exciting than renewable 
energy in agriculture today. The producers are generating 
electricity from wind. They are using manure to produce biogas, 
and the biogas is being used to produce electricity and it is 
being scrubbed and sold as renewable natural gas. But nowhere 
has interest and discussion been more intense than in the area 
of liquid biofuels.
    The prospects for biofuels are shifting from niche markets 
to mainstream energy sources, and that is crucial to reducing 
U.S. fossil fuel imports. Ethanol production last year was 
three times greater than 2000. Biodiesel production was over 
100 times greater than in 2000.
    Since June alone, U.S. ethanol production capacity in 
operation and under construction has increased by an astounding 
4 billion gallons. We are on a track to exceed 12 billion 
gallons of ethanol production in 2009, more than doubling last 
year's level in 3 years.
    In 2000, 6 percent of U.S. corn production was used to 
produce ethanol. Last year, it was 20 percent. Within three 
years, it is likely to well exceed 30 percent. And biodiesel 
now accounts for 13 percent of U.S. soybean oil use, compared 
with almost none 6 years ago.
    This increased use of crops for biofuels is having, and is 
expected to continue to have, a sustained major positive impact 
on crop producers, rural areas, and the agriculture sector 
broadly, including fertilizer suppliers, seed suppliers, 
equipment suppliers, and so on.
    The rapid fuel growth raises a number of questions. I 
believe we are entering right now a critical three to 4 year 
period where several key supply and demand issues will be 
sorted out. First, consider biofuel supply. How will crop 
markets adjust to increased demand for corn? Thus far, the 
demand increases this past year have been largely met by 
drawing down stocks, but stocks for corn are now at a 
historically low level. This spring, high corn prices are 
expected to draw substantial acreage away from other crops, 
particularly soybeans, and into corn. As more increases in corn 
acreage occur in subsequent years, we are going to see that 
continued pressure on the corn acreage base.
    Higher ethanol production over the next several years is 
likely to push corn prices to record highs, especially if the 
weather does not help. Higher corn yields are likely to temper 
price increases in acreage shifts, and corn productivity trends 
have gotten stronger over the last several years.
    A related issue, as Senator Chambliss mentioned, is the 
impact of higher feed costs for livestock and dairy. Sustained 
higher feed costs, if you hold everything else equal, mean 
lower livestock, poultry, and milk production, and higher 
livestock and livestock product prices, but as those prices of 
livestock products rise, that will restore profits to the 
livestock sector, but there is some period of adjustment.
    Importantly, about 30 percent of corn used in ethanol can 
return to animal feed as Distiller Dried Grains or other feeds, 
and advances are occurring that will likely make DDGS a more 
useable feed for hogs and poultry.
    Second, consider biofuel demand. Will ethanol prices stay 
high and demand continue to grow? In the near time, although 
corn prices have soared this fall and oil prices have dropped, 
ethanol returns remain above the levels attained prior to 2006. 
Over the long term, while ethanol prices to producers will 
reflect the price of gasoline and the ethanol tax credit, they 
are increasingly going to reflect blending opportunities.
    Ethanol is a blend component, and its key market is blends 
up to 10 percent. As ethanol's share of the blended gasoline 
market moves into the eight to 10 percent range, ethanol's 
demand and price premium in the marked will depend on the 
ability to use ethanol in higher blends, such as E85.
    To move ethanol beyond low level blending and substantially 
reduce crude oil imports, infrastructure such as E85 pumps and 
flexible fuel vehicles are needed. But to ensure their 
development, ethanol supplies must exceed what is practical 
from corn. Breakthroughs that allow commercialization of 
cellulosic ethanol are needed to provide that supply boost. 
Successful commercial-scale production would allow many other 
feedstocks to be used for ethanol.
    In conclusion, USDA sees renewable energy as a prime 
opportunity to stimulate economic growth in agriculture in 
rural areas. We have a range of grant, and loan, and research 
programs that support renewable energy. Last year we spent over 
$250 million on those programs. We also coordinate joint 
biomass research with the Department of Energy and other 
Federal agencies, and we draw on the Department of Energy to 
help us implement our programs.
    We are very optimistic that biofuels will create greater 
economic opportunities in rural America, and contribute 
significantly to diversifying the Nation's energy supplies.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Collins can be found on page 
73 in the appendix.]
    Chairman Harkin. Thank you, Dr. Collins for the testimony. 
I have some questions about that, too.
    Now we turn to Read Smith, who is one of the great leaders 
of the 25 X 25 Renewable Energy Project. This has sort of 
captured the imagination of a lot of people around this 
country. It is a great alliance of national agriculture and 
forestry leaders in promoting agriculture's potential 
contribution to our energy independence.
    They have laid out a very challenging scenario for this 
country, and one that I hope that this Committee and our new 
bill this year will be involved in trying to meet some of those 
goals.
    So Mr. Smith, thank you for your leadership in the whole 
are of renewable fuels. Welcome to the Committee and please 
proceed.

STATEMENT OF J. READ SMITH, 25 X 25 STEERING COMMITTEE, WHEAT, 
 SMALL GRAINS, AND CATTLE PRODUCER, FORMER PRESIDENT, NATIONAL 
  ASSOCIATION OF CONSERVATION DISTRICTS, ST. JOHN, WASHINGTON

    Mr. Smith. Thank you and good morning, Chairman Harkin and 
Ranking Member Chambliss, and members of the Committee. Thank 
you for the opportunity to share with you today on behalf of 
the nearly 400 organizations that comprise the 25 X 25 
Renewable Energy Alliance.
    My name is Read Smith. I am one of the two Co-chairs of the 
Alliance. And along with my wife and son, I manage our family 
farming interest in Whitman County, Washington. Our principle 
crops there are wheat, barley, minor crops, and I also manage a 
cow-calf operation.
    Mr. Chairman, on behalf of the 25 X 25 Alliance, I want to 
begin by welcoming you back to the Chairmanship and thanking 
you for your longtime leadership in both energy and 
conservation.
    Today's hearing on energy solutions from agriculture and 
forestry make a dramatic statement about the importance to this 
Committee on accelerating the development of renewable energy 
from our Nation's farms, ranches, and forests, and it is very 
much appreciated by those of us who make their living from the 
land.
    As you well know, our Nation and the world are searching 
for new energy solutions. Due to increasing demands and limited 
supplies and our growing reliance on imported oil from unstable 
regions of the world, directly compromising our national 
security, Americans cannot continue on the path that some have 
called ``Yesterday Forever.'' As energy demands increase both 
here and abroad, we will need to come up with additional energy 
supplies, ones that are sustainable instead of importing oil 
from the Middle East, we can produce energy here at home in the 
``Middle West'' and other parts of the country using America's 
agriculture and forestry lands for fuel as well as food, feed, 
and fiber.
    With these challenges and opportunities as a backdrop, our 
group of highly respected agricultural leaders came together in 
2004 to discuss agriculture's role in helping our Nation meet 
those energy needs. The vision was emerged as 25 X 25, and that 
is that 25 percent of the energy supplies we use in our country 
will come from renewable sources by the years 2025, while still 
producing safe, abundant, and affordable food, feed, and fiber.
    This vision has grown into an alliance of nearly 400 
groups, as well as 22 current and former Governors, 4 state 
legislatures, 30 current and former Senators, and many members 
of this Committee, and 94 current and former Representatives.
    Mr. Chairman, a 25 X 25 energy future will generate 
increased farm income, stimulate rural development, and help 
improve air, water, and soil quality. It will also result in 
improvements in wildlife habitat and conservation on crop land, 
range land, and pasture lands.
    Last year, we commissioned a major analysis from the 
University of Tennessee to determine the ability of America's 
farms, forests, and ranches to provide 25 percent of the total 
U.S. energy needs by 2025 and to assess the economic impacts of 
the 25 by '25 goal on the agricultural sector and the overall 
economy. The analysis revealed the following findings:.
    The 25 X 25 goal is achievable. This goal can be met 
without compromising our ability to produce food, feed, and 
fiber. Reaching the goal would have extremely favorable impacts 
on rural American and the Nation as a whole.
    By reaching 25 X 25, annual net farm income could increase 
by $37 billion. With higher market prices, an estimated 
cumulative savings in government payments could result in a $15 
billion.
    Contributions from America's fields, farms, and forests 
could result in the production of over 86 billion gallons of 
ethanol and biodiesel by the year 2025.
    And with your permission, Mr. Chairman, I would submit that 
entire research project for the record.
    Chairman Harkin. Without objection.
    [The following information can be found on page 134 in the 
appendix.]
    The 25 X 25 partners are now working to construct a road 
map to achieve our 25 X 25 vision. Over the past 6 months, 
representatives from the endorsing entities have been jointly 
and in working groups meeting to develop a detailed 25 X 25 
implementation plan, which will include policy recommendations 
to achieve this goal. The plan will be ready for Congress in 
February, in time for crafting the new Farm Bill.
    In our view, American agriculture is uniquely positioned to 
play a major role in improving energy and national security, 
strengthening the rural and national economies, and improving 
the environment. The first step in achieving the 25 X 25 energy 
future is to establish 25 X 25 as a national goal. And Mr. 
Chairman, you, along with Senators Grassley, Salazar, Lugar, 
and 12 others introduced 25 X 25 as Concurrent Resolution 97. 
We thank you and we look forward to your continued leadership 
and support.
    In the coming weeks, as you once again take up Farm Bill 
legislation, we urge you to ensure that the energy title is 
structured and funded to match both the challenge and the 
opportunity facing our Nation.
    Thank you again for this opportunity to appear today, and I 
hope you will look to us as a resource as you move forward with 
the Farm Bill, and I would be pleased to respond to questions 
later.
    [The prepared statement of Mr. Smith can be found on page 
133 in the appendix.]
    Chairman Harkin. Thank you very much, Reed. And again, we 
look forward to having that. You say you will have that by 
February?
    Mr. Smith. Yes.
    Chairman Harkin. Hurry.
    Mr. Smith. We are.
    Chairman Harkin. OK. We need that.
    Next we turn to Dr. Pacheco. Dr. Pacheco I hope I 
pronounced that right.
    Mr. Pacheco. Yes, you did, Senator.
    Chairman Harkin. Thank you.
    Dr. Pacheco joined the National Renewable Energy Lab in 
January of 2003 to serve as the Director of the National Bio-
energy Center. This center was established the Secretary of the 
United States Department of Energy in 2000 and it is 
headquartered at NREL.
    As the center Director, Dr. Pacheco provides strategic 
guidance, technical direction, and management oversight of the 
National Bio-energy Center at NREL. Dr. Pacheco is also 
responsible for helping DOE coordinate bio-energy research 
activities supported by DOE and carried out at the five 
national laboratories.
    Dr. Pacheco, welcome to the Committee, and we look forward 
to your testimony.

  STATEMENT OF MICHAEL PACHECO, DIRECTOR, NATIONAL RENEWABLE 
              ENERGY LABORATORY, GOLDEN, COLORADO

    Mr. Pacheco. Senator, thank you very much, and in the 
opening remarks, when you were talking with Dr. Sharp about the 
Class of 1974, I was also a member of the Class of 1974, but 
that was the graduating class of Montville High School.
    [Laughter.]
    Chairman Harkin. Wait a minute. How old am I?
    [Laughter.]
    Mr. Pacheco. Thank you, Mr. Chairman. And thank you, the 
Committee, for this opportunity to discuss how rural America 
can improve our Nation's energy security. I direct the National 
Bio-energy Center, as you said, at the National Renewable 
Energy Laboratory in Golden, Colorado. NREL is the U.S. 
Department of Energy's primary laboratory for renewable energy 
and energy efficiency, and I am honored to be here today.
    The Committee is to be commended for examining the role 
that agriculture and forestry can play in reducing our 
dependence on imported oil. This is a crucial subject for our 
Nation. Biomass is the only renewable option that we have for 
liquid transportation fuels.
    Let me begin by emphasizing that the biomass resource base 
in our country is huge. Every State in the Nation can benefit 
economically from an expanding biofuels industry. A recent 
study by USDA and DOE found that the U.S. could produce 
annually 1.3 billion tons of biomass dedicated to fuels. As 
illustrated in my written testimony, this amount of biomass 
holds as much energy as 3.5 billion barrels of oil. That is 60 
percent of the oil that we use in the United States each year. 
Already today, our Nation produces 5 billion gallons a year of 
ethanol from corn grain, and the industry is growing about 30 
percent annually.
    Corn ethanol can ultimately produce about five to 10 
percent of the liquid fuels that we need. To move the biofuels 
industry to where we need it to be, we have to go beyond corn 
grain as the primary resource. We need to move to cellulosic 
biomass: trees, grasses, non-edible materials, some of which 
are residues from existing industries. That is the focus of our 
research at NREL and of the biomass program within the 
Department of Energy.
    Our goals are to make cellulosic ethanol as cheap as corn 
ethanol within the next five years, also, to make cellulosic 
ethanol cost competitive with gasoline by the year 2030. While 
these goals are aggressive, and they will require revolutionary 
approaches for producing, collecting, and converting the 
biomass, we believe that both of these goals are achievable 
with adequate research support and a focused R&D effort.
    The encouraging progress that we have had to date with 
cellulosic ethanol lends credence to our longer-term targets. 
As illustrated in my written testimony, the past five years of 
DOE's research have drastically cut the cost of making ethanol 
from cellulosic biomass. In partnership with two of the world's 
largest enzyme manufacturers, we have been able to reduce the 
cost of the required enzymes more than tenfold, and we have 
reduced conversion costs by another 30 percent over those five 
years by improving the biomass conversion process itself.
    Critical to our progress at DOE are our many partnerships 
with industry on the development of what we call biorefineries. 
NREL, together with our partners, are developing technology for 
fully integrating facilities that can use biomass instead of 
petroleum to produce fuels, power, and chemicals, virtually 
everything that we make from petroleum today. We are partnering 
with ethanol technology providers, ethanol producers, biotech 
companies, chemical companies, and companies in the 
agriculture, forestry, and oil industries. We are working to 
increase the yield of ethanol from existing facilities, develop 
new biofuel technology options, and expand the slate of 
feedstock to include cellulosic biomass.
    The emergence of cellulosic biorefineries from our existing 
facilities is one of the reasons that we believe, at NREL, that 
the cellulosic ethanol industry will not replace today's corn 
and grain industry, it will evolve from it.
    There are other important biofuel technologies, including 
thermochemical gasification and pyrolysis of cellulosic 
biomass. These technologies can convert a wider range of 
feedstocks. They can also reduce the costs of the biofuels, and 
they may ultimately lead to an entirely new generation of 
biofuels.
    This week, the Department of Energy, yesterday and today, 
is hosting a 2-day workshop with industry, and there are 33 
different companies at that workshop. In order to better define 
what research is needed in order to utilize these thermal 
technologies to produce biofuels, in addition to the technology 
that we are working on in ethanol today. Developing all of 
these different technology options is important to maximize the 
benefit that biofuels will bring to the rural economies, and to 
ensure worldwide competitiveness of U.S. industry.
    Ethanol, biodiesel, and other biofuels definitely reduce 
our dependence on petroleum. Cellulosic ethanol can supply a 
large portion of our overall demand for gasoline, and we can 
expand our resource base and our biofuel options in the future 
as required.
    As the Director of our Nation's Research Center on Bio-
energy, I can assure you that your investments in biofuels 
research today will provide sustainable benefits for all future 
generations. Biofuels are an environmentally and economically 
beneficial way for us to bridge the gap between rising energy 
demand and peaking oil production, while reducing our U.S. 
dependence on imported oil.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Pacheco can be found on page 
114 in the appendix.]
    Chairman Harkin. Thank you, Dr. Pacheco. Thank you very 
much for your statement.
    We will turn to 10-minute rounds of questions, now. And I 
will just start with Phil Sharp. Again, I want to get that 
Chart 4, the Chart 4 that we talked about that I looked at last 
night.
    You have cellulosic ethanol equivalent to about 100-let me 
get it out here and look at it again. You have cellulosic 
ethanol equivalent to about $120 to $140 per barrel of oil, 
shale oil equivalent to $55 to $80 per barrel of oil. Now, 
since neither of these are being produced in volume today, how 
do you get those numbers?
    Mr. Sharp. Well, I did not compile the numbers. Dr. Richard 
Newell got it from a whole bunch of studies and projections 
that have been done. The truth is, I think nobody knows for 
sure on these kinds of things.
    Chairman Harkin. Okay.
    Mr. Sharp. But those are guesstimates as to what those 
kinds of costs are. Obviously, you have provided subsidies that 
helped bring down, potentially, over time those costs.
    Chairman Harkin. OK. I wanted to----
    Mr. Sharp. But I think the oil companies probably have come 
forth with a lot of information that would suggest that the oil 
shale are in those numbers. So my suspicion is that we have a 
more likely accuracy on those numbers than on the cellulosic 
biomass.
    Chairman Harkin. Dr. Pacheco, do those numbers mean 
anything to you? Have you looked at that in your research at 
all?
    Mr. Pacheco. Absolutely, and those numbers concur, 
currently, with best available technology. We believe that the 
cost of producing cellulosic ethanol today is in the low $2.00 
range, around $2.30 is typically the number that we use, but 
there are large error bars on that, since it has been pointed 
out.
    Chairman Harkin. $2.00 of what?
    Mr. Pacheco. That is per gallon of ethanol.
    Chairman Harkin. Per gallon.
    Mr. Pacheco. So to put it on barrels, you would need to 
need to multiply that by about 40.
    Chairman Harkin. So that is a little bit cheaper than what 
they got.
    Mr. Pacheco. That would be barrels of ethanol.
    Chairman Harkin. That's right.
    Mr. Pacheco. Again, from a technical point of view, there 
is another correction, because ethanol has less energy per 
barrel, about 30 percent. So you would need to multiply it by 
another factor, about 1.3.
    Mr. Sharp. These numbers, I believe, are corrected for the 
energy content.
    Mr. Pacheco. They do sound correct, Senator.
    Chairman Harkin. I see what you are saying.
    Mr. Pacheco. And consistent with our numbers.

          [The range of cost for producing ethanol from 
        cellulosic biomass that Dr. Sharp shows in Chart IV of 
        his testimony is $120-140 per BOE (barrel of oil 
        equivalent.) This cost range is actually about 30 
        percent lower than NREL's current cost estimate for 
        cellulosic ethanol. NREL currently estimates cellulosic 
        ethanol at about $2.20/gal ethanol, which would 
        correspond to $170 per BOE. Significant technology 
        improvements are needed to make cellulosic ethanol 
        cost-competitive with ethanol made from corn.]

    Chairman Harkin. I see. Well, again, my point is that in 
both cases, technological improvements may well lower the 
production costs. In your judgment, Phil, which of these 
alternatives is likely to see the largest production cost 
reductions from research and development?
    Mr. Sharp. Well, I am not a very good one to answer that, 
Senator. I think that it is very hard to say. I think it is 
going to depend on where the emphasis gets placed. Each has its 
own specialty. I mean, shale oil in Colorado depends heavily on 
other environmental considerations as to whether the huge 
investments get made there or do not. The investments that were 
made in the 1970's and 1980's all crashed when the oil price 
crashed, but a lot was learned in which these companies now are 
willing to come back and say, we will try again.
    If they are successful and they get into the marketplace 
first, it only compounds the competitive situation for these 
other fuels like cellulosic biomass and cellulosic ethanol.
    Chairman Harkin. Keith Collins, in the Biofuel Security Act 
of 2007, which we introduced last week with Senator Lugar and 
others, we called for increasing biofuel production levels to 
60 billion gallons per year by 2030. That is a little bit less 
energetic than the 25 X 25 is, but still up there. We all 
expect that we need to be producing biofuels from cellulosic 
feedstocks. We were talking about that. We cannot get it all 
from corn, for example.
    So my question for you is, how do we steer the economics of 
ethanol production so that we support and protect the role that 
grain-based ethanol plays now in the future, but also nurturing 
the development and commercialization of cellulosic ethanol? Do 
you understand what the point of my question is? Obviously, a 
lot has been invested in corn ethanol. A lot has been invested 
in these plants, but we know we have to move on. So how do we 
protect our initial investments and keep a market there for 
corn and while promoting and encouraging the commercialization 
of cellulose?
    Mr. Collins. That is an enormous challenge, Senator Harkin. 
It strikes me that, for some years to come, the investments in 
grain-based ethanol will be well-protected. Their cost of 
production, as just noted, are substantially below current 
estimates of cellulosic ethanol. I think those investments 
could be stranded only if those costs of cellulosic ethanol 
production were to plunge sharply below the costs of grain-
based ethanol production. That could possibly happen. I do not 
particularly see that. I have had a chance to see some 
confidential business information of firms that are planning on 
building demonstration cellulosic ethanol plants, and they have 
some projections of their cost structure now and out into the 
future. And they have their cost structure coming pretty much 
in line with corn-based ethanol.
    So it strikes me that there is a prospect here that we go 
from dominance of corn-based ethanol to a rise in cellulosic 
ethanol, and the two proceed to grow together for some time to 
come. So I think that would be sort of the Goldilocks world of 
ethanol, I guess, where you could continue to turn on your 
corn-based investments, but you would not be putting such 
pressure on a corn acreage base that you would be jeopardizing 
the livestock sector.
    And I think that is the kind of goal that the research 
community has in mind, that the public policy community has in 
mind. And I think that is what a lot of the programs that are 
promoting the development of cellulosic ethanol have in mind as 
well. And so hopefully we can stay on that kind of successful, 
ideal path.
    Chairman Harkin. The question I have for you, again--I 
would like each of you to respond to this, if you want to, and 
that is the chicken and egg situation we find ourselves in. 
There are some who say biomass plants will not be built without 
existing contracted supplies of biomass to guarantee that the 
plants have the raw material to process. The producing side 
says, we are not going to shift to producing it until we have a 
market for it and we have the plants there that will take it. 
How do we break that down?
    Mr. Collins. I have a lot of faith, sort of, being an 
economist, in the market overcoming these chicken and egg 
situations. It overcomes them all the time. And I think if the 
technology is there for profitable production of cellulosic 
ethanol, entrepreneurs will, in fact, spur the planting and the 
harvesting of biomass.
    And that is going to come in so many different forms. 
Obviously, the low-hanging fruit here are residues and waste 
materials. There is already a lot of work being done on that. 
And there is the plant in Iowa, the Broin company plant, that 
is just starting construction and using corn stover as well as 
corn in the same plant to increase their ethanol production.
    So the early transition here is going to be the existing 
ethanol facilities, corn-based facilities, that also start 
using cellulosic material. This does not happen overnight. This 
is going to happen over time. We do not even have a 
demonstration cellulosic ethanol plant in operation in the 
United States today. You have to go from a demonstration plant 
to a commercial plant. This is going to take time.
    And so, as that ramps up, then I think you are going to see 
these opportunities for farmers to plant and harvest this 
stuff. And of course there are all kinds of ideas for the 2007 
Farm Bill on how you could stimulate some farmer production of 
biomass to get going down that road.
    Chairman Harkin. Yes. Senator Chambliss and I, as well as 
many others, have talked about this. How do we start that 
process? And that is going to be a part of this bill, I can 
assure you. I do not have the answer right now.
    Mr. Collins. Well, there was an answer in Iowa, the 
Chariton Valley project.
    Chairman Harkin. Yes, we have someone here on the second 
panel. John Sellers is here to testify what they have done out 
there.
    Anybody else in response to my chicken and egg question 
here?
    Mr. Smith. Senator, I will submit that our implementation 
plan of 25 X 25 will include components around the chicken and 
the egg issue regarding the production of dedicated energy 
crops. And I think in our vision of 86-plus billion gallons of 
ethanol and biodiesel, it certainly includes a very large 
percentage of that will be from biomass. Certainly late 
generation corn ethanol plants may be converted, eventually, to 
biomass as this comes in.
    In fact, our UT study indicates that by 2012 when 
cellulosic ethanol is fully incorporated into the industry that 
we may actually see a decrease in corn acres due to the 
redirection of ethanol to cellulosic versus corn.
    Chairman Harkin. I want to follow up on that, maybe in my 
next round.
    But Dr. Pacheco, just, again, getting back to the cellulose 
plants. As I understand it, and I could be wrong in this, that 
the only real commercial-size cellulose plant is in Canada 
someplace. That is what I was told. I have not been there. I 
forget the name of the company.
    Mr. Pacheco. Iogen has a demonstration plant in Canada?
    Chairman Harkin. Pardon?
    Mr. Pacheco. Iogen has a demonstration plant in Canada?
    Chairman Harkin. That is what I am thinking of, yes.
    But is the technology ready to be scaled up and tested at 
the commercial plant levels?
    Mr. Pacheco. On a technical basis, absolutely yes, Senator 
Harkin. All of the technology pieces are in place, and many of 
our industry partners feel that the technology is technically 
viable, as Dr. Collins from USDA has pointed out, and I agree 
entirely with him. The problem is that the costs are quite a 
bit higher; almost double the cost of making ethanol from the 
food resources.
    So I think to come back to your root question, I think what 
is really needed is a combination. One is a continued, 
aggressive technology development program together with policy 
drivers that will incentivize the use of cellulosic materials 
rather than food resources.
    Chairman Harkin. I think we need to put more money into 
this research end of it, but now you say DOE is doing this 
research.
    Mr. Pacheco. Both DOE and USDA.
    Chairman Harkin. Do you feel that they are coordinating 
well enough?
    Mr. Pacheco. Absolutely.
    Chairman Harkin. And where is the coordination taking 
place? Who is overseeing this?
    Mr. Pacheco. It takes place both at the laboratories and at 
the Technical Advisory Committee, where both the USDA and DOE 
partner in leading an advisory committee where members of 
industry, together with universities and a number of other 
institutions come together. It is about a 30 panel member that 
helps guide the two agencies, together with workshops that we 
jointly participate in.
    Chairman Harkin. I need to understand personally--I just 
need to understand that structure better, and how much DOE is 
putting into and how much Department of Agriculture is putting 
into it, and how much the private sector is putting into it, 
and how that is all coordinated, because that is going to be 
one important component, I think, of our Farm Bill that we are 
going to be putting out. It is just looking at that research 
and how much research money do we need to put in there to 
continue that tenfold decrease.
    Mr. Pacheco. Absolutely.
    Chairman Harkin. To really get it down.
    Mr. Pacheco. Absolutely. And there are other approaches and 
other fuels that we could work on that would benefit farmers 
and foresters that today, because of budgets, we are limited to 
focusing on the cellulosic ethanol, but there are certainly 
other approaches that we can pursue as well.
    Chairman Harkin. Thank you all very much.
    And now I turn to our Ranking Member, Senator Chambliss.
    Senator Chambliss. Thank you very much, Mr. Chairman. 
Gentlemen, thank you for being here to enlighten us on an issue 
that--am I doing something, Bob?
    I realize I got radioactive seeds to cure my prostate 
cancer, but I did not know that it did that.
    [Laughter.]
    Senator Chambliss. Keith, thanks for always coming up and 
sharing your thoughts with us. You have been a great asset to 
us down at USDA. And a couple of years ago, I asked you to do a 
study on this issue, and thank you for your prompt attention to 
that and thanks for the report that you issued. And due to the 
changing nature of this business, I want to hand you a letter 
this morning just asking you to update that study that you did 
and come back to the Committee and give us the updated ideas 
and thoughts that you have on that.
    Mr. Collins. Yes, sir.
    Senator Chambliss. And Keith, I want to just follow up on 
the last response you gave there to the Chairman's question. I 
want to talk about this food versus fuel debate, which is a 
frequent topic among policymakers, and let me ask you four 
questions and just ask that you give a general discussion on 
this issue.
    First, if oil prices remain high for the foreseeable 
future, would this provide additional incentives to the corn 
ethanol industry to expand capacity?
    Second, if corn prices continue to rise and ethanol plants 
outbid U.S. animal agriculture food processors and the export 
market, would traditional users of corn reduce consumption or 
would we expect to see a new wave of consolidation in those 
industries?
    Third, where do you expect to see shifts in corn production 
where it is not presently occurring today?
    And then, fourthly, what are the constraints on farmers 
exiting the CRP to increase corn production?
    Mr. Collins. I hope I got them all. Senator Chambliss, you 
can remind me.
    First, if oil prices stay high, will that provide 
incentives to continue ethanol expansion? The answer is 
generally yes, but ethanol expansion depends on the 
profitability of ethanol, and that is just not a function of 
the price of oil. The price of ethanol can vary quite 
substantially compared with price of oil or the price of 
gasoline.
    Historically, there has been a $0.35 or more premium of 
ethanol over the price of gasoline, largely due to the tax 
credit and the scarcity of ethanol. As ethanol becomes much 
more abundant and goes beyond the E10 market, if there is not 
another option for ethanol, such as exports or E85, it is 
highly possible, as already mentioned, with the Btu value of 
ethanol being two-thirds the Btu value of gasoline, you could 
see ethanol prices fall below gasoline prices. So yes, high 
crude prices will continue ethanol expansion, but the price of 
ethanol in relation to gasoline will also be a factor in that 
expansion over time. It looks to us like we are going to see 
that expansion continuing for some time to come.
    What will happen if ethanol plants outbid traditional 
users? This is what markets do. Prices ration a fixed supply. 
If the supply is being outstripped by demand, then prices will 
go up and it will ration the use among users. I think that 
ethanol plants, at least in the current environment, can bid 
quite high for corn. And so the adjustment will come from those 
sectors of the demand sector that are most responsive to 
prices. That might be exports. That might be certain users.
    So yes, there will be some adjustments in use. There could 
be some adjustments in feed use as well. And feed use would 
mean higher production costs, which would get reflected into 
lower livestock returns and some slower growth in livestock 
production or maybe even some declines, depending upon how high 
corn prices might get.
    I have forgotten the third one. Oh, it was where corn 
production would shift.
    Senator Chambliss. Shifts in corn.
    Mr. Collins [continuing] I think the obvious one is going 
to be soybeans, and I would expect over the next couple of 
years we are going to need a lot of acreage in corn. And I 
would expect most of that is going to come from soybeans.
    And you can think back 1five years ago, we had 60 million 
acres of soybeans, last year we had 75 million. It is not 
unthinkable to see soybeans going back down to the 60's and 
even the low 60's. That would not jeopardize our domestic use 
of soybeans. It would reduce our export of soybeans, I think, 
more than anything. But there you have Brazil and Argentina 
have been tremendously increasing their soybean production and 
could be an offset there. I would expect that to happen.
    So I would expect to see corn go into soybeans--soybeans go 
into corn, rather. So we will see more corn on corn production, 
year after year corn in the heart of the Corn Belt. I would 
expect to see corn migrate west to some extent, north to some 
extent, as genetic changes in corn have made that more 
possible. I would also expect to see some cotton areas shifting 
into corn as well. We are already hearing that.
    There has been some early work in December surveying 
farmers on their intentions of acreage for 2007. And one survey 
showed farmers plan to plant about 86 million acres to corn. 
Last year they planted 78.6. So farmers are responding to the 
higher prices, and I would expect that to occur.
    Last, constraints on exiting the CRP. I think they are not 
real hard constraints, I do not think, for a lot of acreage. Of 
course, a lot in the CRP is highly erodible land. If you leave 
the CRP and go back into production, if you want to participate 
in farm programs--you have crop acreage base, you want to 
participate in the Market Assistance Loan Program, you have to 
farm highly erodible lands according to a conservation plan. So 
you would have to farm that land according to an approved NRCS 
conservation plan.
    Secondly, it depends on the practice the land is in, and 
there are lots of practices in the CRP. It could be woodland. 
It could be waterway. It could be a construction practice. It 
could be anything. Depending on the practice, that is going to 
determine how hard it is to convert that land into production 
crop land. But I see grassland CRP acres in the heart of the 
Corn Belt as probably not that hard to convert. You might have 
to drill soybeans in the first year and go to corn in the 
second year as the soil quality makes it more adaptable to 
corn.
    So I do not see big barriers there. But I also do not see a 
lot of CRP acreage coming into corn over the next few years. 
There are just not that much CRP acres that could potentially 
come out of the CRP.
    Senator Chambliss. USDA annually gives us the projection on 
yields on all crops, particularly in light of weather 
conditions which are so critically important. I doubt that you 
have had time to do that for this year, but would you please 
just make sure that this Committee gets that projection as soon 
as possible, as soon as you complete that report for this year.
    Mr. Collins. Well, the next report we are putting out would 
be the date of the President's budget release, February 5th, in 
which we put out what is called our CCC Estimates Book, which 
is a detailed, year by year 10-year projection, crop by crop. 
And that goes out February 5th.
    We have a much more detailed international assessment, our 
so-called baseline, we are releasing on February 14th. On March 
1st and 2nd, we have our outlook forum, and we will be updating 
all of those numbers at our outlook forum. So we have a series 
of releases coming out over the next month which will fill the 
media with one conflicting number after another.
    [Laughter.]
    Senator Chambliss. We will look forward to all of the 
above, Keith.
    The transportation infrastructure for renewable fuels is 
evolving as quickly as the industry itself. And for the most 
part, product is moving where it needs to go on time, but 
ethanol production is transforming the agriculture economy. And 
some time in the near future we might see the need to import 
corn into States such as Iowa and Nebraska which have 
historically exported a large portion of their crop.
    Given the tremendous changes occurring, are you confident 
USDA is providing updated and timely information that can 
accurately advise policymakers on this evolving issue, and does 
USDA have any outside studies underway to assist the 
understanding of the transportation situation and the outlook?
    Mr. Collins. In answer to the question, are we providing 
sufficient information, we provide more macroscopic 
information. We tell the world every month what we think is 
going to happen in global agricultural markets. We do not 
usually take it down to the State level, but we hope people in 
the State area can use that information for decisionmaking.
    I would say that this issue about Nebraska and Iowa, the 
land grant universities in those States are doing a lot of work 
on this. I see lots of reports coming out of the land grant 
universities.
    We, in fact, have contracted with the Center for 
Agriculture and Rural Development at Iowa State University to 
look at the implications on rural areas as a result of the 
ethanol expansion. I have a meeting next week or the week after 
next with the Dean of Agriculture from the University of 
Nebraska. So we are in consultation a lot with States that are 
facing the big increase in ethanol production. But it is pretty 
much, I think, a function of the land grant universities to 
look at some of these local issues, like whether a particular 
State might become a deficit region or not.
    The transportation issue is an important one. To my 
knowledge, we do not have a study going on transportation 
implications of the expansion in ethanol. We do have a 
transportation division at USDA, in the Agricultural Marketing 
Service. They put out a weekly transportation market update. 
And I have talked with them in the past and I know that they 
are focused on ethanol. And, in fact, I think it was four or 5 
weeks ago, they had an article on ethanol in the transportation 
update. So that part of the USDA, the transportation part of 
the USDA is following this very closely.
    I might also say that related to this project that we have 
with CARD, at Iowa State, I was also speaking with the National 
Grain and Feed Association, and they are interested in 
piggybacking on the work that we are doing and having a 
transportation study done. That would not be our study. That 
would be their study, but we are talking with them about that. 
So the transportation issue is a big one and we are thinking 
about that.
    Senator Chambliss. Dr. Pacheco, your testimony cites 
technological developments beyond those that we are most 
familiar with such as fermentation and distillation. I am 
curious about your comments about the integration of 
thermochemical technologies. Are there technologies available 
to produce biofuels that can use the existing fuel 
infrastructure that currently exists for hydrocarbons?
    Mr. Pacheco. Absolutely, Senator Chambliss. In fact, I 
would like to compliment both the University of Georgia and 
Georgia Tech for working on this area. Georgia Tech, as you 
know, has a very active program in this area and is working 
closely with the Chevron Corporation to develop technologies 
that can use thermal approaches and existing hardware and 
existing equipment in the oil industry to convert some forms of 
biomass.
    Just, very quickly, a couple of examples, and one that I 
know that Georgia Tech is working on and we are working on as 
well at NREL, and partnered with industry, is to use pyrolysis 
to make an intermediate crude oil that is actually made from, 
for example, woody resources, which is a very good fit for the 
Southeastern United States. The plantation pine could be 
chopped up just like you do for paper mill, pyrolized, and this 
is a process, for those that are not familiar with it, it is a 
very simple process where you heat the material up in a 
fraction of a second very hot, to about 500 degrees centigrade. 
And you shatter all of the polymers: the cellulose, the 
hemicelluloses, the lignin, and convert a black liquid. The 
challenge that we have, Senator, and the problems that we are 
working on at NREL with our partners, and that Georgia Tech is 
working on, is to produce an oil that is of better quality.
    We can produce that oil today for something on the order--
it is equivalent to about $30 or $50 a barrel of crude oil, but 
the quality is very poor. So it is like a very low quality 
crude oil, but it is all biomass-drived, 100 percent renewable. 
It is a very different oil. It is something that the petroleum 
industry is not used to, and we need to work with them to 
understand if that technology could be developed so that--you 
know, the United States is 25 percent of the world's refining 
capacity in this country. If we could utilize that to make 
biofuels, it will benefit not only the rural communities that 
are producing the biomass, but it will also benefit the 
existing infrastructure that we have for producing fuels and 
getting them to the marketplace.
    Another example that we are working on very closely, and it 
is a subject of the workshop this week, is that there are 
approaches to actually use gasification and then produce 
ethanol and other alcohols from the synthesis gas. That 
technology fits very nicely with, say, a corn ethanol plant, or 
a cellulosic ethanol plant. And we can use the other parts of 
the biomass, particularly the lignin components, that 
scientifically we do not know how to make ethanol from a 
fermentation route.
    So all of these different technologies can really reduce 
the cost. They can open up new options for foresters and 
farmers to get their biomass into the fuels industry. And all 
of these starting materials are not food materials. They are 
not edible biomass, so they completely avoid the food versus 
fuel issue. But the challenge, as Dr. Collins pointed out 
earlier, and I definitely agree, technically, we do not know 
how to do it cheap enough yet. We are at, roughly, double the 
cost, and we need to get those costs down. And it is possible 
that there could be some policy instruments that could help 
seed that industry. And as the industry were to grow, more and 
more private dollars would go into the R&D, together with the 
Federal dollars and the State dollars, to accelerate the 
development of these technologies.
    Senator Chambliss. Thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Chambliss.
    And for our new Senators, the tradition has been on this 
Committee, for a long time, that we will recognize Senators in 
their order of appearance here at the Committee. So it was 
Senator Roberts, he is not here right now, and then Senator 
Klobuchar.
    Welcome to the Committee.
    Senator Klobuchar. Thank you, Chairman Harkin, I appreciate 
it. It is great to be on this Committee. I am very excited to 
be a part of it. And I also thank you, Chairman, for your many 
visits to Minnesota. I think it is you and your wife that would 
come for some anniversaries because we are such a romantic 
place, I know.
    [Laughter.]
    Chairman Harkin. You know, my wife is from Minnesota.
    Senator Klobuchar. Exactly. We have opened up a new bed and 
breakfast near Pipestone where the packages--you get up and 
look at a wind turbine. So that might be a lot of fun for you.
    [Laughter.]
    Senator Klobuchar. Combine work and.
    Chairman Harkin. My wife is from out that way.
    Senator Klobuchar. Right. Anyway, I was pleased, also, that 
you had the first topic here about renewable energy, which is 
so important to Minnesota's economy. We have 16 ethanol plants 
now in Minnesota, which produce more than 500 million gallons 
of ethanol in 2006. We have a number of biodiesel plants as 
well. We have been a leader in the area of renewable energy, 
and we also have 306 of the 1000 gas pumps at our gas stations 
that actually provide ethanol, not that we are counting, but we 
are very proud of that work that we have done as well, and I 
think that is a major part as we go forward.
    I was thinking about this issue the other day. My daughter, 
when she was in the sixth grade, she did a report on ethanol 
for her end of the year report. And she did a big display of 
ethanol and she interviewed a number of farmers, and she 
interviewed a farmer from Pine City, and she drew a map of the 
State of Minnesota. On it were two little dots that said 
Minneapolis and St. Paul, and then a huge circle, Senator 
Coleman, Pine City, home of farmer Tom Peterson. And I thought 
that is the future for ethanol. And it is such a big part of 
our rural economy. In addition to the other benefits that have 
been talked about today for renewable fuel with the clear 
implications for our national security as well as the 
environment.
    So I thank the witnesses for being here, and I just had two 
questions. One was for you, Dr. Collins, and it was from your 
testimony about the issue of some of the rising production 
costs related to natural gas costs. I think in your testimony 
you talked about how in 2000--that the natural production costs 
of ethanol has risen from about $0.95 per gallon in 2002 to 
$1.45 now. And one of the plants that I toured in Benson, 
Minnesota actually used gasified corn stover in place of 
natural gas to run the facility. And I wondered what you 
thought of those kinds of innovations and how that could help 
us as we go forward.
    Mr. Collins. I think those kinds of innovations are 
terrific and I think we are going to see more of them. I think 
one of the exciting things--I know there was a plant in Canada 
and I think there is one under construction in the United 
States, there may be others, that are combining livestock 
feeding operations with ethanol production, where they are 
using the manure to produce electricity to heat the ethanol 
plant instead of natural gas, and then they are using the 
Distiller Dried Grains, wet, to feed the livestock.
    These kinds of economies, I think are very, very important 
for ethanol, and it represents a terrific way to reduce energy 
costs which are significant for ethanol plants. Some ethanol 
plants are doing lots of different things to try and reduce 
those, so I think that is really welcome, and it is creative, 
and I hope we will see more of that.
    Senator Klobuchar. Thank you.
    And then, Dr. Pacheco, biodiesel industry, also very 
important in Minnesota. I think we are the third largest 
producer of soybeans in the country. I think the one State 
ahead of us is to our southern border, but we are very 
interested in expanding that, and I know in your testimony you 
talked about the fact that there are issues about ensuring that 
the 20 percent biodiesel blends are compatible with some of the 
new generation of diesel engines that we are seeing. Could you 
elaborate on the work that your organization is doing in this 
area? We see this as very important that we have compatible 
engines as we go forward with our biodiesel industry.
    Mr. Pacheco. Certainly, Senator Klobuchar. You are very 
well informed, and it is a very key issue. One, unfortunately, 
that I feel that we are not doing enough work. Our staffs are 
trying to keep up with the innovations in the advanced diesel 
engines, but right now, because biodiesel is such a small 
component of the diesel market, the equipment manufacturers are 
not really incentivized to deal with those issues and to 
research those issues. So we are doing some work at NREL, but a 
lot more work needs to be done. It is a major concern of the 
National Biodiesel Board, as you may know, that the higher 
blends of biodiesel will be compatible with the newer, more 
advanced, high efficiency engines that are being developed by 
the auto manufacturers. So it is an area that needs more work. 
We are doing some, but not nearly enough.

          [Testing of biodiesel in advanced diesel engines is a 
        key issue, one that NREL experts in this area feel we 
        are not doing enough work on. Our researchers are 
        trying to keep up with the innovations in advanced 
        diesel engines, and perform the testing on biodiesel 
        that the diesel engine industry and EPA needs to see. 
        Some work in this area is proceeding at a modest level 
        at NREL with support from the biodiesel industry, and 
        the diesel engine manufacturers are assisting with this 
        effort. However, the engine manufacturers have had to 
        commit their resources to developing engines that meet 
        the very strict new emission standards that are coming 
        into effect now and over the next few years. The engine 
        manufacturers are counting on the DOE and the biodiesel 
        industry to perform compatibility of biodiesel. So, 
        while we are doing some work at NREL, alot more work 
        needs to be done. It is a major concern of the National 
        Biodiesel Board, that the higher blends of biodiesel be 
        compatible with the newer, more advanced, high 
        efficiency engines that are being developed by the auto 
        and engine manufacturers. It is an area that need more 
        work.]

    Senator Klobuchar. OK, thank you, and thank you, Mr. 
Chairman.
    Chairman Harkin. I like the standard that you just set. You 
did not even use all of your time. Amazing. Thank you, Senator 
Klobuchar.
    Senator Klobuchar. Might not be a standard for the future.
    [Laughter.]
    Chairman Harkin. And then another new member we welcome to 
this Committee, again, who served admirably on the House 
Agriculture Committee, like both Senator Saxby and I have. So 
let us welcome another former House Agriculture Committee 
member to the Senate Agriculture Committee, Senator John Thune 
of South Dakota.
    Senator Thune. Thank you, Mr. Chairman. And I welcome the 
opportunity to serve with you under your leadership on this 
Committee, and with the ranking Republican, Senator Chambliss, 
as you noted, that I served with in the House. And I appreciate 
all the important subjects we are going to get to deal with in 
this next year.
    In my three terms in the House, we did have the 
opportunity, in 2002, to write that last Farm Bill, and that, 
like every Farm Bill, was a challenge, and something that took 
us a good amount of time, I think, to work through, but one 
that I think the outcome was very satisfactory. And I think 
most people in agriculture farm country would argue has been a 
success.
    What is interesting to me about all that, of course, is in 
my State--it is a State where agriculture contributes about $17 
billion to our economy. It is the No. 1 economic engine in 
South Dakota. And if you look at the last Farm Bill and what it 
has done, we obviously have focused in the past on food and 
fiber when we talked about foreign policy, but I really think 
this Farm Bill was food, fiber, and fuel. And I think it is--I 
was in a sale barn not too long ago in South Dakota and I got 
an earful from a bunch of livestock producers about the high 
cost of corn and what that was doing to feeder prices. And as 
has already been noted, that is an issue that people in the 
livestock industry are concerned about.
    But it occurred to me, what a high-class problem to have, 
that the demand for corn is pushing corn prices up to over 
$3.00 a bushel. And we used to send it to the export marked for 
$1.50 or thereabouts, or less, per bushel, and now we are 
getting over $3.00 a bushel. And the other attendant result of 
that is we are reducing the amount of money that the taxpayer 
is putting into farm programs, because when prices are high, as 
was, I guess, a point in the last Farm Bill, you know, those 
subsidies reduce. So we are not making LDP payments and we are 
not making counter-cyclical payments, and that is a great 
outcome for the American taxpayer, and something that I do not 
think gets talked about near enough when we talk about the Farm 
Bill and we talk about the importance of renewable energy.
    We hear a lot of the critics of renewable energy talk about 
the cost, and the subsidy, and everything else, but if you 
think about how many billions of dollars we have been saying in 
terms of LDPs and counter-cyclical payments that are not being 
made, that is also something I think we ought to be talking 
about when we highlight this.
    But I think this Farm Bill, as you have noted, Mr. 
Chairman, really ought to be very much about renewable energy, 
because it is so important, not only to the economy of 
agriculture, but also to our national security, our energy 
independence, environmental quality, all the things that have 
been talked about this morning. And I think the challenge that 
we face on this Committee and in the Congress in terms of this 
Farm Bill is what can we do in terms of policies that will 
further the growth of this industry, that will take us to what 
I would hope is 50 million gallons by 2025. I know it messes up 
the 25 X 25, but I think it ought to be 50 x '25, because I 
think the capacity is there.
    As you noted, Mr. Pacheco, in your comments, if we have 60 
percent of our total fuel usage in this country that can be 
produced by biomass products in this country, that is--we used 
about 140 billion gallons this year of fuel, that is about 84 
billion gallons that we could make out of biomass materials. 
And I know that there is a limit to what we can do with corn-
based, but as we move into switchgrass, and cellulosic ethanol, 
and other types of biomass materials that can go into ethanol 
production, I think the sky is the limit for this industry, and 
it is just, frankly, the right thing to do.
    So I think we have to be looking at, what are those 
policies that can take us to that point? Is it increasing the 
renewable fuel standard? Are there other things--the tax 
incentives, obviously, have been very important in terms of 
growing this industry, but I look forward, Mr. Chairman, to 
working with you to identifying those types of policy 
incentives that will enable us to continue to grow the 
renewable fuel industry in this country, which, again, is great 
for American agriculture. It is a good return for the taxpayer. 
And it also lessens the amount of money that we use to fund 
terrorism, because when we send our dollars to the Middle East 
to buy oil from countries that turn around and use those 
dollars to fund terrorist organizations that kill Americans, 
that has to be a very serious concern, I think, for all 
Americans. So I do not--as you can tell, I am a big fan of bio-
energy and I just think that we have to continue to move 
forward with policies that will grow this industry.
    But nevertheless, I have a couple of questions that I will 
get to, and I appreciate Senator Klobuchar's economy when it 
comes to the use of time. I think the longer that she is in the 
Senate she will realize that is not the way it works here. You 
have to use all of your time.
    [Laughter.]
    Senator Thune. And then beyond. But in any event, I do have 
a couple of questions.
    I would like to get at this question on--and I know that 
the technologies are emerging that will promote cellulosic 
ethanol and, as you mentioned, both Broin and Varison in South 
Dakota are finalists in a research program that DOE has that 
would allow research dollars to go into that, and we need to 
get that commercialized. And I do not think it is very far 
away. But I guess my question is, and some of you have touched 
on it, and my colleague from Georgia is concerned about the 
livestock industry, and what is that level of corn production 
that we can get to before we run out of corn that could go into 
feed for livestock? Is that a 10 billion gallon? Is it a 15 
billion gallon renewable fuel standard? Assuming that we are 
talking about corn-based ethanol, what is that level that we 
get to where--and I guess this probably more for you, Dr. 
Collins. I know you study these things and you model these 
things. Where could we set the renewable fuel standard before 
we create a real dislocation for livestock?
    Mr. Collins. Senator Thune, that is a good question. It is 
one that has been hotly debated, too, as people have talked 
about alternative RFS levels, understanding that an RFS level 
could be met from several sources. It could be met from corn 
ethanol. It can be met from cellulosic ethanol. It can be met 
from ethanol imports as well. So to think that we would want to 
adjust the current RFS level to another level would have to 
take into account the potential production from all of those 
kinds of sources.
    For corn ethanol, I think we are probably--as I mentioned 
earlier, I think we are on track to produce something like 12 
to 13 billion gallons by 2009. I know the National Corn Growers 
Association has done a pretty credible analysis that suggests 
by 2015 we can readily produce 15 billion gallons of ethanol 
without jeopardizing the food side of the equation. On the 
track we are on now, we might be able to do a little more than 
that by 2015 and still not jeopardize the food side of the 
equation.
    It is difficult to answer the question, what is an 
acceptable or unacceptable adjustment cost imposed on the 
livestock sector, because the livestock sector has adjustments 
all the time. I mean, we have drought, and we have pasture 
problems, and we have had excess production, which has caused 
huge price collapses like the pork debacle in 1998. So there 
have been lots of adjustments in the livestock sector over 
time. So this is another adjustment, and the industry can 
adjust. The worry is that you do not want to impose such a huge 
adjustment that it might cause wholesale consolidation as 
Senator Chambliss mentioned.
    I think one of the things here is that we are sort of on a 
predictable path. This is not like an unexpected drought which 
causes corn production to drop by 30 percent or something. We 
are on a predictable expansion path here. There are 
opportunities to plan, and to hedge, and things like that. So 
while I am concerned about this, I do think we can move up to 
that 15 billion gallon range before the next decade is out and 
comfortably accommodate that.
    Senator Thune. And I expect we are going to see shifts from 
soybean production to corn production, and we are seeing yields 
going up all the time because of technology. They are going to 
grow that universe of corn production that.
    Mr. Collins. And if I may say, the USDA has been 
conservative on its yield approach. I am conservative on this. 
I work in crop insurance a lot, and our actuaries always say to 
me, I cannot tell you anything without 30 years of data. So if 
I use a 30-year trend line for corn, I am going to show corn 
yields going up a couple bushels an acre per year.
    On the other hand you can look at the work of some of the 
seed companies. They are doing yield forecasts based on their 
knowledge of what is in the pipeline technologically. And they 
are 10 to 15 percent above us by the time you get out to 2015. 
Well, 10 to 15 percent above us is a huge difference in needed 
acreage for corn. So you are right to point out the corn yield 
thing. It is going to play very heavily over the next few years 
in what kind of a land resource we need to produce corn 
ethanol.
    Senator Thune. We appreciate that about you, that you take 
a conservative tact on all these things. And there are a couple 
things that I think--I have a bill that I have been trying to 
promote that would provide incentives for retailers to install 
85 pumps, which I think is important, too, because we have got 
the production side and we have a market with the RFS, but we 
have to connect the two with--and I am hopeful to get that 
moving at some point, Mr. Chairman.
    One last question, if I could. Some of my colleagues on the 
House side are suggesting that we increase, as a point in this 
debate, CRP acreage, putting more--you know, your, blue stems, 
your switchgrasses, whatever, in CRP, then using those, 
harvesting those, for energy production. And I guess my 
question is, maybe for you, Dr. Collins, or anybody who cares 
to comment on this, is that workable? Does that work? And you 
continue to have the benefits, conservation benefits, wildlife 
production benefits, all the things that come as a result of 
the CRP program and be able to convert that, because that is 
our future. I mean, switchgrass and other types of materials 
that we can make cellulosic ethanol from are really where this 
is headed.
    Is that a possible scenario, where we actually not 
decrease, but increase the amount of CRP acreage, with the 
stipulation that it be planted in these grasses that can be 
used for energy?
    Mr. Collins. Well, I haven't clearly figured out how to do 
this, but I think the concept is valid. There are a couple of 
issues there, and one, of course, is people who are concerned 
about the adequacy of our commercial supply of food products. 
If you increase the size of the CRP, perhaps that is diverting 
more land away from grain production and marketing.
    On the other hand, we also need to figure out how to spur 
farmer production of biomass for the coming cellulosic 
industry, and that could be a way to do it. There are a lot of 
concerns with it, though, if you are going to make it part of 
the current Conservation Reserve Program. We have had some 
pilots in the past where we have allowed harvesting of biomass 
in CRP for economic use. Generally that went to the coal-fired 
electrical generation plants. And so we have some knowledge 
about how to do this from those pilots.
    And so I think this could be done. Part of the concern with 
this, and I do not want to go far off in another direction, but 
there are WTO issues related to this, too. You have to figure 
out if you are going to pay somebody for economic use for 
production. CRP is considered, under the WTO, a structural 
adjustment program, which is considered green box because land 
is retired from production. So if you are going to start 
harvesting on it, that raises WTO questions about that. I think 
that can be overcome. It is just a question of how you design 
such a program.
    So there are a lot of issues there. I am just saying they 
would have to be thought through. But I think it is a feasible 
proposal and I look at it as a way to help sort of jumpstart 
the supply side of the biomass industry.
    Senator Thune. Thank you, Mr. Chairman. I apologize for 
going over. I borrowed from Senator Klobuchar's time.
    [Laughter.]
    Senator Thune. I am sure she will return the favor at some 
point.
    Chairman Harkin. Thank you very much, Senator Thune.
    Now we turn to a valued member of our Committee, returning 
Senator from neighbor to the west, Senator Nelson from 
Nebraska.
    Senator Nelson. Thank you, Mr. Chairman. And thank you to 
the panel.
    I know, as we talk about green box, I want to make sure 
that we do not put agriculture into the penalty box. So we need 
to find ways to be able to achieve compliance that still 
preserves the profitability of American agriculture, and 
perhaps this is one of the ways to be able to do that.
    Now as we begin our work, or continue the work, on the Farm 
Bill for 2007, given all the discussion about food, fuel, and 
security, I would hope that we would think of it as a food and 
fuel security act of 2007, because that is really what we are 
aiming at. Since Senator Chambliss left the room, I need to 
advocate for fiber, as well.
    I think as we look to the future, we recognize that we are 
in the process of expanding the importation of food to meet our 
growing food needs. And if we are not careful and we do not 
support American agriculture in an appropriate fashion, if we 
like importing 50, 60, or 70 percent of our fuel needs, we will 
love importing 50, 60, or 70 percent of our food needs. So we 
have to think about this in terms of security.
    Back in the old days of the farm programs, it was called 
the Food Security Act, because we focused on never being short. 
That is why all the grain bins are all over the country. We 
wanted a surplus. Today, it is probably a just-in-time theory 
dealing with American agriculture. But as we contemplate what 
needs to be done, I do hope we think about it in terms of 
security for the American consumer and the American economy.
    As we turn to ethanol and cellulosic ethanol, we have to 
look a little bit back in history. I remember becoming Governor 
in 1991 we had one ethanol plant in Nebraska. I think it 
produced 30 million gallons. When I left, we had 7, and 350 
were sitting somewhere with 12 to 14, depending on whether the 
last couple have gotten into production, with maybe 7 more on 
the drawing board. Moving into plants that produce biodiesel as 
well as ethanol. And the future is clearly there.
    It is good to be talking about what challenges there are 
for, let us say, the price of corn and the overproduction of 
ethanol versus where we were 16 years ago looking at an uphill 
curve of imports of foreign oil versus American production on 
some sort of rational, reasonable standard. I would like to be 
where we are today looking up at how we bring down the cost of 
some of the production because of the increase in technology.
    As a matter of fact, we are importing ethanol right now. 
There is about a $0.54 tax per gallon of it coming in as a 
tariff and for future development and other uses. I propose for 
that money from the tariff, the $20 to $30 million that we 
generate, go into the further research and development for new 
technologies for switchgrass and other kinds of cellulosic 
material. There is not an area of our culture today that does 
not have some agricultural product, whether it is forestry or 
whether it is American agriculture with grow crops or cotton, 
whatever it may be, that would not have an alternative energy 
source if we had the means to convert it, whether it is sugar 
cane in Hawaii, in the Northeast, Northwest--wherever we are, 
that is what it is. So I really look forward to the further 
development of ethanol and cellulosic use, as well as biofuels.
    I have a couple questions that I would like to ask. I hear 
a lot of the concerns from livestock producers about feed 
costs, and I think it is great that the ethanol industry is 
helping to improve the prices for crops, but we are concerned 
about effectively balancing these needs as we must.
    Now, someone has asked the question, as they always do, 
about the chicken and the egg. I do not think we have to decide 
which comes first. I think we need both, and sometimes you can 
do both at the same time, and that is what I think we are 
doing. Is it possible to establish stands of switchgrass in 
advance so that we can help investors and people looking to 
build the plants? You have already said, Dr. Collins, you have 
not figured out quite how to do that, but my question is, are 
you working on it to the point where something definitive could 
be available so that we are not always in research and 
development here on how to go about doing it, with 
transportation issues, bundling issues, storage issues, so that 
we could look at it in a just-in-time fashion, because that is 
one of the best ways to make it profitable at the outset?
    Mr. Collins. Senator Nelson, yes. I would say that has 
become a high priority issue at the USDA.
    Senator Nelson. Do you have a time table that you might be 
able to tell us more?
    Mr. Collins. I do not. A lot of that work is being done in 
our Agricultural Research Service. We do some of that work, as 
mentioned, in the joint program we have with the Department of 
Energy under the Biomass Research and Development Act 
Initiative. But the Agricultural Research Service, for years, 
has had a focus on grain-based ethanol, and over the last year 
has really re-oriented--they have reorganized and put their 
focus on cellulosic ethanol. One of their four top priority 
areas is management of the production and the harvesting, 
handling, and storage practices. So we do have a lot of work 
going on in that area.
    I thought Mr. Thune's idea of a biomass reserve of some 
sort, is another way to get at that. There may not be 
commercial use for that biomass, but perhaps there would be 
commercial use for some, maybe some others, but it could also 
be used as a research area as well.
    So I think these are ideas that seem to me to be in play 
for the 2007 Farm Bill and I think you are right, that there is 
no reason why, at the same time that we are expanding E85 pumps 
and promoting E85 and ethanol consumption, that we could not 
also be starting to build the biomass infrastructure.
    Senator Nelson. Now, we do not have to wait until corn goes 
to $7.00 a bushel for that to happen. Is that fair to say?
    Mr. Collins. I think that is very fair, yes.
    Senator Nelson. What about grain sorghums to be used as 
well in the production of ethanol? It does not all have to be 
corn-based.
    Mr. Collins. No, we do have other ethanol plants. We have 
very small ones that use dairy waste. We have wheat. We have 
grain sorghum. I know that Texas A&M University has published 
some articles on different types of ethanol plants utilizing 
grain sorghum that show very low costs of production. So I 
think that there are other commodities as well. Almost all 
ethanol today is from corn, but there are these other crop 
opportunities as well.
    And you mentioned sorghum. As we look down the road and 
talk about biomass, I know that our researchers in the 
Agricultural Research Service are very high on sweet sorghum as 
a feedstock for ethanol production.
    Senator Nelson. Some of us here at the table from 
Minnesota, and Nebraska, and the Dakotas, and I guess eastern 
Wyoming have a lot of sugar beet which we would love to see as 
an alternative crop--an alternative use for the crop, being in 
the production of ethanol in a similar fashion that is done in 
Brazil.
    Mr. Collins. Yes, sugar has been a very interesting issue 
related to ethanol. Of course, raw sugar itself is--you know, 
we have a domestic marketing allotment program for that, but 
there is certainly nothing preventing, under our domestic 
programs, the production of sugar cane or sugar beets for 
conversion into ethanol. It has just simply been the economics 
of it that have made it costly to do.
    I know I came up to the Hill some months ago to give a 
little briefing on sugar conversion and I pronounced that it 
was not economically feasible. And the next day I was reading 
the Wall Street Journal, and there was a little ad in the Wall 
Street Journal for someone who was soliciting investors to 
produce ethanol from sugar cane in the United States. So it 
shows you that there are venture capitalists out there that 
think otherwise.
    Senator Nelson. I would like to see that chart, Chart 4, 
show a conversion rate in the cost of sugar as well as oil 
shale and the other uses that are listed there.
    Mr. Collins. Right. Right now, we think it is a fair amount 
higher than corn-based ethanol.
    Brazil, of course, has a much lower cost because they get a 
pretty good conversion out of their sugar cane. They have much 
lower labor costs. They have much lower land costs. So that has 
been their advantage. But this is something that technology can 
address over time as well, I think.
    Senator Nelson. Well, and import, as long as we do not 
undercut the domestic production of ethanol with lower prices 
coming from other locations.
    Well, thank you very much. I appreciate it. Thank you, Mr. 
Chairman.
    Chairman Harkin. Thank you, Senator Nelson.
    Next is a valuable member of our Committee. She was here 
for our last Farm Bill. We have heard a lot of talk about feed 
costs for livestock, mostly people thinking about cattle and 
hogs. I am sure Senator Lincoln might have some views on the 
cost of poultry, also. And since they buy a lot of corn from 
the State of Iowa to feed those chickens.
    Senator Lincoln. That's right.
    Chairman Harkin. Senator Lincoln.
    Senator Lincoln. Well, thank you, Mr. Chairman, and we are 
all so grateful for you putting this together. A timely hearing 
on an issue that really does need to be a priority in the 
biofuels industry for our Nation. So many of us have said for 
many years now that biofuels can certainly play an important 
role in not only bringing down the cost of fuel and reducing 
our dependence on foreign oil, but also recognizing the value 
in cleaning our environment as well as rural development, which 
is in tremendous need from States like Arkansas and other 
places.
    So we see now that the market for oil is probably more 
competitive than it has ever been before and it is not going to 
be slowing down any time in the future. So our hope is that we 
will seize the ownership of this problem as a Nation. That we 
will look at all the tremendous benefits that we gain from 
dealing with this problem and dealing with it in an effective 
way, and I am proud that the Committee is really embracing it 
early on as a priority.
    You know, we, as a Nation, have, in many, many ways, have 
faced great technological challenges that we have confronted 
and we have overcome. And obviously, there is much here that 
has been talked about in terms of technological growth, and how 
we make things cost effective, and how we move them forward.
    But we did not, Mr. Chairman, we did not put a man on the 
moon by just talking about how important it was. We developed a 
plan; we committed resources that were necessary to achieve 
that plan, whether it was through technological investments, or 
certainly investments in education. And I hope that as a Nation 
we will seize the opportunity here in the biofuels industry and 
the renewable fuels industry to do the same thing and to seize 
it wholeheartedly and really move forward quickly.
    I am certainly interested in the promise of the cellulosic 
ethanol and what it can to reduce our dependence, but what we 
can do to further that issue. I hope that today, working with 
this great panel and the other panel, as well as my colleagues, 
that we can really move forward.
    I am pleased, Dr. Sharp, I got to serve at least one term 
on the House Energy and Commerce Committee with you. You made 
such tremendous contributions there and we are so grateful that 
you are here now. We look forward to all of the panel being 
able to work with us as we move forward.
    This industry is clearly off the ground and I think it is 
running, but I think that we as a Nation, and that the 
consumers of this country want us to move more rapidly in 
getting it closer to them than just the developmental stages. 
So we look forward to working on that.
    Just a couple of questions. Dr. Pacheco, right?
    Mr. Pacheco. Correct.
    Senator Lincoln. My questions are a little similar to 
Senator Chambliss. And, as Senator Nelson noted to me, we are 
the only two on the Committee that can get at least two or 
three syllables out of the word, ``Oil.'' So maybe that is the 
similarity in our States, and some of the things that we bring 
to focus on here in the Committee. But I wanted to talk a 
little bit about the co-processing. You talked a little bit 
about woody biomass and some of those potentials. They are 
great potentials for places like Arkansas in the South, where 
we do have a tremendous potential in our wood forest products 
industry. There have been a lot of things on the drawing board 
down there that I have seen that have really gotten me excited 
about the potential that exists there for co-generation, for a 
lot of different things that our processing facilities in the 
wood products industry can do, but they need to know that, 
again, that the investment will be there, and that the chicken 
and egg question that has been discussed a great deal has 
somewhat been resolved, and I think that is really important.
    But I would also like to talk about co-processing 
feedstocks at traditional oil refineries. I understand that co-
processing of feedstocks to produce diesel fuel is already 
being done at refineries in Ireland, and Australia, and several 
other countries. Is it possible to accurately measure the 
volume of renewable diesel fuels that are produced in this type 
of co-production process? And where are we going with that, the 
possibilities?
    Mr. Pacheco. Senator Lincoln, you are very well-informed. 
The technology that you are referring to comes under several 
different names. Some companies refer to it as green diesel. It 
is being practiced in Brazil. In fact, Petrobras has announced 
that they will convert all six of their refineries to be able 
to process soybean oils and make what some refer to as green 
diesel. The Brazilians refer to it as H bio oil, and the 
largest facility is the recent facility that Nesty built in 
Finland. It is also being practiced in Germany and in other 
parts of Europe because the European tax incentives do not 
differentiate between the different forms of renewable diesel, 
whether it is biodiesel or whether it is the green diesel type.
    We have looked at this very closely. We issued a report in 
2004 summarizing the technology and the advantages that it has. 
It is a very competitive technology to biodiesel. It is one 
that the free economy is going to have to play out and decide 
which is the better fuel in the end.
    Both technologies, the production of biodiesel and the 
production of this green diesel use the same starting material. 
What they use is are the triglycerides from food resources. 
This could come from soybeans. It could come from rape seed. It 
can also use the waste greases from McDonalds. But they take 
these oils and they process them in a refinery, which is known 
as a hydroprocessing unit. It is a unit that is used to take 
sulphur out of diesel fuel, for example, in petroleum. That 
very same equipment, same catalysts, same hardware, can take 
soybean oil and it can make an extremely good quality diesel 
fuel.
    It could be very beneficial to the soybean growers, because 
if the technology is cheaper then the price that the refiner 
would be willing to pay for this starting material might 
actually be higher because there is more value to be gained in 
the overall process. The fuel is very good quality. It is 
essentially zero sulphur. It has a cetane that is unachievable 
by petroleum.
    Senator Lincoln. I am sorry. You said what?
    Mr. Pacheco. A cetane that is unachievable by petroleum. 
Typical petroleum stocks have a cetane of about 40 to 50, 
whereas the cetane from these biomass oils is in the 
neighborhood of 80 to 90. So it is a phenomenally good diesel 
oil. And that is why so many other parts of the world are 
looking at it.
    I do know, because we have had an inquiry from the 
Department of Treasury, I do know that this is being looked at 
in the United States to see whether or not this technology 
would qualify for the same renewable diesel standard, but I 
think that is an issue for Congress to address, as to whether 
that should be the case.
    It is very sound technology. To go back to your question as 
far as the yield, we do know from a scientific point of view 
how many gallons of diesel fuel is being produced. So you can 
track how many gallons of fuel is actually coming from the 
biomass, because the refiners have the option, they can run 
this fuel in conjunction with petroleum, right in the same 
unit, or they could run it in what they would call, ``blocked 
out,'' where they would run it in a separate unit, separate 
from the petroleum. But in either case, scientifically, they 
can track how much actual diesel fuel they are making from the 
biomass.
    Senator Lincoln. So you said scientifically, too, that the 
fuel derived from this process is of a very decent quality.
    Mr. Pacheco. It is extremely good quality.
    Senator Lincoln. OK.
    Mr. Pacheco. It is actually a better quality diesel than 
what we know how to make with petroleum. Keep in mind, my 
background is both on the biotechnology side and on the 
petroleum side, so I am familiar with that technology.
    Senator Lincoln. And you said the study you did was in 
2002?
    Mr. Pacheco. We issued that study and can make that annual 
report available to the Committee if you would like.
    Senator Lincoln. I think that would be great. I also have 
one of your other studies from 2004 on the biomass-oil 
analysis, which I think--both those studies would be beneficial 
to enter into the record, Mr. Chairman.
    Senator Lincoln. Just in closing, particularly in regard to 
our poultry, but what processes are currently being developed 
that could take advantage of animal waste such as chicken 
litter as a primary feedstock, and what are the real barriers 
that exist in terms of their implementation? I know I hear all 
of these grand plans and talk, and other things. It is 
something that we would love to get rid of and make it 
productive.
    Mr. Pacheco. My first job, as a 14-year-old in rural 
Connecticut was working on a chicken farm, and so I am very 
familiar----
    Senator Lincoln. You well know, then.
    Mr. Pacheco [continuing] With wanting to get rid of it. In 
fact, my mom used to make me keep my boots in the garage rather 
than bringing them in the house.
    Senator Lincoln. Yes, I do not blame her.
    Mr. Pacheco. But I agree wholeheartedly with Dr. Collins in 
his earlier comment. One of the most attractive technologies 
that is being deployed right now in a number of States is what 
is referred to as the ``closed-loop technology.''
    Senator Lincoln. Yes.
    Mr. Pacheco. Where poultry litter can be fed to an 
anaerobic digester and then the gas from that digester can 
either be used to produce electricity, as Keith said, or can be 
used directly in the ethanol plant as a source of heat to 
replace natural gas. This is a wonderful solution, because it 
not only improves the economics, but it reduces the amount of 
fossil energy that goes into producing corn ethanol, which, as 
you know, is a hotly debated point.
    So it is a wonderful technology. And then, to finish the 
closed loop, the DDGS from the corn plant could be used as feed 
for the livestock. It works very well with cattle, and there 
are a number of organizations working to try to increase the 
percentage of DDGS that could be fed to hogs and poultry as 
well.
    Senator Lincoln. Well, thank you, Mr. Chairman, my time is 
up, but I appreciate--and there are so many other questions 
that we have for you all. I do hope that we will see a return 
to be able to continue on this issue. Thank you.
    Chairman Harkin. Thank you very much, Senator Lincoln. 
Again, another valuable member of our Committee. Is there an 
unwritten rule that there have to be two Senators from 
Minnesota, always, on this Committee?
    [Laughter.]
    Chairman Harkin. It has been so since I have been here.
    Senator Coleman. I hope so.
    Chairman Harkin. Because Dave Durenberger was on the 
Committee when I first got here, and there were always two 
Minnesotans--so anyway, Senator Coleman.
    Senator Coleman. Thank you, Mr. Chairman. Thank you for 
holding this first hearing on this critically important issue. 
And I welcome my colleague from Minnesota from the other side 
of the aisle.
    I think one of the things that I am sure that she will see, 
as we have seen here, is with all the frustration about harsh 
partisanship and the inability to work together, that is not 
what you see on this Committee. I probably co-authored more 
letters with Ms. Lincoln than anybody in the Senate. These 
issues are Minnesota issues, they are Midwest issues, they are 
America issues. I am certainly proud to serve on this 
Committee.
    I apologize. I have been at this big hearing on Iraq in 
Foreign Relations, that I serve on. So I have been shuttling 
back and forth. But it is interesting, as I reflected on the 
reality of what we are dealing with here; this is a national 
security issue. We put money in the pockets, petro dollars in 
the pockets of thugs and tyrants: Chavez in Venezuela, and 
Ahmadinejad in Iran, that if we could really fully see some 
potential, beyond what we have today, this is a national 
security issue. It is an environmental issue, it is an economic 
security issue, and so it kind of encompasses all.
    And I would note that, as I travel around the State of 
Minnesota and have a lot of hearings and discussions, one of 
the things about this that we do not talk about enough is 
optimism. There is a sense of optimism among American producers 
and growers that you do not see at a lot typically. Most of us, 
we get in the room with four farmers, you have five people mad 
at you about something. And you travel around the State today 
and you see real hope and real opportunity. I think our 
challenge, then, is, what do we do to support that, to 
encourage it, and as this next Farm Bill will create some 
opportunity to do that.
    I just want to touch on sugar for a second, because I 
have--in the Foreign Relations, I chair the Western Hemisphere 
Subcommittee. I have traveled to Brazil a number of times and 
seen what they have done there. Their production costs for 
ethanol, I think, is about $0.81 per gallon. Our production 
cost for cane-based sugar is about $2.40 a gallon, sugar-based, 
$2.35 a gallon. So we have some price difference there, but 
they have been at this a lot longer. And I would hope that what 
we do is we do not say, well, that is the barrier today. 
Instead we do what Ms. Lincoln talked about. We have our land a 
man on the moon by the end of the decade commitment. We have a 
Marshall Plan commitment.
    We face a real problem with that sugar from Mexico is a 
result of some of the agreements made on NAFTA, and we have not 
seen the impact of that. And it would make sense to me if we 
were in a position to take that sugar that is going to be 
coming and turn that into energy, and then allow the Americans 
to continue with a sugar program does not cost taxpayers any 
money. I think we have to, not look at the barriers today but 
look beyond and see where we are going.
    Would it be fair to say, Dr. Collins that--first, as we 
look at the last Farm Bill, it is probably coming anywhere 
from, what, $12 to $17 billion under budget. Are those figures 
accurate?
    Mr. Collins. Yes, sir. That is probably right.
    Senator Coleman. And would it be fair to say that certainly 
the growth of renewable fuels has played a part in keeping 
prices up and ultimately lowering the cost to the American 
taxpayers of the Farm Bill?
    Mr. Collins. Tremendously. I mean, if you look at the 
fiscal year 2006 corn program, the cost was about $8.5 billion. 
That would be related to the 2005 crop. Shift forward 1 year to 
the 2006 crop, which would be the fiscal year 2007 costs, about 
all we are going to have is direct payments, $2.1 billion for 
corn. So $8.5 billion down to $2.1 billion, and that is a 
savings that is far more than the decline in general tax 
revenues due to the $0.51 tax credit.
    Senator Coleman. Would it be fair--Senator Lincoln and I 
co-authored a letter to the President about the Farm Bill 
signed by a number of members of this Committee. One of the 
things that we said in that letter is that we are confident 
that a robust new investment in renewable fuels would not only 
further our Nation's energy independence, but it would also 
further increase budget savings under U.S. foreign policy. 
Would you say that is a fair statement?
    Mr. Collins. Probably. Once you get the corn price above 
$2.63, which is the target price, and it is well above it now, 
you have about achieved all the savings you are going to get. 
But your statement is certainly true that you reduce the risk 
of incurring farm program costs again.
    Senator Coleman. And if we make the investment, 
particularly there is a lot of discussion about cellulosic--it 
is interesting, because on Foreign Relations we had a hearing 
last Congress on renewable, and we had Alan Greenspan in front 
of the Committee and we talked about the geopolitical 
implications of energy dependency, and he cited what was 
actually a study I saw coming out of Wall Street that said we 
could be doing 60 billion gallons of cellulosic energy. I would 
take it that would then provide opportunity in Kittson County 
where we have grass seed, it is tough farming up there, but I 
would take it if we unleash cellulosic that there is a whole 
range of things that we could be doing.
    Mr. Collins. I think both Mr. Smith and Mr. Pacheco, from 
their perspectives have talked about this, the 25 X 25 study 
that was commissioned and the so-called billion ton study. The 
billion ton study, for example, in their high-yield scenario, 
by 2030 said you could have 110 billion gallons--there is 
source material for 110 billion gallons of ethanol, with about 
80 billion of that from agriculture and 30 billion from 
forestry, and similar numbers came out of the 25 X 25, although 
a little less.
    So, yes, numbers that you are talking about are there, the 
biomass resource is there. Now, there is a lot of work to be 
done to sort out the economic adjustments that take place to 
achieve that and a lot of technology gains have to be achieved 
to get there as well. But as sort of an accounting exercise, 
you can add up the sources and you can come up with big numbers 
like that.
    Senator Coleman. But a lot of the technology gains are 
going to depend on our commitment to the research and 
development. And so what I am saying is, if you have a vision 
out there that the numbers say this is something we could get 
to, it would seem to make sense to me that what we should be 
doing in a Farm Bill with a major energy piece that this 
Chairman and Ranking Member committed to, would have an R&D 
component in there that would move us along, and move us along 
much faster.
    And again, I get to the geopolitical national security 
implications; we are doing 5 billion gallons of ethanol today. 
We are consuming 140 billion gallons of gas. Our dependence on 
foreign oil is going up in spite of all we are doing. This 
offers a chance to change that, doesn't it?
    Mr. Collins. It certainly does, and I would point you 
toward the Agricultural Risk Protection Act of 2000, which 
created the Biomass Research and Development Act, it was part 
of that, and that Act was not funded until the 2002 Farm Bill. 
So there is a mechanism there that could bear some scrutiny as 
a vehicle for taking a look at these research challenges.
    Senator Coleman. Mr. Pacheco, did you want to add something 
to that?
    Mr. Pacheco. I would certainly underscore the comments that 
the real challenge is to get the technology to where the costs 
are competitive, and then a lot of the incentives that we are 
using to seed this industry can be reduced. So I think that is 
the point that we all want to get to as quick as we can. There 
is certainly a lot more that we can be doing at the research 
laboratories, not just NREL, but all of the laboratories across 
the United States to accelerate the rate of progress, if more 
research funding were available.
    Senator Coleman. Including land grant universities?
    Mr. Pacheco. Absolutely.
    Senator Coleman. Mr. Chairman, I will follow the lead of my 
junior colleague from Minnesota. Change is in the air, and so I 
am going to yield back the balance of my time.
    Chairman Harkin. Thank you very much Senator Coleman.
    I am going to ask that Senators now restrict their 
questions to 5 minutes. We are supposed to have a vote at noon, 
and I would like to be able to send the second panel up and 
hear their testimony before we go vote and come back.
    And with that, I welcome another new member to our 
Committee, former member of the House of Representatives from 
the great State of Ohio, Senator Sherrod Brown. Welcome to the 
Committee.
    Senator Brown. Thank you, Mr. Chairman. I am thrilled to be 
on the Committee, and especially to work with you and Senator 
Chambliss. Thank you for that and thanks for your commitment 
and discussion on energy and food security and how important 
that is for our country's economy and national security.
    Dr. Sharp, nice to see you and thank you for joining us. I 
am sorry I was not here for the opening statements, but having 
read your statement and looked at it, your discussion on 
production of gasoline from coal, your discussion of CO2 and 
greenhouse emissions, would you just talk through briefly, 
especially in light of some calling for lowering tariffs for 
ethanol coming from Brazil? Would you talk through for me, just 
for a couple of minutes, about the CO2 emissions and energy 
consumption to produce, in a general sort of way, various kinds 
of cellulose, ethanol, and what that all can mean together, if 
you would.
    Mr. Sharp. Well, if you look at Chart 4, it sort of 
simplistically outlines that for you. If you look at the center 
line there, that is sort of the baseline of what we are getting 
in terms of carbon emissions right now out of our gasoline. All 
of the fuels to the left, which are cellulosic ethanol, 
biodiesel, and corn ethanol, certainly improve, from a 
greenhouse gas emissions point of view our gasoline supply, if 
they substitute for current gasoline.
    On the right side of that scale, what you see is the other 
kinds of fuels that are also under development in this country 
and elsewhere which are petroleum related, which actually, 
because of their fuel use, are going to expand per gallon of 
gasoline we use in the country, the CO2 emissions.
    If you look in terms of the costs up and down on that 
chart, you see, compared to current expectations on oil roughly 
where the estimates--in many of these cases, they are very 
crude estimates--are of what it would cost to produce, right 
now, these other forms of fuel. And what you quickly see is 
some of the ones on the right side of the chart, which are 
high-intensity carbon are actually more in the marketplace.
    As I have testified, what is missing in this chart, 
however, is the work that you folks have already done in terms 
of the subsidies that are in play right now to help advance 
corn ethanol and biodiesel in particular. Cellulosic ethanol 
has been discussed here. It still remains down the pike. But 
those other fuels are clearly within these market ranges, and 
therefore have the opportunity to compete. But no one should 
misunderstand that the world oil price can also drop, as well 
as the way it goes up. That has been our experience for the 
last 30 years, and that can quickly undercut things and 
undercut political support, as we have seen in the past, at 
least, for various proposals.
    So I think if there is any lesson in the last 30 years it 
is that we have to maintain--if we think we are going to change 
the picture of what the market would do for us otherwise, we 
have to maintain strong, consistent policies through multiple 
years. And I am sure some of your investors are saying to you, 
what is going to be the tax credit five and 10 years out? We 
need to know now. And that is something that you folks can help 
and make clear.
    Senator Brown. And about the tax credit, talk, Mr. Smith, 
if you would--I was the sponsor in the House of the 25 X 25 
legislation talk if you would, for a moment, about sort of 
incentive structures. Go beyond, I know there is not much time 
left, but go beyond, if you would like, biodiesel development. 
One of the things that Dr. Sharp just mentioned, in terms of 
predictability for investors, talk about that for a second, if 
you would.
    Mr. Smith. Well, as I shared with the Committee earlier, we 
are in the process of developing recommendations along the full 
range of renewable, as far as the incentives that will help 
this Committee and all of Congress to incentivize renewable 
energy sources from wind and solar to the biofuels and biomass, 
obviously.
    I think we are very excited about some of the things we are 
currently working on. I shared with Chairman Harkin that we 
should have that report in February, and it will help this 
Committee and others hear from those 400 organizations that 
have endorsed 25 X 25. And it is our collective thoughts. It is 
not any individual sector of renewable energy, but rather the 
feeling of the whole. And these are some of the very key areas 
that we are scoping in on, is what incentives and what policy 
is going to be necessary to help these emerging technologies 
along. We are excited about this process, and hopefully we will 
have something in your hands very soon.
    Senator Brown. Thank you. And I would simply add my last 10 
seconds, Mr. Chairman, how important the permanent tax credit--
I know that Senator Grassley, and his Committee's jurisdiction, 
that is their issue, but to just urge them to build some 
permanence into so investors can build a solar and wind-powered 
industry in this country.
    And I would just close with that I represented, when I was 
in the House, Overland College, and there was the largest 
building in the country on any college campus that was fully 
powered by solar energy, and the builder of that bought all 
their solar panels from Germany and Japan because we do not 
have a sophisticated large enough industry to support that sort 
of production and installation, so thank you very much.
    Chairman Harkin. Thank you very much. I turn to my 
colleague now, from Iowa, a valuable member of this Committee, 
a good friend who has used his position, not only in this 
Committee, but also on the Finance Committee, to help promote 
our biofuels industry in this country, and I can say is a very, 
very strong supporter of all the efforts we have made in 
biofuels in the past. I just want to note for the record that 
we are blessed on this Committee to have both Senator Grassley 
and Senator Baucus, Chairman and Ranking Member on the Finance 
Committee. So I think a lot of the things we are going to be 
talking about are in their jurisdiction, and hopefully we have 
a good working relationship with the Finance Committee in this 
are. So, again, with that, I turn to my colleague from Iowa, 
Senator Grassley.
    Senator Grassley. Well, Senator Harkin, I thank you for 
having this hearing, and I followed very closely a lot of 
things you have said about energy and the upcoming Farm Bill. I 
appreciate very much what you have said, and agree with you. 
And I think this hearing is an indication you are going to put 
your actions where your words have been and I compliment you 
very much on that.
    Five minutes will be adequate for me. I will start out with 
Dr. Collins. Earlier this week an environmental group here in 
Washington, D.C. stated that the U.S. Department of 
Agriculture's estimates have vastly understated the number of 
ethanol distilleries under construction and the amount of corn 
that will be dedicated to ethanol production during the next 
two years.
    So I hope you are familiar with that allegation. If not, 
you probably cannot answer my question, but what is your 
response to the allegation? And also, how does the U.S. 
Department of Agriculture predict that agriculture's industry 
will handle the competition between corn demand for ethanol and 
demand for livestock feed or food.
    Mr. Collins. Senator Grassley, yes, I saw that release. I 
actually was a little disappointed in it in that they picked on 
USDA. They could have easily picked on the Department of Energy 
or many other entities because we are not alone in having 
underestimated the pace of ethanol production. We all pretty 
much depend on the same set of resources.
    There are groups like Renewable Fuels Association, BBI, and 
others who compile lists of ethanol plants in operation, and 
under construction, and expanding, and there is a fair amount 
of agreement on those. Those plants can be verified.
    There is a problem however, when you look at the plants 
that have been proposed, that are in somebody's speculative 
imagination, for which no permits have been pulled and there is 
no way to verify them. These plants might be owned by venture 
capitalists who do not want to tell you what they are going to 
build and where they are going to build it. So there is really 
no way to know for sure what is out there beyond those plants 
that are in operation, those that are under construction, and 
those that are expanding. And it just so happens that a number 
of plants that have been proposed have started construction 
over the last 6 months, 4 billion gallons worth of capacity 
came from the speculative realm to the construction underway 
world. So no, we did not fully anticipate that.
    So we have been updating our numbers. We have been playing 
catch up, as have most people. However, I would say that group 
also put out some very specific numbers that I think are beyond 
what I think is possible to happen in the short time period 
that they forecast. They had an estimate of 16 billion gallons 
of ethanol production by September of 2008, and quite frankly I 
think that is just a little too high. So that is in response to 
part one of your question.
    Part two was, how is the industry going to handle this 
balance between demand for corn for ethanol and demand for corn 
for livestock, and that is a challenge. I laid that down in my 
opening oral comments that I felt over the next three to 4 
years we have a very critical period facing us. We do not have 
cellulosic ethanol in commercial production probably over the 
next three to 4 years, yet we have tremendous investment 
interest in corn ethanol production. And so we are seeing a 
huge amount of capacity coming online and that is going to 
demand corn because there is not really a good alternative to 
that. And that is going to propel higher corn prices. And so 
livestock producers, whether they are cattle, or hog, or 
poultry, or dairy are going to end up paying more for feed.
    This is not unlike other periods in our history. In the 
1970's when we had this huge expansion, year after year after 
year of increased exports due to the Soviet Union coming into 
the world grain markets and propelling up prices. It is not 
unlike droughts, when prices go way up. So the livestock 
industry will have to be resilient to this. And I think the 
markets can adjust to this. We can see this coming online, and 
it is important, as implied by the accusations that we have 
underestimated ethanol production, it is important that we try 
and stay ahead of this so we can alert everyone as to what is 
happening and so that proper planning and adjustment and 
hedging can take place.
    Senator Grassley. And before my time is up, a question for 
Mr. Pacheco. Following on the same question of Mr. Collins, you 
spoke a great deal in your opening statement regarding the 
research being done on cellulosic ethanol production. You 
stated the goal of producing cellulosic ethanol at a 
competitive rate with corn in five years.
    How do you see the growth of corn ethanol on the competing 
use of corn affecting the advancement of cellulosic and other 
types of ethanol production?
    Mr. Pacheco. Well, I do not see, Senator Grassley, I do not 
see a direct impact on the increased demand for corn on the 
development of cellulosic ethanol technology, not directly, 
anyway. The cellulosic ethanol technology, at the point where 
it starts to become competitive with corn can have a large 
impact the other way.
    Investors, when they are looking at investing in new 
projects, would be probably making the decision as to whether 
or not to build a facility that is capable of handling 
cellulosic ethanol, which would be a very different facility. 
As you know, it would require very different equipment and a 
very different design philosophy from a chemical engineering 
point of view.
    So I do not see the growth in corn ethanol directly 
affecting the cellulosic ethanol, but definitely the other way 
around. As the technology becomes close, I could see that 
affecting maybe the slowdown in the construction of corn 
ethanol facilities and a shift toward constructing facilities 
that are capable of feeding the cellulosic ethanol.
    Senator Grassley. Thank you, and thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Grassley. And I thank 
all the Senators for this.
    I thank the panel. As you can see, there is a great deal of 
interest in this Committee in this whole area of the biofuels 
and renewable energy. I want to thank you all for your 
testimony, for your written statements. I look forward to 
further contact with each of you as we progress on this in the 
coming months, and hope that you will feel free to be in 
contact with us and with our staff on these and any other 
issues that could be coming up in this area on the Farm Bill.
    Any last things from any member of the panel before we 
dismiss you?
    Thank you again very much for being here.
    Now we will call our second panel. Ron Miller, Roger Webb, 
Gene Gourley, Loni Kemp, and John Sellers.
    Chairman Harkin. All right. I do not know if there is 
anybody still out in the hall there, but I asked them to come 
on in and take their seats, and I know there was a great crowd 
out there at the beginning, and I just want them to come in and 
get situated.
    We were told that we were going to have a vote around noon, 
but we will do whatever we can to get as far into the 
statements before we have to go vote and then come back.
    First, we will turn to Ron Miller, President and Chief 
Executive Officer of Aventine Renewable Energy. A graduate of 
Southern Illinois University, with his degree in Engineering. 
He got his Master's degree in Business Administration from the 
University of Illinois. A long and distinguished career 
beginning with Texaco, the Pekin Energy Company, the Williams 
Companies that purchased the Pekin Energy Company, and the 
Morgan Stanley, capital partners, purchased Williams Bio-
energy, which became Aventine, as I understand it. And now Mr. 
Miller currently serves as Aventine's President and Chief 
Executive Officer.
    Aventine is the Nation's second largest producer and 
marketer of ethanol, and a global provider of bioproducts. And 
Mr. Miller is Chairman, also, of the Renewable Fuels 
Association.
    So again, we welcome you, Mr. Miller. And again, as you 
probably heard earlier, we ask that you keep your statements to 
five to 6 minutes, hopefully, and then we will proceed with 
questions, but we will hear the whole panel first before we 
open for questions. So Mr. Miller, welcome very much and please 
proceed with your testimony.

STATEMENT OF RON MILLER, PRESIDENT AND CEO, AVENTINE RENEWABLE 
             ENERGY HOLDINGS, LLC, PEKIN, ILLINOIS

    Mr. Miller. Thank you, Mr. Chairman. I will keep my 
comments brief. Good morning, members of the Committee.
    Again, as you mentioned, I am Ron Miller, President and 
Chief Executive Officer of Aventine Renewable Energy, and 
Chairman of the Renewable Fuels Association.
    Aventine supplies more than 700 million gallons of this 
Nation's growing ethanol needs annually through its wholly 
owned plants in Pekin. It is a facility in Nebraska, in Aurora, 
Nebraska, and it has business relationships and marketing 
alliances.
    This is an important and timely hearing, and I am pleased 
to be here to discuss the growth in the domestic ethanol 
industry in the increasing important role of agriculture in 
rural America in ensuring our Nation's energy security.
    Ethanol today is the single most important value-added 
market for farmers. Today's ethanol industry consists of more 
than 110 biorefineries located in 19 different States, with the 
capacity to process more than 1.8 billion bushels of grain into 
5.3 billion gallons of high octane, clean burning motor fuel 
and more than 12 million metric tons of livestock and poultry 
feed. There are currently 73 biorefineries under construction. 
With 80 existing biorefineries expanding, the industry expects 
more than 6 billion gallons of new production capacity will be 
in operation by the end of 2009. Today ethanol is blended in 
more than 46 percent of the Nation's fuel, and is sold 
virtually from coast to coast and from border to border.
    In addition to providing a growing and reliable domestic 
market for American farmers, the ethanol industry also provides 
the opportunity for farmers to enjoy some of the value added to 
their commodity by further processing. Farmer-owned ethanol 
plants account for about half of the U.S. fuel ethanol plants.
    This dynamic and growing industry is also empowering more 
of Americans to have a vital role in this Nation's 
infrastructure. If a farmer in Des Moines does not want to 
invest in a local co-op, he can choose to invest in a publicly 
traded ethanol company such as ours through the stock marked, 
as can a school teacher in Boston or a receptionist in Seattle. 
Americans coast to coast have the opportunity to invest in our 
domestic energy industry, and not just in ethanol, but in 
biodiesel and bioproducts as well.
    U.S. agriculture is evolving in important ways, and rural 
America is primed to take advantage of these opportunities. 
Over the past several years the ethanol industry has worked to 
expand a virtual pipeline through aggressive use of the rail 
system, barge, and truck traffic, moving product quickly to 
those areas where it is needed. Many ethanol plants today have 
the capability to load unit trains for shipment to ethanol 
terminals in key markets. Railroad companies are working with 
our industry to develop infrastructure to meet future demand 
for ethanol.
    Looking to the future, proposals like that of the Chairman 
to study the feasibility transporting ethanol by pipeline from 
Midwest to East and West Coast is also critical. The only more 
astonishing than the growth in the ethanol industry is the 
technological revolution happening at every biorefinery and 
every ethanol construction site across the country. 
Biorefineries today are using such innovations as no-heat 
fermentation, corn fractionation, and corn hull extraction.
    Wit today's natural gas prices, biorefineries are looking 
toward new energy sources, including methane digesters and 
biomass gasification. To continue this technological 
revolution, however, continued government support will be 
critically important. Competitively awarded grants and loan 
guarantees provided by DOE and USDA, many of which were 
included in the energy policy of 2005 have played a very 
important role in developing new technology. The ethanol 
industry encourages Congress to full appropriate funds for 
these critical, competitive solicitations during the fiscal 
year 2007 budget process.
    To date, the ethanol industry has grown almost exclusively 
from grain processing. As a result of steadily increasing 
yields and improving technology, the National Corn Growers 
Association projects that by 2015, corn growers will produce 15 
billion bushels of grain. According to NCGA analysis, this will 
allow a portion of the crop to process into 15 billion gallons 
of ethanol without significantly disrupting other markets for 
corn.
    In the future, however, ethanol will be produced from other 
feedstocks, such as cellulose. While there are indeed limits to 
what we will be able to produce from the grain, cellulosic 
ethanol production will augment, not replace, grain-based 
ethanol. Ethanol from cellulose will dramatically expand the 
types and amounts of available material for ethanol production, 
and ultimately dramatically expand ethanol supplies.
    Many companies, including ours, are working to 
commercialize cellulosic ethanol production. For example, we 
are putting on both our facilities to break down the corn fiber 
into ethanol, increasing our yields by about 15 percent. 
Indeed, there is not an ethanol biorefinery in production today 
that does not have some sort of a program looking at cellulosic 
ethanol research.
    Ethanol today is largely a blend component with gasoline, 
adding octane, displacing toxic, and helping refineries meet 
Clean Air Act Specifications, but the time when ethanol will 
saturate the blend market is on the horizon, and the industry 
is looking forward to new market opportunities such as E85. 
Enhancing incentives to gasoline markets to install E85 
refueling pumps will continue to be essential. Today there are 
approximately 6 million flexible fuel vehicles capable of using 
E85, representing less than 3 percent of the total U.S. motor 
vehicle fleet.
    U.S. auto manufacturers have made significant commitment to 
FFE technology, and their commitment is increasing. By 2015, 
FFEs on the roads will exceed 35 million, creating a potential 
demand for E85 of more than 21 billion gallons.
    The Energy Policy Act of 2005 and several other policies 
enacted by the 109th Congress clearly put our Nation on a new 
path toward greater energy diversity and national security. The 
continued commitment to the renewable fuels industry by the 
U.S. Agriculture Committee in the 110th Congress can all 
contribute to ensuring America's future energy security. Thank 
you.
    [The prepared statement of Mr. Miller can be found on page 
109 in the appendix.]
    Chairman Harkin. Now, to introduce our--excuse me, our vote 
was just called, but we have a little bit of time here to 
introduce our next witness. I call on our Ranking Member.
    Senator Chambliss. Thank you, Mr. Chairman. I am very 
pleased to introduce to the Committee Dr. Roger Webb who is 
Director of the Strategic Energy Institute at Georgia Tech. Dr. 
Webb and his folks at Georgia Tech are doing some truly amazing 
things that he is obviously going to be able to talk about 
today and present to the Committee. And it is particularly 
important in our part of the country. We do not grow corn in 
the abundance that you do in the Midwest and we have to look 
for other alternative resources for ethanol. And Dr. Webb and 
his colleagues are thinking outside the box and developing new 
markets for our producers, which is truly exciting for us.
    So I am very pleased to have him here and to introduce him 
to the Committee.
    Chairman Harkin. Thank you very much.
    Dr. Webb.

STATEMENT OF ROGER WEBB, DIRECTOR, STRATEGIC ENERGY INSTITUTE, 
       GEORGIA INSTITUTE OF TECHNOLOGY, ATLANTA, GEORGIA

    Mr. Webb. Good morning. Thank you, Chairman Harkin and 
Senator Chambliss for the opportunity. I have been truly 
impressed with the interest that you have expressed in this 
topic.
    As Senator Chambliss said, I represent the Strategic Energy 
Institute at Georgia Tech, an organization which is devoted to 
facilitation energy research at Georgia Tech, particularly 
focusing on defining high potential impact topics, projects, 
conducting pre-commercial research in order to enable the 
deployment of those things, and then facilitating the 
deployment of the research in the commercial marketplace, 
usually in concert with industrial partners.
    One project we have been very interested in is that of 
creating ethanol from southern pine pulpwood. And it is that 
topic that I would like to address. And I would like to make 
these five points.
    One is that you can make ethanol from southern pine 
effectively and efficiently. We have produced ethanol in three 
different laboratories with very good yield rates, and 
approaching 70 percent of the theoretical limit, and we think 
that can be improved. The conversion efficiency for southern 
pine to ethanol, a gallon of ethanol is worth about 76,000 Btu 
of energy. It takes about 16,000 Btu of energy to produce that 
amount of ethanol from a pine tree. So it is a very efficient 
conversion process. We think with existing technologies today, 
we could produce ethanol at about $1.30 a gallon, and we see 
there are opportunities to reduce that considerably.
    The second point is that southern pine is an abundant 
resource in Georgia and throughout the Southeast. Historically 
that comes about because pulpwood became an agricultural 
product in that part of the country as a result of the pulp and 
paper industry moving south several years ago. Currently in 
Georgia there are 24 million acres planted in pulpwood. The 
annual harvest is about 55 tons per year. 37.5 tons of that go 
into the pulp and paper industry, which, by the way, is a 
declining industry in our State. That leaves about 17.5 tons 
available for conversion to other things. That is equivalent to 
roughly 700 million gallons per year of ethanol. And if you 
extrapolate those numbers across the region, the Southeastern 
region, it looks like an available resource, with current 
technology, with the existing surplus in pine, of about 4 
billion gallons per year, which could be a significant 
contribution that overall ethanol makes.
    The third point is that infrastructure exists largely due 
to the existing pulp and paper industry. That is, the State 
Forestry Commission of Georgia has a seedling program to 
provide seedlings to replenish the crop. The trucking and 
harvesting industry is there. So, basically, the transportation 
and harvesting infrastructure is already in place to facilitate 
an ethanol industry in the State and across the region.
    There are apparent areas for cost reduction. It was 
mentioned earlier, a gentleman from NREL, about significant 
decreases in costs of producing enzymes. We expect that 
decrease to continue. There are some obvious technologies that 
can be applied to the distillation process, which will bring 
the cost down. We think it is quite likely to get the cost of 
ethanol down to below a $1.00 a gallon with improved 
technologies. And we think the whole thing could be 
commercialized relatively near-term, like 2010. That gets a bit 
to the chicken and egg thing that you all brought up earlier, 
and probably would require some participation by the government 
in reducing the risk in the investment of new plants.
    A cellulosic ethanol plant is more complex than a plant 
that produces ethanol from corn. The corn process is well-
defined. The risk is known. With cellulosic ethanol, there is 
not a plan out there, and so the risk is high, and some 
participation in reducing that risk would probably go a long 
way toward getting investment in the program.
    So, in short, we think the resource is there. We think 
ethanol can be produced in large volume. And it looks like a 
very productive thing for the rural South in terms of economic 
development. We appreciate your interest in listening to us.
    [The prepared statement of Mr. Webb can be found on page 
141 in the appendix.]
    Chairman Harkin. Well, I can assure you, we have a lot of 
interest in this. I do not want to get into questions right 
now, but this is fascinating. I do have some knowledge of what 
has happened to the paper and pulp industry, but this could be 
a great thing. That was great testimony. I will have some 
questions later on.
    Are we on our second bells?
    We have about 7 minutes left. Why don't we recess now, 
Gene, and then we will be right back. So if anybody has to take 
a break to visit a room around here, down the hallway or 
someplace, come back. We will be gone--we will recess for 
about--we will be back in about 10 minutes.
    [Recess.]
    Chairman Harkin. The Committee will resume its sitting.
    Our next panelist is Mr. Gene Gourley, a pork producer from 
Webster City, Iowa. Gene was born and raised just south of 
Webster City on a farm. He is active with his three brothers in 
their farrow-to-finish family operation and farm about 3000 
acres of corn and soybeans.
    Gene obtained his Bachelor of Science and his Master of 
Science from Iowa State University. He is the General Manager 
of the Nutrition and Research Division of SGE, which is 95 
percent owned by several Iowa farmers, and collectively they 
own 25,000 sows, finishing 0.5 million pigs per year throughout 
the State of Iowa. Gene is responsible for feed rations and 
formulation on all SGE farms. Furthermore, he coordinates 
research projects and technology transfer for the research and 
development team, and has been with SGE for twenty years and is 
also a general partner.
    Gene is testifying today on behalf of the National Pork 
Producers Council and the Iowa Pork Producers Association. Mr. 
Gourley, welcome to the Committee and please proceed.

  STATEMENT OF GENE GOURLEY, NATIONAL PORK PRODUCERS COUNCIL, 
      IOWA PORK PRODUCERS ASSOCIATION, WEBSTER CITY, IOWA

    Mr. Gourley. Thank you, Senator Harkin.
    I just have to kind of, being the token livestock person, I 
looked at my Far Side calendar on Monday as I was writing my 
testimony and I saw the two bears in the forest with the circle 
and the scope, with the cross-hair on the one bear, and the one 
bear, you know, shoot him when he is on the spot. So I sure 
appreciate the opportunity to visit with you today.
    Chairman Harkin. So you got one of those calendars for 
Christmas, too.
    Mr. Gourley. Yes, I did.
    Chairman Harkin. So did I.
    Mr. Gourley. But I appreciate the invite to testify today 
regarding the use of Distiller Dried Grains and swine diets. I 
do use my Master's degree in Nutrition on a daily basis as a 
partner with my three brothers, and also at Swine Graphics. I 
am testifying on behalf, as you mentioned, the NPPC and Iowa 
Pork Producers, and I belong to both those organizations.
    The pork industry is of immense importance to the country 
in my home State of Iowa. Nationwide, more than 67,000 pork 
producers marketed more than 103 million hogs in 2005, and 
those animals provided total gross receipts of $15 billion in 
more than 550,000 direct and indirect jobs. Nearly 9,000 Iowa 
pork producers create more than 86,000 jobs for fellow Iowans, 
and contribute $3 billion in annual payroll, and generate $12 
billion in annual economic activity in the State. And our pigs 
consume nearly one-third of Iowa's corn and soybean crops.
    So first let me say that the U.S. pork industry supports 
the development and use of alternative and renewable fuels as a 
way to reduce our country's dependence on foreign oil, but pork 
producers face some challenges created by the rapid rise in 
ethanol demand, including the use of DDGS, Distiller Dried 
Grains with Solubles, a major co-product of the ethanol 
production process.
    Some would have us believe that all the feed problems 
created by using a substantial portion of the Nation's corn 
supply for ethanol production are irrelevant because of the 
production of DDGS. I am here to let you know that this product 
does little to allay the concerns of pork producers regarding 
the future cost of availability of feedstuffs. Just remember 
that the ethanol production process uses 56 pounds of corn, 
removes the main ingredient, starch, our pigs' energy source, 
and yields only 17 pounds of DDGS.
    There are several issues with regard to feeding. I have run 
several trials, actually within our own operation and with 
other nutritionists around the country. The No. 1 problem that 
we say is basically the inconsistency from ethanol to ethanol 
plant of DDGS, and even within the same plant you will have 
inconsistencies. One would be variability of the nutrient 
content, the protein, the fat, the phosphorous, the other 
nutrients varied. And that is partially due to the corn that 
comes into the plants, and so that is not all controlled by 
them. If they change, though--if there are changes in their 
fermentation or the drying, it could impact the digestibility 
of those nutrients to the animals. And there is potential 
presence of micotoxins, which can cause pig performance issues.
    Corn oil is increased in the DDGS by threefold over normal 
corn, and that can increase the iodine value in our pigs which 
creates soft fat issues from a sliceability and a carcass 
rancidity for shelf life potential. It can also decrease the 
yield. Typically it declines when you use higher levels of the 
DDGS, and that is probably most likely due to the fiber 
fraction that is in DDGS.
    There are several other issues that I have listed in the 
written testimony that I will not spend a lot of time on now, 
but finally DDGS are far more useful in diets for beef and 
dairy cattle than they are for pork and poultry, meaning that 
for pork producers DDGS will not be as cost effective an 
ingredient because beef and dairy can pay more for DDGS, and 
this is already occurring today.
    While the pork industry appreciates the opportunity to 
discuss DDGS, the most important issue regarding ethanol in 
livestock are the availability of corn, the potential loss of 
rural jobs, and the cost of feed. The combination of high oil 
prices and government policies create an industry in ethanol 
that can pay roughly $4.00 per bushel for corn. The ethanol 
industry received government subsidies of a $1.53 per bushel 
corn, a blender's tax of $0.51 per gallon, and their Federal 
mandate on ethanol production.
    These incentives have the ethanol industry growing at an 
almost unbelievable pace. New plants are springing up 
everywhere. I have eight plants within 50 miles of my doorstep 
today that were not there 3 years ago. And we are using a lot 
of corn through those plants. The Renewable Fuels Association 
now estimates that 4 billion bushels of corn will be used by 
the ethanol plants that will be online as of January 2008. 
Former USDA economic Bill Tierney predicts that an annual usage 
rate will be over 10 billion bushels by the end of 2009 if all 
the ethanol plants currently under construction that are 
planned actually come online.
    The pork industry uses about 1.1 billion bushels, and the 
entire livestock industry uses just over 6 billion bushels. 
Corn growers produced about 10.7 billion bushels in this last 
harvest of 2006.
    There is also a job component. While 100 million gallon 
ethanol plant creates approximately 80 jobs, if we divert that 
from pork production the corn needed to produce that ethanol, 
it would cost 800 on-farm jobs. And this is an economic 
analysis from Dr. John Lawrence at Iowa State University.
    Of course, competition for corn is driving up its price, 
increasing livestock producer's feed costs. This time last 
year, production costs were about $40 per 100 pounds, and 
economist Ron Plain at the University of Missouri now 
calculates that with feed price increases, the producers have 
already seen their production costs rise, and will be around 
$50 per 100 pounds. This represents about a 25 percent increase 
in cost.
    Finally, corn availability and prices would also be 
adversely affected if we have a short crop or drought in either 
of the next two seasons. Mr. Chairman, more details about pork 
producers' concerns regarding feed availability and costs, and 
the use of DDGS are included in the written testimony which I 
ask to be included in the record. Thank you again for this 
opportunity, and the U.S. pork industry stands ready to work 
with Congress on solutions to the challenges that face pork 
producers from the rapid rise in ethanol production. Thank you.
    [The prepared statement of Mr. Gourley can be found on page 
89 in the appendix.]
    Chairman Harkin. Mr. Gourley, thank you very much. And I 
will have a lot of questions, because this is something to 
consider. You heard earlier witnesses talk about this and we 
have got to really figure this one out and make sure we do not 
make mistakes in this area as we go forward on the Farm Bill. I 
thank you for that and I have some follow-up questions.
    Next is Loni Kemp, and I just want to state that Senator 
Klobuchar just saw me on the floor and said, I wanted to come 
over to introduce Ms. Kemp to the Committee, but she has a 
Members' Meeting off the floor right now and cannot be here. So 
let me just apologize that she could not be here to 
appropriately introduce her fellow Minnesotan.
    Loni Kemp is Senior Policy Analyst at the Minnesota Project 
where she has worked on agriculture and environment issues 
since 1979. She is on the board of the National Campaign for 
Sustainable Agriculture. She shares its stewardship committee. 
She is active in the Midwest Sustainable Agriculture Working 
Group and Sustainable Agriculture Coalition. Ms. Kemp was a 
Food and Society Policy Fellow, a national program to inform 
and shape public policy on sustaining family farms and food 
systems.
    Well, there are a lot of things she belongs to and does. I 
would be here for all afternoon if I read them all. So we 
welcome you, Ms. Kemp, to the Committee and look forward to 
your testimony.

 STATEMENT OF LONI KEMP, SENIOR POLICY ANALYST, THE MINNESOTA 
                   PROJECT, CANTON, MINNESOTA

    Ms. Kemp. Thank you, Mr. Chairman. I really want to thank 
you for the opportunity to come here today.
    I want to particularly address the topic of sustainability 
of renewable energy. The significant question for the next Farm 
Bill, as for all Farm Bills, is what do we want for the future 
of agriculture? What policies will bring about an agriculture 
that benefits our children and future generations?
    We believe we are undergoing a fundamental shift in the 
American perception of farmers. Definitely they want our food 
and fiber produced, but now farmers are also called upon to 
produce renewable energy, and clean water, and a more stable 
climate. We need to design the polices that simultaneously meet 
objectives for energy, the environment, and rural prosperity. 
If we do it right, we can continue food production and expand 
the pool of biomass feedstocks in a way that achieves all of 
these objectives. On the other hand, if we do it wrong, we may 
find that environmental tragedy and rural decline will 
overwhelm the hopes of renewable energy and maybe even create a 
backlash against the ethanol industry and farmers.
    The right way is to prepare for agricultural production of 
cellulosic biomass on a major scale. We need to shift the 
policy from annual energy crops to perennial crops so that we 
have the opportunity to buildup soil quality, use fewer 
chemicals, and manage habitat.
    Switchgrass, I guess this has been mentioned today--
switchgrass is a popular phrase but it is not the only 
feedstock. There are different cellulosic materials appropriate 
to every region of the country, and it might include prairie 
grass mixtures, alfalfa hay, and woody crops like poplar trees, 
willow, hazelnuts, southern pines. While ethanol is the 
likeliest way to use biomass, we have also been hearing today 
an important point that there are other types of conversions 
that can be used with biomass. So we must also keep in mind 
that direct burning, gasification, conversion to electricity, 
methanol, hydrogen fuel cells, butanol, and even fertilizer may 
be produced by biomass.
    Perennial biomass crops can be a triple winner at slowing 
climate change. And that is a very important focus, I think, 
for the Farm Bill. That is, if we do it properly. First, 
burning renewable fuels does not increase carbon emissions at 
all because the carbon going into the air was just taken out of 
the air when the crop was growing.
    Second, we can grow the biomass crop in ways that reduce 
the total carbon in the atmosphere by capturing carbon in the 
soil. Untilled soil with perennial grasses, or no-till annual 
crops, can capture the carbon that was held in the roots, 
leaves, and stalks that are left on the soil.
    The third way for biofuels to be part of the global warming 
solution is by producing ethanol in plants powered by renewable 
fuels instead of fossil fuels like coal and natural gas. As 
Senator Klobuchar was telling you about, we have two plants in 
Minnesota that have moved in that direction.
    We recognize that none of this can happen overnight, but 
the fact is that the next five years, which is the duration of 
the next Farm Bill is precisely the window of opportunity that 
we need to accomplish the necessary transformations for biomass 
energy to blossom, just as wind and corn ethanol are blossoming 
now in response to previous policies.
    So a few comments on the sustainability of biomass. We 
suggest that cellulosic crops should be prioritized according 
to their sustainability. The most sustainable option is 
perennial plants like grass mixtures that mimic the prairies, 
and deliver high production with low inputs, while also 
contributing to water quality and wildlife habitat.
    On the other hand, conservationists are growing quite 
concerned about the potential for overly aggressive removal of 
crop residues, like corn stover, maybe wheat straw. Scientists 
at the USDA Agricultural Research Service recommend that corn 
stover should never be harvested from highly erodible acres, 
from plowed fields, or from corn-soybean rotation acres. Even 
on corn land with no tillage, continuous corn, only 20 to 50 
percent of that residue is safe to remove if you want to retain 
the organic matter and keep healthy soils. So that is an 
important thing we have to keep in mind as we go forward.
    A couple of policy options that we are suggesting. First is 
the Conservation Security Program. It is perfectly designed as 
a working lands program to deliver incentives to encourage 
farmers to plant energy crops. We need to design a major new 
enhancement payment, or incentive payment, that is part of this 
program, for establishing perennial energy crops according to a 
conservation plan. We think the basic goal should be to get 
farmers to start the transition to perennials so that when the 
market appears in a few years, some farmers will be producing, 
others will have seen their neighbors do it, and they can 
quickly learn and grow these crops to supply the supply chain.
    CSP has proven its popularity on the 16 million acres 
already enrolled, but it needs full funding in order to offer 
this opportunity for renewable energy. Some folks are eyeing 
the Conservation Reserve Program for biomass harvests, but we 
would like to suggest that might not be an appropriate 
approach, to compromise the conservation values for which this 
land retirement program was designed.
    Furthermore, we probably ought not to think about biomass 
as something that you grow primarily on marginal land. 
Cellulosic ethanol must compete with oil and corn ethanol, and 
it probably is going to pencil out best with good productivity 
on reasonably good lands. On the other hand, land already 
coming out of CRP should receive incentives to keep that land 
in perennial cover, including biomass crops.
    We also are very interested in supporting initiatives that 
focus on locally owned, community-based production of renewable 
fuels. Rural communities need to have an equity stake in 
emerging agriculture energy industries in order to participate 
fully in the wealth that will be generated.
    So thank you very much.
    [The prepared statement of Ms. Kemp can be found on page 
103 in the appendix.]
    Chairman Harkin. Thank you very much, Ms. Kemp, for that 
statement. I went through your written statement yesterday 
evening.
    And now we have Mr. John Sellers. He and his wife, Jean, 
own and operate a 360 acre farm near Corydon in south central 
Iowa. They have a forage cow-calf and custom grazing operation. 
They have, I am told, over 100 acres of native grass plantings 
for biomass production and wildlife habitat.
    John is the Coordinator of the Grassland Agricultural 
Program with the Leopold Center for Sustainable Agriculture at 
Iowa State University. He is a longtime Soil and Water District 
Commissioner, a member of the Iowa State Soil Conservation 
Committee. He served twice as the President of the Forage and 
Grassland Council, and as a producer/member of the American 
Forage and Grassland Council Board of Directors. He has 
recently been elected to another term as a producer-member of 
the board.
    He is also active in the renewable energy and sustainable 
agriculture arenas, and of course I knew a John, well, from the 
Chariton Valley Project. Welcome to the Committee, John. It is 
good to see you again.

  STATEMENT OF JOHN SELLERS, FARMER-MEMBER OF IOWA STATE SOIL 
 CONSERVATION COMMITTEE; MEMBER, BOARD OF DIRECTORS, AMERICAN 
          FORAGE AND GRASSLAND COUNCIL, CORYDON, IOWA

    Mr. Sellers. Thank you, Senator Harkin, and thank you for 
this opportunity to appear before this Committee today. The 
discussion today is agriculture and rural America's role in 
enhancing national energy security.
    I would preface all of my remarks with two principles. No. 
1, the producers and landowners must be an equal stakeholder in 
all policy and value relationships. Too many times, the 
stakeholder or the landowner is the last considered in any 
policy. They need to be a part of the partnership.
    And No. 2, that now is the time to think beyond corn 
ethanol or soy biodiesel, the paradigm of that. Bio-energy 
threatens to eclipse food, feed for livestock, livestock 
production, grasslands, forest products, and fiber production 
as the major driver of American rental rates and record--I have 
gotten ahead of myself here.
    Farmers face enormous risk from price volatility, 
skyrocketing land rental rates, and record input costs.
    The environment faces risk from intensive and accelerating 
focus on one crop. There are alternatives to creating a grain-
based transportation fuel economy. When facing price 
uncertainty, price and policy goals should be to use just 
enough fuel ethanol to support corn prices and farm income, but 
not so much that it disrupts the world food economy. Meanwhile, 
a much greater effort is needed to produce ethanol and bio-
energy from cellulosic ethanol or cellulosic sources.
    As I have stated earlier, I have nearly a decade of 
experience managing switchgrass biomass for energy. Several of 
those years were as filed coordinator for the Chariton Valley 
Biomass Project, which co-fired switchgrass with coal to 
produce electricity. I coordinated establishment, stand 
improvement, fertility, research support, harvests, storage, 
and transport of this biomass on nearly 4,000 acres of CRP 
ground.
    The project not only performed all of the physical 
functions of growing, harvesting, transporting, and processing 
switchgrass biomass, it also provided the resources for 
research that addressed the economics of establishment, stand 
maintenance, optimum fertility levels, harvest efficiency, 
machine adaptability, soil erosion, carbon sequestration, water 
quality, and one that I found very important was harvest impact 
on various wildlife species, and cultivar adaptation. We looked 
at what--could we bring the lowland varieties from Georgia up 
to Iowa and have them survive our harsh winters? They have much 
higher yield potential.
    The knowledge and experience gained from this project will 
be quite valuable to the future projects, and has shown that, 
with government support and risk mitigation, demonstration 
projects and farmer groups can grow and deliver a feedstock 
necessary for the future commercial-scale renewable energy 
ventures that we hope to stimulate.
    In order to assure a dependable multi-year supply of 
feedstock, we need to create some sort of a reserve of 
feedstock available for local projects and commercial ventures. 
I am calling it an energy reserve. It could be a dedicated 
energy feedstock program. But I am calling for about 5 million 
acres of these to come from the CRP on a voluntary basis.
    We have these contracts in place at a given rate. We know 
what that rate is going to be for the next 10 or 1five years. 
We would not have to go on the open market and compete with 
cash rents that have escalated enormously. In northern Iowa, I 
am hearing reports of $285 per acre. We cannot cash rent on 
that basis.
    Anyway, I feel the landowner should have the voluntary 
opportunity to do this. I am not saying take it out, let the 
landowner--and then see what the interest is in renewable 
energy. We found terrific response from our farmers in southern 
Iowa when we started our Chariton Valley Project several years 
ago.
    This would also very much facilitate the research that is 
going to be needed to be done. I have also got some real 
concerns of treating crop residue basically as another low-cost 
commodity producer. We are going to have some real challenges 
with harvests.
    And also, we need some herbicide labeling restrictions 
lifted for the production of biomass. Right now, we do not have 
the tools available to cultivate and manage biomass 
switchgrass.
    Mr. Chairman, thank you again for the opportunity to 
testify before this Committee, and I will attempt to answer any 
questions.
    [The prepared statement of Mr. Sellers can be found on page 
120 in the appendix.]
    Chairman Harkin. Thank you very much. In fact, as you heard 
Keith Collins say earlier, the Chariton Valley Project may have 
been the only one, I think, in the United States where we have 
all that knowledge base that you just talked about. That could 
be very helpful for us.
    I will just start and go down the panel. For Mr. Miller, 
again, and I am going to say a little bit about this with Mr. 
Gourley, also. I have heard concerns that the ethanol industry 
is just growing too fast. It is just growing too fast. It is a 
boom, and booms like this tend to bust. There is concern that 
there could be a big expansion, and then a collapse. A collapse 
would put a damper on everything for a while. Investors and 
others would turn away from ethanol and invest elsewhere.
    I just want to know what your view is on that. Is there 
going to be enough corn for ethanol and animal agriculture? And 
will there be adequate markets for ethanol at profitable 
prices? What is your view on whether it is growing too fast or 
not?
    Mr. Miller. I think in any short cycle, you can look at 
sort of a boom/bust, is it growing too fast over a period of 
two or 3 years. Over the long run, I am not too concerned 
about, because those things tend to equal out. Things naturally 
occur that smooth cycles out.
    For example, there are only so many builders or so much 
steel going into the ground at one time. You have to go through 
your permitting process. We are in the process of developing 
three additional facilities in addition to the two that we own, 
and getting through the permitting process is going to take a 
year in many cases. And we are looking at 18 months, that has 
slowed down.
    So I think some of these situations sort of take care of 
themselves. In the long run, I am not too concerned about it. I 
mean, we are trying to penetrate a 150 billion gallon gasoline 
market, and we are only 5 billion gallons today. Even if we get 
up to 15 billion gallons, it is only 10 percent. So we have a 
lot of opportunity there. I think up to about 15 billion, we 
are probably in good shape with corn, again, depending upon how 
fast we get there.
    If you talk to companies like Monsanto, I mean, we are 
talking 300 bushels an acre in twenty years, just the natural 
yield increases. The yield increases that I have seen in the 
last couple years where I live, where we have a drought 
condition, and we have a near-record crop. It is just simply 
amazing.
    So I am not too concerned about corn availability in terms 
of food and fuel. And certainly DDGS is a good product. We have 
not had any issues with it. I do think going on to the next 
generation, we do need to look at cellulose. That is why our 
company is involved in taking the corn fiber and trying to 
break that down. And we envision bolt-on facilities to the 
corn-based facilities, where we would start off with corn 
fiber, and you can also, once you have the technology proven 
out, you can bring in other products.
    Chairman Harkin. The plants you are involved in, and I get 
this question a lot and I do not exactly the answer to it. 
Existing ethanol plants are being built right now. Can they 
adapt to cellulose conversion also?
    Mr. Miller. Well certainly. I think what you are looking at 
is a bolt-on to an existing facility. For example, at Pekin, 
where we have--fortunately we are a wet mill on about two-
thirds of our plant there. We have a very pure fiber strain. It 
has got a lot of starch to it, which is great. We can break 
that down and put a bolt-on facility right there at our Pekin 
facility, which can take advantage of all the infrastructure, 
the grain inbound, the outbound load out. And I think for these 
cellulose plants to be successful, a transition mode is to bolt 
them on to an existing plant where there is plenty of 
infrastructure available.
    So that is where we see the market developing for cellulose 
probably over the next five and 7 years, as bolt-ons to 
existing facilities. And then you can get scale for the 
facilities to stand on their own.
    Chairman Harkin. The question I want to ask, first of all--
when I am finished with everyone here, I am going to go back 
and revisit one question, and that is this, if you could write 
one or two provisions into this Farm Bill to promote the use of 
biofuels, while simultaneously protecting our livestock 
industry, what would they be?
    Also, another question you might think about, all of you, I 
asked this to Mr. Miller, is: what do you think about the idea 
of tying the blender's tax credit to the price of oil inverse 
by? In other words, a counter-cyclical payment. Right now the 
credit is $0.51 per gallon, but there are those who say we do 
not need this credit right now because the demand for ethanol 
is there. The price of oil is high so the tax credit could be 
lower. But as the price of oil comes down, what does that do to 
the ethanol market? Well, if you had an inverse payment, as the 
price of oil went down, the blender's tax credit would go up. 
As the price of oil went up, the blender's tax credit would 
come down. That way, there would be absolutely no incentive 
for, say, OPEC and others to say, we will just start cutting 
prices.
    I just want to know what you think about that idea. It has 
been floated around and I am looking at it.
    Mr. Miller. Well, Senator, I have been in this business for 
2five years, and there are times when the tax incentive has not 
been enough, and then there are times when it is probably been 
more than plenty. You have to tell me what the price of oil is 
going to be, and what the price of ethanol versus oil is going 
to be, and also the price of corn. I think, from that 
standpoint, the concept is a good one. I think in practical 
reality, it is going to be difficult to manage a variable tax 
credit. What is it on a given day? That could affect the value 
of ethanol which could affect the price.
    Chairman Harkin. Well, it would be based just on the price 
of oil.
    Mr. Miller. Well, then you have the price of corn. That is 
another big variable. So it is my price of corn and my price of 
ethanol, and ethanol is priced somewhat relative to oil, but 
not exactly. We have seen periods of time where it has actually 
inverted the price of gasoline. It has gone below that. And we 
have seen times, for example, when the oil industry pulled out 
2 billion gallons of MTBE demand here in the spring where we 
saw very high prices for ethanol that sort of decoupled.
    So there is a market for ethanol in its own right. It is 
tied to oil, but--and while you could say that, yes, I could 
inversely relate that to the price of oil, you would almost 
have to put a factor of corn in there. And then you would have 
to come up with a mechanism that is manageable. And I think it 
is the mechanism where it is going to be somewhat difficult.
    On the long run, the tax incentive has about done what it 
was intended to do. For the long run it has been about right. 
It has been adjusted through history. It has been as high as 
60. It has been as low as 40. So it has worked, and it 
certainly has driven what we want to do.
    I heard in the previous panel, we have reduced foreign 
payments by $6 billion. That is far more than the value of the 
tax credit loss. So it is a good program the way it is. Again, 
while that is a good idea, I think the mechanical workings may 
prove difficult.
    Chairman Harkin. It is just an idea that has been floated 
around. I do not have one view or the other. I am just trying 
to solicit views on it.
    Dr. Webb, as you have probably heard here, there is a broad 
consensus, I think, that we want to accelerate, and we want to 
do what we can in this next Farm Bill to accelerate the 
commercialization of ethanol from cellulose. Is ethanol from a 
woody biomass in the Southeast ready for commercialization? If 
not, what are looking at an earliest timetable for that, in 
your judgment?
    Mr. Webb. Well, the number that we have in our report is 
commercializable by 2010. That is a process that we are going 
through where we would first build prototype plants of various 
sizes, scale them up, measure what the problems are, and then 
go to a major plant.
    That could be accelerated, I think. I think the technology 
is there. Prudence would say the first thing you do is 
establish a prototype plant and see what the outcomes are. You 
can probably shorten the process to a full-scale production 
plant with proper investment incentives. But I think 2010 is a 
reasonable number. That can be shortened some.
    Chairman Harkin. Well, we need to know from you, what are 
the most important policies and programs that we could address 
here? You know, as I have said earlier, we have people on this 
Committee and also on the Finance Committee and the tax writing 
assignment. And, unless I miss my bet, I do not think I will on 
this one, some of this Farm Bill stuff that we are developing 
will have jurisdictional oversight or say so by the Finance 
Committee.
    Mr. Webb. Yes.
    Chairman Harkin. And I have already discussed that both 
with Senator Grassley and with Senator Baucus. So what are some 
of the things we need to do?
    Mr. Webb. Well, I do not have all the numbers firmly in 
mind. I think 100 million gallon a year corn ethanol plant is 
about $100 million. A similar sized plant, cellulosic to 
ethanol probably costs twice that much. And as I had mentioned 
earlier, there are some unknowns about that process that have 
to be measured so that the investment capital to create such a 
plant is somewhat is risk.
    So I think any policy that could be developed that would 
reduce the risk to investors in creating the initial plant is 
the most important thing that can be done.
    Chairman Harkin. OK. So you need a demonstration plant?
    Mr. Webb. Yes.
    Chairman Harkin. Nothing is on the drawing board right now.
    Mr. Webb. Not in terms of a full-scale facility.
    Chairman Harkin. I do not know why, but I read that Iogen 
was thinking of building a plant in Georgia.
    Mr. Webb. Not that I know of.
    Chairman Harkin. No?
    Mr. Webb. Iogen has facilities in Canada. There are 
facilities in Scandinavia that produce ethanol from.
    Chairman Harkin. I just read that someplace. Maybe it was 
just one of those little blurbs in the paper or something. But 
I am really excited about this, because we need to move on 
this.
    Are there other species besides pine that could be used? I 
was always told fast growing poplars. And what is the harvest 
cycle for these pines? What is the cycle on that? How many 
years?
    Mr. Webb. The pulp and paper industry typically uses a 
turnaround time of 1five years, planting to harvesting, to 
create paper. I am not aware of a study that says what is the 
optimal time to harvest the pine tree to produce ethanol. That 
study needs to be done. There is clearly some time in the life 
cycle of the pine where it is optimally usable to create 
ethanol. But I think 1five years is a target for the turnaround 
time.
    Chairman Harkin. Well, you have to think about the cycle 
thing and get that done, too, but this is one are that we 
really want to address and move ahead on. So any suggestions 
you have along that line.
    Mr. Webb. The other point is the competing utilization of 
the resource is pulp and paper throughout the Southeast, but 
that industry is declining. In the 3-year period from 2001 to 
2004 in Georgia, that industry declined 25 percent, and that is 
continuing.
    So without any new planting or anything, it looks like the 
available resource is going to increase, and there are clearly 
opportunities to plant more. There are clearly opportunities to 
enhance the energy value of the pine through genetic 
manipulation and so forth. So I think there is potential well 
beyond the 4 billion gallon that I mentioned.
    Chairman Harkin. That is exciting.
    Mr. Gourley, I thank you for your testimony. You really 
honed in on some things that we are more and more becoming 
aware of as of late, and that is the impact of ethanol 
production on the livestock industry in many different ways. 
Not just from the price of corn, but just, as you pointed out, 
something that I had not previously been too much aware of, and 
we have to look more at DDGs. And we need to talk to the 
ethanol industry, Mr. Miller, about this also. And that is the 
quality of the DDGS that come out. And they vary, as you say, 
from plant to plant, and maybe within the plant.
    So when a hog producer wants to get feed, they have to have 
that consistency, so what can we do? This is something that we 
really need to look at, because we need to utilize that feed 
source. Now, for cattle it has been pretty good, but on hogs it 
has been not so good.
    Now, was it the University of Minnesota showed that they if 
were prepared and marketed the right way, hog producers could 
use 20 percent or even more in their hog-feed ration. Yet in 
your testimony you were saying about 10 percent. I guess, is 
that difference because of quality and consistency and that 
type of thing?
    Mr. Gourley. Not so much. Ten percent is kind of just the 
golden rule that the industry is using right now, partially on 
the variability issue. It just comes down to economics of 
formulation. It is another product that has been provided to us 
to try and use as a byproduct coming into our formulation. So 
you will balance that against soybean meal price. There is a 
protein and price point. You balance against corn as the energy 
source. You balance it against animal fat. All the combinations 
of these--the phosphorous in it, as well, can go against dicals 
or inorganic phosphorous that we formulate with.
    So as it comes in the formula, 10 percent is kind of the 
safe ration. As you go to that 20 percent, the issues I 
mentioned about the corn oil increase, because it is three 
times higher. We feed that amount late in finishing, where the 
pig consumes most of the feed, we can run into a soft fat 
issue, is what it is called, with the packing plant. And that 
gets into the sliceability of bacon and some of those things. I 
know the Southeast ran into it with poultry fat, basically, 
feeding that back, that you can get softer fat carcasses.
    So those are some of the issues--and I know that some of 
the ethanol plants are talking about fractionation. So they 
will pull the oil out, leave the protein, and that will improve 
our feeding of DDGS. In actuality, and I am working with Broin 
on this. Broin has looked at that combination, and the amino 
acid makeup, or the protein fraction that is left over is still 
not very ideal for swine. We still would have to add other 
synthetic amino acids. And really, soybean meal is still the 
choice on a protein standpoint. But it leaves some of that soft 
fat issue that I just talked about, but it also may not be as 
high a value product just because the protein is not quite what 
we need.
    And again, I am talking swine specifically here. Beef, you 
know, you do not get into the amino acids, the protein, as 
much. They just need the urea for the nitrogen, and they can 
digest fiber as well.
    Chairman Harkin. I thought Iowa State University was doing 
some research, and maybe other universities, too, in this area.
    Mr. Gourley. You bet. They are. Dr. Trinkle, I actually 
called him a couple of days before I came down here. At Iowa 
State University he is doing research on that. And one of your 
points of asking, what can we do? One thing he mentioned is, I 
wish I had more funds to get into some of the issues of enzymes 
being used and feeding that with the beef side of it, for 
utilization of the product better. And just getting funds, 
period, to do the research that needs to be done on the beef 
and the dairy side of it. It was one his comments, that it 
would be nice.
    He sees a lot of dollars going toward the cellulosic, 
which, totally, we need, and obviously it is very evident 
today. He just does not see as many funds available for him to 
try and get the beef work done that needs to be done to feed 
the byproduct.
    And just as a side note on that, again, you cannot blame 
the ethanol industry. The main product they are selling is the 
ethanol. You talk to a lot of plants, and they say, look, we 
just want to get rid of this stuff. The bottom line dollars to 
them, DDGs mean very little to them. That is the way it has 
been. And so there are issues when you talk to some plants.
    Chairman Harkin. Well, what can we do? Again, help me think 
this thing through. Help us. Do we need to work with the 
ethanol industry to provide some kind of standards or something 
that they should meet with with regard to DDGS or some 
incentives to encourage standardization? I don't know. How do 
we approach this? It seems to me that this is a valuable 
byproduct. I understand their main product is fuel, but 
DDGSthat is still a very valuable byproduct.
    I do not know. I will ask Mr. Miller.
    Mr. Miller. Well certainly, Senator. It has become 
important enough that we have a full-fledged committee within 
the Renewable Fuels Association, a feed committee looking at 
standards, consistency.
    Consistency is very important. And as the industry has 
grown, you have different technologies. And it is correct, 
ethanol is our primary product. This is a byproduct, but there 
are things that plants can do to be more consistent. One 
example that I could point to would be at our Nebraska plant 
where we can run milo or corn. We found we had a much more 
consistent DDGS product if we ran all corn and the market would 
pay us for it.
    Some of this is market related, too. If you produce a 
higher quality, consistent product that nutritionists can use, 
then the marketplace is going to value your product more. And I 
think as we become larger in the marketplace, the market forces 
begin to take over. And there will be those who are producing a 
more consistent product and a higher quality product, and that 
will be who the people go to first. And if you are not 
producing a consistent product, you are going to be the supply 
of the last resort.
    In the areas like toxins, for example, we test for toxins 
all the time. We export a lot of our feed product to Europe. 
Europe is very tight on toxins. And we know--we have known for 
2five years or more how important it is not to have aflatoxin 
or any of the toxins. We test consistently for it. We run 
consistent tests. When we have high aflatoxin periods, we are 
sampling every truckload that comes in. Our elevators know if 
they try to provide some higher toxin material to us they are 
going to get embargoed. We will not buy from them. And that is 
a pretty powerful statement when you are buying 50 million 
bushels a year in a local economy.
    So those are some tests that we do, and I know a lot of 
others do. Anybody who is in the export market is going to be 
doing that and I would say most of the domestic guys are, as 
well.
    So I do think this is an evolutionary process, and we are 
going to have to try and get our arms around it through the 
feed committee within the RFA.
    Chairman Harkin. I appreciate that. Again, market forces, 
yes, I understand it, that could help. But I still understand 
that, even with the market out there, that we get this 
inconsistency and stuff out there. But we got to figure this 
one out, on how we--and I think we do need more research money 
into that, both on how you make these DDGS more applicable for 
swine, but also how do we use other enzymes and stuff to help 
the swine digest and utilize that stuff. I guess that is the 
kind of research we need to do more of; is that right?
    Mr. Gourley. I did--I actually conducted one of those 
research projects with an enzyme company and they were working 
on some solid state fermentation is what it is called, to deal 
with enzymes and digestibility of some of the energy and 
proteins in the DDGS. Our first shot at it was not very 
successful through the pig trials, but they are back to the 
drawing board. They are not giving up, and they are a 
substantial company that is going to try and put some efforts 
toward to that.
    But I mean, even--we try to look at it. We pull the oil 
out. The issue on the swine side is that even if we put 10 or 
20 percent, the corn is still 75 to 80 percent of my ration 
from an energy basis. What the ethanol industry pulls out from 
the corn is exactly what I needed from the corn to start with. 
And that is the challenge as a nutritionist is balancing. They 
can give me this back. It has got some oil in it that helps. It 
has some protein in it, but the bottom line is that the energy 
that I needed to grow the pig is what they took out for the 
ethanol production.
    So again, I understand that is the way that process is, and 
I am trying to, as a nutritionist--we try to balance, now, what 
is my new energy source? And corn is king. I do not know what 
other energy sources to try and bring in to fill that ration 
up. Poultry is in the same boat as swine, as well.
    And so that is kind of where we are at. It is a struggle. 
So it comes down to availability of acres.
    Chairman Harkin. Comes down to what?
    Mr. Gourley. Availability of acres.
    Chairman Harkin. For production.
    Mr. Gourley. Yes.
    Chairman Harkin. Well, the other thing, of course, as we 
have heard testimony from, and we know this, the productive 
capacity of corn--it is mind-boggling how much production we 
are getting out of corn now per acre.
    And you think, well, is there a limit to this? Well, not 
during my lifetime there has not been. My gosh, we are getting 
up to 200 bushels an acre now, and I have been told that it is 
going to be even more.
    Mr. Gourley. We were 170 bushels 3 years ago. We were 180 
last year. We are 185 this year. So five bushels an acre. The 
thing, for my family's operation, those five extra bushels in 
that year amounted to 3 days worth of feed for our pigs. That 
five bushel increase was on 3 days worth of----
    Chairman Harkin. Only 3 days?
    Mr. Gourley. Yes. I mean, it takes a substantial--and 
again, those are big steps. I know that there is 300-bushel 
corn coming that he mentioned, and I hope it does, because we 
are going to need the supply.
    Chairman Harkin. Initially, we certainly will need a lot of 
corn for ethanol production, but the development and 
implementation of cellulosic ethanol should start to balance 
thngs out.
    Mr. Gourley. Hope so.
    Chairman Harkin. But again, we have to be very cautious on 
what we do here. And this is one of our big concerns, as you 
know. So we look forward to working with you.
    Mr. Gourley. You bet.
    Chairman Harkin [continuing] We must make sure to balance 
all of these interests cna concerns on our bill.
    Ms. Kemp, I appreciate your comments on the Conservation 
Security Program. As you know, I developed CSP, and we were 
able to implement it in the last Farm Bill. I think it has 
proven its worth. It has been accepted by farmers all over the 
country. Of course, it was never designed to be on a watershed 
basis. It was designed to be on a national basis. But we will 
get to that. I mean, I do not mean to belabor anyone here on 
that right now. But it was designed to be a conservation effort 
on productive lands. The existing paradigm of conservation was 
always, to take conservation land out of production. Well, I 
wanted to challenge that paradigm and say, well couldn't we 
have conservation payments based upon working lands, not just 
based on how much you produce but how you produce. Can we 
measure clean water, air, and sustainability as products, just 
like corn? That is what we set out to do, and I think it is 
working.
    Now, again, I, perhaps, had not thought about this at the 
time--I am talking about 10 years ago when we first started 
developing CSD, but now it seems to me that this paradigm may 
be applicable to the production of cellulosic material for 
ethanol as well. It seems to fit perfectly. You can have 
sustainable agriculture. You can grow switchgrass or whatever 
it might be, and do it in a sustainable manner, and get a 
conservation security payment. This program could also help 
farmers who want to transistion from ontype of farming to 
another. If a farmer wanted to transition from some crops to 
cellulosic crops, well, it would be pretty hard right now 
because there is not much incentive there to do that. But if 
you have a CSP program that dovetails with that, that could be 
a good transition payment.
    I do not know if you have any idea of what level of 
payments are needed, but we need to have some idea of what we 
need to encourage biomass production under CSP. In other words, 
what payments would provide enough economic incentive, in 
addition to whatever market value there is out there for these 
biomass products?
    This could also help us with this chicken and egg problem 
we are having here. If you give farmers incentive payments 
through CSP for the production of biomass crops, well, that 
could start moving that. And then the investors and the plants 
that want to be built will say, OK, now we are going to have 
the supply.
    I am just thinking, if you have any thoughts about what 
kind of a payment system might be applicable for this. If you 
do not, if you have it later on, we would like to hear from you 
about what level of payments would be needed?
    Ms. Kemp. Well, just a couple thoughts. You did have the 
foresight to include energy as a major purpose of the CSP. So 
we already have the incentive payments now for if a farmer uses 
renewable energy, if they produce electricity, and if they 
reduce their net energy use on the farm. So we just have to add 
the other element of producing feedstocks for renewable fuels.
    Chairman Harkin. Producing energy, right.
    Ms. Kemp. I do not have any estimates for what it is going 
to take, but I will just point out that the CSP sets a really 
high bar for conservation for farmers to get into the program. 
And so there would be a combination of--one would be an 
enhancement payment specifically for establishing a perennial 
crop with high conservation standards. But then also built into 
the program itself is you would get a reward for improving your 
soil quality and your soil conditioning index by establishing 
perennials on land that used to be crop land, for example.
    So it is built into the program to both be rewarded for the 
inherent environmental benefits of cellulosic crops, and then 
what we can add in is an extra transition payment for the 
transition costs, and the fact that we know there is some 
experimentation going on, and trying seed varieties, trying 
management techniques.
    And in fact we should probably build research into this 
first generation of CSP energy crop contracts to make sure that 
we are getting the best information to those farmers and that 
their experience then gets translated out to others. But we 
will help work on setting the numbers. That is hard.
    Chairman Harkin. Yes, because this is--switchgrass gets a 
lot of attention, and it should, because from everything that I 
have read and seen, this could be a very valuable biomass 
resource for ethanol.
    But there are other things, too. There is alfalfa. There 
are other grasses. Alfalfa has the benefit, it has feed quality 
too, not for hogs, but for cattle and other things. That could 
be used and still get the cellulose out of that. I am not 
certain if there is any feed value in--well, yes, there is feed 
value in switchgrass, too.
    Now this brings me to Mr. Sellers. Now you are probably one 
of the few individuals in this country that has actually had a 
project of growing, and harvesting, shipping, using a biomass 
product, switchgrass, at the Chariton Valley Project.
    So, you know, you have done all of this. What are some of 
the unsolved problems we have left? I mean, you have been doing 
this Chariton Valley Project for what? How many years now?
    Mr. Sellers. Nine.
    Chairman Harkin. Nine years.
    Mr. Sellers. Yes.
    Chairman Harkin. So what more do we need to know? I mean, 
you have a lot of data and stuff. What more do we need to know? 
You know how fast it grows. You know the types and stuff for 
our area. What are some of the unsolved problems that we need 
to know about switchgrass?
    Mr. Sellers. We need, No. 1, to really define the fertility 
that is actually needed, just some more work on fertility over 
a long term. We need to do some more work on pH. We need to 
look at take out rates so that we might pull the harvest a 
little bit earlier. We do not dare pull it too much earlier 
than 10 days after killing frost because of the nature of a C4 
grass. That goes back into the roots getting ready for next 
year. If we take it off too soon, that will weaken the stand. 
Right now, seed is running about $20 a pound. So it would take 
$200 an acre to establish a new stand.
    Chairman Harkin. So you have to wait after a killing frost 
to harvest the grass?
    Mr. Sellers. Right, which makes a very short, very intense 
harvest period. I am quite enthusiastic about some of the cool 
season grasses and some of the polycultures so that we could 
stretch out this harvest window.
    You talk about the pine in Georgia. They also have a 
boatload of fescue down there. All of our States through the 
Kentucky and Tennessee region, Missouri, they have a lot of 
fescue that could be utilized.
    So we have some real good cool seasons that could be 
utilized along with it to stretch out the program. The main 
problem is distance that we have to transport it, and then 
basically build in a preprocessing locally, and then take a 
more, and if I can use the term, densified product, on to the 
conversion facility.
    Chairman Harkin. There is also the need to think about 
storage?
    Mr. Sellers. Absolutely.
    Chairman Harkin. I have been told that something like 
switchgrass can be stored on the farm in round bales with a 
plastic cover or something like that. Is that so?
    Mr. Sellers. That is so, but you run into transportation 
problems with that round bale.
    Chairman Harkin. Yes.
    Mr. Sellers. We in the Chariton Valley Project looked long 
and hard at that, found the optimum package was a 3 x 4 x 8 
square bale that gave us the optimum ability to truck it 
legally and safely and a machine could take it and work with it 
in a processing facility. So we ended up with a square bale. 
That brings up moisture considerations. These bales weigh 
approximately 1,000 pounds a piece. This takes plastic twine to 
hole the knot together. There are so many adaptations.
    Chairman Harkin. A 3 x 4 x 8 bale weighs how much?
    Mr. Sellers. Switchgrass, about 1,000 pounds. If you were 
pumping alfalfa into that package that, that would weigh about 
1,400 to 1,500 pounds.
    Chairman Harkin. So it is really compacted.
    Mr. Sellers. Right. We have the ability to squeeze that 
down and densify it physically about two to one. But still, 
what good does that do you when you drive it 100 miles and you 
have to break it all apart to process it? I am thinking, or 
hoping, that the technology of pyrolysis, where we could turn 
this into a biofuel locally, and then take tankers to a 
biorefinery would sure help our energy life cycle as we produce 
the cellulosic ethanol or the bioproducts.
    Chairman Harkin. Well now that opens a whole new area that 
we had not looked at before. I think most people are focusing 
on how you stimulate the production of switchgrass and things 
like that, and then the transportation. But I do not know that 
anyone has been looking too hard at localized--what did you 
call it?
    Mr. Sellers. Preprocessing.
    Chairman Harkin. Preprocessing plant. I do not know what 
that does to the economics of it. I have no idea. Do you know?
    Mr. Sellers. The farmers and I that work in this arena feel 
that this would have a lot of value. It would include us in the 
value chain to some extent. And it would lower the cost 
delivered to the regional biorefinery. One of the problems we 
run into--we have got Murphy's Law working here. It only takes 
one machine to break down to cause an awful lot of havoc. If 
you have got ten local storage facilities, a tractor breaks 
down, the other nine are still going to be sending material to 
the biorefinery. That principle is going to work as we go into 
the biorefinery era. It is not going to take much to interrupt 
the whole processing flow.
    Chairman Harkin. I had one other question. I will get it to 
you in writing. I just noticed it is really getting late. But 
the question I asked earlier, if you had one or two things to 
put in the Farm Bill, what would you do to move us in this 
direction?
    Mr. Miller. Well, Senator, the fact that there is an energy 
title in the Farm Bill itself, I think we owe you a debt of 
gratitude for that, your leadership there and the fact that we 
are sitting here talking. And it has worked quite well. I 
think, as far as what we could do to improve it, I think Dr. 
Webb hit it on the head about investment in--cellulosic 
technology is very expensive. It is going to be several more 
dollars per gallon than what it is going to cost to do corn-
based ethanol. And it is hard for venture capitalists or 
investors to spend that kind of money on something that is a 
little bit risky. So any support in terms of either loan 
guarantees or something like that would go a long way.
    Chairman Harkin. Good suggestion, Dr. Webb?
    Mr. Webb. I have already made that same suggestion. The 
other thing is continuing support for research in enhancing the 
processing processes.
    Chairman Harkin. Research in processing, Gene?
    Mr. Gourley. Yes, we talked about some of the research on 
DDGS. Obviously, there is still a lot of work to do on types of 
corn genetics and how that can--corn genetics could be 
developed. I know they have developed corn genetics for high-
extractable fermentation in the ethanol plants. Maybe there is 
an opportunity to look at the protein makeup for that corn that 
actually would be more ideal for poultry, that then going 
through an ethanol plant would put out product that would turn 
around and be a more usable or higher useable product for us.
    There are probably others, Senator Harkin. For me to speak 
specifically on those, I think I would really like to work on 
our industry to come to you and to your Committee and try and 
offer any solutions or input we can.
    Chairman Harkin. Well, and we are asking all of you to do 
that. Please give us your best thoughts and your best 
suggestions on that, Ms. Kemp, what would you put in the Farm 
Bill?
    Ms. Kemp. Well, I think we can prevent a lot of the 
problems if we integrate conservation into the process right up 
front. We have most of the tools we need already in the 
conservation programs we have, but we have to figure out to 
really aggressively target them to the emerging biofuels 
industry. So, you know, funding all of the cost share programs 
that we have, and specifically designing them so that they are 
useful to farmers who are getting into new crops but want to do 
it right.
    Compliance, conservation compliance. Maybe we should 
consider increasing the reach of compliance to cover anyone 
that is getting any kind of benefits related to renewable 
fuels. Maybe it should cover more than just highly erodible 
acres, but all acres. Of course we would need to make sure that 
it is actually implemented and enforced as well.
    Another area is conservation planning. We would like to see 
a lot more funding available for technical assistance for 
farmers. At the time they are getting into designing this new 
crop for part of their farm, starting it out on a certain 
field, that is the time to work with their agronomist, to work 
with professionals to develop a conservation plan for that land 
right up front. So they know what the opportunities are, how to 
deal with residue removal, runoff, all those kinds of things.
    One kind of novel idea is to consider whether we should 
require the ethanol plants that purchase residues, corn stover 
in particular, for them to require conservation plans from the 
farmers they purchase from. That way they would know that the 
land that supplies both the corn and the stover is not being 
degraded over time.
    So I am not sure we need a new conservation program, but we 
need to tweak all of them to make them apply right up front as 
we move forward.
    Chairman Harkin. As you said, on the CSP, we did do the 
other things but we did not do it on the production end.
    Ms. Kemp. Yes. I did not mention that now because I did 
before, but that is No. 1, is to realize the CSP.
    Chairman Harkin. We have to do that. John, what would you 
put in the Farm Bill?
    Mr. Sellers. Well, I would go along with Ms. Kemp. CSP is a 
wonderful vehicle if we all had access to it, the United 
States. That would be a real good start. But No. 2 is the risk 
involved for someone--when you start, you have a known 
technology, as in raising corn in the Midwest. And someone 
comes and asks you to risk this opportunity for an unknown 
without a market, it is going to take a lot of incentive to get 
you to smile when the guy asks you to say yes.
    That is why I was looking more at the new CRP contracts 
that have just been signed for 2007 for 10 years. Those are in 
our government inventory. We have budgeted for those. That cost 
will not rise. It is just like the native grass seed business, 
we can look at the price of it and it is like an oscilloscope. 
Every time there is a change in FSA or USDA rules or they let 
more folks in, it skyrockets. This would be the time we are 
trying to stimulate feedstock production, and it would cost us 
the most.
    Chairman Harkin. You are saying using some portion of the 
CRP for biofuels production.
    Mr. Sellers. Right. Give the folks a voluntary.
    Chairman Harkin. But permitting them to still get a payment 
for it, as long as they do it in a conserving matter. That type 
of thing, right?
    Mr. Sellers. Yes. You are getting all the benefits of CRP, 
just like we achieved in the Chariton Valley Project, we are 
just expanding it across the country rather than a four-county 
area in southern Iowa. So that other areas could use their 
natural resources to.
    Chairman Harkin. How about the concerns of Pheasants 
Forever, Ducks Unlimited, or hunters, or wildlife people who 
are concerned about this in terms of destroying wildlife 
habitat?
    Mr. Sellers. My experience as a farmer and a wildlife 
enthusiast is it would do nothing but enhance. You take cool 
seasons, you harvest it at the right time, the next year you 
have got nearly a perfect habitat for young sport birds, quail 
and pheasants.
    The same way in switchgrass. We found that if you leave 
blocks along the end, we actually enhanced the pheasant 
population on our harvested fields.
    Chairman Harkin. Interesting.
    Mr. Sellers. We could do what is being asked of us in mid-
contract management, which is disk up a third of it every year, 
or spray and kill a third of it every years so that we could 
have some manual fjords, we are getting to the same point, only 
we are doing a lot more for national security producing energy.
    And it can be, as Loni said, there could be conservation 
plans on this, and set-asides, just like I plant food plots for 
the wildlife on my farm. It is the same thing.
    Chairman Harkin. These are all great suggestions. I thank 
you all for being here. I thank you for your patience, and for 
your input into this process.
    As we bring this hearing to a close, again, I just wanted 
to repeat what I said at the beginning. I wanted to have the 
first hearing on energy to sort of plant the flag, if you will, 
to say that energy is going to be the engine of this Farm Bill. 
It is going to be the engine of this Farm Bill. Make no mistake 
about it.
    And we have to be careful. We want to do it right. I know 
we always make mistakes. We probably will make some here, too, 
but we will try and minimize those mistakes. But I think the 
public wants it. I have talked to my colleagues on both sides 
of the aisle on this. It is not a partisan issue. I think you 
see everybody coming together on this for national security and 
for rural America. Just, as I said, it is a win-win for 
everyone. And we just have to step up to the challenge and 
really sort of push the envelope on this in this next Farm 
Bill.
    I have talked to my colleagues on the House side and they 
are proceeding in the same manner. So as I said in the 
beginning, this is not going to be your old Farm Bill that you 
knew in the past. This is going to be quite different. And we 
are going to start making some changes so that we have a 
transition.
    Now, that is not to say that we are going to drop the 
production of agriculture. That is not what I am saying at all. 
I am just saying that there is going to be a new aspect brought 
into this that we have not considered before.
    So we just need your help, your best thoughts, you have 
given us some today. As we proceed, please feel free to be in 
contact with my staff, or me, or anyone else on our Agriculture 
Committee and give us your best thoughts on this. And as we 
move ahead in the drafting stage and stuff, of course your 
organizations and you will all be able to look at it and give 
us the benefit of your thoughts as we proceed on this.
    So again, I thank you all very much, and the Committee will 
stand adjourned subject to the call of the Chair.
    [Whereupon, at 1:28 p.m., the hearing was adjourned.]
      
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                            A P P E N D I X

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                   DOCUMENTS SUBMITTED FOR THE RECORD

                            January 10, 2007



      
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                         QUESTIONS AND ANSWERS

                            January 10, 2007



      
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