[Senate Hearing 110-156]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-156
 
                       FARM BILL POLICY PROPOSALS
                       RELATING TO FARM AND RURAL
                  ENERGY ISSUES AND RURAL DEVELOPMENT

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


                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION


                               __________

                              MAY 9, 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 P. 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

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                                                                   Page

Hearing(s):

Farm Bill Policy Proposals Relating to Farm and Rural Energy 
  Issues and Rural Development...................................     1

                              ----------                              

                         Wednesday, May 9, 2007
                    STATEMENTS PRESENTED BY SENATORS

Harkin, Hon. Tom, a U.S. Senator from Iowa, Chairman, Committee 
  on Agriculture, Nutrition, and Forestry........................     1
Chambliss, Hon. Saxby, a U.S. Senator from Georgia...............     5

                                Panel I

English. Hon. Glenn, National Rural Electric Cooperative 
  Association, Arlington, Virginia...............................     3
Grabarski, Robert, National Council of Farmer Cooperatives, 
  Arkdale, Wisconsin.............................................     8
Matthews, Jimmy, Georgia Rural Water Association, Barnesville, 
  Georgia........................................................     6
Slack, Steve A., Director, Ohio Agricultural Research and 
  Development Center, The Ohio State University, Wooster, Ohio...    10

                                Panel II

Learner, Howard A., Executive Director, Environmental Law and 
  Policy Center, Chicago, Illinois...............................    35
Lynd, Lee R., Dartmouth College, Thayer School of Engineering, 
  Hanover, New Hampshire.........................................    31
Rich, Neil, President and Chief Executive Officer, Riksch 
  Biofuels, Crawfordsville, Iowa.................................    37
Ugarte, Daniel De La Torre, Agricultural Policy Analysis Center, 
  the University of Tennessee, Knoxville, Tennessee..............    33
                              ----------                              

                                APPENDIX

Prepared Statements:
    Cochran, Hon. Thad...........................................    50
    Crapo, Hon. Thad.............................................    53
    Grassley, Hon. Charles E.....................................    55
    English. Hon. Glenn..........................................    59
    Grabarski, Robert............................................    69
    Learner, Howard A............................................    76
    Lynd, Lee R..................................................    91
    Matthews, Jimmy..............................................    96
    Rich, Neil...................................................   104
    Slack, Steve A...............................................   107
    Ugarte, Daniel De La Torre...................................   133
Document(s) Submitted for the Record:
Learner, Howard A.:
    ``An American Success Story, The Farm Bill's Clean Energy 
      Programs''.................................................   146
Matthews, Jimmy:
    ``USDA Source Water Protection Plan''........................   166
South Carolina Farm Bureau, prepared statement...................   307
U.S. Telecom Association, prepared statement.....................   308
Question and Answer:
Harkin, Hon. Tom:
    Written questions for Glenn English..........................   314
Grassley, Hon. Charles E.:
    Written questions for Glenn English, Jimmy Matthews, Lee Lynd 
      and Neil Rich..............................................   316
Rich, Neil:
    Written response to questions from Hon. Charles E. Grassley..   318
English, Hon. Glenn:
    Written response to questions from Hon. Tom Harkin...........   319



                       FARM BILL POLICY PROPOSALS



                       RELATING TO FARM AND RURAL



                  ENERGY ISSUES AND RURAL DEVELOPMENT

                              ----------                              


                         Wednesday, May 9, 2007

                                       U.S. Senate,
                                  Committee on Agriculture,
                                   Nutrition, and Forestry,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 9:30 a.m., in 
room SR-328A, Russell Senate Office Building, Hon. Tom Harkin, 
Chairman of the Committee, presiding.
    Present: Senators Harkin, Lincoln, Stabenow, Nelson, 
Salazar, Brown, Casey, Klobuchar, Chambliss, Coleman, Thune, 
and Grassley.

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

    Chairman Harkin. The Senate Committee on Agriculture, 
Nutrition, and Forestry will come to order. I got word that my 
Ranking Member said to go ahead and start without him. He will 
be here shortly.
    Today we hear additional testimony on two topics that are 
high on the opportunity side of the ledger for rural America: 
energy and rural development. One message has been consistently 
clear throughout the preparation for this farm bill, and that 
is, the new legislation must provide strong support for energy 
initiatives and for rural economic development.
    Of course, record gasoline prices are only one indicator 
that our Nation is facing critical energy challenges. We have 
long known of our vulnerability arising from our overdependence 
on oil. We now import over 60 percent of the oil we use, and 
the nations with the largest oil reserves and production 
capabilities are generally nations that are not especially 
friendly to us or they are politically unstable or a little bit 
of both.
    Our Nation's agricultural sector has already demonstrated 
impressive biofuels production capabilities, and there is 
evidence it can do a lot more. Senator Lugar and I are just two 
of the believers. We introduced the Biofuel Security Act in 
January, calling for 30 billion gallons of renewable fuels by 
2020 and 60 billion gallons by 2030. And I am pleased to see 
that a number of others, including President Bush and the 
Energy and Natural Resources Committee, are calling for very 
similar targets.
    Now, if we achieve these levels of biofuels production, it 
will involve tens of millions of acres devoted to producing 
biomass feedstocks. This could mean some very significant 
shifts and changes in agriculture in America. I know there are 
some who fear that greater biofuels production will disrupt 
supplies or prices of other agricultural products, and 
certainly these concerns must be heeded and addressed. However, 
if we do the research and formulate the technology and market 
policies carefully, I think we can capitalize on this 
tremendous opportunity to produce energy in addition to 
supplies of food and feed and fiber. And, again, this will be 
beneficial to rural America, and it can provide a lot of rural 
economic growth and development and investment in rural 
America.
    Our first panel brings energy to the table alongside rural 
economic development. Economic development is much more than 
just a byproduct of rural energy production. It must be a 
priority that cuts across these two important farm titles. In 
particular, we must foster local and regional initiatives using 
available resources with the Federal Government serving as a 
partner and leader in driving these rural economic 
opportunities.
    On the second panel, we will speak about the future of 
biofuels, both the technology developments and the roles that 
cellulose is going to play in the future development.
    The Farm Security and Rural Investment Act of 2002 was the 
first farm bill ever to include an Energy Title. We enacted 
that with strong bipartisan support. We will hear testimony 
today about energy achievements that resulted from that title. 
That will also help us frame a sound farm bill program and 
policy to help manage our energy systems in the future.
    Finally, I always like to hear from folks that are 
utilizing our programs in their farming and their businesses, 
so we were able to include a couple of witnesses today actively 
engaged in the energy business in rural America.
    I will at this point leave the record open for any opening 
statement that Senator Chambliss might have or any other 
Senators who arrive.
    We will turn to our witnesses on our panel one. We will 
just go down the line, and I will just recognize each here. We 
have the Honorable Glenn English, National Rural Electric 
Cooperative Association. Glenn served ten terms in the House as 
Representative from Oklahoma. We came together in the class of 
1974 and served together there for a few years. I was there for 
five terms in the House before coming over here. So Glenn is an 
old friend, and we served together on the Ag Committee over in 
the House of Representatives. Mr. English will talk about the 
NRECA's experiences and views on both energy and rural 
development programs and policies in the farm bill.
    For each of you, all your statements will be made a part of 
the record in their entirety. I am going to ask if you could 
sum up in, oh, 5 to 7 minutes, something like that, and then we 
can get into a discussion afterwards.
    So we will start with Mr. English, and we will just go down 
the line. Glenn, welcome back to the Committee again.

   STATEMENT OF HON. GLENN ENGLISH, NATIONAL RURAL ELECTRIC 
          COOPERATIVE ASSOCIATION, ARLINGTON, VIRGINIA

    Mr. English. Thank you very much, and I appreciate it, Mr. 
Chairman. Let me also thank you very, very much for the great 
support that you provide rural development. In fact, this 
entire Committee has been very supportive of rural development, 
and I know that has certainly made a big difference.
    The first thing I want to bring to the attention of the 
Committee, Mr. Chairman, is really the impact that, of course, 
electric power has on all of rural development. We have a lot 
of new ethanol plants that are being developed across this 
country. They are energy intense and provide a lot of electric 
power. The other part of the reality that we are facing as far 
as the electric utility industry is concerned is we are out of 
capacity, so we are going to have to build a lot more capacity, 
particularly over the next decade. And this is going to be the 
most expensive generation that we have built in the history of 
this program, and we have already been telling the membership 
out there that they are going to see significant rate increases 
throughout the next few years. So this is something that is 
going to have an impact on all rural consumers. It is certainly 
going to have an impact as far as rural development is 
concerned. It is something that we are very concerned about, 
and part of what I want to talk to you today about is what the 
Congress can do to kind of help minimize this as we move 
forward.
    Certainly one of the prospects is making sure we have 
adequate financing. We are talking about some $42 billion that 
is going to be necessary over this next decade to deal with 
infrastructure problems, some upgrades, transmission and 
certainly generation capacity. If the Congress would be 
supportive of authorizing Farmer Mac to buy electric 
cooperative loans that would be another avenue of financing, 
another way in which we could help make sure we do have 
adequate financing out there.
    The REDLG program is one that certainly this Committee has 
been extremely supportive of, and we are deeply appreciative of 
that. Of course, we have used this as a means in which electric 
cooperatives can pay back their loans early. We take that 
money, and then we are able to loan that out to the community 
and help out on rural development. Mr. Chairman, I know you 
have been very supportive of this effort.
    What we would suggest is, as we move forward in the field 
of renewables, this may be one way that we can use some of the 
REDLG money to develop renewables. So it would be helpful if 
the Committee is willing to authorized REDLG funds to be used 
for renewables through electric cooperatives, doing this 
directly.
    Also, it would be helpful if the Committee would speak to 
some other Members of Congress, both in the House and Senate 
side, that seem to want to take some of the REDLG money and use 
it for other purposes. We have got $244 million, Mr. Chairman, 
that has been utilized for other programs, not rural 
development, and that would otherwise have been leveraged into 
over $1 billion worth of rural development projects out there. 
So this would be something that would be helpful as well, 
making sure that this REDLG money goes to REDLG projects and 
not to other projects in agriculture.
    And renewables in particular is something that I know has 
the attention of this Committee, and a lot of members of this 
Committee, I have spoken to several of you in the past, and you 
have spoken to me. I am a member of the 25x25 steering 
committee that has a goal of 25-percent renewables by the year 
2025 for all energy, and we think that is a good objective.
    We have been trying to figure out now what can electric 
cooperatives do to advance this cause, and as you look at this, 
of course, most renewables are going to be produced in rural 
America. That is where it is going to come from; that is what 
it is all about. Many are looking at this as a rural 
development project. And we have got some of our generation and 
transmission cooperatives now that are looking at coming 
together and maybe forming a single generation transmission 
entity that would do nothing except produce renewables for this 
country, make a contribution.
    Now, we cannot do it all ourselves, obviously, but this 
would be a way in which you could have cooperatives all across 
this Nation. And we are in 47 States, and we are serving some 
40 million consumers. It would be a way of those 40 million 
owners to come together and pool their resources and develop 
those renewable projects where it makes sense, when it makes 
sense, and where we can get the most productivity out of it. 
And also, of course, it would be a way in which we could expand 
this and move forward and make it available to the rest of the 
country.
    It would be a heck of a rural development project, Mr. 
Chairman. It would be a way in which rural America could make a 
major contribution, move power, renewable power from rural 
America into some of the urban areas that are being served, and 
would be a way in which all rural Americans could participate 
in this effort. And I think it would be a very big plus.
    Also, I dealing with suggest that this is a way in which 
those States that may not have an opportunity today to 
participate in renewables, it is just not feasible, does not 
make sense where they are from, this would be a way that they 
could also participate in this effort and make that kind of a 
contribution.
    The other thing that is extremely important, I would 
suggest, in order to move this renewable power into these urban 
areas, is that we need more transmission built. We are going to 
have to have transmission built from the areas where we 
establish this concentration of renewable energy and move it so 
it can be delivered to some of the major metropolitan areas in 
this country, export that power from rural America.
    One thing that would be very helpful in that manner would 
be some tax-exempt bonds. Now, what we would suggest is that if 
the Congress sees fit to move in that direction, tax-exempt 
bonds in building transmission should be made available to 
everybody. We are not just suggesting that it be done for 
electric cooperatives, but it should be for anybody who is 
willing to go out and build that transmission, and it should be 
dedicated to renewable energy, that transmission should.
    So I think that there are some ways in which that can 
enhance rural development. There are some ways in which we can 
make even greater contributions on the electric utility side as 
well as on the ethanol side, and I think this is a way, Mr. 
Chairman, which, quite frankly, we can do this in a manner that 
makes a lot of sense and do it in a most efficient manner 
possible.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. English can be found on page 
59 in the appendix.]
    Chairman Harkin. Thank you very much, Glenn, and I will 
have some questions later on, after we finish the panel, on 
REDLG. Your statement sparked a lot of interest here. I read it 
last evening. I think there are a lot of things in it that 
command this Committee's attention. But we will get into that 
later.
    I would yield now to my friend from Georgia, our Ranking 
Member, Senator Chambliss, for an opening statement and an 
introduction.

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

    Senator Chambliss. Well, thank you, Mr. Chairman. I have 
got an opening statement which I will submit for the record, 
but I just want to thank you again for holding a hearing on 
such an important issue as energy and rural development. You 
have been very diligent in covering a broad spectrum of 
subjects as we prepare to write this 2007 farm bill and provide 
a safety net for our farmers and ranchers across America, and 
at the same time we are addressing critical goals, such as 
conservation, energy security, nutrition, and rural 
development. And certainly this panel today as well as our next 
panel are going to provide some valuable information for us to 
deal with the issues involving water and energy as well as 
rural development.
    I particularly want to take the opportunity to introduce my 
long-time dear friend, Mr. Jimmy Matthews, from Barnesville, 
Georgia. Jimmy is Executive Director of the Georgia Rural Water 
Association, and Jimmy is Mr. Rural Water in Georgia and the 
Southeast. He has appeared before many congressional committees 
over the years. He is a man who is very focused and 
professional and is addressing an issue regarding the issue of 
rural water, and I am very pleased he is here today.
    I am also pleased to see my good friend, Glenn English. 
Glenn, obviously, in his capacity with our co-ops, represents 
an area that is extremely important to all of rural America. 
His constituency, as he says, covers 47 States, and that is 
pretty significant.
    As a rural co-op attorney for 24 years, I have a 
significant and particular parochial interest in co-op work, 
and I am very pleased that we have several members of Georgia 
co-ops who are here today: my former staffer, who now worked 
for the Georgia Electric Membership Corporation, Matt Sawhill; 
Randall Pugh is CEO of Jackson EMC; Mike Goodroe, CEO of Sawnee 
EMC; Ralph Brummelow, the Director at CFC; as well as Gary 
Miller, CEO of GreyStone Power. Gentlemen, we are pleased to 
have you all here today.
    I look forward to your testimony, and, Jimmy, welcome back 
to Washington and great to see you.
    Mr. Matthews. Thank you, sir.
    Senator Chambliss. Thank you, Mr. Chairman.

 STATEMENT OF JIMMY MATTHEWS, GEORGIA RURAL WATER ASSOCIATION, 
                      BARNESVILLE, GEORGIA

    Mr. Matthews. Good morning. I would first like to thank 
Chairman Harkin and Ranking Member Chambliss, Ranking Member 
Chambliss for inviting me to testify today. I feel it is a 
great honor to be asked to represent the many communities in 
the Nation who depend on rural water systems to provide the 
most basic of needs. As Executive Director of the Georgia Rural 
Water Association, I hear from rural communities in need of 
assistance to bring water to their community on a daily basis.
    I speak to you today on behalf of the National Rural Water 
Association, known as NRWA. The NRWA is a nonprofit federation 
of State Rural Water Associations. Our mission is to provide 
support services to our State associations who have more than 
26,000 water and wastewater systems as members. NRWA and its 
State associations are on the front lines every day ensuring 
water is safe and available each time someone in rural America 
turns on the tap. I would like to outline for you today several 
items which are of importance to NRWA and how we feel they can 
best be addressed in the upcoming farm bill.
    The first issue that I would like to discuss is the current 
USDA Water and Wastewater Grant and Loan Program. While this 
program continues to provide needed assistance, an ever-present 
backlog for the funding shows that the need far outstretches 
the funding availability. This Committee, and Chairman Harkin 
in particular, committed ample resources during the 2002 farm 
bill to address this backlog, and yet it remains and continues 
to grow. I would ask the example I referenced in my written 
testimony which outlines specific issues related to the 
backlog.
    NRWA understands the difficulties that face this Committee 
with drafting this upcoming farm bill, and we encourage you to 
find creative ways of addressing this backlog and ensuring its 
demise. As you know, the program is based on packaging together 
grants and loans to offer the best possible situation to rural 
communities in search of water infrastructure. We would 
encourage the Committee to take a serious look at mandating in 
statute a minimum level of grants in this program. This would 
give communities the ability to plan ahead and know exactly how 
much their package would be in hard dollars while giving them 
the ability to better know the level of loan they would be 
expected to assume.
    How can fewer dollars be made to work in a larger way to 
assist rural America? The answer may be as simple as letting 
some of the dollars under this farm bill work for you not just 
once, but for years to come. We feel this can be done through 
the enactment of a nongovernmental, nonprofit entity to make 
loans to rural communities, which could work in unison with the 
current program. The National Water Finance Assistance 
Corporation was established to do just that. By taking Federal 
seed money, the National Water Finance Assistance Corporation 
can match it four to one and make loans to rural communities in 
order to get the financing out the door quickly. This allows 
the same dollars to be spent on a revolving basis to eat away 
at the current backlog and help alleviate it not only over the 
life of this farm bill, but for years to come. We feel this 
concept represents some creative thinking without asking for a 
huge amount of additional dollars and a way to help solve the 
problem so it does not remain on the Committee's plate for 
years to come.
    The next item I would like to address and discuss is the 
USDA Circuit Rider Program. In 49 states, circuit riders and 
wastewater technicians assist and train water system personnel 
in all areas of management, compliance, operations, and 
maintenance. They have also established themselves as first 
responders in times of need for systems throughout the country. 
This was evident in the aftermath of Hurricanes Katrina and 
Rita. Rural water circuit riders from all over the country 
descended on those States hit by these disasters and got 
systems up and running in a matter of days, delivering safe 
drinking water to those citizens left. I have attached a letter 
which illustrates the acts of these tireless workers to my 
written testimony and ask that it be included in the record. We 
ask the Committee for an expansion of the authorized levels for 
this program from the current level of $15 million annually to 
$25 million annually.
    The last item I would like to bring to the Committee's 
attention is the Source Water Protection Program. This program 
administered by the Farm Service Agency, is the single most 
effective tool rural communities have in planning for the 
future of their water sources. By working with community 
leaders, farmers, ranchers, and other stakeholders, source 
water protection plans are developed to address the threats 
envisioned and the protections needed well in advance of these 
issues reaching critical stages. We have had great success in 
my home State of Georgia with this program, and I would like to 
submit a copy of a recently completed plan for the record, 
should any Senators like to see exactly what is accomplished by 
this program: an increase of authorization for this program to 
$20 million with a one-time mandatory appropriations of $10 
million to ramp up activities which would address the current 
need.
    In conclusion, the USDA employees who administer the 
programs that I have discussed today are second to none. Their 
professionalism and dedication to rural America cannot be 
measured. They have a true love for rural communities and a 
desire to see them reach their greatest potential. Mr. 
Chairman, Senator Chambliss, members of the Committee, I thank 
you today for listening to my testimony, and more than that, I 
thank you for your deep care for rural America. Without the 
hard work of yourselves, your staff, and the other members of 
your body, none of these programs would be possible. And I 
would like to specifically thank Richard Bender and Todd Batta 
of Chairman Harkin's staff and Dawn Stump and Matt Colley of 
Senator Chambliss' staff for their time and consideration in 
reviewing each of the proposals that I have set forth today.
    Thank you again, and I would be happy to address any 
question you might have for me.
    [The prepared statement of Mr. Matthews can be found on 
page 96 in the appendix.]
    Chairman Harkin. Mr. Matthews, thank you very much for your 
testimony and for recognizing the people who do the real work 
around here--our staff. Thank you for that.
    Now we will turn to Mr. Robert Grabarski, National Council 
of Farmer Cooperatives, from Arkdale, Wisconsin. Mr. Grabarski 
is a dairy farmer and a board member of CHS, a farmer-rancher-
cooperative-owned Fortune 500 company. Bob will talk about CHS' 
experiences with bioenergy production and marketing, as well as 
producing energy from livestock manure.
    Mr. Grabarski, welcome to the Committee. Please proceed.

   STATEMENT OF ROBERT GRABARSKI, NATIONAL COUNCIL OF FARMER 
                COOPERATIVES, ARKDALE, WISCONSIN

    Mr. Grabarski. Thank you, Mr. Chairman, members of the 
Committee, and thank you for your interest in developing rural 
renewable energy. Again, my name is Bob Grabarski. I am a dairy 
farmer and a member of the Board of Directors of CHS, the 
country's largest farmer-owned cooperative. Today I am here 
representing the National Council of Farmer Cooperatives, the 
national trade association representing the nearly 3,000 farmer 
cooperatives across the Nation.
    Cooperatives help meet the food, feed, fuel, and fiber 
needs of consumers and help farmers to improve their income 
from the marketplace. A number of NCFC members, including CHS, 
refine and produce both conventional and renewable fuels. In 
the last few years, farmer cooperatives have made substantial 
commitments to rural America and bioenergy by investing in 
ethanol and biodiesel facilities and building additional 
terminal storage for renewable fuels in strategic locations. 
CHS has been in the renewable fuels business for nearly 30 
years. We now market more than 500 million gallons of ethanol-
blended fuels yearly. As an over-20-percent owner in the new 
U.S. bioenergy, CHS now also produces ethanol as well.
    CHS is also active in the biodiesel market, having sold--
largely through our member cooperatives--the equivalent of 2 
million gallons of biodiesel. On the whole, the renewable fuels 
boom has been very important for CHS as a cooperative and for 
our farmer owners. Working through our cooperative, thousands 
of farmer members have been able to participate in this growing 
industry, and rural communities have greatly benefited.
    Renewable energy and animal agriculture. With nearly 80 
percent of all U.S. milk being marketed by cooperatives, NCFC 
has been investigating opportunities to provide animal 
agriculture a stake in the renewable fuels industry by 
maximizing the use of manure as a feedstock for renewable 
energy.
    In partnership with the National Rural Electric Cooperative 
Association, NCFC is working on the development of a template 
for the generation of electricity from manure. We hope to 
identify needed incentives and hope that Congress will support 
the generation of renewable energy from manure, much like you 
have supported the research incentives, infrastructure, and 
Federal policy which helped build the ethanol and biodiesel 
industries.
    Using just a fraction of the manure generated on this 
country's swine and dairy operations would generate enough 
electricity to power the homes in Iowa's capital of Des Moines 
for nearly 6-1/2 years, or Atlanta for 3 years, or the homes in 
our Nation's capital for 2 years. Applying this technology to 
all sizes of livestock operations would vastly increase the 
production of renewable electricity, could add millions of 
dollars annually to farm income, and could address expensive 
environmental management issues which include odor and 
wastewater concerns, and could help in managing greenhouse gas 
issues.
    To achieve this, policy and incentives must be in place, 
much like it has been for the ethanol and biodiesel industry. 
To drive the production and the market using manure as a 
feedstock and applying anaerobic digestion technology is 
clearly a win-win for U.S. agriculture and taxpayers alike.
    As Congress continues to provide leadership to the 
renewable fuels industry and as you prepare for the farm bill 
and other energy legislation, I would like to share our 
recommendations to continue the momentum. These include:
    Strengthen current Energy Title provisions to encourage 
development, production, and use of renewable energy from crops 
and livestock. In the case of livestock, this includes 
dedicating the needed resources in the form of research, 
incentives, grants, and loans to support efforts to drive the 
market and production of all forms of renewable energy, 
including electricity, from manure;
    Support an increase in the Renewable Fuels Standard beyond 
2012 and the goals of the 25x25 initiative, a movement working 
toward securing 25 percent of our energy from renewable by the 
year 2025;
    Support more research into the development of cellulosic 
ethanol;
    Maintain and strengthen Federal procurement, loan, grant, 
and research and promotion programs;
    Maintain and strengthen energy-related research programs; 
and extend all the current renewable motor fuel tax incentives.
    In conclusion, farmer cooperatives are a vital player in 
this country's quest for energy independence and in ensuring 
that producers are able to capitalize on expanded market 
opportunities. Ethanol, biodiesel, and manure conversion, along 
with conservation, are important tools in securing a more 
affordable and accessible domestic renewable energy supply. We 
appreciate the opportunity to share with the Committee ways in 
which agriculture and cooperatives are investing in renewable 
energy. We appreciate this Committee recognizing the 
contributions that the American farmers and ranchers are having 
in the renewable energy industry and look forward to working 
with you in the future.
    I will welcome any comments and questions. Thank you.
    [The prepared statement of Mr. Grabarski can be found on 
page 69 in the appendix.]
    Chairman Harkin. Mr. Grabarski, thank you very much for a 
very thought-provoking statement. I hope that we will have a 
lot of questions on that area when we get to you.
    Mr. Steve Slack, Director of the Ohio Agricultural Research 
and Development Center at Ohio State University, is 
representing the new North Central Bio-economy Consortium. This 
is a group of State-level entities from 12 Midwestern States 
that have banded together to work toward the development of 
greater energy independence, utilization of biomass feedstocks, 
and robust bioeconomies. Mr. Slack will talk about the group's 
plans and how it relates to the Federal policies in the 
upcoming farm bill.
    Mr. Slack, welcome to the Committee.

   STATEMENT OF STEVE A. SLACK, DIRECTOR, OHIO AGRICULTURAL 
  RESEARCH AND DEVELOPMENT CENTER, THE OHIO STATE UNIVERSITY, 
                         WOOSTER, OHIO

    Mr. Slack. Thank you, Mr. Chairman and members of the 
Committee. I am here to talk today about the North Central Bio-
economy Consortium. As indicated, this consortium is a 12-State 
collaborative effort between the commissioners, directors, and 
secretaries of the State Departments of Agriculture, 
Cooperative Extension Services, and University Agricultural 
Experiment Stations. Together these three institutions from the 
States of Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, 
Missouri, Nebraska, North Dakota, Ohio, South Dakota, and 
Wisconsin have pledged to work together to guide our North 
Central region and the Nation to greater use of bio-based 
fuels, energy, and products.
    Each organization in the consortium has agreed to 
contribute funding to the operation of the consortium, and a 
private foundation--the Energy Foundation--has provided 
matching funding. The Great Plains Institute is partnering with 
the consortium to provide staffing and facilitation. The North 
Central Bio-economy Consortium has also recently agreed to 
collaborate with the Midwest Governor's Association on policy 
review and development for a proposed Energy Summit to be held 
later this year.
    Although this effort currently focuses on one region in the 
United States, we believe that our efforts will benefit the 
entire Nation and may serve as a model for other regions. As we 
continue down the path toward greater energy independence from 
the use of bio-based feedstocks to supplement limited supplies 
of fossil fuels, the consortium hopes to advance the general 
knowledge about processing technologies, crops, economics, and 
logistics that will be useful nationwide.
    As to the farm bill, we are very pleased to be asked for 
our input and would like to take this opportunity to share with 
the Committee what we see as three crucial priorities for the 
2007 farm bill: first is in the area of bio-based product 
procurement; second would be regional feedstock demonstrations; 
and third would be local economic development.
    In addition, we have appendices, first from the 12 State 
Departments of Agriculture, which is part of the National 
Association of State Departments of Agriculture, whose 
President-elect is the North Dakota Agriculture Commissioner 
Roger Johnson. That is appended as Attachment 2, and likewise, 
the land grant system through the National Association of State 
Universities and Land Grant Colleges, or NASULGC, has made 
several recommendations for Committee consideration. That is 
attached as Attachment 1.
    As to the bio-based product procurement, we would 
coordinate the development of a regional bio-based product 
procurement program for the North Central Region consistent 
with FB4P, a system under which Federal agencies must purchase 
designated bio-based products that are available and cost 
competitive with fossil-based equivalents.
    In this regard, we would urge the Committee to reauthorize 
Section 9002 of the 2002 farm bill dealing with the Federal 
procurement of bio-based products and to provide the U.S. 
Department of Agriculture with the resources it needs to 
support the development of a regional program.
    As to regional feedstock demonstrations, the next 
generation of the biofuels industry depends on the successful 
deployment of a variety of new biomass feedstocks and continual 
improvement of existing feedstocks. At the same time, 
significant questions exist regarding potential sources of 
biomass.
    The only way to answer these questions and to solve the 
problems are is with commercial-scale demonstrations for a 
variety of proposed biomass materials, which will reduce risk 
and will also improve efficiency of the process. And this is a 
process for which the North Central Region is well suited. 
There are projects by State that are also appended as 
Attachment 4 to the testimony.
    We welcome the opportunity to partner with public and 
private partners and with partners in other regions to assure 
that we learn as a Nation how to make the best use of resources 
producing energy and products from plants.
    Third, the local economic development. Developing a bio-
economy is crucially important for energy security, but it is 
also important because it will improve the economies of our 
States, bring jobs to rural areas, revive our Nation's 
manufacturing base, and improve the lives of individuals and 
our communities. This is essential to the missions of all 
consortium. As such, we would hope that the mechanisms are in 
place in the 2007 farm bill to assure that the benefits of the 
developing bio-economy can accrue to the local communities 
throughout our region. We anticipate that research conducted in 
our region can have value to the entire Nation and that our 
model will be useful for other regions of the U.S. as well.
    In conclusion, we would like to offer ourselves as a 
resource to this Committee as it drafts the 2007 farm bill. 
Given our geographic and institutional representation, we are 
uniquely situated to offer information and guidance about the 
developing bio-economy in the region where it is developing the 
fastest.
    Let me reiterate that although the consortium is a regional 
project, we welcome the opportunity to collaborate with other 
regions and hope that the lessons learned in our region are 
applicable around the country as our Nation continues down the 
current path toward greater use of bioenergy to support energy 
independence, local economic development, and environmental 
protection.
    Thank you for your commitment to the health and vibrancy of 
agriculture in this country.
    [The prepared statement of Mr. Slack can be found on page 
107 in the appendix.]
    Chairman Harkin. Thank you very much, Mr. Slack. We will 
begin a round of questioning now, 5-minute rounds. We will not 
hold too fast to that.
    I just have one basic question for all the witnesses. We 
are facing a very serious budget issue since we tried to write 
this year's farm bill. We do not have the baseline that we had 
5 years, 6 years ago. And yet I think we all understand that 
our energy situation is critical. And as you all pointed out, 
our agricultural sector offers one of the most important 
opportunities to improve our energy security and our energy 
economy, which also benefits rural development.
    Now, some energy actions are more appropriate for other 
committees. Obviously, we have an Energy Committee, and there 
is the Finance Committee, and Environment and Public Works. So 
there are a bunch of different committees that have different 
jurisdictions. Yet, there are a number of activities 
appropriate for consideration in this farm bill.
    So, again, some of it will be repeating what you have 
already said, but that is OK. Again, for the record, in your 
opinions, what are the two or three or four energy program 
priorities that you would see for this farm bill? Again, you 
might repeat some of the things you said earlier, but that is 
OK. That is fine. Drive it home. Glenn?
    Mr. English. Thank you very much, Mr. Chairman. I recognize 
and understand and appreciate the problems that the Congress 
has with regard to budgets. I have been through that myself. 
But it does come down to a question of priorities, and I think 
we have got a couple of priorities here.
    One is the question of trying to reduce dependence on 
foreign energy. I think we all recognize that is a great goal.
    The second thing, obviously, are environmental issues. 
Climate change is getting to be a big issue that I know the 
Congress is very concerned with, is wrestling with, and how do 
we come to grips with that.
    And I think you have got to step back from some of the 
individual programs, and you are going to have to try to figure 
out, OK, how can we get at some of these big problems that we 
have got, and how do we do that with a very targeted approach, 
one of limited funds. True, you are not going to be able to 
fund everything. And so I guess to reduce it down, you are 
looking for the biggest bang for the buck, is what you are 
really coming down to. That is what this is all about.
    There are some items, I think, that do not cost money. We 
were suggesting, for instance, we are going to have big rate 
increases, huge rate increases for electric cooperatives all 
across the country. So is the rest of the electric utility 
industry, and this is going to, quite frankly, have a dampening 
impact as far as rural development is concerned because that is 
going to affect electric bills, all those new businesses we are 
trying to start out there.
    One thing you can do, I think, as I mentioned, is to open 
up Farmer Mac and let them buy loans from electric 
cooperatives, open up some different financing, give us a 
little more competition for funds. That really would not cost 
much in the way of money. I think the REDLG financing that 
already exists, that is money that electric cooperatives are 
paying into the program as we pay back those loans early, so 
that, you know, is another one that minimizes that. And that 
can be used, I think, for renewable energy; if you open it up 
and let cooperatives use that for renewable energy, that would 
be another way of doing it. And, quite frankly, you can talk to 
some of your colleagues and stop them from raiding the fund. 
That would be helpful, too. You know, if $244 million goes out 
of rural development and goes elsewhere--if we could hold onto 
that, that would be helpful. That is $1 billion plus that we 
could leverage that money to. That would not really cost a 
whole lot of money.
    The other thing I think we can get into is this question of 
really looking at how we can organize. The National Council of 
Farmer Cooperatives, we are talking about how we are working 
together on biomass that would have a positive impact as far as 
water quality is concerned, as far as livestock production is 
concerned. We can, I think, concentrate that in the right areas 
where it makes sense, where it is viable, and use that to 
generate electric power, to not only take care of our own needs 
but, as I said, to see out of rural America. That is another 
way in which I think we can address this.
    So I think there is much that can be done that is really 
not that costly, but it is going to call for us doing things a 
little differently than what we have done in the past.
    Chairman Harkin. Good enough.
    Mr. Matthews, two or three things.
    Mr. Matthews. Yes, sir. First of all, we would hope that 
the Committee would not enhance other priorities at the expense 
of the current programs. Rural development must be in place to 
provide the infrastructure needed to provide this energy. But 
as Mr. English just said, you know, when power goes up in the 
cost of producing safe drinking water, it is going to have an 
effect on the power that it takes to produce the safe drinking 
water and also to treat the wastewater before we return it into 
the streams. So it is a double-edged sword.
    But I would submit to you that my friends back home at 
Oglethorpe Power, MEAG, and Georgia Power, the southern 
companies, sponsored a program with Georgia Rural Water on an 
energy and water conservation program that had some phenomenal 
numbers as to the power saved over a long period of time if we 
put these programs in place. So there is a system in place for 
leak detection in these water systems of the massive amount of 
water that we are losing through old infrastructure that needs 
to be replaced.
    Chairman Harkin. That is true.
    Mr. Grabarski, two or three things most important to the 
farm bill, energy?
    Mr. Grabarski. Thank you, Mr. Chairman.
    Chairman Harkin. You mentioned some in your testimony.
    Mr. Grabarski. Yes, I did. Renewable energy developed in 
the country is not a cheap thing to do. To lessen our 
dependence on foreign oil, certainly that is a way to do that, 
but it does not come without a cost. As far as driving the 
costs out of some of these issues, I am not sure that can be 
done to any great extent. There certainly will be developing 
cost return on these through tax base, jobs, a number of other 
things. I think it will be a sustainable program, but it 
certainly needs to get some incentives to get started.
    Chairman Harkin. Right. Thank you.
    Mr. Slack, again, a couple things, three things.
    Mr. Slack. Thank you, Mr. Chairman. The items that I would 
re-emphasize, first of all, would be the reauthorization of 
procurement of bio-based products.
    Chairman Harkin. The 9002 program.
    Mr. Slack. Yes. The second item would be to put emphasis on 
biomass research and development. In particular, I mentioned 
the large-scale demonstration projects to increase efficiency 
and develop appropriate biomass materials.
    The third one would be the idea of bioenergy development 
grants which would help in the area of rural development.
    Chairman Harkin. I would also like to ask if you have any 
suggestions, not right now but maybe the next round, if there 
are any changes in 9002 that you think we ought to be making. 
Thank you all very much.
    Now I will recognize our distinguished Ranking Member, 
Senator Chambliss.
    Senator Chambliss. Thank you, Mr. Chairman.
    Mr. English, the Washington Post recently ran a front-page 
story on USDA, the overall scope and mission, and it implied 
that three of our co-ops in Georgia--Sawnee, Jackson, and 
GreyStone--should not be eligible for RUS financing because 
they are no longer rural.
    What is your reaction to that type comment?
    Mr. English. Well, I did take note of the fact that that 
was a general attack on rural development, quite candidly. I 
was disappointed to see that in the Washington Post, but that 
is what it was. The items you mentioned were the very bottom on 
the second page, so I guess they were not attaching too much 
significance to it.
    The fact of the matter is that we have been blessed with 
some growth in some of the areas that are served by electric 
cooperatives. But those are still very rural areas. For 
instance, I do not know of a single electric cooperative in 
this country that has half the population, half the meters of, 
say, investor-owned utilities, and not anywhere close to what 
some of the municipals are. And anytime we have that kind of 
growth, it benefits those rural people in particular because we 
have such a huge amount of infrastructure across this country 
we have got to maintain. We have got about 42 percent of all 
the distribution infrastructure of the Nation and only 12 
percent of the population.
    If you took the particular cooperatives that were mentioned 
in this case, there is not a single one of them that I am aware 
of that is half the size of what investor-owned utilities are, 
not even close to reaching what the municipals are. These are 
still rural areas. And we have been blessed with some growth, 
we have been blessed with some economic development, and this 
helps those rural folks in that district keep the rates down.
    Quite frankly, it does not make a whole lot of sense. I 
guess you could start looking at some of this stuff and say, 
well, the glass is half-full or half-empty. But I guarantee you 
that those rural folks in there are very pleased that this is 
benefiting them and benefiting--sharing that burden of paying 
for that infrastructure.
    Senator Chambliss. And they did not mention the cost of 
service per mile anywhere in the article.
    Mr. English. They did not anywhere in the article, no 
mention of cost per mile. And you have got such a small number 
of people. We have got on average seven people per mile to pay 
for 42 percent of this infrastructure out there. And investor-
owned utilities have got 35 people, 35 persons per mile. And 
you get over to municipal, and it is 47 persons per mile.
    So when you start looking at 42 percent of the 
infrastructure, seven folks per mile paying for all this, you 
know, goodness sakes, I hope some more of these cities come out 
there and develop. We need all the help we can get. And when 
you look at the fact that on an average our rates are higher 
than the neighboring investment-owned utilities, you know, and 
this is all at a time we are trying to do something for rural 
development.
    And let us not forget one other point, and I think this is 
extremely important, and it gets overlooked, and it definitely 
was not in this article. That is, half of the electric 
cooperatives will have above average number of people who are 
living below the poverty line. So you have got some of the 
poorest people in this country living in these rural districts, 
and they are paying the highest rates already. You know, any 
help they can get, wherever it can come from, you know, that is 
great. Any help they can get in paying for this infrastructure, 
that is great. And anything we can do to develop rural America 
I think we ought to be doing that.
    So, you know, I think they ought to be just as happy as 
they could be for those folks that are living in those areas in 
which we have had some growth out that has been able to help 
those people living--the rural folks living in those areas pay 
for that infrastructure. Quite frankly, it gets me, it strikes 
me, it does not make any sense to me as to why they want to 
come kick around folks in rural America. And I do not know what 
this is all about. You know, it makes me wonder if this is not 
a deal, well, golly gee, it is a rural versus urban thing. You 
know, I want to take money away from rural folks to give it to 
urban folks.
    I know there is not as many votes out there in the rural 
areas as there are in the urban areas. But they make a major 
contribution to this country and make a major contribution to 
keep this country fed and make a major contribution to keep 
this country clothed, and we ought to recognize that from time 
to time.
    Senator Chambliss. I think it probably has more to do with 
welcome to the year we write the farm bill.
    Mr. English. I think that is exactly right.
    [Laughter.]
    Senator Chambliss. Mr. Matthews, you mentioned that a $10 
million annual increase in the Circuit Rider Program would make 
it possible to provide an additional circuit rider in each 
State. How many circuit riders are currently supported 
nationwide?
    Mr. Matthews. Yes, sir, Senator Chambliss, we have 120 
circuit riders nationwide at this time through this program, 
and with additional support from some States that have some 
State circuit riders also. And the Circuit Rider Program began 
in 1980 with five circuit riders, and soon it expanded to 21 
States. And in 1988, it was the first NRWA program to cover the 
contiguous 48 States at that time. Today it continues to run 
from coast to coast and covers both Alaska and Puerto Rico.
    Senator Chambliss. Great. Thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Chambliss.
    Senator Salazar?
    Senator Salazar. Thank you very much, Chairman Harkin, and 
I want to just at the outset say thank you to you, Chairman 
Harkin, for coming out to the National Renewable Energy Lab in 
Colorado and to be a part of recognizing all these 
technological breakthroughs that are really putting energy at 
the forefront of our agenda.
    For me, in my State of Colorado, 2 years ago there was 
really not much at all going on with respect to renewable 
energy and that future. And I was just looking over some of the 
statistics. I think since the last 2 years that we have looked 
at rural America as a way of growing our way to energy 
independence, we now have an ethanol plant in Windsor at 40 
million gallons, an ethanol plant in Sterling at 48 million 
gallons; we have one in the southeast part of Colorado with 3 
million gallons; we have Sterling Ethanol planning one for 60 
million gallons; we have Panda Energy for 100 million gallons; 
we have U.S. Bio in Fort Morgan at 100 million; we have done a 
lot with solar, and the list kind of goes on, biodiesel and a 
whole host of things.
    I say that only as an example that I think there is this 
revolution underway that you have all talked about in terms of 
how we deal with energy, I think driven both by the national 
security mandate that we need to address, the environmental 
security mandate, and economic security issues. And so I very 
much look forward to working with this Committee and with the 
other committees that I sit on with some of my colleagues on 
this Committee, the Finance Committee as well as the Energy 
Committee, to move this agenda forward. I think this may be the 
single most important opportunity that we have seen in rural 
America, perhaps in my lifetime, perhaps in the last century.
    Let me ask a question first to Glenn English. You are a 
supporter of the 25x25 resolution which Senator Grassley and I 
and other members of this Committee have been pushing for a 
long time. Can you comment on the importance of that initiative 
and what your involvement from the cooperative standpoint is 
and how we can be helpful in pushing that forward?
    Mr. English. Well, I am the only from the electric utility 
industry on that steering committee and am very proud to be a 
part of it representing NRECA. There is no question that 
establishing the goal of 25-percent renewable by the year 2025 
for all energy--this is all energy combined--we think makes a 
whole lot of sense. And, obviously, we have talked a little bit 
about reducing our dependence on foreign energy. That makes a 
whole lot of sense.
    From an economic development standpoint--and I will be 
honest with you, most folks on that steering committee, you 
know, have got a big eye toward that economic development 
aspect and what we can do for rural America. But we think it 
makes a whole lot of sense--if we do it right.
    They accompanied that resolution or that goal with an 
implementation plan. We felt it was not good enough to just 
say, well, we ought to have this goal, Congress, you ought to 
pass this, establish the goal. We have that all the time. I 
remember back years ago we used to pass resolutions about every 
other year about balancing the budget, and we all voted for it, 
and then we all, you know, would not necessarily hold to that.
    So we need to do a little more than that. We need an 
implementation plan, and that implementation plan is a very 
important part of that, and I think that would certainly be 
something that would not cost that much money if we started 
focusing on how we are going to do this stuff. And we need a 
partnership between Congress--and I know we are reaching out as 
far as this Committee is concerned and over in the House, and 
trying to develop a partnership. How do we get a plan that 
makes some sense? How do we get the most efficient use out of 
approaching this stuff? And how do we achieve this goal of 25-
percent renewable by the year 2025?
    I hope every member on this Committee, if they have not 
signed on, I hope they will do it now. I have put in my 
commercial on that.
    Senator Salazar. Then let me ask you a question. This is a 
tremendously interesting panel. I think we could spend all day 
talking to each of you because all of you have so much 
information to share with us. I know there is a lot on the fuel 
side in terms of ethanol and cellulosic ethanol and the like. 
Let me come back on the electric side.
    If you were to name the one single thing--the one single 
thing--that we could help the REAs with, what would that be as 
we move forward with these high aspirational goals that we have 
with respect to renewable energy? The one thing.
    Mr. English. I can only name one?
    Senator Salazar. Just one thing.
    Mr. English. Well, if I had to name one thing, the one 
thing that you need, obviously, to fully develop this, you need 
transmission. You need transmission. We have got to site these 
plants where it makes the most sense, and if we are talking 
about wind, the wind does not----
    Senator Salazar. Let me push you on that. We need 
transmission.
    Mr. English. Yes, sir.
    Senator Salazar. We all agree that that is one of the 
hindrances that we have in terms of wind and solar and other 
possibilities out in rural areas. What is your view in terms of 
what it is that we can do to help bring about that possibility?
    Mr. English. Well, this is one that, unfortunately, costs a 
little money. But I think you have got to provide tax-exempt 
bonds to anyone who will build that transmission to link up 
those areas where we can maximize the production of renewable 
energy and be able to move that power into the urban areas. 
Quite frankly, that is what has got to go.
    Senator Salazar. So you would be supportive of tax-exempt 
bonds for that enhanced transmission capacity as well as other 
financial incentives to create that transmission----
    Mr. English. Indeed. I think it makes a whole lot of sense.
    Senator Salazar. That has got to be the key.
    Mr. English. Yes, sir.
    Senator Salazar. Thank you, Mr. Chairman. I will have some 
other questions if we get another round.
    Chairman Harkin. Thank you, Senator Salazar.
    Senator Klobuchar?
    Senator Klobuchar. Thank you, Mr. Chair, and I want to 
welcome Mr. Grabarski. CHS is headquartered in Minnesota, and 
as Senator Salazar was going through all the ethanol plants in 
Colorado, Senator Coleman and I just looked at each other and 
said, ``We have more.'' And a lot of it is because of the 
good----
    Senator Salazar. We are on your tail. We are going to catch 
up.
    [Laughter.]
    Senator Klobuchar. But the good work that you have done out 
there. And I had a few questions as we look at these exciting 
possibilities for our State and the rest of the country with 
this energy revolution and the jobs we can bring to rural 
America.
    I guess first to you, Mr. English, as you talked about one 
of the issues of the transmission lines. One of the things I 
have heard from a lot of our rural business is the rail rates 
and how expensive they have become to ship. We have a bill out 
there--there are a number of bills to try to get some control 
over these rates. Have you encountered this issue?
    Mr. English. Oh, my goodness, yes. The abuse is 
unbelievable. For 20 percent of the shippers, we are supposed 
to be protected under the Staggers Rail Act--Mr. Chairman, do 
you remember that, back in 1980, we passed that Staggers Rail 
Act? We put a provision in there to protect 20 percent of the 
shippers for which competition was not going to exist. He knew 
it was not going to exist and knew that these people could be 
abused under a monopoly. And that is exactly what has happened, 
and we have had year after year after year excuses as to why we 
got to abuse the captive shippers. And to give you some idea 
how bad that abuse is, where there is competition, it is my 
understanding you have got 6- to 8-percent profit being made by 
the railroads.
    For those folks who fall into this category--and this is an 
awful lot of farmers who have got to ship. You have got people 
in the chemical industry, electric cooperatives, utility 
industry, wood products--go across the board. For those that 
fall under that category where there is even a single amount of 
no competition, a single amount, the profits that are being 
reaped off of that on the contracts that are being signed today 
are anywhere from 350 to 450 percent. Now, that is abuse. That 
is a monopoly.
    Also, keep in mind that these folks are exempt from most of 
the antitrust laws. Only baseball and the railroads are exempt 
from antitrust laws. Now, tell me the sense of that. And on top 
of that, these guys are making profits, big money. I mean, they 
are the darlings of Wall Street. They are getting written up on 
Wall Street. That is who you have got to go and invest in, is 
the railroads.
    Well, guess why they are making those profits? They are 
ripping us off. There is no two ways about that. And it is 
wrong, and they no longer have that excuse. The railroads are 
making the money. They have got a profit now, and it is time to 
fulfill that legislation and making sure that we do indeed 
protect those people where there is no competition.
    Senator Klobuchar. Well, thank you. I think you will be a 
good witness at our hearing.
    [Laughter.]
    Senator Klobuchar. Mr. Grabarski, I wanted to ask you just 
about--in your testimony you talk about some of the issues with 
ethanol. Obviously, on our Committee we are working hard to go 
to the next stage of ethanol, cellulosic ethanol. But you talk 
about ethanol being produced in the Midwest, yet a lot of it is 
blended in refineries on the coasts and the fear that foreign 
ethanol is going to come in on those areas. Could you talk a 
little bit about the obstacles you see to ethanol production 
across the country and how you think we can solve them with the 
infrastructure issues, with the pumps and things like that?
    Mr. Grabarski. Thank you, for the question. Absolutely, 
that is a huge issue. The infrastructure has to be addressed. 
Pipelines cannot be reversed. They are full coming into our 
area, and they cannot be turned around.
    Having said that, we need to develop an east-west pipeline. 
We need to figure out those railroads that say that they can 
handle the ethanol production. Our major problem is that we are 
producing it in the Midwest, and yet the people live on the 
coast. And so certainly we need that as a huge issue. We need 
to figure out how to move ethanol back to where the people 
live, primarily.
    Senator Klobuchar. Have you thought about the 
infrastructure issue with the pumps and the fact that I think 
we have like a thousand of them nationally--306 are in 
Minnesota--what kind of incentives we can put in to promote 
that?
    Mr. Grabarski. Are you talking about the multi-grade type 
of pumps where----
    Senator Klobuchar. Any kind of pumps. We are just trying to 
get more E85 pumps around the country beyond the E10.
    Mr. Grabarski. All right. We have talked somewhat. There 
was an issue brought up at our last annual meeting, at the CHS 
annual meeting, and we talked about--I think that came out of 
South Dakota. They had brought a resolution forward. And their 
concern was that they wanted to be able to choose the amount of 
ethanol that they would put in a vehicle or a flex vehicle. 
Well, a huge issue seemed to be at the time how much ethanol or 
percent was left within the hose.
    Well, you know, if we go back to the old days when we grew 
up, we would empty the hose in a bucket and dump it in the 
tank. Well, I do not think that is going to work very well at 
this stage of the game. So certainly that would be an issue, 
how to make these pumps so they can blend that at the island. 
There has been some research done on that. I think that that 
could happen. There is no reason why we have to use E85 
nationwide. E10 needs to be used nationwide. That would 
probably use up 14 billion gallons of ethanol production, and 
that is probably where we are going to peak out as far as 
getting it from the corn source. After that we have to figure 
out different sources, whether it is biomass, cellulosic, 
whatever.
    Senator Klobuchar. Thank you, and we are going to be making 
some major efforts toward that goal, to move toward the 
biomass.
    Thank you.
    Chairman Harkin. Thank you very much, Senator Klobuchar.
    Senator Nelson?
    Senator Nelson. Thank you, Mr. Chairman.
    Mr. Grabarski, I want to thank you for your testimony and 
your thoughts regarding the production of biogas from anaerobic 
digesters. I share your interest in the potential that this 
anaerobic digestion system holds for biofuels production, the 
importance of diversifying our national biofuels. That is why I 
introduced the Biogas Production Incentives Act, S. 1154. For 
my colleagues here, that is S. 1154.
    In your testimony, you discuss biogas production 
specifically for electricity generation, and I wanted to get 
your thoughts on the concept that is in my bill, which provides 
incentives, a production tax credit, for the production of 
biogas, similar production incentives for other biofuels.
    Understanding the problems with trying to get electricity 
production through transmission lines and onto the grid, it 
seemed to me that this could be considered a biofuel and that 
the Government should encourage that production and then allow 
the biogas to be used to power ethanol plants or electric 
generators, whichever the market wanted.
    What are your thoughts on this approach and what the market 
may require? And have you looked at the potential for 
production of biogas as a renewable fuel source rather than as 
renewable electricity generation? In other words, not 
specifically limited to electric generation, but all over as a 
renewable fuel as well.
    Mr. Grabarski. That is quite a question. What I am going to 
suggest is that I think it has merit, and our whole renewable 
energy business today and how we are going to actually approach 
it, I am not sure that we will end up with a home run. We may 
end up with a lot of singles.
    When we talked about methane gas, generating electricity, 
putting it on the grid, you know, I have talked to some of the 
people that are involved, and it is my understanding--and I 
think Mr. English could allude probably a little bit more 
accurately on this. But it is my understanding that that grid 
is built to go from the transmission out to the rural area. And 
so the lines may start out big and get smaller.
    So today, if we are putting methane digesters and 
generating electricity and trying to put them on the grid, that 
may not be conducive to the way the grid is built. Having said 
that----
    Senator Nelson. Getting back to the transmission issues 
that you mentioned, Mr. English.
    Mr. English. Yes.
    Mr. Grabarski. And having said that, quite possibly the 
answer lies in producing the gas and capturing the gas and 
taking it to production facilities. And if it is at ethanol 
production facilities or other facilities that generate 
renewable energy, I think that has merit. But somehow we have 
to get it from the farm. There is a huge amount out there, but 
we need to figure out a practical way, economic way, to put 
this into the system.
    Senator Nelson. I have a bill also that would capture the 
tax that we have--the tariff, the tax--on incoming ethanol so 
that we could use that for development, research and 
development. Would it be appropriate to look at what kind of 
research and development would be required to be able to cost 
effectively capture that biofuel and then find a way in which 
we can use it either for transmission or for other uses as 
well? Would that be an appropriate use for some of that tariff 
money?
    Mr. Grabarski. I am not sure that I have the qualifications 
to answer that.
    Senator Nelson. But could you use it? I mean, I guess, in 
other words, I am sure you could use it, but would it not be an 
appropriate use to try to find a way to cost-effectively move 
that fuel so that it has a commercial value?
    Mr. Grabarski. To me that sounds like a very good solution. 
Again, I am not sure I know the right answer to that.
    Senator Nelson. Does anybody else have a thought about 
that? I know you are--Mr. English?
    Mr. English. I would have to give you a response for the 
record on that, Senator.
    Senator Nelson. OK.
    Mr. English. I am not sure I feel comfortable with that 
response, either.
    Senator Nelson. All right. The first time I have had people 
not want to use the money, but that is----
    [Laughter.]
    Senator Nelson. This is a town where that is an odd--no, I 
am just kidding. But it seems to me that if we could find a way 
to move the biofuels from the stockyard, from wherever, I mean 
the feedlot or wherever it is, the hog confinement operation 
cost effectively, we do not waste the waste. As a matter of 
fact, that is what I have said about the bill. Let us just not 
waste the waste. Let us find a way to do it, and this would be 
one of the ways.
    Thank you, Mr. Chairman. Thank you, Mr. Grabarski. Thank 
you, Mr. English.
    Chairman Harkin. Thank you, Senator Nelson.
    Senator Thune?
    Senator Thune. Thank you, Mr. Chairman, and I want to thank 
our panelists today for their testimony. This is an important 
part of the farm bill, and I think the farm bill, we all know, 
as a production component of that, the Commodity Title is 
awfully important to the producers in South Dakota. But I think 
people look to the farm bill, too, as being more than just a 
Commodity Title. It is about the rural economy and what things 
we can do to improve the quality of life. Whether that is 
water, wastewater, infrastructure, power, broadband, all those 
sorts of things I think come into play in the farm bill, and so 
your testimony today with regard to some of those issues is 
important.
    We have one thing in South Dakota that we have more of than 
any other State here, and there is nothing that my colleagues 
from Colorado or Minnesota can do about that, and that is wind. 
They have more actual production, I think, but we actually have 
more wind. One of the problems is we have not figured out 
away--and, Mr. English, you touched----
    Senator Salazar. Is that true among its politicians as 
well?
    [Laughter.]
    Senator Thune. It is definitely true in this room. But you 
touched on, Mr. English, I think, the real issue and that is 
transmission. I have introduced a bill that would extend the 
production tax credit to the year 2012 because I do not think 
there is enough certainty when it comes to investment in wind 
energy. Now, that is not something that your members benefit 
from because you are not-for-profits. But that bill also 
expands and lengthens the time for the clean renewable energy 
bond program that came out of the 2005 energy bill. My 
understanding is that that is something that RECs have used 
rather extensively.
    You mentioned tax-exempt financing or bonding authority 
being the key issue when it comes to building transmission 
facilities. Does the CREPs program give you what you need to do 
that?
    Mr. English. Well, we need, obviously, a huge expansion of 
the CREPs program to do that, or the production tax credit. The 
reason that we came up with the tax-exempt bonding approach is 
really that is something that opens it up to everybody. And the 
building of transmission, you know, we are not saying, well, 
only electric cooperatives should be able to do this or only 
investor-owned. That should be opened up, and we ought to 
encourage whoever is willing to come in and build that 
transmission that is desperately needed.
    Obviously, we are going to need help as far as siting is 
concerned. That is an issue as well. We also are getting some 
help from the Federal Energy Regulatory Commission these days. 
We are delighted about that in that they are setting aside some 
of the existing transmission for renewable energy--you know, 
whether there is enough or not.
    We have also got problems with regard to the existing 
transmission that will also play into this in that, quite 
frankly, you have got some road blocks out there, you have got 
some little difficulties, and it plays into some people's 
advantage competitively.
    Well, we have got to open up this system so that we can 
move this power, and that is basically what it comes down to. 
And I think that we have just got to focus on getting the 
infrastructure right if we want to go in and be serious about 
doing renewables. If you do not do that, all you are doing with 
renewable energy, it becomes a very localized affairs, and it 
is really not benefiting the country.
    So, you know, we are interested in economic development on 
this rural development hearing, and if we are going to do that, 
then we have got to have ways--and that is what we are 
encouraging, is giving ways for electric cooperatives in all 
parts of the country, whether they are situated in an area that 
is conducive to producing wind energy or not--and a lot of 
areas are not. Let them invest in South Dakota in an industry 
that would allow us to develop these renewables and be able to 
move that power outside of those regions and into Chicago and 
other large cities around the country. That becomes an economic 
development project for rural America. That I think makes a lot 
of sense, and it does something for the country, the same thing 
we are trying to do with regard to ethanol.
    Senator Thune. I think we need a national approach to this 
when we look at the grid, and you are right, I mean, a lot of 
the energy that is developed today is localized because of some 
of the issues you mentioned. We have this pancake at the South 
Dakota border that basically doubles the rate to get the power 
into Minnesota, and I think we have got to come up with, 
working with the regulatory authorities, with FERC and with 
WAPA and others, to get some of these barriers out of the way.
    Mr. English. Could I add one other thing, Senator?
    Senator Thune. Yes.
    Mr. English. There is another thing that needs to be 
understood. In looking at this, as I mentioned earlier, our 
rates are going to go up like gangbusters. We are going to have 
substantial rate increases over the next few years just because 
we are out of this capacity and it is going to be extremely 
expensive. Renewables can also be very expensive, and we are 
still just in the beginning of this new industry, some of the 
technology in some of these areas. We are working with regard 
to the whole biomass trying to develop how do you put together 
this infrastructure. Cost-wise, this energy has to be 
competitive if it is going to work, and so, you know, we have 
got to focus on how do we do this thing right.
    We have got 40 million people out there that are members of 
electric cooperatives. All 40 million of those folks should 
have an opportunity to invest in this kind of an effort, and 
that is what we hope the Congress will do.
    Senator Thune. Thank you. One other quick question, if I 
might, Mr. Chairman, to Mr. Grabarski. In looking at the whole 
ethanol corn base, transitioning to cellulosic, and what are 
the things that we need to be doing to get the incentives out 
there to develop that industry further, there are several 
things, and Senator Salazar and I have a piece of legislation 
we have been working on to try and get more pumps installed, 
E85 pumps installed around the country, because I think that is 
a big issue. And the oil companies have got a stranglehold on a 
lot of these small convenience stores and fuel retailers that 
keep them from installing these pumps, and it is expensive to 
do that. So we think that is an important part of the 
infrastructure.
    But in terms of the overall big picture policy, increasing 
the RFS, going from E10 to E20, which of those things makes the 
most sense in terms of this Committee or the Energy Committee 
or other committees that are going to be dealing with this 
issue? I am a big believer that we need to go from E10 to E20. 
The car manufacturers are pushing back against that. And if we 
increase the RFS beyond 2012, what should we increase it to?
    Mr. Grabarski. If there is a priority, I would guess that 
it would be to increase it from E10 to the next level. That may 
not be E20. It may be E15; it may be E20. I do not know.
    As far as the E85 throughout the Nation, up until this 
point the market has not driven the E85 pump to any great 
degree because ethanol has been somewhat expensive. So the 
blend, when the market drives the E85, it is a wonderful 
opportunity. Car manufacturers are responding. They are getting 
more flex-fuel vehicles out there. But at our local co-op, when 
we decided to try and put in an E85 pump, we mentioned that 
there was probably about six cars in the county that could 
actually use that. It is a small county.
    Since that time, some of the car manufacturers have 
responded. We have a General Motors dealer, and he has got in 
almost exclusively, when he can, flex vehicles. And at this 
point in time, we have put in an E85 pump. I think the market 
has to drive that to a certain degree.
    So, having said that, I would suggest that the E10's, the 
E15s would probably be more practical at this point in time to 
drive the usage of ethanol across the Nation.
    Senator Thune. Thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Thune.
    Senator Coleman?
    Senator Coleman. Thank you, Mr. Chairman.
    Just reflecting on the questions of my colleagues from 
Colorado and South Dakota and Minnesota, we take great pride on 
what we have done. I think we have 16 ethanol operations. Now 
we are going to double our renewable fuel capacity I think in 
the next 5 to 10 years. We pride ourselves on being the Saudi 
Arabia of wind. Xcel Energy is our largest utility in the 
State. They have got a 30x25 mandate, and they are--SNC the 
other day, it is going to beat it by wind. By saying all that--
and I associate myself with the comments of my colleague from 
South Dakota--we cannot do it without a tax credit, and we 
cannot do it without infrastructure. And as a former mayor, an 
urban mayor, I get infrastructure. It is very critical.
    Now, Mr. English, you made the comment about any help we 
can get to pay for infrastructure. Senator Pryor and I have 
been working for the past couple of years on what we call 
``World Renaissance.'' The idea is that at this point we are 
looking at $400 million in tax credit bonds, similar to the 
CREPs, renewable energy bonds. What you get from this would be 
leveraged Federal dollars, electric co-ops, interest-free 
loans.
    So my question, just on that--and, again, I would much 
rather they be grants, try to get the money out there. But can 
interest-free loans, would that be a valuable source of dollars 
for the infrastructure that we need?
    Mr. English. Indeed, it would, Senator. We would love to 
see that program funded more. Of course, that is what we are 
all struggling with, is getting the funding for it. But we 
think that is a good concept, a good idea, and we appreciate 
it. We sure do.
    Senator Coleman. We will continue to push and work on that.
    Mr. English. Thank you.
    Senator Coleman. Now, Mr. Slack, one of the challenges that 
we all face as we embrace renewables, we do see some of the 
pressure now from our livestock people. I think Minnesota is 
the largest turkey producer in the Nation, and so we are seeing 
some of that pressure.
    I have gone to our folks over at Minnesota's AURI, our 
agricultural research folks, and asked them to help us on this 
issue. They have come back. We are looking at, you know, what 
can we do with DDGs to increase protein content.
    They have come back and developed a report, and they talk 
about--this may be getting hyper-technical, but I just want to 
get a sense of whether we all think we are moving in the right 
direction. They are showing a near-term promise in crude 
glycerine in terms of kind of looking at some way to ease the 
tension between livestock folks and the ethanol folks. Can you 
give me a little perspective on either work that you are doing 
on this? Or do you think our AURI folks are looking in the 
right direction?
    Mr. Slack. Senator, thank you very much for the question. 
Indeed, as we look at changes in the food supply for our 
livestock industries, we are seeing a lot of these kinds of 
questions come up, and certainly the dry distiller grain 
question is an important issue in Ohio, just as it is in 
Minnesota. We are looking at a number of issues. One is just 
simply looking at the nutritive quality that comes out of it as 
a byproduct and ask the question: Do we have to add things back 
to get a balanced feedstock? How does that vary with 
monogastrics versus other animals and so forth?
    So it is a complex issue in part because, as you look from 
plant to plant, the quality of the byproduct that comes out is 
not uniform. It is going to vary. We have to have some testing 
methodology to make that uniform.
    That being said, you mentioned glycerine, and glycerine, of 
course, is one of the major byproducts that we are seeing come 
out. And to the degree that we can utilize that in our systems, 
then that is going to be an offset that will be useful.
    So I think that they are right on, and, again, this is one 
of the reasons that we do try to communicate across States 
because we do have a vested interest in assuring that 
information.
    Senator Coleman. I mean, I hope we could work together. 
They are looking at things like crude glycerine as a feed 
adjunct for turkey diets, crude glycerine as a feed adjunct for 
lactating cows, et cetera. So I would hope that kind of a 
Nation we would look at this, because there is great 
opportunity, but there are challenges. And certainly, Mr. 
Matthews, your folks are going to be involved. We talk about 
energy and ethanol. Water is a huge issue. In southwest 
Minnesota, we have some big issues with that, so we want to 
promote the renewables, but we have got to deal with some of 
the issues, including water.
    I do not have a question. I just want to say thank you for 
what you do. People forget about what rural water does, and 
without the technical assistance that they are getting, you 
know, they would have some real--I mean, they have real issues, 
but you do serve an important function. I just want to say 
thanks for that.
    The last question in the time I have is for you, Mr. 
Grabarski, and that is, we are talking about--there is a lot of 
discussion about what we can do with anaerobic digestion, that 
we have a nice operation around the Princeton, Minnesota, area. 
But there was a 2002 Sense of Agriculture. According to that, 
in Minnesota 96 percent of our dairies are 200 cows are less, 
and I understand most experts believe that you need 
approximately 500 cows in order to make a viable anaerobic 
digester operation.
    What can we do in Congress to make this technically 
affordable for smaller operations? It is Minnesota, it is 
Wisconsin, it is, you know, throughout the Nation. We are just 
not at that capacity. Can we do things to make that option 
available to those with smaller operations?
    Mr. Grabarski. Thank you, Senator. I believe that that 
could happen. It has to happen on more of a wide scale, though, 
for a smaller operation. If we can build some efficiencies into 
that production where, again, it does not become part of a 
generating plant unless it is self-sustaining or self-
sufficient; otherwise, we need to figure out a way to capture 
that gas and actually make the gas the product that we sell. 
And that does not come without a cost.
    Somehow, as we build these units--and there are companies 
that will do this, probably with some grants and some 
investment programs that could make these on a smaller scale 
and make them more applicable to a smaller family type farm, 
whether it be 100 or 200 cows versus that 500 to 700 or more.
    Senator Coleman. I hope we can add focus to this issue and 
put some resources into developing a solution.
    Thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Coleman.
    I have just been informed that we have four stacked votes 
at 11:30, so there is no way that we are going to do that and 
come back. So we have to finish the next panel before 11:30, so 
I am really going to have to ask Senators to keep it to 5 
minutes. I hate to say it, but we do have these stacked votes 
at 11:30.
    Next is Senator Brown.
    Senator Brown. Thank you, Mr. Chairman. I will certainly do 
that.
    Glenn, nice to see you. Welcome.
    Mr. English. Thank you very much, Senator.
    Senator Brown. Thank you for the good work you do at Rural 
Electrics.
    Dr. Slack, thank you for joining us and thank you for the 
work you do with alternative energy and rural development at 
the Wooster Ag Center. Thank you very much for that. It has a 
proud history, as you know.
    Talk to us, if you would, about the bioproducts incubator 
and how you are doing the sort of partnership with small 
companies and larger companies. And where does that put Ohio's 
niche, if you will, in where we go with that?
    Mr. Slack. Thank you, Senator Brown, for the question. 
There are two things that I think about when you ask that 
question. The first one is going back to some of the issues 
having to do with byproducts we put together through actually 
funding from the State, through the Third Frontier Initiative 
that you would be aware of. Looking to the future is an Ohio 
Bioproducts Innovation Center, and what that really does is it 
brings the university together along with the commodity groups, 
in this case particularly the Soybean Council, and then 
Battelle, which is a large grant-driven operation in Ohio as 
well, along with the various companies in the State and brings 
them together around the table to look at how we can utilize 
byproducts coming out of the biofuels industry. In part, that 
is driven because, as you know, we have almost 3,000 biopolymer 
companies in the State of Ohio. So these things come together 
quite nicely in a State like we have in Ohio.
    The other thing I would mention a little bit--and I think 
it goes back to the last question of efficiency--is that we 
have tried to get at that by looking at building an anaerobic 
digesting system that is really scalable. The tendency is to go 
large on a lot of these things for all the reasons that all of 
the other panelists have talked about. But the other issue is 
the one that Senator Coleman has brought up, and that is, how 
do you go smaller? And if you really think about an anaerobic 
digester, it is a mechanical cow. And what we have to do is 
find a way to be as efficient as the cow is, but under our 
terms.
    And so what we have tried to really do is look at modeling 
that system in terms of what we can do in terms of waste 
systems, particularly utilizing waste out of animal systems. We 
have a very big food-processing industry, as you are aware, in 
the State, using waste streams out of that, and then modeling 
that system to not only produce methane but then conversion of 
that methane, in particular using the fuel cell technology, 
into electricity--the idea being that conceptually this would 
be a good on-farm use for small units.
    It is clearly at the development stage, but I agree we have 
to really do things that make things efficient on the small 
scale as well as the large scale to make this really usable 
across our rural communities.
    Senator Brown. Thanks.
    Thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Brown.
    Senator Lincoln?
    Senator Lincoln. Thank you, Mr. Chairman. We certainly 
appreciate your leadership here and bringing us together on 
rural development.
    Just to kind of tie that, I guess to take that one more 
step, so in terms of smaller operations and the ability to use 
the digesters in a smaller operation, it is really the issue of 
an economy of scale. Is that correct?
    Mr. Slack. It is both an economy of scale, but it is also--
the issue of scalability even goes to the fact of keeping those 
digesters operable. In other words, the smaller you go with the 
unit, the more sensitive it is to changes. For example, if it 
goes acidic, you have got a problem. And so how you balance 
that and as you change feedstocks within that digester, how do 
you keep it sustainable?
    Senator Lincoln. All right. But having a big enough economy 
of scale so that it is obviously making sense or profitable 
would be important, along with those other issues.
    Mr. Slack. Yes, absolutely.
    Senator Lincoln. Mr. Grabarski, I know that you mentioned--
a lot of the digesters has been discussed in regard to dairy 
operations. I have got a good dairy industry in my State, but I 
have got a huge poultry production. I do not know if you all 
have talked about whether that technology transfers and what 
opportunity might exist through the poultry industry.
    Mr. Grabarski. The difference between poultry waste and 
large-animal waste is entirely different. For the poultry, it 
is much drier. You do not have the solution that you would need 
in order to generate the digester. So my guess is that that is 
not applicable in the poultry industry. That would have to be 
something different, and I do not know what that is. But I do 
not believe a methane digester would work.
    Senator Lincoln. OK. Mr. Matthews, thank you for your 
testimony. You touch on a variety of ways, I think, that the 
Committee could help address the issues facing rural water 
systems, and those of us that have lived in rural America 
understand that there still are people out there who need 
access to good, healthy rural water systems and good, healthy 
water.
    I never will forget at one of our dedications, a woman came 
up to me and she said, ``Honey, I have had colored sheets long 
before colored sheets was popular.'' She said, ``I am just so 
glad to have some nice white sheets now with our rural water 
system in place.''
    Maybe you might elaborate a little more specifically on the 
challenges for communities and rural Americans and what they 
deal with in terms of their water supply, or maybe the lack 
thereof in terms of what water is actually out there.
    Mr. Matthews. Well, of course, we are experiencing in 
Georgia, anyway, and some other Southern States, a severe 
drought right now.
    Senator Lincoln. Right.
    Mr. Matthews. As you saw this morning on the news, Lake 
Okeechobee is at its lowest levels since they have been keeping 
records, and that is having a tremendous effect on the 
Everglades and the ecosystem and that kind of thing. Well, we 
are suffering with the same thing at home in Georgia. And, 
again, the bottom line is sometimes money will solve the 
problem, but where we cannot get reservoirs to have an adequate 
rural water supply from surface water, then there is a lot of 
well exploration that is going on, even in the metro areas 
there in Atlanta now, to simply supplement golf course needs, 
things like that for recreation. Lake Lanier seems to be 
holding, I think. My friends from Georgia tell me that Lake 
Lanier is doing a little bit better than it has in the past 
because of better management, but it is dropping some, of 
course.
    I asked a friend one time, I said, ``Do you think it is 
going to rain?'' And he says, ``It always has.''
    [Laughter.]
    Mr. Matthews. So I guess we can just pray for rain to 
replenish our surface water. And, of course, as you know, when 
the drought gets severe, it affects the groundwater table too.
    Senator Lincoln. Well, that is certainly a big issue for 
us, and we have got a lot of ground of surface water, but we 
also are seeing an added pressure on our aquifers, and making 
sure that there is a good balance there is critically important 
because we have certainly known that one feeds on the other. 
There is no doubt that our aquifers can help feed surface 
water, but surface water definitely replenishes in those 
aquifers. So getting a balance is critically important and 
making sure those resources are there. There are also 
opportunities that we are exploring in terms of recirculation 
of the water and other ways that we can help conserve.
    Mr. Matthews. And I know the Water Conservation Program 
that you have in your State through your Arkansas Rural Water 
Association, they have a greater Water Conservation Program 
there, as does Minnesota and others. But we worked with 
Oglethorpe Power back home, and Oglethorpe is our largest 
corporate booster in terms of providing funds for us to do 
energy conservation work, because they realize the more water 
that is pumped and leaked, it is just costing electricity and 
electrical power. So water conservation is going to be more key 
in the future than ever.
    Senator Lincoln. Right. Well, we appreciate it, and we 
appreciate our folks with Rural Water. They do a great job. 
Thank you.
    Chairman Harkin. Thank you very much, Senator Lincoln.
    Senator Stabenow, and I have just been informed that the 
votes have been moved from 11:30 to 11:50. But, still, I would 
appreciate--we have another panel to go through. Thank you very 
much.
    Senator Stabenow. Well, thank you, Mr. Chairman, and I have 
many questions. I will only ask one in the interest of time. 
But I do want to state first that USDA Rural Development has 
been so critical, I know, in Michigan and all of our rural 
areas in the Upper Peninsula. It has made the difference in 
communities in terms of many infrastructure issues, quality-of-
life issues. And so now as we look at energy, we have so many 
opportunities to be able to build on that.
    Mr. Slack, you mentioned in your testimony the possibility 
of cellulosic demonstration projects in places like Michigan, 
plants that may be able to use wood or forest products as 
feedstock. And I wonder if you could speak a little bit more 
about that. We do not hear about forestry products as much, as 
we talk about ethanol, cellulosic ethanol, and I wonder if you 
might talk about how this type of ethanol could change the 
economies in rural communities that have a lot of forest 
resources, like we have in the Upper Peninsula.
    Mr. Slack. Thank you very much for that question, and 
actually you mentioned USDA and Department of Energy, and I was 
remiss in my earlier comments, too, on our pilot plant 
operation that we have had investment from USDA and DOE, and 
certainly working together with them has been very important.
    I think as we move forward, as you are pointing out, and we 
start transitioning into the cellulosics, it is going to be 
important to bring the technology at all levels together on 
that. We certainly have as a major resource in the country 
utilization of our forests and managing those. Now, it is not 
going to be an easy situation. Part of that is the technology 
in moving, you know, into bioprocessing of the cellulosics, but 
some of it also comes back to the same issues that we deal with 
when we deal with our prime agricultural crops. You are going 
to have to manage those forests. You are going to have to 
handle things in an environmentally positive manner.
    So all these things will go hand in hand, but the reality 
is for us to really utilize the vast potential of biomass as 
part of our solution. The forests are going to have to be a 
core part of that process.
    Mr. Slack. Thank you, Mr. Chairman.
    Chairman Harkin. You are yielding back all that time?
    Senator Stabenow. I am yield back to my Chairman.
    Chairman Harkin. My goodness. Thank you very much.
    Well, since we have had a little back-up, I did have one 
last question I wanted to ask Mr. English. I did not think I 
was going to have a chance to ask it, but I have the time back.
    This is sort of a little bit different, but along the lines 
of what Senator Chambliss asked earlier about this Washington 
Post article that came out, dated April 30th. It reports on the 
financial condition of the National Rural Utilities Cooperative 
Finance Corporation, referred to as ``CFC.'' The article 
suggests that CFC is having financial difficulties and 
indicates that its equity has opped by some 23 percent in the 6 
months preceding November 30th of last year.
    Three bond rating agencies continue to rate CFC highly but 
one. Egan-Jones Ratings has sharply downgraded CFC bonds.
    Now, Egan-Jones, I do not know anything about them except 
they tout themselves because they were the ones that gave the 
alarm on Enron and WorldCom and a few other things like that. 
So they kind of think of themselves as the canary in the coal 
mine, I guess.
    Have you examined this matter? And if so, is there any 
merit to the Egan-Jones analysis? And what are the principal 
facts and arguments that you might make to counter their 
analysis on the merits? And what has been the effect of the 
article on capital markets?
    Mr. English. Mr. Chairman, I have got to say that I read 
that article as well. CFC is a sister organization. They are 
not a part of NRECA.
    Chairman Harkin. Right.
    Mr. English. So it would probably be better if they speak 
for themselves. But I would just say this: that the SEC, as you 
point out, of all the rating agencies they have that they 
recognize, I think C is an A-plus or better. That is about the 
best in the industry. I do not know who these other folks are, 
to be honest about it, and I guess from what I understand, they 
are not recognized by the SEC. I do not know what their 
objective is, and like you, I read with interest that this 
individual holds as his credentials that he was one of the 
first to warn about Enron. But to be honest about it, anybody 
that met Jeff Skilling I think could have made that prediction. 
I do not know what kind of dealings this fellow had, and I do 
not know his financial background, and I am certainly no 
financial expert. But I was kind of puzzled by the whole 
article, and I think Senator Chambliss had it right. This just 
seems to kind of be a series during farm bill time, that we 
just kind of come up, it is anti-rural, anti-farm, and this one 
did not make any sense. I would just be honest with you. It 
just flat did not make any sense.
    Chairman Harkin. It sounds like it revolves around one 
individual that came up----
    Mr. English. I think it might. I do not know.
    Chairman Harkin. His businesses seemed to come up a 
cropper, and----
    Mr. English. They also make telephone loans as well as 
making loans to electric wire----
    Chairman Harkin. Now, if they could----
    Mr. English. There was a loan that was made, and evidently 
it has gone into bankruptcy, and this fellow is taking it kind 
of personal. I do not know what is going on. But as I said, I 
probably should not be speaking on any of it, other than just 
make the observation that the SEC, the people they think have 
the expertise and knowledge about this business, they give them 
A-plus or better, which I think some of the best if not the 
best in the industry, and that is all I think we can hang our 
hat on. And this other fellow maybe does not know anything 
about co-ops. I do not know what is going on with it, but I do 
not know anything about it, have not run into anybody that 
knows anything about it. So it is a strange story, I will have 
to agree. It is just a strange story.
    Chairman Harkin. Strange, because in the 2002 farm bill, as 
you know, we did provide some more authority for them to get 
low-interest lending.
    Mr. English. That is right.
    Chairman Harkin. For a good purpose. And so obviously when 
these stories come out, we wonder if they are doing the right 
thing. And all we can do is basically rely upon similar 
agencies to tell us what is going on.
    Mr. English. That is true.
    Chairman Harkin. And as you say, most of them give them a 
very high rating. I just wanted to get your further thoughts on 
that.
    Mr. English. Well, I appreciate it, and as I said, all I 
could figure out is the SEC probably knows better than anybody 
else as to who is credible and who is not.
    Chairman Harkin. Sure hope so.
    Thank you all very much for your testimony, and thank you 
for coming, and now we will shift to our second panel.
    We welcome our second panel to today's hearing, and as 
before, all your statements will be made a part of the record 
in their entirety. And I will ask you to keep your comments to 
5 minutes or so and just highlight the basic thrust of your 
testimony.
    First we will recognize Dr. Lee Lynd, Dartmouth College, 
Thayer School of Engineering, in Hanover, New Hampshire. Mr. 
Lynd is a pioneer in the research and development of cellulosic 
biofuels. He will talk about the status and outlook for 
cellulosic ethanol technology and the potential role that 
biofuels can be expected to play in the future.
    I read your testimony over last night, and it was very 
enlightening and encouraging, Dr. Lynd. So welcome to the 
Committee, and please proceed.

 STATEMENT OF LEE R. LYND, DARTMOUTH COLLEGE, THAYER SCHOOL OF 
              ENGINEERING, HANOVER, NEW HAMPSHIRE

    Mr. Lynd. Good morning, Senator. Good to see you again, and 
thank you, Mr. Chairman and Senator Chambliss, for the 
opportunity to testify at this hearing.
    Among various forms of plant biomass, cellulosic biomass--
including perennial grasses, woody crops, winter cover crops, 
and various residues from the agricultural and forest 
industries--have the greatest potential for energy production 
and will be the focus of my remarks. I will address two topics 
today: the potential of cellulosic biofuels, and strategic 
observations and recommendations on policies impacting 
biofuels.
    At the representative price of $50 per metric ton, 
cellulosic biomass costs $3 a gigajoule, which is equal to oil 
at $17 a barrel. The immediate factor impeding the emergence of 
an industry converting cellulosic biomass into liquid fuels on 
a large scale is the high cost of processing rather than the 
cost and availability of feedstock. Large reductions in 
processing costs are clearly possible and indeed likely given a 
sufficiently large and well-targeted effort. Production of 
ethanol and other fuels from cellulosic biomass can reasonably 
be expected to be cost-competitive with fuels from oil at $30 a 
barrel once cellulose conversion technology is mature. The 
central issue to be addressed is improving technologies to 
overcome the recalcitrance of cellulosic biomass--that is, 
converting cellulosic biomass into reactive intermediates such 
as sugars.
    I know of no informed difference of opinion with respect to 
the proposition that the fossil fuel displacement ratio is 
decidedly favorable for production of ethanol from cellulosic 
biomass in a well-designed process representative of 
anticipated industrial practice.
    I note that there are many indications that construction 
will begin within the coming year on multiple industrial 
facilities producing cellulosic ethanol on an unprecedented 
scale.
    Looking beyond industry emergence to large-scale 
application, the second central challenge implicit in 
developing a large-scale biofuels industry is sustainable 
production of cellulosic biomass using a feasible amount of 
land. Projected future increases in biomass production per unit 
land and fuel production per unit biomass could together result 
in a roughly tenfold increase in land fuel yield compared to 
today, enabling scenarios in which biofuels play a very large 
energy supply role.
    How large? I offer the following examples of what could be 
achieved based on expected results of ongoing analyses I am 
involved in with others:
    No. 1, cellulosic biofuels could conceivably provide for 
the entire current U.S. vehicular mobility requirement using 
little or no land beyond that now devoted to agriculture, with 
little or no decrease in food and feed production, and with 
substantially increased farm income and profitability, 
decreased crop payments, net removal of greenhouse gases from 
the atmosphere, and improved soil fertility and other 
environmental metrics compared to the status quo.
    No. 2, biofuels could be a substantial part of broader 
strategies leading to approximately zero net greenhouse gas 
emissions from U.S. transportation and utility sectors. 
Measures to realize these outcomes are described in my written 
testimony. Although the changes are large, so are the benefits 
and so is the cost of not rising to the energy challenges we 
face.
    In a policy dimension, there is an unprecedented 
opportunity to align farm, energy, and environmental agendas in 
a way that vastly broadens support for biofuels. However, 
biofuel and farm advocates will have to earn this support by 
meaningfully incorporating energy and environmental objectives 
into policies aimed at fostering the development and expansion 
of biofuels industries. If we do this right, we can 
dramatically and, indeed, historically improve the outlook for 
rural America while also addressing pressing energy security 
and climate issues. If we do not do it right, the current wave 
of enthusiasm will pass us by and will likely be difficult to 
rekindle.
    Advocates for biomass energy and farm interests need to 
focus our attention, as well as that of the media and our 
skeptics, on farm-based options that have potential to make a 
contribution on a scale large enough to have a meaningful 
impact on energy security and sustainability.
    Congress should avoid overincentivizing corn ethanol 
production to the point that the costs are perceived as 
outweighing the benefits and we risk a backlash that will, 
again, likely negatively impact all biofuels.
    Realizing the clear potential for environmental benefits 
from biofuels will be fostered by rigorous evaluation and 
exploration of alternative production and management practices, 
crops and cropping systems responsive to local circumstances, 
and policies that reward environmentally desirable outcomes.
    Policies aimed at increasing fuel production from sources 
other than petroleum must not increase greenhouse gas emissions 
and should recognize the value of emission reductions.
    There are strong public benefits from increasing energy 
efficiency, and correspondingly large public costs for failing 
to do so. Recent proposals by the President and others to 
increase CAFE standards and/or adopt market-driven ``feebate'' 
mechanisms are encouraging signs that these realities are at 
last being recognized. Following through on these proposals by 
enacting aggressive measures to increase energy utilization 
efficiency in transportation as well as other energy sectors 
should be a very high priority.
    Briefly, Congress and agencies need to adjust policy 
formulation in response to the new reality of a private sector 
that is now active in investing in biofuels and other 
alternative energy technologies.
    And, finally, I note that the collective genius of the 
United States research community has in the past been engaged 
in the biomass energy field to a profoundly limited extent, and 
particularly in America's universities. The three large 
bioenergy centers solicited by the DOE Office of Science will 
be significant steps forward and should be fully funded. 
Providing broadly accessible opportunities for investigators 
and institutions not part of those centers would further 
increase the engagement of the research community and should be 
a priority.
    Thank you.
    [The prepared statement of Mr. Lynd can be found on page 91 
in the appendix.]
    Chairman Harkin. Thank you very much, Dr. Lynd.
    Now we will turn to Dr. Ugarte, who is an ag economist at 
the University of Tennessee, part of a team that has been 
conducting research and economic analyses of biomass and 
bioenergy potential that focus on the agricultural and economic 
implications of the 25x25 resolution.
    Dr. Ugarte, welcome again to the Committee.

  STATEMENT OF DANIEL DE LA TORRE UGARTE, AGRICULTURAL POLICY 
   ANALYSIS CENTER, THE UNIVERSITY OF TENNESSEE, KNOXVILLE, 
                           TENNESSEE

    Mr. Ugarte. Thank you, Mr. Chairman. Thank you, Senator 
Chambliss. First of all, I am here not in representation of 
25x25, but just in our condition of making the analysis for 
them.
    The 25x25 goal implies basically by the year 2025 the 
production of 86 billion gallons of ethanol--ten times what we 
expect to produce this year--and 1.1 billion gallons of 
biodiesel, and about 962 billion kilowatt hours of electricity, 
roughly 16 percent of our electricity needs.
    Now, how can this be accomplished within the agricultural 
sector and the forestry sector? First of all, to achieve these 
goals, we have to incorporate a broader set of feedstocks, and 
here the cellulose-to-ethanol path is key.
    Second, we not only have to look at transportation fuels 
but also, as the goal has stated, look at electricity and other 
sources of energy and energy services.
    One thing that we have to take into account--and we already 
have experienced that--is that the rate of growth and the 
corresponding incentives in achieving these goals have to be 
consistent with the technology development and the availability 
of the feedstock at the time. And that is one of the reasons 
that we have faced in these last 2 years, especially last year, 
a run-up in corn prices of about $4.
    To achieve these goals, definitely there will be a 
significant level of changes in land use. What we would expect 
to see is a graduate decrease in the land planted to soybeans, 
wheat, and corn--soybeans by about 20 million acres, wheat by 9 
million acres, and corn 3 million acres. We do not expect these 
changes to happen in the heart of the Corn Belt or in the 
Midwest. What we expect these changes is to happen in the areas 
that are marginal for this growth of these crops, basically in 
the Southeast of the U.S.
    At the same time, the analysis implied the introduction of 
a new energy crop like switchgrass for about 100 million acres 
by the year 2025. How can this be achieved? Well, one, by the 
shifting of the crops that I just mentioned, and second, by an 
increasing intensity and management of the cropland in pasture, 
cropland in hay, and the land in grasslands. Increasing the 
management and the intensity of those arable lands will 
significantly release and allow for the transition of that 
acreage toward switchgrass.
    Taking into account this broad set of feedstocks and the 
objectives, we do not expect to see huge impacts in prices. 
Moreover, what we expect to see is about 35-percent price 
increases based on the 2006 USDA baseline, well below what we 
see today and well within the range of prices that we have seen 
within the last 10 or 15 years.
    Net farm income is expected to grow for the whole period 
for about $100 billion, $37 by 2025. Government payments could 
be reduced by keeping the legislation in 2006 but up to $100 
billion to the year 2025, all depending what we do with the 
direct payments, and all these benefits will be totally 
distributed across the Nation. We are not focusing only on the 
Midwest strategy but on a nationwide strategy of feedstock 
production and energy conversion.
    In terms of economic activity and impact to the rural 
communities, we will expect to see a new industry that is able 
to generate $700 billion in new output and will employ roughly 
5.2 million new jobs.
    These opportunities, of course, do not come with any 
challenges. Some of the challenges that are underlining this 
strategy is the immediacy of having to bring a cellulose-to-
ethanol path. Our assumption in this example was that a 
cellulose-to-ethanol path would start to make contributions by 
the year 2012. We have to continue investing in agricultural 
research, not only in traditional crops but also in dedicated 
energy crops. We have to define public incentives that ensure 
environmental sustainability and enhance benefits to rural 
communities. We also will have to look at the agribusiness 
sector that is able to generate the inputs and the knowledge to 
plant these 100 million acres of switchgrass.
    We have to disseminate this information through the 
extension service to farmers, and at the same time provide the 
means to solve key issues in the supply of feedstock to 
biorefineries, including pre-treatment, transportation, 
storage, and handling of those feedstocks. The achieving of 
this goal also implies the construction of between 700 and 
1,200 biorefineries, which is not an easy task for this whole 
period. And, finally, we have to define what will be the role 
of trade.
    Thank you very much.
    [The prepared statement of Mr. Ugarte can be found on page 
133 in the appendix.]
    Chairman Harkin. Dr. Ugarte, thank you very much for your 
statement.
    Now we will turn to Mr. Howard Learner, Executive Director 
of the Environmental Law and Policy Center. He was actively 
engaged in promoting an Energy Title in the farm bill in 2002 
and its implementation since then. Mr. Learner will talk 
experiences with the Energy Title programs and policies and 
recommendations for this year's farm bill.
    Mr. Learner, welcome again to the Committee and please 
proceed.

      STATEMENT OF HOWARD A. LEARNER, EXECUTIVE DIRECTOR, 
     ENVIRONMENTAL LAW AND POLICY CENTER, CHICAGO, ILLINOIS

    Mr. Learner. Thank you, Mr. Chair. First, I would like to 
commend you, Senator Harkin, and Senator Lugar for your vision 
in the 2002 farm bill and the rest of the Committee that 
created the new Energy Title that has proven to be a success. 
When it comes to developing new clean energy in rural 
communities, it is a win-win-win. It is good for farmers, good 
for rural economic development, good for the environment, as 
well as helping to enhance our national energy security. In the 
parlance of the trade, ``You have done well,'' and we are very 
pleased to have worked with all of you to accomplish this.
    I will focus my comments this morning on one very important 
successful part of what the Committee did in 2002. That is the 
Section 9006 Renewable Energy and Energy Efficiency Improvement 
Program. That has been the cornerstone of the farm bill's 
success. It is a program that has been a winner. Senator 
Harkin, you asked earlier about priorities, and to use Senator 
Salazar's language a couple minutes ago, the single most 
important clean energy improvement that this Committee and 
Congress can consider in this farm bill is to increase from $23 
million a year to at least $250 million a year the Section 9006 
program. It has been successful, it has worked, it is a winner.
    So why is such a major increase justified at a time in 
which the budget is tight? We all know that. We are not 
insensitive to it. The reason is this is an example of 
investing and reinvesting in a proven winner, and whether it is 
Warren Buffett's Berkshire Hathaway or Google, all of us wish 
we had invested in something that was a winner. This is a 
winner whether it is investing your personal assets, a pension 
fund, or public policy investments to achieve a big bang for 
the buck. You know, this is a program that has been a winner. 
You have recognized this, and the Committee has recognized it.
    Mr. Chair, you and other members on a bipartisan basis 
sponsored Senate bill 3890, the Renewable Energy for America 
Act, last year. That would increase the funding to $250 million 
annually. Last week, Representatives Herseth, Sandlin, and 
Fortenberry over in the House introduced House bill 2154, which 
would likewise increase the program funding to $250 million per 
year.
    The 25x25 Action Plan that former Representative English 
talked about and I know you are all familiar with came out with 
its recommendations. It recommended that the Section 9006 
program be increased to $250 million a year because it works, 
and that is a recommendation from utilities, from rural 
electric co-ops, from environmental groups, from farm groups, 
from commodity groups. You know the broad coalition behind 
25x25. And we are also informed that that the National 
Commission on Energy Policy, the so-called Dole-Daschle 
Commission, which is coming out with its report later this 
month, we are told they will be recommending $500 million per 
year for the Section 9006 program. That is not final. I am not 
advancing their report. But I have been told that we can inform 
the Committee of that.
    The reason for all of this is because Section 9006 is 
regarded as a proven success. Since 2003, farmers, ranchers, 
and rural small businesses have used over $115 million for more 
than 800 wind power, anaerobic digester, biofuels, energy 
efficiency projects in 42 States around the country. It has 
leveraged nearly $1 billion of investment.
    Unfortunately, the program is a victim of its own 
popularity and success. Applications for this program have 
exceeded the amount of funding by more than 3 to 1. We have 
gotten reports upon reports of farmers, small family farmers, 
mid-sized farmers and ranchers, who have good projects, cannot 
get funding. They have a reasonable application. And they have 
said to USDA and they have said to the 25x25s and everyone 
else, ``This is a program that works. We need it to work for 
us. Can you put more funding into it?''
    So what would you get? If this program went up to $250 
million a year, we believe at that funding level it could 
produce annually more than $1,000 megawatts of wind power, more 
than 5 billion gallons of biofuels, tens of millions of dollars 
in annual energy savings, more than 10 million tons reductions 
in carbon dioxide. That is an enormous payoff, and we can 
provide the numbers behind that if you and your staff would 
like us to do so.
    I will very briefly mention the Section 9005 program that 
you also created in 2002. For 5 years, it has gone without 
funding. It is important--energy audits and renewable energy 
assessments for farmers and ranchers. This would be a good time 
to put some funding into that program to get it going.
    Rural America is the source of much of our Nation's 
renewable energy potential. You have heard that from all the 
witnesses today. It cuts across State lines. We think this is 
the time to reinvest in the programs that are working very well 
and can work even better for the future.
    Thank you for the opportunity to join you today. We would 
be pleased, like others, to answer any questions that you may 
have for us.
    [The prepared statement of Mr. Learner can be found on page 
76 in the appendix.]
    Chairman Harkin. Thank you, Mr. Learner. These potentials 
you mentioned, was that based on $500 million or $250 million?
    Mr. Learner. 250. Simply put, if it were $500 million, it 
would be about 2,200 megawatts of wind power. The rest of the 
numbers double up.
    Chairman Harkin. Thank you very much, Mr. Learner.
    Mr. Learner. You are welcome.
    Chairman Harkin. Now we turn to Neil Rich, President and 
CEO of the Riksch Biofuels in Crawfordsville, Iowa. Prior to 
founding this company in April 2005, Neil was Vice President of 
Rich Pumping, LLC, a custom fertilizer application business 
servicing all of southeast Iowa. Neil began doing research on 
biodiesel in late 2003, a year later had successfully created a 
small-scale biodiesel reactor, and was running the fuel in his 
business and all his personal vehicles. Very interesting.
    Welcome to the Committee, Mr. Rich.

STATEMENT OF NEIL RICH, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
             RIKSCH BIOFUELS, CRAWFORDSVILLE, IOWA

    Mr. Rich. Thank you, Mr. Chairman, and thank you, Mr. 
Chambliss, and any other members of the Committee that may join 
us later on. I would like to thank you for the opportunity this 
morning to appear before you on the importance of the biodiesel 
industry to rural development and the importance of including 
our proposed Biodiesel Incentive Program in the 2007 farm bill.
    My name is Neil Rich. I am the President and CEO of Riksch 
BioFuels. We are a 10-million-gallon biodiesel facility which 
started production in December of 2006. We were able to create 
14 high-quality jobs in a small community in southeast Iowa, 
which in the past decade and a half has seen little to no 
positive job growth. Our project was funded by private 
investment from local producers and local ag businessmen, along 
with, to echo Mr. Learner, the 9006 program that was in the 
2002 farm bill. We were the first recipient of both the grant 
and the loan guarantee program. We are pleased with that. I can 
only hope to sit here this morning and have biodiesel be a 
significant part of the 2007 farm bill. It is very important.
    In order to take advantage of the many benefits of 
biodiesel and ensure a domestic production industry, the 
National Biodiesel Board and the American Soybean Association 
are supporting authorization of a Biodiesel Incentive Program 
in the farm bill. This program would operate similarly to the 
CCC Bioenergy Program, which has worked well in encouraging 
expanded biodiesel production in recent years. Our industry 
very much appreciates your leadership, Mr. Chairman, in 
championing authorization of the Bioenergy Program in the 2002 
farm bill.
    It is important to understand that every renewable fuel 
program worldwide is supported through government funding. 
Moreover, a number of countries subsidize biodiesel production 
or offer incentives to encourage exports. For example, 
Argentina has an incentive worth 43 cents per gallon for 
Argentine soybean processors to convert soybean oil into 
biodiesel for export. Just last week, a shipment of 1.2 million 
gallons of Argentine biodiesel exports to the U.S. was 
announced in the trade press. U.S. biodiesel producers need an 
incentive that offsets this subsidy in order to compete in our 
own market.
    In addition to competing with subsidized imports, the U.S. 
biodiesel industry is struggling to establish itself at a time 
of extremely volatile energy markets, and to assist with this, 
the newly created volumetric biodiesel fuel tax credit, which 
must be extended, enables the domestic biodiesel to compete 
when prices for soybean oil and petroleum diesel reflect their 
traditional relationship. Although recent petroleum prices have 
reached historic highs, they are subject to rapid changes as a 
result of the foreign policy decisions as well as other 
economics. Although the price of soybean oil has climbed to 
well over 30 cents per pound, the markets anticipate a possible 
loss of up to 8 million U.S. soybean acres to corn in 2007. A 
safety net is needed for biodiesel to offset these 
uncertainties, which discourage investment for future biodiesel 
production.
    To provide this protection to the domestic industry, we are 
requesting authorization for the Biodiesel Incentive Program. 
Similar to the CCC Bioenergy Program, the reimbursement would 
be established at a level that would offset the foreign 
subsidy. At the current price of soybean oil of 30 cents per 
pound, and with 7.5 pounds per gallon going into biodiesel, the 
amount of the reimbursement would be set at 43 cents per gallon 
of biodiesel produced.
    Based on the U.S. projections of 250 to 300 million gallons 
in 2007, if the incentive was paid on every gallon produced, 
the cost of the reimbursement this year would be between $107 
and $129 million. By comparison, in the 2002 farm bill the 
authorization funding of $150 million per year was created. 
Separately, it is necessary to continue funding the USDA's 
Biodiesel Fuel Education Program at a level of $2 million per 
year. Already the program has achieved substantial results in 
improving consumer awareness, but it must be continued if we 
plan to educate consumers about biodiesel.
    The testimony has been distributed to you previous to this 
meeting this morning. The environmental benefits of blending 
biodiesel with petroleum fuel are unmistakable. The value of 
being more energy independent can also not be argued. However, 
the total value added to agriculture is one that comes up for 
debate, and it is not if or when, it is just how much.
    The USDA stated 50 million gallons of biodiesel will add to 
the prices of soybeans by 1 percent, and biodiesel has and will 
continue to have a positive impact on agriculture and 
specifically rural development. Our plant, with the help of 
programs like the one proposed today, will have a great effect 
on the local economy in southeast Iowa and many others like it. 
Biodiesel is creating a new economic vitality, bringing new 
jobs and infusing many rural communities with new consumer 
activity.
    I urge you today to not let biodiesel be left behind. The 
biodiesel industry is emerging at a very rapid pace, as you all 
know, and this program would spur the continued development of 
new companies and allow those companies such as mine that are 
in production to develop technologies to make ourselves more 
efficient.
    I urge you to continue your support in this farm bill to 
advance and promote an industry that increases energy 
independence, improves our environment, benefits farmers, and 
benefits rural economic development.
    Thank you very much.
    [The prepared statement of Mr. Rich can be found on page 
104 in the appendix.]
    Chairman Harkin. Thank you all very much for just great 
statements, and also for your written testimony. They contained 
a lot of really good, vital information.
    I think there is a general understanding, an agreement, an 
interest among this Committee and I think on the House side 
also for moving ahead very aggressively in cellulose and also 
in biodiesel. On the cellulose side, though, we are trying to 
grapple with how we do that. What are the policies that we need 
to put in place?
    I have often likened it to the fact, Dr. Lynd, that we have 
a chicken-and-egg situation. Now, some of your testimony 
refutes what I am about to say, and we will get into that. But 
it has sort of been like it is hard to get private investment 
in cellulose now because the private investors, the equity 
investors, say, well, where is the feedstock? And you go to the 
farmers to raise the cellulose material, and they say, well, 
where is the market? So you have kind of got two things there, 
and it seems to me you have got to bring both along. You have 
got to build the plants at the same time that you get farmers 
to start converting and doing and growing energy crops.
    I wonder if you could comment on that. Is that a decent 
analysis, a good analysis? Or is there plenty of equity money 
out there to build the plants now regardless of where the 
feedsdtock comes from?
    Mr. Lynd. Good questions. My sense is that, you know, when 
things are not moving as fast as people would like them to, it 
is perhaps convenient to look to chicken-and-egg explanations. 
My personal view is that the conversion technology has been the 
limiting factor, and I think as the conversion technology 
appears in the short term, feedstocks will not be limiting.
    Now, in the longer term--in other words, there is a lot of 
locations in this country where I think the feedstock will 
rapidly materialize. That is for getting started. For growing a 
big industry, feedstock issues are vitally important, and they 
need some lead time to solve them.
    Chairman Harkin. Might I interrupt you there? Growing 
feedstocks is one thing. Farmers are used to growing wheat or 
corn or beans or cotton or rice or whatever. Or maybe they have 
pasture land; they are grazing cattle on pasture land. So it 
takes a while to shift. I mean, you do not know what that 
income is going to be. Plus, don't you have to have a plant 
within a certain mile radius? You cannot transport that stuff 
100 or 200 miles?
    Mr. Lynd. Yes, but there are sources of cellulosic biomass 
that are accumulating right now--mountains of gas in Louisiana, 
for example, waste paper sludge, paper mills, things of that 
kind. So the fact that those are not--if those were being 
converted and we were stuck at the transition point of going to 
actual grown feedstocks, then I think that would support your 
argument. But the fact that you have got accumulating 
cellulosic biomass produced 365 days a year and those are not 
being converted suggests to me that it has been the conversion 
technology which has not been ready to run. I do not think it 
has been limitations of feedstock.
    Now, again----
    Chairman Harkin. So the private equity is not coming in 
because the conversion is just too expensive.
    Mr. Lynd. Yes, but, you know, a huge tipping point 
happened. I mean, prior to about 18 months ago, the venture 
capital community looked at this or any equity investor looked 
at this, and it was like, gee, it depends on the weather, the 
price of the oil, and governmental regulations, too many 
unknowns for me, I will go invest in cell phones or software or 
what have you.
    And so I think that as long as people looked at this with a 
project finance model, it looked pretty grim, and lots of 
people have recited all the reasons that cannot happen. At this 
point, though, private equity is being placed in these 
companies, and it is because people are looking at it with a 
venture finance model because fundamentally they are convinced 
that this is the way the world wants to go.
    So I think the train is moving. That is not to say there 
cannot be things done to accelerate it. I think the notion of 
having incentives indexed to the price of oil is a tremendously 
good idea. I think ways to leverage private investment for 
first-of-a-kind technology that has compounding risks is also a 
great idea, and there are things that need to be done on the 
research side. So there are things to do, but it is very 
different than it was 2 years ago when if the Government did 
not push the ball, it was not going to happen.
    Chairman Harkin. You mentioned a tenfold increase in fuel 
per acre.
    Mr. Lynd. Yes.
    Chairman Harkin. I want to know more about that. What is 
your baseline? What land productivity do you project in dry 
tons per acre? And what conversion yields do you project in 
gallons per dry ton to get to that figure?
    Mr. Lynd. Well, in round numbers, many project that within 
10 to 20 years we can produce 15 dry tons per acre per year of 
cellulosic biomass across a broad range of sites, and if you 
combine ethanol with other----
    Chairman Harkin. As an average?
    Mr. Lynd. As an average, yes, that is exactly right. And if 
you combine ethanol with fuels that can be co-produced with it, 
which include diesel fuels from cellulosic biomass, you can get 
between 105 and 110 gallons per dry ton.
    In round numbers, the calculation is pretty simple. Most 
people make current cellulosic biomass--5 tons per acre per 
year is the typical number. That is about threefold lower than 
the number I mentioned. And there are certainly some studies by 
the DOE and others that point to current technology being about 
35 gallons per ton, so that is threefold less than 100, 3 times 
3 is 10, round number, broad brush. So there is no great 
mystery to the numbers.
    Chairman Harkin. But you are talking about 105 to 110 
gallons per dry ton.
    Mr. Lynd. Correct.
    Chairman Harkin. That is a threefold----
    Mr. Lynd. Correct, threefold on conversion, threefold on 
per acre production.
    Chairman Harkin. Well, how convinced are you that we can 
get there? I mean, how long a period of time?
    Mr. Lynd. It depends how much and how smart we invest, but 
I am pretty sure we can get there.
    Chairman Harkin. My time is running out. Just one follow-up 
on that. So should we be thinking in this ag bill about putting 
more in research on this end in terms of conversion? And I have 
heard the others, enzymatic conversion, yet there is a heat 
process. Which is the best?
    Mr. Lynd. Two questions. No. 1, again, we are very 
underinvested in research in this area worldwide, frankly, and 
particularly on the more fundamental side that provides the 
support for the applied work. Research in this field has been 
acting as if it has been 2 years away for 20 years. We are just 
not engaging, as I said, the collective genius. So there does 
need to be more there.
    The second part of your question--remind me, please. You 
asked about should we be spending more on research, but there 
was another point.
    Chairman Harkin. Yes. I have been told there are basically 
two processes. One is an enzymatic process, the other is a heat 
process.
    Mr. Lynd. Yes. The short answer is everybody looks at that 
as an either/or, and I am pretty sure it will be an ``and,'' 
and the reason is that current biological conversion uses a 
sufficient quantity of the energy in the biomass that will 
never be converted to ethanol, at least--will never be 
fermented to ethanol, anyway, the lignin in the residues. Most 
of that is necessary to make the biological processing happen. 
However, as the biological processing improves, which it surely 
can, most of that energy is then available for the thermal 
process and with greatly resulting economies and efficiencies.
    So my sense is in the near term these are competitors, but 
in the long term they complement each other. And, therefore, it 
is worth learning about both pieces, and then eventually 
integrating them very much to the benefit of the country and 
the technology.
    Chairman Harkin. Thank you very much.
    Senator Chambliss?
    Senator Chambliss. Dr. Lynd, we are pretty excited down our 
way with respect to cellulosic production. We have got a $250 
million investment that has already been announced in Soperton, 
Georgia, where we are going to be using pine trees, which I am 
sure you are familiar with the process, may be familiar with 
that plant. This is an area that we in the Southeast have an 
awful lot of resources for as compared to the grain feeds that 
we do not have a lot of.
    Given our limited resources and budgetary constraints, what 
is the single most important thing we can do in the farm bill 
to promote the cellulosic ethanol industry?
    Mr. Lynd. I do not know if it is exactly the farm bill, but 
I think probably the single biggest thing that could be done is 
to appropriate what has been authorized. There is an awful lot 
of--and what is being discussed as being authorized. There is 
an awful lot of good ideas out there, and there are some 
pretty--there are some trails of tears in the history of some 
of this legislation in the past in terms of where it was 
intended to go and where it ended up going. So that would be 
one issue.
    But I think, you know, on the--I think the simple answer is 
the farm bill needs to have aggressive R&D, and particularly 
targeting R&D that the private sector is not likely to do. And 
there is a lot of work on feedstocks that comes into that 
category, and I think it needs incentives in the form of cost-
sharing capital. But, again, this notion of indexing price 
supports to the price of oil gives incredible robustness, 
avoids spending dollars in an unnecessary way, and will really 
accelerate this industry.
    Senator Chambliss. Is technology in the cellulosic end of 
ethanol production moving at as fast a pace as technology on 
the grain feed side?
    Mr. Lynd. Well, arguably, it is moving faster, and the 
reason is the technology on the grain feed side is reasonably 
mature. We are to the point that additional benefits are small. 
In cellulosics, there are still large steps that can be taken.
    Senator Chambliss. Right.
    Mr. Learner. Senator, if I might respond very briefly?
    Senator Chambliss. Sure.
    Mr. Learner. You asked some of the things that could be 
done in the context of the farm bill. Section 9003 of the farm 
bill that passed in 2002 has a set of provisions for 
biorefineries. With regard to one of the comments that the 
Chair made a moment ago, whether it is the Southeast or the 
Midwest, you could link funding under Section 9003 to an area 
where there are feedstocks locally available. So, therefore, 
when USDA decides which proposal from a biorefinery using 
cellulosic ethanol to fund, one of the criteria is: Are there 
feedstocks locally available? That gives the refinery proponent 
some skin in the game in terms of going to the local farm 
organizations and the local farmers, saying if you can work it 
out over here, I may be able to get some support from USDA to 
put a biorefinery right near you. And it creates that sort of 
cooperative arrangement that gets you around the chicken and 
egg, whether it is the Southeast or the Midwest that the Chair 
was talking about.
    You take the 9003 program, which is already authorized, and 
put that selection criteria in there. Then you pull the two 
together, the chicken-and-egg problem.
    Senator Chambliss. Dr. Ugarte, the impacts of higher feed 
prices are significant, obviously largely concentrated in the 
swine and poultry sector right now. Your testimony indicates 
that the model cannot fully capture the effects of the high 
degree of vertical integration in these sectors.
    Could you expand on that a little bit? And is one of the 
net results of our biofuels policy to promote concentration in 
the livestock sector?
    Mr. Ugarte. Well, that is one of the challenges that we 
face, especially in the poultry and hog industry, in which, to 
make it simple, we only have between two and three producers--
Smithville, on the one hand, and on the other hand, we have 
Tyson and Perdue. So it is very difficult to see how are they 
going to react. I mean, they have a significant market power to 
really absorb and transfer the whole cost of the additional 
feedstock into the consumer. So in terms of the adjustment, 
they are in a much better position than the cattle industry, 
although at the same time the hog and poultry industries are 
mostly affected because, being monogastric animals, they cannot 
take full advantage of the dry grains.
    Now, whether or not it is going to increase concentration, 
I think you can find two arguments. One of those is that by 
increasing the cost of the feedgrains, what you are going to 
try to promote is concentration away from the feedlots, meaning 
trying to have the animals, especially in the cattle sector, 
spend much more time on the farm or in pasture, which is what 
we used to do 15 or 20 years ago. So, in that sense, that will 
contribute to move away from the concentration in feedlots.
    In the case of the poultry and hogs, it cannot be any more 
concentrated anymore. So, in that sense, I do not think that 
the damage--the possibility for damage is there. Again, the 
reverse impact could start happening because now with this new 
demand for energy, the prices of corn and other feedgrains are 
going to be at the higher level and then are going to return to 
the farmer the ability to compete with the large integrations.
    So I think that it opens the opportunity for reducing 
pressure or integration and maybe to bring back profitability 
for farmer-grown poultry, hogs, and livestock.
    Senator Chambliss. Mr. Learner, I agree the Section 9006 
program is very successful. There is a demonstrated need for 
more resources, obviously, for this in the farm bill if we can 
find the money. However, the approach you advocate is somewhat 
different than that put forth by the administration in its 
recent farm bill proposals.
    Should the program continue to focus on small-scale 
projects? And given the limited budgetary resources, are loan 
guarantees and larger production platforms better vehicles to 
increase production of renewable energy in rural America?
    Mr. Learner. Senator, this program was designed in 2002 to 
be aimed principally at small and medium-sized farmers, 
ranchers, and rural small businesses. We do not object to some 
of the funds being used for loan guarantees as a way of 
leveraging larger projects. But the majority of the funds in 
this program should go for grants, for some of the reasons that 
Senator Coleman talked about before in terms of who you reach 
through the program. So it is not an either/or; it is a both/
and. But the majority of the program funds should be used for 
grants, and on that we respectfully disagree with the USDA 
suggestion that it all move into loan guarantees and the grant 
program go over to Section 9010.
    Section 9006, is a proven winner, and Congres should put 
more resources into it. Most of the funds should go to grants; 
some can be used for loan guarantees. They both have value. 
They reach out to different types farmers.
    Senator Chambliss. Mr. Rich, I do think it is very 
important we continue to support the biodiesel industry and 
obviously domestic production, and we look forward to 
dialoguing with you. And your situation is unique in some ways, 
but in Georgia, actually, we have got a comparable situation to 
yours where a small producer of biodiesel arose out of a 
somewhat average sod production farm. And it is kind of 
interesting to see innovative and creative folks like you 
develop this industry.
    You mentioned in your testimony the projected decrease in 
2007 soybean acres and the increase in price of soybean oil. 
What constraints will declining acreage and increasing prices 
of vegetable oil have on our ability to grow the biodiesel 
production in the future?
    Mr. Rich. The feedstock availability to biodiesel is 
definitely finite. The biodiesel industry is aware of that. The 
potential decrease in soybean acres will have to be picked up 
by alternative feedstocks that are out there, and the biodiesel 
manufacturers will have to adapt to those changes. Some of them 
are able to, and some of them are not able to.
    At this point, where the biodiesel industry is, there is 
feedstock out there and it is available. The potential acreage 
shift, I guess we will see how everything plays out, but at 
this point the rising cost of soybean oil and the somewhat 
level price of diesel fuel is just not enough to sustain the 
biodiesel industry the way it is today, let alone have it 
expand. So there needs to be something else additionally done.
    When we got our project off the ground, the CCC Bioenergy 
Program was alive and well and funded. And when we came into 
production, it was no longer. So something needs to happen for 
these companies to survive, in order to be more efficient down 
the road, and we can only be more efficient if we are able to 
survive during these somewhat high prices.
    Senator Chambliss. Well, I thank all of you for your 
testimony. Obviously, we can sense the energy that each of you 
feel relative to this issue, and it is a fascinating and fast-
developing segment of our agriculture economy that I think has 
a huge potential for farmers all across America. Historically 
in the Southeast, obviously, ethanol has not been a major 
factor from a production use standpoint. But today we are 
seeing ethanol plants under construction as well as biodiesel 
plants, and I think with folks like you giving your ideas to us 
certainly moves us in the direction of wanting to make sure 
that we make the right decisions so we expand this fast-growing 
segment of our agricultural economy.
    So thank you very much for your input.
    Mr. Rich. Thank you.
    Chairman Harkin. I join with Senator Chambliss in just sort 
of, I think, repeating for emphasis' sake that I think energy--
biodiesel, ethanol, cellulose--is going to be a big part of 
this farm bill. I mean, people are asking us to do something 
and to move the ball forward.
    Again, you have added a great deal to our thought 
processes, and we need your continued input in this as we move 
ahead. But we see cellulose ethanol basically as something that 
is nationwide. Corn ethanol is obviously based in the upper 
Midwest where we grow a lot of corn, obviously, but cellulose 
can be anywhere, and especially in the Southeast where they 
have a lot of timber. We had that wonderful guy that you 
brought up, Saxby, from Georgia Tech, I think, who testified 
about the wood pulp industry down there that used to feed the 
paper industry. But the paper industry is no longer around, I 
guess.
    Senator Chambliss. It moved to Southeast Asia.
    Chairman Harkin. It moved someplace. But he said that just 
from that small segment alone--I remember the figure. He said 4 
billion gallons a year of cellulosic ethanol. So, see, we have 
to be thinking about how we start moving ahead in that area, 
too. I think a lot of people have thought about cellulose--
well, maybe it is just--you know, people think about their own 
different areas and stuff. I think in the Midwest we think 
about celluloses, the corn stover and wheat straw and that kind 
of thing, switchgrass obviously. But the whole wood pulp 
industry, the whole wood industry in this country, and when we 
think about the millions of acres of private forests, private 
forestland in this country that could be used to provide 
cellulosic ethanol.
    Now, when you say that--I have said that once and someone 
accused me of wanting to cut down all the timber in this 
country, and that is not what I am saying. But well managed, 
this could be very productive. And as you know, as you grow 
those trees, they do a wonderful thing. They take carbon 
dioxide out of the atmosphere. So it is no net greenhouse gas 
thing.
    So we have just got to think about how we use this bill, 
and Section 9000 of Title IX is there. Mr. Learner, I asked for 
your continued input that, suggestions on how we use that 
title, Mr. Lynd also, Dr. Lynd. Look at that title. What can we 
do in there that may really push us forward in cellulose 
ethanol and in biodiesel?
    We have just hardly scratched the surface in biodiesel in 
this country, and most people think it comes only from 
soybeans, but there is a lot of other oils that can be grown in 
a lot of different parts of this country, plus the fact that we 
have something called renewable biodiesel now--or, no, that is 
the wrong phrase. Renewable diesel. And there is some 
contention about that right now from the biodiesel people, 
renewable diesel being where they are taking animal fats left 
over. I think Tyson's Foods just made a big contract with an 
oil company to do that, to provide that kind of renewable 
diesel.
    Do you know much about that, Mr. Rich? And do you have any 
thoughts on that? I just ask openly. I do not know if you 
looked into that at all.
    Mr. Rich. I do have some comments on it, and I would like 
to talk about them off the record.
    [Laughter.]
    Chairman Harkin. Oh, well, all right. That is fine.
    Mr. Rich. The environmental benefits and some other things 
are not there, as they are with biodiesel.
    Chairman Harkin. Well, we would like to know more about 
that. I have got to tell you, my reaction is always, well, 
there is room for everybody here. And if it is something that 
replaces imported petroleum, it is cleaner burning, it is 
renewable, what is wrong with that? It all sounds good to me. 
So if you have got some other thoughts, I would like to know 
about it.
    But we also need data on the conversions. Dr. Lynd, you 
mentioned that. Dr. Ugarte, you are an expert in that area. 
Because a lot of people are going to get concerned about how 
fast we are moving on this. Well, I do not think we are moving 
fast enough. What I would like to know is what can we go, what 
can Senator Chambliss and I do in this farm bill so that at the 
end of 5 years, we have really pushed this country ahead in 
cellulose where it is providing income to rural America, where 
it is not degrading the environment but conserving crops, where 
we build transportation systems to get this fuel from one part 
of the country to the other.
    Now, a lot of that is not in our jurisdiction, but there is 
a lot we can do here to incentivize farmers to move in that 
direction. They are not all going to move next year. But if we 
can start getting them moving in the next 5 years and to think 
about how they might grow wood for this fast-growing--poplars 
or pines or whatever, and how we grow switchgrass, which is 
almost--the more I read about it, it is almost becoming like a 
miracle crop in that there are more Btus per pound in 
switchgrass than there is a pound of coal, I am told. There is 
also protein in switchgrass. If you can extract the protein, 
then you have got all that left over. Plus it is a perennial. 
You do not have to fertilize it very much every year. So there 
is a lot that can be done on conservation ground that could be 
an energy reserve situation in this country.
    We just need your best thoughts. You are the best thinkers 
on this, and look at Section 9000, tell us what we need to do 
there, if we need to add something. Maybe we need to add 
something. But how do we move that ball down the field.
    Now, R&D, yes, we are going to have to put in more money in 
R&D. I do not know exactly sitting here today right not to tell 
you exactly what the R&D is. But I know what we have got to do 
in terms of investigating and doing research in the conversion 
process and how it becomes more efficient. And you are the 
first one I have heard say, Dr. Lynd, that it is an ``and'' 
between the thermal process and the other one. I have always 
thought it was either/or, but maybe you are right. Maybe there 
is an ``and'' to it. This is enlightening to me to learn this.
    So these are the things that we are thinking about, and I 
think this is going to be the major part, as I have said 
before, of the farm bill. And it is going to have a lot of 
impact on rural economic development.
    One last thing I would just say before I close, I do not 
know who mentioned it here--let me think. Was it Dr. Lynd, 
maybe, or Dr. Ugarte--who talked about pegging the incentives 
to the price of oil. I assume you mean in an inverse relation 
type.
    Mr. Lynd. That is right. The highest the price of oil, the 
lower the incentive.
    Chairman Harkin. That is right. So that way they could not 
pull the rug out from underneath us, so to speak.
    Mr. Lynd. Yes.
    Chairman Harkin. I would like to see some figures on that, 
too.
    Mr. Lynd. Well, we obviously have a lot we can communicate 
about. One of the interesting things is if biofuel production 
ever did hypothetically drive oil prices down, that would be 
one of the greatest macroeconomic benefits seen in history. So 
sort of incentivizing things so the industry does not have to 
hedge against that possibility is a really good idea. It helps 
biofuels and, to the extent that the incentivization happens, 
then everybody wins economically. So I would be happy to 
communicate with you on that, as well as many of the other 
issues you raised.
    Chairman Harkin. OK. So look at Section 9000. Tell us what 
we have got to do. Mr. Learner, you have been a leader in that 
area looking ahead. You mentioned 9003.
    We have got to go. I have 4 minutes left on the vote. I 
could continue this discussion for another hour.
    Thank you all very much. The Committee will stand 
adjourned.
    [Whereupon, at 12:01 p.m., the Committee was adjourned.]
      
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                         QUESTIONS AND ANSWERS

                              May 9, 2007



      
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