[Senate Hearing 110-362]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-362
 
                   ENERGY MARKET EFFECTS ON RECENTLY 
                               PASSED RFS

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                                   TO

 RECEIVE TESTIMONY ON THE ENERGY MARKET EFFECTS ON THE RECENTLY-PASSED 
                        RENEWABLE FUEL STANDARD

                               __________

                            FEBRUARY 7, 2008


                       Printed for the use of the
               committee on Energy and Natural Resources



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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

DANIEL K. AKAKA, Hawaii              PETE V. DOMENICI, New Mexico
BYRON L. DORGAN, North Dakota        LARRY E. CRAIG, Idaho
RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana          JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           BOB CORKER, Tennessee
KEN SALAZAR, Colorado                JOHN BARRASSO, Wyoming
ROBERT MENENDEZ, New Jersey          JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas         GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky
JON TESTER, Montana                  MEL MARTINEZ, Florida

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
              Frank Macchiarola, Republican Staff Director
             Judith K. Pensabene, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Dinneen, Bob, President and CEO, Renewable Fuels Association.....    42
Domenici, Hon. Pete V., U.S. Senator From New Mexico.............     3
Drevna, Charlie T., President, National Petrochemical and 
  Refiners Association...........................................    31
Jennings, Brian, Executive Vice President, American Coalition for 
  Ethanol........................................................    47
Karsner, Alexander, Assistant Secretary, Office of Energy 
  Efficiency and Renewable Energy, Department of Energy..........     4
McAdams, Michael J., Executive Director, Advanced Biofuels 
  Coalition......................................................    39
Menendez, Hon. Robert, U.S. Senator From New Jersey..............     2
Meyers, Robert J., Principal Deputy, Assistant Administrator, 
  Office of Air and Radiation, Environmental Protection Agency...    10
Werner, Carol, Executive Director, Environmental and Energy Study 
  Institute......................................................    21

                               Appendix I

Responses to additional questions................................    63

                              Appendix II

Additional material submitted for the record.....................    85


              ENERGY MARKET EFFECTS ON RECENTLY PASSED RFS

                              ----------                              


                       THURSDAY, FEBRUARY 7, 2008

                              United States Senate,
                 committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:40 a.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman, 
chairman, presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW 
                             MEXICO

    The Chairman. Thank you for coming today. This hearing is 
an oversight hearing to look at the renewable fuel standard 
that was included in the Energy Independence and Security Act 
that was signed by the President on December 19.
    This groundbreaking legislation will save more energy than 
all of the previous energy bills we've passed. Americans will 
spend less money on gasoline as their cars and trucks get more 
miles per gallon. We'll also spend less on our electricity 
bills, as inefficient incandescent light bulbs are phased out 
in favor of highly efficient compact fluorescents and LEDs. 
These measures will make us better stewards of our country's 
energy resources. They're good for the environment and good for 
our energy security.
    However, today's hearing is concerned with the renewable 
fuel standard, which is a cornerstone of this legislation, 
which several have suggested is flawed in the way it was 
enacted. The RFS requires that increasing amounts of our motor 
vehicle fuel come from biofuel, such as ethanol from corn, and 
biodiesel from soy. Homegrown biofuels are good energy policy, 
good environmental policy, and good national security policy. 
However, there is some concern that the RFS, as enacted, risks 
taking the biofuels industry backward rather than pushing it 
ahead.
    I'm particularly concerned about three aspects of the RFS. 
First, the early year biofuel requirements could be too 
aggressive. A second concern is that mandates for specific 
technologies and feedstock's could prove to be overly 
prescriptive. Finally, the environmental restrictions that are 
imposed may be too narrow.
    Very briefly, let me discuss each of those. The RFS almost 
doubles the amount of ethanol and biodiesel required this year, 
from 4.7 billion gallons in 2007 to 9 billion gallons in 2008. 
While it appears that there will be enough ethanol and 
biodiesel production capacity to satisfy the requirement, it's 
not clear how all of this biofuel will find its way into the 
fuel tanks of our cars and trucks. Because the law was signed 
only weeks before the 2008 requirement came into effect, 
refiners had no opportunity to ensure that sufficient 
infrastructure would be in place to handle that much of an 
increase.
    The second issue is the concern that the law favors certain 
technologies and feedstocks with individual mandates. I'm glad 
that the requirement for cellulosic biofuel includes cellulosic 
biobutanol. Butanol is a very promising new technology that 
could turn woody biomass into biofuel that is compatible with 
our existing energy infrastructure. I'm glad that the world's 
first commercial biobutanol plant may be located in our home 
State of New Mexico.
    However, the fact remains that this kind of micromanagement 
is likely to make government policy look foolish in the long 
run. What if a breakthrough in some other technology, like 
biocrude from algae, were to emerge as a cost-effective 
technology that is a better fit for the marketplace? With 
roughly 80 percent of the advanced biofuels requirement already 
dedicated to specific feedstocks or technologies, there is 
little room in the RFS for technological advance.
    The final concern is the definition of renewable biomass, 
from which the required biofuel can be derived, is quite 
narrow. Examples of excluded feedstock include woody biomass 
from hazardous fuels reduction on Federal lands, and urban and 
commercial wood waste, and old-growth forests on Federal lands 
are not adequately protected in the legislation.
    We obviously need to take the legislation that's been 
passed, and do all we can to make it workable. The question 
before us is how to proceed. The cost of failure is high. If we 
are not able to produce enough ethanol and biodiesel to meet 
these aggressive mandates, while maintaining food and fuel 
prices that consumers can accept, taxpayers will blame 
Congress, as they should. Furthermore, the biofuel industry 
will be tarnished, and for these reasons, I'm committed to 
doing all we can through this committee to try to make the RFS 
work as intended.
    [The prepared statement of Senator Menendez follow:]

     Prepared Statement of Hon. Robert Menendez, U.S. Senator From 
                               New Jersey

    Thank you Mr. Chairman for holding this hearing examining some of 
the impacts anticipated from the Renewable Fuels Standard which we 
passed last year. In part due to the efforts of this committee and the 
leadership of Chairman Bingaman and Ranking Member Domenici, the 2007 
Energy Independence and Security Act is an important step towards 
meeting our nation's pressing energy security, energy affordability, 
and environmental challenges. The Renewable Fuels Standard (RFS) is 
part of the solution. Implemented properly, the RFS can help free us 
from imported oil and fight global warming. The law we passed sets 
aggressive goals for increases in renewable fuels, and guarantees that 
these goals will be met with biofuels produced in a sustainable, 
environmentally responsible manner.
    The goal of the RFS is to incentivize a viable, large scale 
biofuels industry that promotes domestic energy security and helps 
address global warming. Central to achieving this goal are the 
environmental safeguards established to make sure the law's 36 billion 
gallon biofuels mandate in fact results in a source of renewable energy 
that successfully mitigates dangerous climate change, while avoiding 
costly and harmful unintended consequences to the environment and 
public health.
    Not all biofuels are good for the climate. Demand for palm oil, for 
instance, has led to wholesale destruction of Indonesian rainforest. 
Depending on how they are produced, biofuels can significantly lower or 
increase global warming pollution. The energy bill we passed requires a 
comprehensive analysis of lifecycle greenhouse gas emissions and has 
provisions which will prevent clearing forests or destroying native 
prairie in order to grow feedstock for biofuels. Not only does this 
environmental destruction endanger wildlife and degrade water 
resources, but it also releases millions of tons of greenhouse gasses.
    The intent of the Energy Independence and Security Act of 2007 is 
for the RFS to reduce both dependence on oil and emissions of 
greenhouse gases by promoting advanced biofuels and innovation, not the 
clearing of forests. As climate change increasingly alters our 
landscape, it is all the more important that we protect our important 
wildlife habitat, natural forests, native grasslands, and public lands.
    The challenge before us as we continue to shape Federal biofuels 
policy is to make sure we wisely invest in policies that are both 
effective and sustainable. That means striking the kind of balance 
represented by the Energy Security Act of 2007.

    Senator Domenici, go ahead with any comments you have.

   STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR FROM NEW 
                             MEXICO

    Senator Domenici. Thank you, Mr. Chairman. Since I'm the 
reason for us being late, I'll ask that my statement be put in 
the record and just make my one observation as to what we're 
trying to do.
    We want to make sure that the new RFS will do everything it 
can to promote the new biofuels industry. We also want to make 
sure that we take the right approach to facilitate the 
implementation of the program and provide a smooth transition 
to a greater integration of biofuels into our fuel 
infrastructure. I look forward to testimony from today's 
witnesses, and hope to learn what work we have to ensure that 
we meet these objectives. I ask that the rest of my statement 
be made a part of the record. It's an analysis, somewhat like 
yours, so I see no reason to lose time at this point. Thank 
you, Mr. Chairman.
    [The prepared statement of Senator Domenici follows:]

    Prepared Statement of Hon. Pete V. Doemnici, U.S. Senator From 
                               New Mexico

    Thank you, Mr. Chairman, for calling this hearing on a topic that 
you and I worked very hard on last year. I am proud of the work that we 
have done to promote the use of homegrown biofuels, because of their 
potential to lessen our nation's dependence on imported petroleum. The 
Energy Policy Act of 2005 created the first Renewable Fuels Standard 
(RFS), and the Energy Independence and Security Act of 2007 expanded 
upon it.
    A lot has changed since we created the first RFS in 2005. We were 
really thinking of renewable fuels as fuel additives. The President's 
``Twenty in Ten'' initiative announced in last year's State of the 
Union Address inspired people to think of renewable fuels as full-
fledged transportation fuels.
    In 2005, when we were talking about renewable fuel we were talking 
almost exclusively about ethanol. Today, there is tremendous excitement 
about a broad range of technologies that we collectively call 
``advanced biofuels.''
    Advanced biofuels include cellulosic ethanol, biodiesel and 
renewable diesel. Other examples that show great technological promise 
include biocrude made from algae, biobutanol made from a variety of 
feedstocks, and a host of other cutting-edge approaches currently under 
development at laboratories and start-up companies around the country.
    I'll mention an example of one such company that is working in my 
home state of New Mexico. Cobalt Biofuels is positioned to develop the 
nation's first industrial biobutanol production facility in Portales. I 
am very excited about this facility because it will bring good jobs to 
New Mexico, just as many other biorefineries are creating good jobs 
across the nation.
    That raises another important advantage of biofuels--each region of 
the country has the potential to develop a biofuels market based on 
local feedstocks. That is why the Energy Independence and Security Act 
authorized the creation of additional, geographically dispersed 
bioenergy research centers. I hope that through this regional approach 
we will develop a diverse biofuels industry using cellulosic feedstocks 
in the Midwest, woody biomass and forest products in the Northeast and 
Northwest, and algae in my own state of New Mexico.
    We want to ensure that the new RFS will do everything it can to 
promote a new biofuels industry. We also want to make sure we take the 
right approach to facilitate the implementation of the program, and 
provide a smooth transition to greater integration of biofuels into our 
fuels infrastructure.
    I look forward to the testimony from today's witnesses, and hope to 
learn if we have more work to do to ensure that we meet these 
objectives.

    The Chairman. Thank you very much, and we'll include that 
in the record. Our first panel is made up of Assistant 
Secretary Karsner, who is Head of the Office of Energy 
Efficiency and Renewable Energy in the Department of Energy; 
and Robert Meyers, who is the Principal Deputy Administrator in 
the Office of Air and Radiation in the EPA.
    Thank you, both, for being here, and we'll proceed in that 
order, unless there's some reason to go in a different order. 
Secretary Karsner, why don't you go right ahead?

STATEMENT OF ALEXANDER KARSNER, ASSISTANT SECRETARY, OFFICE OF 
  ENERGY EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF ENERGY

    Mr. Karsner. Thank you, Mr. Chairman, and Ranking Member 
Domenici, and the committee. I want to thank you for the 
opportunity to appear today to discuss energy market effects of 
the recently passed renewable fuel standard, the RFS, and to 
provide comments on the relevant portions of H.R. 6, the Energy 
Independence and Security Act of 2007, which I'll refer to as 
EISA.
    The President called for a bold mandate in his 2007 State 
of the Union, and I'd like to express my appreciation to the 
members of this committee for their work on this historic 
bipartisan legislation. Together, we have taken great strides 
to enhance our energy security and reduce emissions that 
contribute to global climate change. This new law will result 
in the avoidance of billions of tons of greenhouse gases. The 
United States is leading the world in advancing alternative 
fuels, and the world has taken note of our actions.
    Only last week, I was honored to represent the United 
States at the Major Economies Meeting on Energy Security and 
Climate Change in Honolulu, comprised of the world's largest 
economies. This law, demonstrating United States leadership, 
was a major topic on the agenda, and as we began to discuss the 
actions in the transportation sector, as well as efficiency for 
buildings, appliances, and government operations.
    As you know, EISA increases the minimum required levels of 
renewable fuel and United States transportation fuels set by 
the Energy Policy Act of 2005. The goal is to meet the mandates 
in a manner that is cost-effective and consistent with our 
economic growth. One important feature of the President's 
proposed alternative fuel standard was the economic safety 
valve, which was proposed originally to be a dollar per 
gasoline equivalent gallon.
    The safety valve sought to improve the likelihood that the 
program would not impose unreasonable cost on consumers. So we 
will contribute technical assistance and work closely with EPA 
to evaluate if the safety valve in title II of EISA provides 
similar levels of protections to obligated parties or 
consumers. DOE, EPA, and USDA will coordinate on analyses 
needed to support the rulemaking to implement the new RFS 
program, including an assessment of what gaps, if any, exist in 
the incentive system that are embedded in the EISA legislation.
    I look forward to working together with the committee to 
improve EISA, as and when needed, and establish the most 
efficient pathway to meeting the legislation's RFS targets. I'd 
like to provide now an update on the Department of Energy's 
activities in the area of biofuels, as well as the state of the 
biofuels industry and the feasibility of meeting the EISA goals 
in an effective and environmentally sustainable manner.
    Since 2001, the Federal Government has helped to reduce the 
cost of cellulosic production via biochemical conversion. Given 
continued investments in R&D, as well as cost shared 
development of commercial-scale and small-scale biorefineries 
in many Federal agencies, we're maximizing the probability that 
we will meet the President's goal of making cellulosic ethanol 
cost competitive by 2012.
    On January 29, 2008 the Secretary announced that DOE will 
invest up to $114 million over the next 4 years, subject to 
appropriations, for four small-scale biorefinery projects 
located in Colorado, Missouri, Oregon, and Wisconsin. These 
projects, built at 10 percent of commercial scale, complement 
the Department's February 2007 selection of the six projects 
that would receive up to $385 million over 4 years, subject to 
appropriations, to develop commercial-scale biorefineries, 
which were authorized in EPACT section 932.
    As the topic of this hearing is market effects of the RFS, 
let me provide some information on the state of the biofuels 
markets. United States corn ethanol industry currently has an 
estimated capacity to produce nearly 8 billion gallons of 
ethanol annually. Assuming completion of construction underway, 
we will produce another 5 billion gallons per year, adding up 
to approximately 13 billion gallons per year by 2010.
    The United States has approximately 139 ethanol plants 
already in the ground. At this time, no commercial-scale 
cellulosic ethanol plants are operational, but some of the 
joint DOE industry's cellulosic biorefineries are projected to 
be up and running ahead of schedule, with all 6 projected to be 
operational within the next 4 years. In terms of 
infrastructure, 1,348 United States fueling stations offer E85 
blends. We have about 1,350 gasoline terminals where ethanol 
can be potentially blended, with additional capacity needed to 
provide for blending of larger volumes expected in the next few 
years. I would also like to note that any blend up to E15 may 
be used certifiably at every pump in the United States of 
America.
    While on the subject of biofuels infrastructure, I would 
like to note that EISA limits franchise restrictions on E85 
pumps. The Department believes that the promotion of an E85 
delivery system is an important and worthwhile goal of an 
alternative fuels infrastructure. But also, that intermediate 
blends, such as E15 and E20, offer an indispensable parallel 
approach to scale and retail distribution in order to enable 
continuous and consistent uninterrupted growth in production.
    To assess the potential of intermediate blends, DOE in 
collaboration with EPA and the Department of Transportation and 
other Federal agencies has begun extensive testing programs. 
Preliminary results from these tests will be available later 
this summer. While the ethanol gas blends and fueling stations 
form one side of the equation, the other side is flex fuel 
vehicles.
    There are an estimated 230 million vehicles on America's 
highways today. The United States Department of Energy sees no 
technical reason whatsoever why flex fuel vehicles cannot be 
more uniformly ubiquitous across all markets, nor do we see any 
technical reason that at least the option of flex fuel could be 
offered to every America and all consumers at a relatively low 
price and in short order.
    In addition to the obvious energy security challenge, 
transportation in the United States is the fastest-growing 
source of CO2 emissions. It already counts for about 
one-third of the United States contribution to global 
greenhouse gas emissions. So we cannot afford to look at the 
problem in an insular way. We need to add millions of flex fuel 
and hybrid vehicles, which are available at low cost--not 
thousands, not hundreds of thousands--but millions, in the near 
term, so that we can convert the car park.
    Just as we are committed to making cellulosic biofuels cost 
competitive, we are equally dedicated to ensuring that biofuels 
production and use are environmentally sound and sustainable. 
Cellulosic ethanol is a domestically available fuel that does 
not compete with food crops, and has the potential to reduce 
greenhouse gas emissions by up to 85 percent relative to 
gasoline. One example, perennial grasses, require less water 
and chemical inputs per acre than corn, because their extensive 
root systems increase nutrient and water capture.
    Properly managed cellulosic crops potentially improve soil 
quality, sequester carbon, and reduce erosion in the areas in 
which they are planted. They are non-edible and they do not 
compete with the food supply.
    So I would like to thank the committee for its continued 
commitment to the development of renewable fuels and resources 
and the infrastructure necessary to make these fuels more 
broadly available and acceptable to a new generation of 
Americans. Advanced biofuels offer significant promise for 
helping our Nation bring about a new, cleaner, more secure and 
energy-affordable future. Mr. Chairman, this concludes my 
prepared statement, and I'm happy to answer any questions the 
committee members may have.
    [The prepared statement of Mr. Karsner follows:]

 Prepared Statement of Alexander Karsner, Assistant Secretary, Energy 
         Efficiency and Renewable Energy, Department of Energy

    Mr. Chairman, Members of the committee, thank you for the 
opportunity to appear before you today to discuss energy market effects 
of the recently passed renewable fuel standard (RFS), and to provide 
comments on the relevant portions of H.R. 6, the Energy Independence 
and Security Act of 2007 (EISA). The President called for a bold fuel 
mandate in his 2007 State of the Union as part of 20 in 10. I would 
like to express my appreciation to the Members of this committee for 
their work on this historic legislation. Together, we have taken great 
strides to enhance our energy security and reduce emissions that 
contribute to climate change. This new law will result in the avoidance 
of billions of tons of greenhouse gases. The United States is leading 
the world in advancing alternative fuels and the world has taken note 
of our action. I was honored last week to have attended the Major 
Economies Meeting on Energy Security and Climate Change where this new 
law was a major topic as we discussed actions within the transportation 
sector as well as for buildings and government operations.
    As you know, EISA increases the minimum required levels of 
renewable fuel in U.S. transportation fuel set by the Energy Policy Act 
of 2005 (EPACT). The EPACT renewable fuel standard (RFS) was set at 5.4 
billion gallons for 2008, rising to 7.5 billion by 2012. The modified 
RFS included in EISA mandates 9 billion gallons of renewable fuel in 
2008, rising to 36 billion gallons by 2022. Of these 36 billion 
gallons, 21 billion in 2022 are to be obtained from cellulosic ethanol 
and other advanced biofuels. The goal is to meet the mandates in a 
manner that is economically cost-effective and consistent with economic 
growth.
    One important feature of the President's proposed Alternative Fuel 
Standard was the economic safety valve (proposed to be $1.00 per 
gasoline-equivalent gallon). This safety valve sought to improve the 
likelihood that the program would not impose unreasonable costs on 
consumers or result in unreasonable profits for alternative fuel 
producers. The safety valve in Title II of EISA does not provide the 
same level of protections to obligated parties or consumers. DOE, EPA, 
and USDA will coordinate on analyses needed to support the rulemaking 
to implement the new RFS program, including an assessment of what gaps, 
if any, exist in the incentive system in EISA, taking into account the 
costs of conventional (corn-based) ethanol, and cellulosic biofuels 
production.
    In addition to concerns about the waiver/safety valve, the 
Department recommends that the definition of woody biomass in Section 
201 be modified in order to parallel the definition contained in the 
Administration's Farm Bill proposal. This revision would allow us to 
more readily meet the renewable fuel standard set forth in the law 
since it encourages producers to use materials from federal lands or 
non-industrial private forest lands.
    I look forward to working with the committee to improve EISA as 
needed and establish the most efficient pathway to meeting the 
legislation's RFS targets. I'd like to provide now an update on the 
Department of Energy's activities in the area of biofuels, particularly 
cellulosic ethanol, as well as the state of the biofuels industry and 
the feasibility of meeting the EISA goals in an effective and 
environmentally sustainable fashion.

                  DEPARTMENTAL ACTIVITIES IN BIOFUELS

    The Department actively supports biofuels production, from the most 
basic science research activities to efforts toward the integration of 
advanced biofuels into the national fuel supply.
    As a result of research, development, and demonstration efforts to 
date, I am pleased to report that we have already made significant 
progress toward the Presidential goal of making cellulosic ethanol cost 
competitive, which involves reducing cellulosic ethanol production 
costs to $1.33 per gallon by 2012. Since 2001, the Federal government 
has helped reduce the cost of cellulosic production, via biochemical 
conversion. Given continued investments in R&D, as well as costshared 
development of commercial scale and small scale biorefineries in many 
federal agencies, we are maximizing the probability that we will meet 
the 2012 goal.
    The aggressive cellulosic biofuels volumes established in the new 
RFS are very ambitious, and continuing R&D will help facilitate 
achievement of these volumes, while ensuring that these fuels' GHG 
emission-reducing potential is realized. To help ensure that a diverse 
set of effective crops are available for conversion to biofuels, we are 
conducting field trials on dedicated energy crops this year. This type 
of work can begin to help validate research-scale cellulosic energy 
crop production results at the industrial scale including both new 
agricultural crop practices and innovative collection and storage 
methods.
    On January 29, 2008, the Secretary announced that DOE will invest 
up to $114 million over four years, subject to appropriations, for four 
small-scale biorefinery projects to be located in Colorado, Missouri, 
Oregon, and Wisconsin. Building on the President's goal of making 
cellulosic ethanol cost-competitive by 2012, these biorefineries, built 
at ten percent of commercial scale, will use a wide variety of 
feedstocks and test novel conversion technologies to provide data 
necessary to bring online full-size, commercial-scale biorefineries. On 
average, commercial-scale ethanol biorefineries input 700 tons of 
feedstock per day, with an output of approximately 20 to 30 million 
gallons a year. These small-scale cellulosic facilities are expected to 
input approximately 70 tons of feedstock per day, with an estimated 1.5 
to 2.5 million gallons of cellulosic ethanol to be produced per year.
    These small-scale projects complement the Department's February 
2007 selection of six projects to receive up to $385 million over four 
years (subject to appropriations) to develop commercialscale 
biorefineries, also authorized by EPACT section 932. The full-scale 
biorefineries focus on near-term commercial processes, while the small-
scale facilities will experiment with diverse feedstocks using novel 
processing technologies. Both small-and commercial-scale projects 
contribute to fulfilling EISA requirements. Further, the projects 
support the Administration's long-term strategy of increasing the 
nation's energy, economic and national security by reducing our 
nation's reliance on oil through increased efficiency and 
diversification of clean energy sources.
    On November 6, 2007, Range Fuels, Inc, became the first of the six 
companies selected by DOE last February, as a part of the EPACT 2005 
integrated biorefineries solicitation, to break ground on a commercial 
cellulosic ethanol plant, one of the first in the nation. The plant is 
located near the town of Soperton, Georgia, and will draw on 
gasification technology to convert wood and wood waste from Georgia's 
pine forests and mills into 20 million gallons of ethanol per year 
during its first phase of operation. Construction of the first phase is 
expected to be completed next year.
    The Department expects to use its new loan guarantee authority to 
stimulate investment and commercialization of new technologies. EERE 
has provided technical expertise in review of loan guarantee pre-
applications in the area of biomass. Additionally, DOE's work in basic 
science includes $405 million over five years for three bioenergy 
research centers to provide the transformational science for bioenergy 
breakthroughs needed to meet the President's goal.

                       ADVANCED BIOFUELS INDUSTRY

    As the topic of this hearing is market effects of the RFS, let me 
provide some information on the state of the biofuels market. The 
United States continues to be the leading producer of ethanol in the 
world. The U.S. corn ethanol industry currently has capacity to produce 
nearly 8 billion gallons of ethanol annually, with construction 
underway that will produce about another 5 billion gallons per year, 
bringing the total capacity to approximately 13 billion gallons per 
year by 2010. The nation's 134 ethanol plants are primarily located in 
the Midwest. At this time, no commercial scale cellulosic ethanol 
plants are operational, but some of the joint DOE-industry cellulosic 
biorefineries are projected to be up and running within one year, with 
all six operational in four years.
    In terms of infrastructure, 1,348 U.S. fueling stations offer the 
E85 blend. Stations are more common in the corn belt (Minnesota, Iowa, 
Illinois) but are spreading throughout the country. In fact, E85 is now 
offered in 40 states. We have about 1,350 gasoline terminals where 
ethanol can potentially be blended, with additional capacity needed to 
provide for blending of larger volumes expected in the next few years.
    While on the subject of biofuels infrastructure, I would like to 
note the provision in EISA that limits franchise restrictions on E85 
pumps. By preventing constraints on the installation of renewable pumps 
and encouraging the conversion of existing pumps to renewable fuel use 
as well as signage to advertise the sale of renewable fuels, this 
provision may reduce potential barriers to bringing E85 fuels to 
consumers.
    The Department believes that an E85 delivery system is an important 
goal of an alternative fuels infrastructure, but that intermediate 
blends (e.g., E15, E20) may offer an alternative approach to balance 
fuel production and use in parallel in order to enable continuous 
uninterrupted growth in production. Intermediate blends may provide for 
more rapid absorption of renewable fuels into consumer markets in the 
near-term. Studying intermediate ethanol blends could help policymakers 
to determine whether they might be suitable and cost-effective outlets 
for consuming additional renewable fuel, and DOE is working with other 
agencies to undertake such studies currently.
    To assess the potential of intermediate blends, DOE, in 
collaboration with EPA, the Department of Transportation (DOT), and 
other federal agencies, has begun an extensive testing program. In 
addition to our own testing, we are collaborating on test plans and 
methodologies with other groups, including state governments, industry 
associations, auto manufacturers, small engine manufacturers, and 
others that are conducting similar or complementary tests on 
intermediate blends. Preliminary results from these tests will be 
available later this summer.
    While increasing the availability of ethanol-gas blends and fueling 
stations is one side of the equation, the other is growing the fleet of 
flex-fuel vehicles (FFVs) available to consumers. There are an 
estimated 230 million vehicles on America's highways today, and that 
number continues to grow, with 16 million vehicles bought each year and 
no more than 12 million retired. Furthermore, the majority of these 
vehicles rely exclusively on gasoline and will remain in the fleet for 
17 years on average. We see no technical reason why ultimately flex-
fuel vehicles can not be more uniformly ubiquitous across all markets. 
Nor do we see any technical reason that at least the option of flex-
fuel vehicles could not be offered to all consumers at a relatively low 
price.
    Transportation in the United States is the fastest growing source 
of CO2 emissions--it already accounts for about one third of 
the U.S. contribution to global greenhouse gas emissions--so we cannot 
afford to look at the problem in an insular way. We need to continue to 
evaluate how these emissions may affect global trend lines.
    For these reasons, both the Secretary and I have been calling on 
automakers to make flex-fuel and hybrid vehicles ubiquitous across the 
fleet, for every make and model, for every manufacturer that services 
the U.S. market. We need to add millions of these vehicles to the fleet 
each year.

                      ENVIRONMENTAL SUSTAINABILITY

    Just as we are committed to making cellulosic biofuels cost 
competitive, we are equally dedicated to ensuring that biofuels 
production and use are environmentally sound. Minimizing carbon 
emissions and ensuring environmental sustainability are vitally 
important in large-scale ventures like advanced biofuels production.
    Cellulosic ethanol is a domestically available fuel that does not 
compete with food crops and has the potential to reduce greenhouse gas 
emissions by 85 percent relative to gasoline. Its production can also 
be environmentally friendly and sustainable. In addition to better use 
of waste streams for feedstocks, non-food related cellulosic energy 
crops such as perennial grasses have many environmental benefits over 
traditional edible crops. In general, perennial grasses require less 
water and chemical inputs per acre than corn because their extensive 
root systems increase nutrient and water capture. Properly managed 
cellulosic crops can improve soil quality, sequester carbon, and reduce 
erosion in the areas in which they are planted. They also can serve as 
a good habitat for certain forms of wildlife.
    The distribution of ethanol presents both economic and 
environmental challenges. Most ethanol plants are concentrated in the 
Midwest, but consumption is high along the East and West coasts. 
Shipping via pipeline would produce lower greenhouse gas emissions than 
the current methods of truck, rail, and barge distribution, but 
pipeline construction and use come with their own set of challenges.
    As you know, EISA directs DOE, in coordination with DOT, to carry 
out a feasibility study of the construction of pipelines dedicated to 
the transportation of ethanol. The study is to consider economic 
viability, barriers to construction, market risks, and other factors 
and incentives that have an impact on the construction of an ethanol 
pipeline.
    We have already established a good working relationship with DOT's 
Pipeline and Hazardous Materials Safety Administration, and have been 
assisting them on research investigating the impacts of ethanol on 
stress, corrosion, and cracking in pipelines. We will continue to work 
with DOT to carry out the pipeline analysis called for in EISA. DOE has 
also begun working with the Association of Oil Pipe Lines and will work 
with that association and its members to ensure a robust analysis of 
this important issue.

                               CONCLUSION

    I would like to conclude by thanking the committee for its 
continued commitment to the development of renewable resources and the 
infrastructure necessary to make renewable fuels available to the 
average American. Advanced biofuels offer significant promise for 
helping our nation to bring about a new, cleaner, more secure and 
affordable energy future.
    Mr. Chairman, this concludes my prepared statement. I would be 
happy to answer any questions the committee Members may have.

    Mr. Chairman. Thank you, very much. Mr. Meyers, go right 
ahead.

   STATEMENT OF ROBERT MEYERS J., PRINCIPAL DEPUTY ASSISTANT 
   ADMINISTRATOR, OFFICE OF AIR AND RADIATION, ENVIRONMENTAL 
                       PROTECTION AGENCY

    Mr. Meyers. Thank you, Mr. Chairman, Ranking Member 
Domenici, and Senator Johnson. I appreciate the opportunity to 
come before you today to testify on the implementation of the 
renewable fuel provisions of the recently enacted Energy 
Independence and Security Act of 2007.
    Renewable fuels are a key element of our national strategy 
for addressing the challenge of global climate change. Through 
his 20 in 10 initiative, the President proposed to reduce 
gasoline consumption through the increased use of renewable 
fuels and new vehicle standards. Congress agreed with these 
goals by approving new fuel and vehicle economy standards as 
part of EISA, and these changes will build upon the program 
that was established in 2005 by the Energy Policy Act of that 
year.
    The Environmental Protection Agency is responsible for 
implementing the RFS program and we are proud of our success 
today in working with stakeholders in the fuel industry, 
States, and in the environmental community to build an 
efficient program for increasing the volumes of renewable fuel 
use in the transportation sector. The Agency worked very 
closely with the Departments of Energy, Agriculture, and other 
Federal partners and stakeholders to develop broad and early 
support for the program established by EPACT in 2005. Since 
EISA was signed into law on December 19, 2007, the Agency has 
been working diligently to review its provisions and begin to 
develop regulations to implement the new RFS program 
established by that legislation. In this regard, our first and 
most pressing task is to issue a new renewable volume standard 
for 2008. EISA increased the current 5.4 billion gallon RFS in 
2008 to 9 billion gallons, and we would expect the notice on 
this action to be published in the Federal Register very soon.
    Otherwise, we recognize that EISA made a number of 
significant changes to the RFS program, and developing EPA 
regulations will require careful evaluation and considerable 
new analysis. First, EISA increases the total renewable volume 
mandates to a minimum of 36 billion gallons by 2022. This is 
nearly a 5-fold increase over 7.5 billion gallons mandated 
under EPACT 2005 that constitutes a 10-year extension to the 
schedule provided for in that legislation.
    Implications of volume expansion of the program are not 
trivial. Development of substantial infrastructure capable of 
delivering, storing, and blending these volumes in new markets 
and expanding existing market capabilities will be needed. In 
addition, for the market to fully absorb the increased volumes 
of ethanol, as Mr. Karsner mentioned, new outlets for blends 
greater than E10 blends--that is, gasoline blended with 10 
percent ethanol, will be required. This can include, as 
referenced also by Mr. Karsner, E85 vehicles and utilization of 
that fuel. But second, EISA extended the RFS program which 
focus on gasoline to include both on-road and non-road gasoline 
and diesel fuel volumes. This is a significant change that may 
affect new parties, possibly including a number of small 
businesses that have not been regulated under the existing RFS 
program. Third, EISA created new requirements for total 
renewable fuel volumes in three new subcategories, each with 
their own required minimum volumes: advanced biofuels, biomass-
based diesel, and cellulosic fuels.
    The fuels industry will be required to demonstrate 
compliance with the four separate fuel standards. This will 
likely require obligated parties to forge new business 
relationships, contracts, and IT systems that will be needed to 
ensure compliance with the four standards.
    Importantly, EISA increases cellulosic mandate from 250 
million, under the previous RFS, to 1 billion gallons by 2013, 
with additional yearly increases up to a minimum of 16 billion 
gallons in 2022. The law also required in certain circumstances 
that the Agency make credits available for compliance with the 
new cellulosic mandate. EISA establishes, for the first time, 
minimum volume standards for biomass-based diesel fuel 
beginning in 2009, and ramping up to 1 billion gallons in 2012 
and thereafter.
    Fifth, new provisions that are included in EISA require the 
Agency to apply life cycle greenhouse gas performance threshold 
standards to each category of renewable fuel. The Agency, in 
coordination with DOE and USDA has done a substantial amount of 
work in life cycle analysis over the past year, and we've made 
significant advances. However, additional improved analysis 
will be necessary to implement the statute's life cycle GHG 
(Green House Gas) performance standards.
    Sixth, EISA adds a number of new provisions, including 
changing the definition of renewable fuel feedstocks in a 
fundamental manner. The new law limits crops and crop residues 
that can be used to produce renewable fuel. Developing 
appropriate and enforceable regulations addressing this 
provision will require extensive dialog with USDA, USDR, DOE, 
the agricultural community, renewable fuel producers, and 
others to better understand current practices and potential 
improvements to these practices.
    Finally, as required by Congress, we are reassessing the 
impacts of EISA and its renewable fuel program on vehicle 
emissions, air quality, greenhouse gasses, water quality, land 
use, and energy security. These analyses, along with previous 
requirements enacted in 2005, will provide important 
information to the public and Congress on the effectiveness of 
the new legislation.
    We will look forward to working closely with members of 
congress and our many stakeholders during this process. While 
this will be a challenging endeavor and time for the agencies, 
we are confident that together we can develop implementing 
regulation that enhance both energy and security in our 
environment. Thank you, Mr. Chairman, and I would be pleased to 
answer any questions.
    [The prepared statement of Mr. Meyers follows:]

  Prepared Statement of Robert J. Meyers, Principal Deputy Assistant 
 Administrator, Office of Air and Radiation, Environmental Protection 
                                 Agency

    Mr. Chairman and members of the committee, I appreciate the 
opportunity to come before you today to testify on implementation of 
the renewable fuel provisions of the recently enacted Energy 
Independence and Security Act of 2007 (EISA). The Act's aggressive new 
renewable fuel standards (RFS) will further our nation's goals of 
achieving energy security and reducing greenhouse gases by building on 
the successful RFS program established by the Energy Policy Act of 2005 
(EPACT 2005).
    Renewable fuels are a key element of a national strategy for 
addressing the challenge of global climate change. Through his ``Twenty 
in Ten'' initiative, the President has committed the United States to 
take the lead in reducing greenhouse gas emissions by pursuing new, 
quantifiable actions. Congress has agreed by approving new fuel and 
vehicle fuel economy standards as part of the Energy Independence and 
Security Act of 2007. These national standards will reduce greenhouse 
gases and improve our energy security. They recognize that climate 
change is a global problem and are part of the solution. The changes 
brought about by EISA will prevent billions of metric tons of 
greenhouse gases emissions into the atmosphere over the next several 
decades.
    The Environmental Protection Agency is responsible for implementing 
the RFS program, and we are proud of our success to date in working 
with stakeholders in industry, states and the environmental community 
to build an effective program for increasing the volumes of renewable 
fuel used by the transportation sector. Last April we issued final 
regulations for implementing the RFS Program under EPACT 2005. The 
Agency worked very closely with both our federal partners and 
stakeholders to develop broad and early support for the program. This 
program was successfully launched in September 2007, and we are pleased 
to say that the implementation process has been smooth and our 
stakeholders' feedback very positive. We believe our success is 
grounded on our close collaboration with stakeholders on the design and 
implementation of the program. The Agency continues to work with these 
parties to refine certain aspects of this program.
    Since EISA was signed into law on December 19, 2007, the Agency has 
been working diligently to review its provisions and develop 
regulations to implement the new RFS program established by that 
legislation. In this regard, our first and most pressing task is to 
issue a new renewable volume standard for 2008. The RFS program 
established by EPACT 2005 required 5.4 billion gallons of renewable 
fuel in 2008. The EISA legislation increases the standard to 9 billion 
gallons in 2008, with further yearly increases in mandated volumes 
resulting in 36 billion gallons being required in 2022. We expect a 
notice of this action to be published in the Federal Register soon.
    Looking beyond 2008, we continue our in-depth evaluation of all mid 
and long term actions required under the RFS provisions of EISA. While 
the RFS program established under EPACT 2005 provides a solid 
foundation from which to begin developing the new regulations, EISA 
includes new elements which add complexity to the program. As a result, 
the new EISA provisions require careful evaluation and considerable new 
analysis.
    In this new undertaking, the Agency intends to follow much of the 
same approach we used in developing the first RFS program. This 
includes obtaining critical input from our stakeholders early and 
throughout the rulemaking process. Using a collaborative approach will 
help the Agency gather important information quickly and facilitate 
EPA's development and promulgation of regulations to implement the 
legislative provisions enacted by Congress.
    While EPA will draw from its experience in developing the original 
RFS regulations, it is important to understand that EISA made a 
significant number of changes to the RFS program. First, as mentioned 
previously, EISA increases the total renewable fuel volumes mandated to 
36 billion gallons a year by 2022. This is nearly a five fold increase 
over the 7.5 billion gallons a year mandated under EPACT 2005 for 2012, 
and constitutes a 10-year extension of the schedule provided for in 
that legislation. EPA believes that the implications of the volume 
expansion of the program are not trivial. Development of infrastructure 
capable of delivering, storing and blending these volumes in new 
markets and expanding existing market capabilities will be needed. In 
addition, the market's absorption of increased volumes of ethanol will 
ultimately require new ``outlets'' beyond E10 blends (i.e., gasoline 
containing 10% ethanol by volume). A rule of thumb estimate is that E10 
blends, if used nationwide, would utilize approximately 15 billion 
gallons of ethanol. Accommodating approximately an additional 20 
billion gallons of ethanol-blended fuel is expected to require an 
expansion of the number of E85 vehicles and their utilization of E85 
and/or other actions.
    Second, beyond the significant increase in the volume mandate, EISA 
extended the RFS program to include both on-road and non-road gasoline 
and diesel fuel volumes. Under the regulations implementing EPACT 2005, 
RFS volume requirements were applied only to producers and importers of 
on-road gasoline. EISA's extension of this program to both onroad and 
non-road gasoline and diesel fuel volumes is a significant change that 
may affect new parties, including a number of small businesses that 
have not been regulated under this program in the past.
    Third, EISA has established new categories of renewable fuel. EPACT 
2005 established standards for two categories of renewable fuels: one 
standard for the total volume of renewable fuel; and a second standard 
for cellulosic ethanol requiring 250 million gallons beginning in 2013. 
EISA increased the number of renewable fuel categories and standards 
from the current two to a total of four, including total renewable fuel 
and three new categories within that, each with their own required 
volumes: advanced biofuels, biomass-based diesel and cellulosic fuels. 
Industry will be required to demonstrate compliance with the four 
separate fuel standards. This will likely require the obligated 
parties, produces and importers, to forge new business relationships 
and contracts that are necessary to guarantee their compliance with the 
new standards. Establishing the necessary systems to track and verify 
the production and distribution of these fuels and demonstrate 
compliance with four separate standards will also require sufficient 
lead time to design and implement these new tracking systems. As in the 
current program under EPACT 2005, some parties may not be able to 
comply by blending the renewable fuels, and thus may need to purchase 
or trade credits for the appropriate number and category of fuels to 
satisfy their volume obligations. It will be very important to conduct 
effective outreach with these parties to help with implementation 
issues.
    As part of its restructuring of the renewable fuel mandate, EISA 
increased the cellulosic mandate from 250 million to 1.0 billion 
gallons by 2013, with additional yearly increases to 16 billion gallons 
in 2022, and provided a new definition of this fuel. Implementing these 
requirements will entail additional work by EPA as it develops its 
upcoming regulation. For example, the Act authorizes EPA to set a 
cellulosic standard lower than that established in the law, however it 
requires in this circumstance that the Agency also make credits 
available for compliance purposes and provides instructions on how to 
establish a specific price for these credits. The Agency will therefore 
need to address several critical issues, such as how many credits will 
be generated, to whom they will be available, the extent to which they 
can be traded, and what the life of the credit will be.
    EISA also established for the first time minimum volume standards 
for biomass based diesel fuel. These standards begin in 2009 at a half 
billion gallons and ramp up to one billion gallons per year in 2012 and 
there after. To qualify as biomass based diesel, the renewable fuel 
portion of the biodiesel blend must result in greenhouse gas emissions 
that are at least 50 percent lower than the baseline GHG emissions for 
petroleum based diesel fuel.
    Fourth, new provisions were included in EISA requiring the Agency 
to apply lifecycle greenhouse gas (GHG) performance threshold standards 
to each category of renewable fuel. The Agency has done a substantial 
amount of work on lifecycle analysis over the past year, and has made 
significant advances, honing the overall methodology, updating data 
inputs and including new inputs for land use, in particular from corn 
production. However, even with these advances, additional new and 
improved analyses will be necessary to implement the statute's 
lifecycle GHG performance standards. Given our experience in this area 
and the statute's utilization of lifecycle GHG performance standards as 
part of the definitions of different renewable fuels mandated in the 
Act, we would anticipate extensive comment from all stakeholders on 
both lifecycle analysis inputs and methodology. In addition, certain of 
the requirements in EISA pertain only to renewable fuel production 
facilities that commence construction after the bill was passed. EPA 
will need to carefully consider how the terms in this new provision 
should be interpreted and defined in the context of the new law.
    Fifth, EISA added a number of other new provisions, including 
changing the definition of renewable fuel feedstocks in a fundamental 
manner. The new law limits the crops and crop residues used to produce 
renewable fuel to those grown on land cleared or cultivated at any time 
prior to enactment of EISA, that is either actively managed or fallow, 
and non-forested. Developing appropriate and enforceable regulations 
addressing this provision will require extensive dialogue with USDA, 
USTR, the agricultural community and renewable fuel producers to better 
understand current practices and changes in practices that can be 
developed, implemented and enforced consistent with our international 
obligations.
    Finally, in support of the rulemaking we will be assessing the many 
impacts of the EISA renewable fuel program on emissions and air 
quality, including greenhouse gases, water quality, land use, the 
economy, and energy security. These analyses will provide important 
information to the public and Congress on the many anticipated impacts 
of the new legislation.
    In closing, the Agency is moving forward with the development of 
regulations implementing the new RFS provisions and is utilizing the 
successful approach we employed in developing the implementing 
regulations for the original RFS program. We look forward to working 
closely with members of Congress and our many other stakeholders during 
this process. We are confident that together we can develop 
implementing regulations that enhance both our energy security and our 
environment.
    Thank you, Mr. Chairman, and the members of the committee for this 
opportunity. This concludes my prepared statement. I would be pleased 
to answer any questions that you may have.

    The Chairman. Thank you, both, very much. Let me start with 
a few questions. I mentioned in the opening statement a couple 
of the concerns that have caused us to have this hearing. One 
is this issue about whether or not the early year requirements 
are too aggressive, and whether or not the infrastructure is 
there to get this renewable fuel actually blended and into the 
fuel supply as required.
    Is this something, Mr. Meyers, is this a concern that you 
have? Or am I the only one on the planet that worries about 
that?
    Mr. Meyers. I don't think, Senator, you're the only one 
who's been worried about this. It is a concern. It is a 
challenge, as I think I mentioned. I think it's important to 
understand that the actual blending levels under the previous 
act, under EPACT 2005, has exceeded what was required in the 
law. So there is a ramp up in 2008, but it's not from a 5.4 to 
a 9.0, although that's what the law requires. It's from a 
higher level than 5.4. I don't have the exact figure, but 
perhaps somewhere in the range of 7.
    There will be challenges. We went through transitions 
before in the fuel system. One of the transitions we had was 
when we phased out MTBE. It was phased out voluntarily by the 
industries back in 2005 and 2006. There were some circumstances 
where there was some small fuel disruptions, but that 
transition went all right. We'll be working to analyze it under 
our legislation and in the proposal that will be coming out on 
the regulations, and we'll work again with DOE and others on 
this matter as we go forward.
    The Chairman. Let me ask about the regulations. You're 
required to have those in place--What? By the end of this year? 
Is that right?
    Mr. Meyers. The Act, I think, requires within 1 year for 
the broad regulations. There are some other statutory 
deadlines, also.
    The Chairman. OK. Do you see any problem in getting those 
regulations out and under the timeframe that's called for in 
the legislation?
    Mr. Meyers. It will be very challenging. It's not a long 
period of time for rulemaking of this size.
    The Chairman. One of the issues that's concerned me is that 
we don't really have just a RFS; we've got four, as I 
understand this legislation. You're going to have to administer 
all four of those, as I understand it. How do you envision the 
carve-out mandates, each of these four, being implemented? Will 
each of the mandates simply be apportioned to an obligated 
party? A party that's obligated to comply with this, as is the 
case with the current RFS, so that each obligated party will 
have a renewable fuel blending requirement, and an advanced 
biofuel requirement, and a cellulosic biofuel requirement, and 
a biomass-based diesel requirement?
    Mr. Meyers. Those are very good questions, Mr. Chairman, 
and those are some of the issues we're looking at right now. 
Obviously, I think we can build off the EPACT 2005 legislation, 
and implementing regulations for that. But as you point out, 
there are four separate fuel standards required here. We have 
implemented RFS through essentially RINs renewable numbers that 
are used for tracking purposes.
    But we will have some fundamental issues in terms of 
figuring out who is an obligated party under the legislation, 
how that obligation will be met, and the transparent and 
enforceable system to do that. As I said, I think it will be a 
challenge.
    The Chairman. Let me ask you, Mr. Karsner. I think in your 
written testimony, you make reference to Range Fuels, a 
cellulosic ethanol plant, which is under construction at this 
point, as I understand it, down in Georgia. Could you comment 
on whether the cellulosic ethanol that's produced from that 
facility would count toward the RFS, as you understand it?
    Mr. Karsner. It's difficult to comment, because the RFS 
would ultimately depend on how the rule comes out. But it is my 
understanding that any of the cellulosic ethanol produced from 
the Department-supported projects, theoretically, should 
qualify, unless there's something I'm missing in law. By 
volume, they won't be quantitatively significant in achieving 
those targets. So these plants that are demonstration plants 
are really meant to be qualitative models to replicate and 
scale, rather than major volumetric additions to satisfy the 
targets.
    The Chairman. OK. Did you have any thought on that, Mr. 
Meyers, as to whether in your reading of the law, whether the 
type of production that is contemplated down at range fuels 
with that feedstock would qualify?
    Mr. Meyers. I wouldn't offer a definitive opinion at this 
point in time. We have a lot of new legislative language that 
the Agency will need to interpret and seek public comment, and 
notice some comment on. So I think it will be awhile before we 
specifically are able to answer some of those questions.
    The Chairman. OK. I think my time's up. Let me defer to 
Senator Domenici.
    Senator Domenici. Mr. Chairman, let me just say that it's 
obvious to me that these two witnesses are trying to be very 
helpful. But at the same time, they don't seem to be able to 
give forthright, strong answers as to how we're going to 
achieve what we thought we were ordering done, because we're 
either asking too much or the timetables are too severe. I'm 
rather confused. I guess I would just like to ask a general 
question of you.
    A statute came into being. We're not going to discuss how 
it happened. It clearly wasn't written in this committee. It 
was written elsewhere, but it became law. We're here because 
the chairman and the staff that have been following it think 
that there are some big problems in implementing the law as it 
is written.
    So here we are, heralding these great achievements, and 
they're all based on these statutes and it seems to me you're 
having difficulty figuring out whether they're going to work in 
a timely manner, and what the definitions mean in certain 
aspects. Am I correct? Or maybe let me put it this way. Do you 
think that what's on the books is going to work?
    Or are we going to have to modify it to reach the goals 
that are obviously very, very prominent goals, and, if 
achieved, would do a fantastic job for America in terms of 
transportation fuels? Could you start with just that simple 
question, Mr. Karsner?
    Mr. Karsner. Yes, sir. And I think you hit the heart of the 
matter. Today's hearing is for the right reasons. How do we 
optimize the efficiency of implementation for what are broadly 
accepted bipartisan objectives for the Nation's displaced oil 
and carbon emissions? So, as well as how the chairman laid them 
out, three major points that require attention are the 
infrastructure and retail distribution challenges--not just on 
the retail side, at the pumps and in the cars, but also on the 
input of scaling the feedstock inputs for these type of 
cellulosic volumes.
    As you know, the original legislation, as was proposed and 
discussed in this committee, was far more technology-neutral. 
It was basically anything that competed with gasoline. So the 
more narrow and prescriptive that we get, obviously, the more 
we handicap our probability of achieving the top-line 
objective.
    Then, there is the question of the restrictions. For 
example, on feedstock inputs for woody biomass, or how we more 
acutely carve out the need to protect old-growth forest, but at 
the same access resources that have been identified in the 
Billion Ton Study on Federal lands. So there are technical 
corrections that certainly would optimize the efficiency 
pathways, and remove technical impediments. As for the 
regulatory side and actually standing up the implementation, 
I'd defer to----
    Senator Domenici. Before you go to him, let me follow up. 
Are these shortcomings that you have just described to us, are 
they bad enough that we ought to consider modifications now to 
the law that you're trying to implement?
    Mr. Karsner. I certainly think it would be worthwhile, now 
that we've had a chance to digest the legislation, to get 
together with the members of the committee and offer these 
technical comments and assess what those impacts and tradeoffs 
would be. I think that there are things that have to be paid 
attention to, beyond ethanol and alternative and renewable fuel 
production alone.
    It is a holistic supply chain issue. It is a challenge as 
we move forward to scale this and transition and transform the 
fuel mix, and it would be a worthwhile exercise to explore 
those technical corrections.
    Senator Domenici. Do you feel the same way, Mr. Meyers?
    Mr. Meyers. I would not venture opinion with regard to any 
particular technical amendments or anything of that stage at 
this point in time. But I would say that we would be happy to 
work with the committee as we further analyze the legislation 
and go forward here. But it should also be understood, while 
there are four separate mandates, there are also provisions 
which we also need to interpret, which effectively constitute 
off ramps. We have different waiver provisions that are 
existent within the legislation, as well as standing waiver 
authority that exists outside of the specific Act.
    So I would say that we would have to look at the whole of 
what Congress enacted before being able to render an opinion as 
to achievability or workability.
    Senator Domenici. Let me tell you, I don't think matters 
get better when you start off with them being somewhat 
difficult, and interpretations don't seem to resonate. They 
don't get better in a market this big. We're not playing with 
marbles. I mean, this is a gigantic expectation on the part of 
the American people, and on the part of an industry. If we 
don't know what we're doing, we'll muddle around and there'll 
be excuses out there in the marketplace as to why things 
weren't done.
    What bothers me, is that people will say we couldn't get 
where we're supposed to because--and I think the chairman will 
agree. Although this sounds like a technical hearing, and it's 
very early, I think that it's pretty obvious that a lot of good 
administrative people are going to have to get together and 
resolve this in some way that would be extraordinary, from my 
observation of the various agencies that are in conflict here. 
Or we'll have to end up changing things. Thank you, Mr. 
Chairman. I yield now.
    The Chairman. Senator Johnson.
    Senator Johnson. Yes. Thank you, Mr. Chairman. Mr. Meyers, 
the ethanol production is quickly approaching the maximum 
market demand for E10. Can you tell me when we can expect the 
administration to be ready to approve higher volumes of 
ethanol, since it's E20? What is the Administration's 
timetable?
    Mr. Meyers. Senator, we have been working closely with the 
Department of Energy, the State of Minnesota, and others to 
assess intermediate blends or blends above E10. As you rightly 
note, it is a rule of thumb or something along that line, but 
on a national level, E10 blends are around 15 billion gallons 
in terms of what could be taken in current levels of gasoline 
usage.
    So the issue is a very important one. There are a number of 
technical analyses, though, that need to be accomplished. As 
the Environmental Protection Agency, our mandate is to look at 
the different motor fuel blends, look at their performance 
within the vehicle, and the performance within emission control 
systems. Here, I would mention we're not necessarily just 
talking about cars.
    We also have other equipment, obviously, down to 
lawnmowers, gasoline-powered lawnmowers, and other handheld 
equipment that we have to be conscious of the effect of 
something other than E10 or higher ethanol blends. So I would 
say we're working with the state that's interested, we're 
working with DOE, and we'll continue to work expeditiously to 
review this matter.
    Senator Johnson. What is your timetable, if any, to draw 
conclusions?
    Mr. Meyers. There are a number of engines and engine 
systems, fuel systems, that have to be considered. When fuel is 
essentially considered to be legal to use in a fuel motor 
vehicle, our responsibility is not only to the environment, but 
I think there are a number of other issues that are looked at 
in terms of the integrity of the motor vehicle, the fuel 
system, as well as the other off-road equipment.
    So that type of analysis, that type of detailed analysis, 
is necessary. Again, I think DOE has been very helpful in 
funding and working with us on this, as well as some private 
parties in the state. But it does require very intensive 
outreach effort to all the stakeholders who are involved--not 
only the fuel producers, but also the equipment manufacturers 
and vehicle manufacturers and others. It's unfortunately a 
very, I guess, data-intensive technical process.
    Senator Johnson. So, in short, there is no timetable.
    Mr. Meyers. I cannot offer you a timetable at this point in 
time. The law, of course, was changed in EISA, in terms of 
section 211(f), which was the basic authority with regard to 
review of waiver requests. Once we would have a request, the 
current law requires 270 days for a decision to be made.
    Senator Johnson. I'll submit other questions. Thank you.
    The Chairman. Thank you. Let me ask a few other questions 
here. Mr. Meyers, I've been concerned also about the 
functioning of the credit market for RINs. As I understand the 
subject of RINs, it stands for Renewable Identification 
Numbers. Is that right?
    Mr. Meyers. That's correct, Mr. Chairman.
    The Chairman. There exists today a market for RINs, but how 
does EPA anticipate this new mandate will affect the RINs 
market, and how can we prevent that market for these credits 
from being manipulated?
    Mr. Meyers. Very good questions. I think, under the 2005 
Act, where we have a situation where actual blending of ethanol 
exceeded the mandate, we were able to, I think, pioneer and get 
the RINs up in place, but we haven't seen the market dynamics 
that will occur under the new law, where you have the 
propensity here for the mandate to more readily drive the 
market than vice versa, as under the current situation.
    You've mentioned earlier the complication of four different 
fuels. There will be necessary tracking required there. Then, I 
think the other complication is with respect to the new players 
and the possibility of newer obligated parties from those that 
are obligated under the current law. They will need to get up 
to speed. So I don't want to minimize the task. I think you're 
right to say it will be a much more complex system than we have 
right now. I think that's evident.
    We're trying to reach out to the stakeholder community. We 
had some meetings a couple of weeks ago to start that process. 
That's our desire, is to continue the process to try to design 
the program around existing market mechanisms to the degree we 
can.
    The Chairman. Do you have any thoughts on that, Mr. 
Karsner?
    Mr. Karsner. With regard to the credits, themselves?
    The Chairman. Yes.
    Mr. Karsner. Of course, we don't administer them at DOE. 
The only thought I would add to that is that the original 
alternative fuel standard that was proposed and discussed in 
the committee supported tradable credits going forward; 
whereas, the existing legislation is relatively silent on that. 
So it is one of those areas that one would look at, in terms of 
the enforcement mechanisms, as the rule progresses.
    The Chairman. Let me ask about one other issue. We set 
these various greenhouse gas reduction targets in the 
legislation. Then we call on EPA to determine whether people 
meet those, not just by reference to direct emissions, but by 
reference to indirect emissions, as well. That's not something 
that I'm aware that EPA has been doing to a great extent. Am I 
right that this is another additional complication? Or do you 
folks have this one well under control?
    Mr. Meyers. You're absolutely correct, Mr. Chairman. This 
is a new legal requirement under the Act. We have specific 
language defining life cycle greenhouse gas emissions and 
legislation. As you noted, it will serve for production from 
new facilities and will serve as a threshold for qualifying the 
fuel as meeting any of the four definitions within the bill.
    We have not used this in a regulatory context. We have done 
extensive work, again, using some of the DOE's work product and 
modeling on the matter of life cycle analysis, generally, so we 
have some experience in this area. We have not applied any 
regulatory context, which will be required in this bill.
    The Chairman. You don't have any preliminary thoughts as to 
whether or not the reduction requirements that we're talking 
about here can be achieved with a new ethanol plant, for 
example, when you factor in these indirect emissions?
    Mr. Meyers. The threshold question you're asking, Mr. 
Chairman, is what are the indirect emissions and how we would 
quantify, I guess, versus--I'm sorry. Let me be more specific. 
How we would both identify what they are, and then quantify 
them on a net basis, with respect to the other life cycle 
factors that we have to take into account. That will be new.
    We are looking at the legislation now. It's approximately 6 
or 7 weeks old, so we haven't gotten to the stage where we will 
venture to say what we will be proposing. But we will work 
again with the stakeholder community on this issue. It's 
complicated. There are a number of factors. But we have to 
identify both direct and indirect, and then come up with an 
empirical basis to use them for the thresholds.
    The Chairman. All right. That's the extent of my questions 
for this panel. Senator Craig, you haven't had a chance to ask 
questions of this panel. Did you want to pose some questions to 
them, or wait for the second panel?
    Senator Craig. Uno momento.
    Senator Domenici. I think he's too late.
    [Laughter.]
    The Chairman. Now, now. Your ranking member thinks you're 
too late.
    Senator Domenici. No. I think I should ask before him, 
because he's so late. We'll start a second round here. Go 
ahead.
    Senator Craig. Mr. Chairman, Pete was uptight about 
lateness yesterday, weren't you?
    Senator Domenici. It hasn't gone away.
    [Laughter.]
    Senator Craig. So I noticed. I apologize, but I was 
attending the prayer breakfast for all of you guys. All right, 
all right.
    [Laughter.]
    Senator Domenici. That's your excuse?
    Senator Craig. That's as good as it gets.
    Senator Domenici. I had a table and didn't go, so I'm very 
bad.
    Senator Craig. Thank you all very much. I will read your 
testimony. These are issues that we're greatly concerned about. 
I must say at the outset, Mr. Chairman, I am glad that what was 
written in this committee that got changed in the house that 
gave us jurisdiction over these key issues, you're holding 
hearings on and reasserting some of that, and I appreciate 
that.
    I guess my question is, the RFS as it is currently written 
excludes woody biomass from Federal lands. Has that question 
been discussed or asked?
    Senator Johnson. No.
    Senator Craig. All right. Will this affect the availability 
of viable feedstock? That would be the first question. If so, 
what impact does this have on the ability to meet the yearly 
RFS volumes?
    Mr. Karsner. If I may, Senator?
    Senator Craig. Please.
    Mr. Karsner. It would have an impact. I don't know that we 
could quantify it on an annual basis as to what the precise 
impact would be yearly. I suppose because we know it would have 
an impact by fundamentally eliminating about 24 percent of the 
forest feedstock supply that has been identified in the Billion 
Ton Study----
    Senator Craig. Yes.
    Mr. Karsner. In other words, you tie your hands for a 
quarter of the available forest feedstock supply. It's obvious 
it'll have an impact, if not on the availability of supply, 
certainly on the availability of the pricing of the supply. So 
we would view that as a deficiency that requires attention and 
potential technical correction. In other words, as we move to 
erode our addiction to oil, it shouldn't be our first move out 
of the shoot to tie our hands when we do it.
    Senator Craig. Yes, it is an omission. It got taken out. 
There were some of us worked to get it in, and see that as an 
important part. We can obviously control the supply or access, 
but there is a huge supply out there. We've learned about 2 
million acres in my State last year, and not through the right 
processes.
    Mr. Meyers, what can you tell me about the waiver language, 
if available biofuels are not ready to meet our requirements? 
Has that been asked? OK. Thank you.
    Mr. Meyers. We have talked a little bit about the waivers 
as potential off ramps here. I guess the first thing I would 
say is that there is existing waiver authority that the Agency 
has by virtue of EPACT 2005. Additional waiver authorities are 
also supplied within the context here. I think the prime one 
people would probably focus on would be with respect to 
cellulosic biofuel.
    Senator Craig. Exactly. The volumes there that we've 
dedicated to that category.
    Mr. Meyers. Yes. We are in the process of looking at the 
waiver authority, as you know, with respect to cellulosic. 
There's also a safety valve that's triggered, prospectively, 
with respect to projected volumes and in cases where the 
projected volume would be below the statutory required level.
    So I think my general answer would be it's too early for us 
to really definitively tell you our direction on these new 
authorities, but I think that our goal would be so that the 
whole regulatory system would work together, as a whole. That's 
probably not a completely satisfactory response, but I said at 
the onset this would be a challenging task. It's a complicated 
piece of legislation, and my statements, I think, reflect that.
    Senator Craig. Thank you. Gentlemen, thank you. Mr. 
Chairman, let me comment as this panel leaves, I hope our 
agencies involved in this can lead instead of follow. I think a 
good many of us have put a substantial amount of interest, and 
I think our country is showing a substantial amount of interest 
in these opportunities that will make us greatly more 
independent as a Nation, as it relates to certain types of 
energy supply.
    If we have to wait for lag time because of an Agency's 
inability to lead us, stay in advance of this instead of 
follow, that only hurts the consumer, and it hurts the, I 
think, the viability of our country as it relates to energy 
supply. So thank you, all. We'll work to get this right.
    The Chairman. All right. Thank you, both, very much. We 
appreciate your testimony, and we will continue to communicate 
with you on how we proceed. Let me call the second panel 
forward.
    On the second panel, we have Carol Werner, who is the 
Executive Director of Environmental and Energy Study Institute 
here in Washington; Michael McAdams, who is the Executive 
Director of the Advanced Biofuels Coalition; Brian Jennings, 
who is the Executive Vice President of the American Coalition 
for Ethanol. There are two others. Charlie Drevna, President of 
the National Petrochemical and Refiners Association; and Bob 
Dinneen, who is President and CEO of the Renewable Fuels 
Association.
    OK. Why don't we go ahead? Why don't we start with Ms. 
Werner, and then go right across the table here? If each of you 
could take 5 or 6 minutes and summarize the main points that 
you think we ought to understand, we very much appreciate your 
willingness to be here. Senator Johnson, did you have a 
comment?
    Senator Johnson. Just to introduce Mr. Brian Jennings, he's 
a South Dakotan, and he's a former staffer of mine. Welcome, 
Brian.
    The Chairman. We are glad to have him here, and appreciate 
your introduction of him. Ms. Werner, why don't we start with 
you? You go right ahead.

 STATEMENT OF CAROL WERNER, EXECUTIVE DIRECTOR, ENVIRONMENTAL 
                   AND ENERGY STUDY INSTITUTE

    Ms. Werner. Thank you very much, Mr. Chairman, and members 
of the committee for inviting me to be here with you this 
morning to talk about this very important issue of a renewable 
fuel standard, which we see as a really critical piece of 
helping us to address climate change in our overall energy 
picture. We also want to congratulate you upon the passage of 
the energy bill, which was no small accomplishment, indeed.
    Our organization is an independent nonprofit organization 
that was founded by bipartisan congressional caucus in the mid-
1980s. Members of our board come from an interdisciplinary 
background, in terms of academia, the private and public 
sector. Our board is currently chaired by Dick Ottinger, who is 
a former Member of Congress, and was the former chair of the 
Energy and Power subcommittee on the House side.
    We wanted to express our appreciation for the leadership 
that you, through the committee, Mr. Chairman, have also taken 
with regard to climate change and in recognition of the fourth 
assessment of the intergovernmental panel on climate change, 
and in terms of the recognition now of the critical nature of 
this issue and the need to move forward.
    We recognize that renewable biomass energy technologies are 
a critical tool in the effort to reduce national transportation 
emissions coming from greenhouse emissions, and that renewable 
fuels are especially attractive as a low- and no-carbon 
alternative, uh, non-petroleum-based fuel. Therefore, the RFS 
is aggressive and ambitious, and we think that it is definitely 
doable.
    It includes cradle-to-grave life cycle analysis as part of 
its structure. This analysis also includes direct and indirect. 
We want to say that our organization supports having a 
greenhouse gas screen. After all, without having some sort of a 
greenhouse screen, how can we guarantee that we're really 
accomplishing a very important goal of the RFS, which is to 
make sure that we really reduce greenhouse gas emissions?
    So these aren't easy to satisfy, but there have been 
numerous reports that have been clear that we can really reduce 
emissions dramatically, reports by the Union of Concerned 
Scientists, and many other organizations around the country. 
But this only tells part of the story, since the RFS that was 
passed into law also requires looking at indirect. That poses 
additional issues that will make it very, very difficult. We 
would suggest that while it is important to look at these 
issues--because, after all, a ton of carbon is a ton of 
carbon--and we really do need to be about reducing carbon 
emissions.
    However, because it will be difficult, and while we're 
going through the process of trying to better ascertain and 
understand what happens with regard to the indirect, it really 
makes it critical that the kind of renewable biomass that we 
use, that our definition to be as flexible as possible, to make 
sure that we are really utilizing the renewable biomass 
resources that are truly available.
    That also includes dedicated energy crops, grasses, algae, 
a variety of things that were listed in the bill, including 
urban wood debris, agriculture, forestry, biomass from 
livestock production, and including, unfortunately, also the 
debris coming out of the disasters that we've had to recently, 
in terms of hurricanes and the awful tornadoes from the other 
night.
    Key things that I want to mention then, that if we are 
really going to be serious with regard to dealing with meeting 
these emission criteria and looking at the definition, a huge 
exclusion that we think creates a problem, that we really need 
to be looking at wastes and residues, that indeed those are the 
ways in which we wouldn't have any indirect land use impacts 
from those, in terms of the definitions that are included, and 
therefore, there is an enormous amount of this kind of biomass 
that is available.
    The definition in the law currently excludes woody biomass 
coming from public lands. We think this should be redressed, 
and that there is a huge amount of this kind of resource 
available. There are many, many analyses and reports coming 
out, from whether it's the Western Governor's Association, 
Oregon Environmental Council, many, many reports that have 
indicated the significance of this resource, and that it should 
be included. It is important in terms of thinking about the 
thinning of forests, in terms of dealing with catastrophic 
wildfire prevention, in terms of, indeed, sustainable forestry 
management, and that it would be important to ensure that we 
truly are looking at this as an important resource. 
Sustainability is key, and we feel that this is an important 
part of ensuring that we indeed to have sustainable forestry 
management, and also have a workable RFS. Thank you.
    [The prepared statement of Ms. Werner follows:]

 Prepared Statement of Carol Werner, Executive Director, Environmental 
                       and Energy Study Institute

    Mr. Chairman and Members of the committee, thank you for the 
opportunity to testify here today on behalf of my organization, the 
Environmental and Energy Study Institute (EESI), about the Renewable 
Fuels Standard, which we view as a very important tool in our mutual 
efforts to address climate change and energy and economic security. We 
congratulate you upon the passage of the Energy Independence and 
Security Act of 2007 (P.L. 110-140)--no small accomplishment. EESI is 
an independent non-profit organization founded by a bi-partisan 
Congressional caucus in 1984 to provide policymakers with reliable 
information on energy and environmental issues, to help develop 
consensus among a broad base of constituencies and to work for 
innovative policy solutions. Our Board is interdisciplinary and is 
drawn from academia as well as the public and private sectors, 
including Dr. Rosina Bierbaum, Dean, School of Natural Resources and 
the Environment, University of Michigan, and Amb. Richard Benedick, who 
was a lead US negotiator of the Montreal Protocol. Our Board is chaired 
by Richard L. Ottinger of New York, a former chair of the House Energy 
& Power Subcommittee and the Dean Emeritus of Pace University Law 
School.
    EESI began its Energy & Climate Program in late 1987 to focus on 
the nexus between energy and global climate change--the most serious 
challenge facing the world today. Evidence of existing climate change 
impacts is staggering and alarming new ramifications of global warming 
are reported weekly. While skepticism about the reality of climate 
change has waned, agreement on the policy approach, technologies of 
preference, and time frame are still very much in debate--with no clear 
consensus yet emerging. We are faced with a very dynamic and exciting 
opportunity for creating significant change. Energy, both as a security 
and (now more prominently) as a climate issue, is on top of the 
national policy agenda. Indeed, we want to especially thank you, Mr. 
Chairman, for the leadership you have taken on climate issues in the 
Senate, the holding of many hearings and the introduction and 
sponsorship of climate legislation in the Senate. We now have 
candidates for the Presidency who have outlined for voters what they 
plan to do to address climate change and energy (security and price). 
More than 780 US mayors have signed a Climate Protection Statement, and 
numerous Governors of both parties have taken strong leadership 
positions addressing climate change. As evidence of climate change 
builds, the pressure to become `green' or sustainable has become a 
driving force not only in politics but in the economy. Multinational 
corporations and many others in the private sector, including many 
energy companies, have emerged as interested players in renewable 
energy and energy efficiency (RE/EE) technologies as a way to combat 
climate change and increase their bottom line. Biomass-to-energy 
technologies, such as biofuels, clearly have been recognized by the 
federal and many state governments, corporations and investors as a 
renewable energy technology that is a critical component of a climate 
change mitigation strategy.
    According to the 4th Assessment Report of the Intergovernmental 
Panel on Climate Change (IPCC)\1\, the increase in concentration of 
greenhouse gases since the pre-industrial era is due primarily to human 
activities, especially the extraction and combustion of fossil fuels. 
The report specifically concludes that the ``global net effect of human 
activities since 1750 has been one of warming''.
---------------------------------------------------------------------------
    \1\ IPCC, 2007: Summary for Policymakers. In: Climate Change 2007: 
The Physical Science Basis. Contribution of Working Group 1 to the 
Fourth Assessment Report of the Intergovernmental Panel on Climate 
Change [Solomon, S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. 
Averyt, M.Tignor and H.L.Miller (eds.)]. Cambridge University Press, 
Cambridge, United Kingdom and New York, NY, USA.
---------------------------------------------------------------------------
    According to the U.S. Environmental Protection Agency (EPA) 
inventory of greenhouse gas emissions\2\, the U.S. emitted a total of 
7,260.4 Tg CO2-eq/yr in 2005, an increase of 16.3% from 1990 
emissions, 23% of these emissions (1669.9 Tg CO2-eq/yr) were 
from petroleum-based transportation fuels.
---------------------------------------------------------------------------
    \2\ U.S. Environmental Protection Agency. Inventory of U.S. 
Greenhouse Gas Emissions and Sinks: 1990-2005. 15 April 2007.
---------------------------------------------------------------------------
    Renewable biomass energy technologies will be a critical tool in 
the effort to reduce our national transportation emissions. Renewable 
fuels are especially attractive as a low-or no-carbon alternative to 
petroleum-based fuels. The technology is sustainable, rapid to 
implement, and available across the entire United States. By utilizing 
the renewable biomass resources from America's farms, forests, and open 
spaces, we have the potential to lower our greenhouse gas emissions, 
increase energy security and stimulate economic development in rural 
communities. Renewable fuels from biomass feedstocks (coupled with 
increased fuel efficiency, plug-in hybrids, and similar technologies) 
provide the most immediate means to begin dealing with the 23% of U.S. 
emissions associated with petroleum transportation fuels.
    On December 19, 2007 the President signed the Energy Independence 
and Security Act which substantially increases the Renewable Fuel 
Standard, calling for the production by 2022 of 36 billion gallons of 
renewable fuels--defined as fuels derived from renewable biomass that 
achieve at least a 20% reduction (for all new facilities) in greenhouse 
gas emissions relative to gasoline or diesel, as determined by a 
``cradle-to-grave'' life-cycle analysis that includes direct and 
indirect greenhouse gas emissions. Within the 36 billion gallon 
mandate, 21 billion gallons must come from advanced biofuels--those 
derived from biomass other than corn starch that achieve at least a 50% 
reduction in greenhouse gas emissions. There are further carve-outs 
within these 21 billion gallons biomass-derived diesel fuels and 
cellulosic fuels (which must meet a 60% reduction in emissions).
    This is an aggressive and ambitious RFS. It is laudable, but it 
stirs up a lot of difficult issues regarding the sustainability of 
biofuels in general. Among these issues are some fundamental 
agriculture issues, including competition for land and natural resource 
protection. The competition for land is a complicated issue that stems 
from the perceived differences between growing crops for food, feed, 
fiber and now fuel. Unquestionably, the production of renewable fuels 
needs to be done in a way which enhances natural resources, including 
soils, water supply and native habitats. Production of renewable 
feedstocks should not be deemed to be in competition with the goals of 
sustainable agriculture. In fact, the opportunity for renewable energy 
production to aid conservation efforts and environmental sustainability 
is much greater compared with conventional agriculture and fossil fuel 
production and consumption. In addition to these sustainability and 
agricultural concerns, the indirect emissions of greenhouse gases from 
deforestation and environmental degradation can negate the emissions 
savings in using renewable fuels.
    EESI strongly supports the existing greenhouse gas screens. After 
all, without them we have no guarantee that the RFS will be able to 
accomplish one of its most fundamental purposes--the reduction of 
climate change-inducing greenhouse gas emissions from transportation 
fuels.
    These emissions screens are not easy to satisfy, but they are 
certainly possible to meet. One of the biggest factors in whether or 
not a given renewable fuel will meet the screens is the choice of 
feedstocks that go into the fuel. A report by the Union of Concerned 
Scientists (UCS) reinforces the widely-accepted average direct life-
cycle emissions reductions (compared to gasoline) of 20% for ethanol 
from corn starch and 80% for cellulosic ethanol.\3\ These statistics 
immediately suggest two things--A) that the emissions screens in the 
current RFS can be met and B) that cellulosic fuels have the potential 
to dramatically reduce our greenhouse emissions compared to either 
gasoline or corn-starch ethanol.
---------------------------------------------------------------------------
    \3\ Union of Concerned Scientists. Biofuels: An Important Part of a 
Low-Carbon Diet.
---------------------------------------------------------------------------
    The importance of cellulosic renewable fuels to the future of the 
United States has been hailed by many policymakers from across the 
country, including the President. Cellulosic biofuels can be produced 
from a highly diverse array of feedstocks, allowing every region of the 
country to be a potential producer of this fuel. (Cellulose is found in 
all plant/organic matter.) As a result, support for cellulosic fuels 
has brought together a broad array of constituents including 
environmentalists, farmers, national security experts, industry, and 
religious leaders.
    Depending on choice of feedstock and agricultural practices, some 
cellulosic renewable fuels have the potential to substantially exceed 
the average 80% emission reduction found by UCS. A 5-yr field study 
jointly undertaken by the USDA Agricultural Research Service (ARS) and 
the University of Nebraska found a 94% reduction in direct life-cycle 
greenhouse emissions from switchgrass-based ethanol compared to 
gasoline\4\.
---------------------------------------------------------------------------
    \4\ Schmer, M.R., K.P. Vogel, R.B. Mitchell, and R.K. Perrin, 2008. 
Net energy of cellulosic ethanol from switchgrass. Proceedings of the 
National Academy of Sciences. 105(2): 464-469.
---------------------------------------------------------------------------
    These numbers only tell part of the story, however, in that they 
take into account only the direct life-cycle emissions of these fuels: 
the emissions associated with growing, harvesting, storing, and 
transporting the feedstock, as well as the emissions associated with 
producing the fuel itself. Included among these direct emissions are 
emissions associated with direct land changes--e.g. the clearing of 
forest or native grassland to grow the feedstock. The RFS explicitly 
includes `significant indirect land use emissions' in its GHG screens, 
however. These are the emissions associated with agricultural expansion 
in another location (either in the U.S. or abroad) directly resulting 
from the increased demand for agricultural products caused by shifting 
domestic farmland from food to fuel production--e.g. Reallocation of 
vegetable oils from cooking oil to biodiesel that results in the 
clearing of Indonesian rainforest to make way for palm oil plantations 
to fill cooking oil demand.
    EESI supports the inclusion of indirect land use effects in the 
definition of `lifecycle greenhouse gas emissions.' A ton of carbon is 
a ton of carbon, whether it is produced directly as a result of the 
production process or indirectly as a result of market effects. If we 
do not include these effects in the calculation of life-cycle 
emissions, we cannot know whether the emissions profile of a given 
renewable fuel is better or worse than an equivalent petroleum-based 
fuel. Without this information, we cannot be certain that the RFS will 
succeed in reducing our transportation emissions.
    Since it is essential to include indirect greenhouse gas emissions, 
then, that leaves a very serious problem. It is unclear how to 
calculate these important numbers. A number of individuals have 
investigated the problem and the consensus seems to be that data and 
methods are currently unavailable, but being developed, to estimate 
these effects with any amount of precision. Problems range from a lack 
of consistent data on global land use change, to the difficulty of 
determining which land use changes are attributable to global biofuel 
production and separating these from changes associated with market 
globalization and rapid economic development in the developing world.
    Despite the lack of hard data, current understanding of the problem 
suggests that these emissions have the potential to be quite 
substantial.\5\ \6\Until we have the knowledge and the tools to 
accurately measure these indirect effects, the wisest course of action 
would be to focus on feedstocks that do not induce land use changes and 
therefore do not result in indirect greenhouse gas emissions. 
Fortunately, our nation possesses abundant and readily available 
feedstocks that satisfy this criterion. These feedstocks include 
dedicated energy crops, such as algae and some grasses (those that grow 
on non-agricultural land), as well as an abundant supply of wastes and 
residues from agriculture, forestry, livestock production, urban wood 
debris, and clean construction debris.
---------------------------------------------------------------------------
    \5\ Zah, R., H. Boni, M. Gauch, R. Hischier, M. Lehmann, and P. 
Wagner (Empa).2007. Life Cycle Assessment of Energy Products: 
Environmental Impact Assessment of Biofuels.
    \6\ O'Hare, M. Greenhouse Gas Emissions from Indirect Land Use 
Change. Presented at: CARB LCFS Working Group 3, Sacremento, CT., 17 
January 2008.
---------------------------------------------------------------------------
    In order to ensure that feedstock production is pursued 
sustainably, a national biomass assessment needs to be funded and 
carried out. The ``billion ton study''\7\, a joint report issued by the 
U.S. Department of Energy (DOE) and USDA, was done to determine if ``a 
30 percent replacement of the current U.S. petroleum consumption with 
biofuels by 2030,'' could be accomplished. Although this is a 
controversial document and many of its conclusions are disputed, it 
nonetheless currently provides the most rigorous national estimate. In 
addition to this study, a number of regional biomass assessments have 
also been, but they are not consistent in scale, content, or 
methodology. Some of these assessments estimate substantially higher 
biomass supplies for their state or region than is estimated in the 
billion ton study.
---------------------------------------------------------------------------
    \7\ Oak Ridge National Laboratory (DOE) and USDA. DOE GO-102995-
2135, Biomass as Feedstock for a Bioenergy and Bioproducts Industry: 
Feasibility of a Billion-Ton Annual Supply. April 2005.
---------------------------------------------------------------------------
    A national assessment needs to pay specific attention to crop 
residues, agricultural feedstocks, dedicated energy crops and waste 
streams. Assessments should be done on a state-by-state basis, and 
should take into account the specific soil type, climate, 
precipitation, and nutrient inputs within that state. Furthermore, 
economic models have to be created and tested to determine and predict 
feedstock availability and cost. The goal should be to help farmers, 
foresters, and land managers know which feedstocks are most appropriate 
to grow where and with as little inputs as possible--this will also 
help farmers, for example, in making crop decisions.

                         AGRICULTURAL RESIDUES

    Current assessments can give us some idea of the vast resources of 
agricultural residues that are available.* The billion ton study\8\ 
estimated that 998 million dry tons of agricultural residues could be 
removed sustainably from farmlands in this country. This includes corn 
stover, grain straw, leafy material, and woody biomass produced as 
agricultural byproducts. The 998 million ton figure does not include 
the residues that must be left on the land to avoid soil erosion and 
nutrient loss.
---------------------------------------------------------------------------
    * Availability refers, in general, to material that is physically 
accessible, cost-effective to remove, and which can be used without 
incurring any negative environmental or social costs. Methods of 
defining and estimating availability differ among assessments and 
reports.
    \8\ Oak Ridge National Laboratory (DOE) and USDA. DOE GO-102995-
2135, Biomass as Feedstock for a Bioenergy and Bioproducts Industry: 
Feasibility of a Billion-Ton Annual Supply. April 2005. Figure 1.
---------------------------------------------------------------------------
    A report published by the Sun Grant Institute at the University of 
Tennessee-Knoxville calculated that in 2005, 10 mid-western states 
produced an available 68,744,504 million dry tons of corn stover 
(excluding highly erodible land and using sustainable removal rates of 
<45%)\9\
---------------------------------------------------------------------------
    \9\  Burton English, Jamey Menard, and Daniel de la Torre Ugarte. 
Using Corn Stover for Ethanol Production: A Look at the Regional 
Economic Impacts for Selected Midwestern States. Department of 
Agricultural Economics, University of Tennessee--Knoxville.
---------------------------------------------------------------------------
    According to a biofuels report by the Oregon Environmental 
Council\10\, the state of Oregon alone could sustainable produce 1.4 
million dry tons of wheat residues--enough to produce approximately 84 
million gallons of ethanol. Another million gallons could be made from 
the 250,000 dry tons of seed grass straw that the state could 
sustainably produce each year.
---------------------------------------------------------------------------
    \10\ Gilman, Dan. Fueling Oregon with Sustainable Biofuels. Oregon 
Environmental Council. October 2005.
---------------------------------------------------------------------------
    The Western Governors' Association conducted a regional assessment 
of the biomass resources in the 23 western states and Pacific 
holdings\11\. As part of this assessment, they created a series of 
supply curves to determine the potential supply of agricultural 
residues at various prices. At an average price of $35/ton of residue, 
the entire region could yield an estimated 24,537,007 dry tons of 
agricultural biomass. At $50/ton, this number climbs to 59,588,270 dry 
tons (see Table 1). In addition, the reported estimated between 516,367 
dry tons (at $20/ton) and 49,521,480 dry tons (at $70/ton) of native 
prairie grasses and 2,706,031 dry tons of woody orchard residues.
---------------------------------------------------------------------------
    \11\ Western Governors' Association Biofuels Team. Transportation 
Fuels for the Future, Biofuels: Part 1. 8 January 2008. Appendix ACR, 
Appendix HEC, and Appendix O&V.

    Table 1. Estimated Supply of Various Agricultural Residues in the
  Western U.S. at Two Different Prices. Western Governors' Association.
                                  2008.
------------------------------------------------------------------------
                                    Supply (dry tons)  Supply (dry tons)
             Feedstock                  at $35/ton         at $50/ton
------------------------------------------------------------------------
Corn stover                                  153,018            788,081
Winter wheat straw                         2,728,816         3,578, 682
Spring wheat straw                           255,864            579,335
Barley/oat/rye straw                      21,399,308         54,642,172
Total                                     24,537,007         59,588,270
------------------------------------------------------------------------

                                 ALGAE

    Algae represent another feedstock with great potential for high 
yields and little or no indirect emissions, because it does not require 
the use of arable land currently in food production. A report 
summarizing the DOE Aquatic Species Program estimated that algae could 
produce up to 15,000 gallons of renewable fuel per acre per year in 
open ponds\12\. Additionally, closed-loop algaculture systems promise 
to deliver even higher yields from small areas and can be located on 
marginal and non-productive lands. These systems, in which algae is 
cultivated in large plastic bags, have the potential to produce up to 
100,000 gallons of algal oil per acre per year.\13\
---------------------------------------------------------------------------
    \12\ Sheehan, John, et al. 1998. A Look Back at the US Department 
of Energy's Aquatic Species Program--Biodiesel from Algae. National 
Renewable Energy Laboratory, p.iii.
    \13\  Kram, J.W. Biomass in a Tube. Biomass Magazine. December 
2007.
---------------------------------------------------------------------------
                             WOODY BIOMASS

    Woody biomass from trees and shrubs is another promising cellulosic 
feedstock. Although the complex structure of wood fibers makes 
conversion difficult, technologies to accomplish this at a commercial 
scale are already gaining in momentum with projects such as the Range 
Fuels facility in Georgia and the two New York facilities--Catalyst 
Renewables and Mascoma Corporation.
    Woody biomass is an incredibly abundant feedstock. Forests cover 
approximately one third of the nation's land area and much of that 
acreage is in need of thinning. Thinning describes a harvest activity 
in which undesirable growing stock (often saplings and small-diameter 
trees) are removed to reallocate resources (water, nutrients, sunlight) 
and growing space to desirable growing stock. There are many reasons 
why thinning is a valuable silvicultural operation. It is used to 
improve the vigor and growth of healthy trees for timber production and 
management for certain elements of wildlife habitat. Thinning is often 
a core component of restoration forestry, as dense, overstocked stands 
of stressed trees can be more vulnerable to destruction by fires and 
insect outbreaks.\14\
---------------------------------------------------------------------------
    \14\ Smith, D.M., B.C. Larson, M.J. Kelty, and P.M.S. Ashton. The 
Practice of Silviculture: Applied Forest Ecology. 9th ed. John Wiley & 
Sons, Inc., 1996. 560 p.
---------------------------------------------------------------------------
    Thinning is an expensive operation, however, and the ability to 
thin is often limited by the lack of widespread markets for small-
diameter trees and woody biomass. Without this financial outlet, forest 
and woodlot owners (private or public) can rarely afford to invest in 
thinning or other stand improvement activities.
    A thriving renewable fuels industry would open up markets for 
forest biomass and make it possible for land managers to invest in a 
wider range of management activities, including restoration forestry, 
habitat management for mid-and late-successional species, recreation 
management, and more sophisticated forms of timber management. By 
adding value to forests and forest products, the renewable fuels 
industry is one tool that can help slow down encroachment by urban 
sprawl, reduce the threat of forest fires and improve the health of 
forests, while driving local economic development through the creation 
of jobs in rural communities.
    The use of thinning materials and woody residues does not result in 
indirect emissions. In fact, expanded markets for these materials could 
provide an additional revenue stream for forest owners, put better 
forestry practices within the budget of conscientious landowners, and 
encourage the production of wood products from sustainably managed 
forests and woodlands. This in turn would result in a reduced demand 
for imported wood products, many of which are obtained through 
environmentally destructive (and often illegal) logging in the 
developing world. In this way, fuels produced from sustainable woody 
biomass could actually reduce the amount of indirect emissions of 
greenhouse gases from deforestation.
    Given the appropriate markets, the amount of forest biomass that 
could be sustainably harvested is tremendous. The billion ton 
report\15\ estimates a national supply of 8529.2 million dry tons of 
forest biomass, of which 108.3 million is available given current 
market conditions, technologies, and infrastructure (see Table 2). Of 
the 108.3 million dry tons currently available, 40.9 million dry tons 
could come from logging residues, 7.8 million dry tons could come from 
unused residues in sawmills and paper mills (the majority of these 
residues are utilized internally for heat and power), and 59.6 million 
dry tons could come from fuel reduction thinnings. This is a small 
fraction of the approximately 8410 million dry tons that could be 
thinned from the vast forest acreage that has been identified by the 
National Forest Plan as being at high risk for catastrophic wildfires. 
Given expanded markets and technological improvements, a much larger 
percentage of this material could be made available for renewable fuel 
production in the future. These numbers represent total availability on 
federal, state, and private lands.
---------------------------------------------------------------------------
    \15\  Oak Ridge National Laboratory (DOE) and USDA. DOE GO-102995-
2135, Biomass as Feedstock for a Bioenergy and Bioproducts Industry: 
Feasibility of a Billion-Ton Annual Supply. April 2005. Tables A.1, 
A.3, A.5, A.7, A.8.

Table 2. Estimated Quantity of Total and Available Forest Biomass in the
     United States. U.S. Department of Energy and U.S. Department of
                           Agriculture. 2005.
------------------------------------------------------------------------
                                      Total quantity       Available
             Feedstock                 (million dry    quantity (million
                                          tons)            dry tons)
------------------------------------------------------------------------
Logging residues                                67.1               40.9
Industrial wood residues                        52.1                7.8
Hazardous fuels residues                        8410               59.6
Total                                         8529.2              108.3
------------------------------------------------------------------------

    A number of other assessments provide regional and state estimates 
of available forest biomass from hazardous fuels reduction, logging 
residues, and other sources. The Western Governors' Association Report 
identifies 23 million acres in 12 states that are at high risk from 
wildfire. Thinning materials from this acreage could provide up to 318 
million tons of biomass\16\, of which 7.2 tons is immediately 
accessible and available. According to the Oregon Environmental Council 
Report, Oregon produces 3 million tons of slash and thinning materials 
per year, of which 1 million is available for use on a sustainable 
basis (enough to produce 66 million gallons of ethanol).\17\ The 
California Biomass Collaborative estimated\18\ that, in 2005, the state 
of California possessed more than 86 million dry tons of biomass, of 
which 34 million dry tons could be sustainably used. Of the total, 
approximately 31% could come from forestry.
---------------------------------------------------------------------------
    \16\ Western Governors' Association Biofuels Team. Transportation 
Fuels for the Future, Biofuels: Part 1. 8 January 2008.
    \17\ Gilman, Dan. Fueling Oregon with Sustainable Biofuels. Oregon 
Environmental Council. October 2005.
    \18\ California Biomass Collaborative. CEC-500-2005-066-D. Biomass 
Resource Assessment in California: In Support of the 2005 Integrated 
Energy Policy Report. California Energy Commission, Public Interest 
Energy Research Program. April 2005.
---------------------------------------------------------------------------
    In addition to residues from forest management, considerable 
quantities of woody biomass can be recovered from urban wood waste. 
According to the billion ton study, \19\ the nation produces 62.3 
million dry tons of urban wood waste annually, of which 28.0 million 
dry tons is available and currently unused (see Table 3).
---------------------------------------------------------------------------
    \19\ Oak Ridge National Laboratory (DOE) and USDA. DOE GO-102995-
2135, Biomass as Feedstock for a Bioenergy and Bioproducts Industry: 
Feasibility of a Billion-Ton Annual Supply. April 2005. Table A.9

 Table 3. Estimated Quantity of Total and Available Urban Wood Waste in
   the United States. U.S. Department of Energy and U.S. Department of
                           Agriculture. 2005.
------------------------------------------------------------------------
                                      Total quantity       Available
             Feedstock                 (million dry    quantity (million
                                          tons)            dry tons)
------------------------------------------------------------------------
Construction debris                             11.6                8.6
Demolition debris                               27.7               11.7
Yard debris                                      9.8                1.7
Solid Waste Wood                                13.2                6.0
Total                                           62.3               28.0
------------------------------------------------------------------------

    Another potential source of woody biomass is disaster debris. 
Hurricanes, floods, ice damage, and other natural disasters annually 
destroy significant amounts of urban trees, forest growth, and wooden 
structures. Very little of this material is recovered and put to a 
productive use. Instead, it is land filled, incinerated, or piled and 
burned in the field (which emits greenhouse gases). Increasing the 
recovery rate for this material would be beneficial for a number of 
reasons, including reduced fire hazards, recovery of economic losses, 
and as a potentially significant feedstock for production of renewable 
fuels. The availability of this material is difficult to predict, 
however, as it depends largely on chance events. Infrequent, large-
scale disasters (like Hurricane Katrina, for example) have the 
potential to contribute additional millions of dry tons of wood biomass 
when they occur.

                        SUGGESTIONS FOR THE RFS

    I would like to reiterate my support for the inclusion of the 
reduction of total GHG emissions in the RFS.
    In order to fully accommodate and encourage the use of wastes and 
residues as feedstocks, it is essential that the definition of 
renewable biomass' in the RFS be flexible enough to include the wide 
availability of these feedstocks. The current definition includes 
algae, yard waste, food residues, crop residues, animal byproducts, and 
several kinds of woody biomass. This last category is not as inclusive 
as it should be, however. It excludes forest biomass from a number of 
sources. Although the definition may provide some exclusionary 
safeguards intended to protect the environment, these safeguards are 
not based on forest type, stand structure, or any other ecologically-
meaningful characteristics, but on arbitrary distinctions of ownership 
and minor silvicultural details. Unfortunately, these provisions 
eliminate an opportunity to support hazardous fuels reduction, reduce 
the number of possible cellulosic feedstocks for production of 
renewable fuels, and shatter the hopes of many communities that wish to 
rid themselves of this material while creating job opportunities in 
rural areas stricken by unemployment.
    The most egregious example is the exclusion of federal forest lands 
from the definition. We acknowledge concerns about sustainability and 
our public lands and we feel very strongly about enhancing 
sustainability of this resource. From an ecological perspective, 
however, there is no fundamental distinction separating federal forests 
from private forests in the United States. The entire range of forest 
types, habitats, and structural elements can be found across both 
ownerships. In the end, both public and private forests can be managed 
sustainably and both can be managed unsustainably. Soil requirements, 
silvicultural methods, harvesting systems and other best-management-
practices need to be investigated fully for all forest types. Rare 
habitats, imperiled forest types, endangered species, and important 
cultural elements need to be preserved wherever they are found. 
Responsible environmental stewardship should be the order of the day, 
but the important factors in determining sustainability guidelines are 
ecological and silvical characteristics, not the name on the deed.
    Removing the exclusion of federal forests could make a sizable 
quantity of additional feedstock available. For instance, 1996 million 
dry tons of forest biomass could be generated as a result of areas 
indentified as being in need of hazardous fuels reduction on National 
Forests alone.\20\ This does not include any U.S. Department of 
Interior forestland, such as that managed by the Bureau of Land 
Management, Fish and Wildlife Service, or National Park Service--which 
are also excluded in the current definition. Nor does it include any 
materials that could be removed as a result of wildlife habitat 
management, pest mitigation, recreational management, or stand 
improvement thinnings.
---------------------------------------------------------------------------
    \20\ Oak Ridge National Laboratory (DOE) and USDA. DOE GO-102995-
2135, Biomass as Feedstock for a Bioenergy and Bioproducts Industry: 
Feasibility of a Billion-Ton Annual Supply. April 2005. Table A.5
---------------------------------------------------------------------------
    I specifically highlight hazardous fuels reduction as a source of 
biomass because of the urgency and national importance placed on this 
activity. Large, catastrophic wildfires destroy property, threaten 
communities, reduce air quality, and contribute to atmospheric 
concentrations of greenhouse gases. One study estimates that large, 
stand-replacing fires can emit over 2 tons of carbon per hectare.\21\ 
With wildfires on the rise and fire fighting budgets stretched to their 
limits, the National Fire Plan has identified millions of acres in need 
of hazardous fuels reduction. As I said before, however, the simple 
fact is that thinning is an expensive undertaking. If private 
landowners, with a few dozen or a couple hundred acres, cannot afford 
to invest in stand improvement thinning, then the government certainly 
cannot afford to treat millions of acres on the public dollar.
---------------------------------------------------------------------------
    \21\ Finkral, A.J. and A.M. Evans. 2007. The effects of a thinning 
treatment on carbon stocks in a northern Arizona ponderosa pine forest. 
Unpublished manuscript. 26 p.
---------------------------------------------------------------------------
    We frequently hear the argument made that public costs would be 
less (on a per acre) basis if funds were allocated for proactive fuels 
reduction as opposed to reactive fire fighting. In the long run this is 
probably true, but the transition in strategies will not be an 
immediate one and catastrophic fires will continue to be a major 
element of the landscape in the near future. After the expenditures 
associated with fighting the fires that are burning today, not much is 
left to begin restoring the vast acreage at risk of burning tomorrow. 
It is going to be a slow process. In the meanwhile we need to find a 
commercial outlet for thinning materials if we hope to deal with an 
issue of this scale and size.
    Renewable transportation fuels could provide that commercial 
outlet, but only if the necessary markets and infrastructure are 
developed. Under current market conditions, only 11.7 million dry tons 
are accessible and available out of the total 1996 million dry tons of 
thinning materials on National Forests.\22\ In many circumstances, 
thinning materials must be treated on site or transported out of the 
forest to reduce the possibility of wildfires and the spread of insect 
infestation. Transportation costs and low market value for this 
material are limiting factors to its removal, so the majority of 
thinning materials are chipped in the field or burned in open piles. 
These open fires are still generating renewable energy, but it is 
energy that is being wasted instead of being put to productive work in 
vehicle engines.
---------------------------------------------------------------------------
    \22\ Oak Ridge National Laboratory (DOE) and USDA. DOE GO-102995-
2135, Biomass as Feedstock for a Bioenergy and Bioproducts Industry: 
Feasibility of a Billion-Ton Annual Supply. April 2005. Table A.5
---------------------------------------------------------------------------
    A number of projects are trying to move forward, such as the 
Pacific Ethanol Facility, partially funded by DOE, that will be using 
wood from BLM land to produce cellulosic ethanol for its new 10% scale 
facility in Oregon. Projects like this are promising, but they are not 
enough. The RFS could help to provide a solid, nationwide incentive for 
this important industry.
    Federal forests are not evenly distributed across the nation. In 
total, they encompass about 43% of the national forest resource or 
approximately 323 million acres. Of these 323 million acres, 78% are 
concentrated in Alaska (91 million acres), the Rocky Mountain States 
(108 million acres), and the Pacific Northwest (55 million acres).\23\ 
These are some of the regions that are most threatened by catastrophic 
wildfire and are most in need of hazardous fuels reduction treatments. 
By excluding these forests from the RFS, however, the Congress is 
essentially removing a necessary economic incentive to conduct these 
treatments. This could effectively make it impossible to reduce 
wildfire damage in landscapes strongly dominated by federal forests no 
matter how thoroughly the small private and state land components are 
treated.
---------------------------------------------------------------------------
    \23\ Mila Alvarez. ``The State of America's Forests.'' Society of 
American Foresters: 2007.
---------------------------------------------------------------------------
    Another possible side effect of excluding federal forest feedstocks 
from the RFS is that it may indirectly increase the intensity of 
feedstock production on non-federal forests, increasing the chance that 
unsustainable and environmentally-degrading management practices may be 
used on private and state forests. This could lead to soil erosion, 
reduced productivity, compromised habitat, and reductions in water 
quality.
    In some locations, residues from sawmills and pulp operations that 
source materials from both federal and non-federal forests may be 
ineligible to be used towards the RFS if separating residue streams 
proves difficult or prohibitively expensive. This problem would also 
exist in biorefineries--where a number of additional biobased products 
are produced in addition to renewable transportation fuels as well as 
heat and power. The biorefinery is a desirable industrial model, as 
utilization of waste from one process as the feedstock for another 
minimizes waste, increases sustainability and greatly increases 
economic viability. These facilities would very likely source from a 
number of different ownerships.
    In addition to the exclusion of federal lands, a good deal of 
biomass from private lands is excluded from the renewable biomass 
definition. In essence, the definition includes all biomass from 
planted trees and tree plantations, but only slash and pre-commercial 
thinnings from private forests regenerated from natural regeneration or 
sprouting. This definition results in a very substantial problem. It 
draws an arbitrary distinction between, for example, the 20'' pine that 
is planted versus the 20'' pine that grows from a seed. This detail has 
no relevance to species composition, forest structure, habitat value, 
or ecological functioning. Eligibility should be determined by these 
and other objective, meaningful silvical characteristics.
    Additionally, this language unfairly favors industrial forestry and 
single-species plantations over diverse, mixed woodlands and 
nonindustrial private forest land. Not only do these forests generally 
boast higher biodiversity, but the periodic income from selective 
harvesting on these properties is often the only thing standing between 
these forests and the very real pressure to sell out to real-estate 
developers.
    As more and more acres of forest land are bulldozed to make way for 
suburbia or burned in massive conflagrations, more and more 
environmental organizations are beginning to see the value in 
sustainable, multiple value forest management for helping to ensure the 
perpetuation of diverse, vibrant forest ecosystems and the many values 
that they offer--clean water, wildlife habitat, recreational 
opportunities, and diverse forest products, including renewable fuels. 
A number of NGOS, including the Oregon Environmental Council (``. . . 
if renewable fuels are produced sustainably, they can generate 
substantial reductions in greenhouse gas emissions and improvements in 
air and water quality . . . Thinning and removal of biomass from these 
forests [at risk from fire] would improve forest and provide a 
substantial supply of biomass for energy production. While there are 
clear environmental benefits to greater utilization of forest biomass, 
there are also real sustainability concerns.''\24\) and the Pinchot 
Institute for Conservation (``. . . wood energy could help address 
several longstanding challenges in sustainable forest management: 
treating hazardous fuels accumulations to minimize future threat of 
wildfires, creating economic outlets for small-diameter and low-grade 
wood to reduce forest degradation, and strengthening community economic 
development on the basis of sustainable use of local forest 
resources.'')\25\ have come out with statements identifying the 
potential value in renewable energy to make possible a better and more 
sustainable form of forestry.
---------------------------------------------------------------------------
    \24\ Gilman, Dan. Fueling Oregon with Sustainable Biofuels. Oregon 
Environmental Council. October 2005. p33.
    \25\ Sample, V. Alaric. Ensuring Forest Sustainability in the 
Development of Wood-based Bioenergy. Pinchot Institute For 
Conservation. 2007. Page 6.
---------------------------------------------------------------------------
    Both of these organizations have also stressed that without proper 
sustainability guidelines, a market for woody biomass could have some 
negative repercussions on forest resources. Sustainability is 
Essential. This can not be stressed enough, but sustainability 
standards must be based on ecologically-meaningful criteria, not 
arbitrary exclusions based on ownership and regeneration methods. What 
is and what is not sustainable depends on local conditions, such as 
forest type, climate regime, ecosystem function, and other specific 
location-based characteristics. In locations where it is appropriate, 
hazardous fuels reduction could provide a huge percentage of available 
woody feedstocks. In areas where this type of management is not 
appropriate, woody biomass can be harvested as part of habitat 
management or stand improvement activities. Biomass harvests must be 
integrated into comprehensive forest management strategies that aim to 
satisfy multiple needs and values sustainably. In this lies good forest 
management. A number of organizations, including EESI and the Pinchot 
Institute, currently have initiatives under way to investigate how 
extraction of biomass for renewable energy can be soundly integrated 
into existing goals and strategies for sustainable management.
    In summary, the RFS is a very aggressive mandate, but it is not an 
impossible one, as long as we do not exclude any of those feedstocks 
that can be produced sustainably and that meet important direct and 
indirect emissions screens. With conversion technologies still in the 
works, we must keep our options open and strive to produce renewable 
fuels that meet objective and appropriate standards of sustainability.
    In closing, I feel that it is important to stress that renewable 
fuels are one piece of the solution to transportation emissions, but 
not a complete solution. Renewable fuels will be ONE part of a larger 
strategy, but so will increased vehicle fuel efficiency, expanded 
public transit, and ``smart growth'' practices (enabling more transit, 
biking and walking). In addition, technologies such as E85 engine 
optimization and plug-in hybrids will allow us to get more out of each 
gallon of fuel. It would be extremely wasteful try to replace petroleum 
fuels gallon for gallon with biofuels. This approach would not be 
effective at reducing total greenhouse gas emissions and, in fact, 
would probably increase opposition to renewable fuel production. There 
already is a backlash against substantial increased production of 
renewable fuels. Concerns over the fuel vs. food debate and ecosystem 
degradation would be bolstered if the United States were to try to 
replace the 140 billion gallons of gasoline and 9 billion gallons of 
diesel used annually. Instead, a vision of integrated low-carbon 
sustainable renewable fuels production must be combined with other 
technologies to reduce the amount of transportation fuel needed for a 
long term solution to climate change.
    I would like to thank the committee once again for the opportunity 
to speak before you. Let me also extend my gratitude for your part in 
creating and passing this important renewable fuels standard and 
recognizing the role it plays in our climate protection and national 
security efforts.

    The Chairman. Thank you very much. Mr. Drevna, go right 
ahead.

      STATEMENT OF CHARLES T. DREVNA, PRESIDENT, NATIONAL 
             PETROCHEMICAL AND REFINERS ASSOCIATION

    Mr. Drevna. Thank you. Thank you, Mr. Chairman, and Ranking 
Member Domenici for the opportunity to share our thoughts today 
about the implementation of the 2007 Energy Bill.
    As you said in your opening statement, sir, the new RFS 
creates a number of challenges in the fuel marketplace, and we 
believe many of which could well be insurmountable. 
Nevertheless, we stand ready to work with you to ensure a 
stable and effective fuels policy that utilizes a diversity of 
resources. Before Congress sent H.R. 6 to the President, the 
concerns about renewable fuels mandates and the unintended 
consequences for both American consumers and the environment 
were fully disclosed by a very cross-sectioned of impacted 
interests.
    Everyone is aware of the reports showing a relationship 
between rising feed prices and increased biofuel use. This 
situation, noted many times by a really politically diverse 
media, translates directly into higher food prices for American 
consumers. Other recent studies noted the negative impact 
biofuels mandates are having on the environment. A new 
memorandum from the U.C. Berkeley researchers to the California 
Resources Board warns of indirect CO2 emission 
increases greater than those of fossil fuels, as a result of 
land use changes to accommodate larger crops.
    Another report from a Nobel laureate warns that the use of 
crops ``for energy production can lead to nitrous oxide 
emissions large enough to cause climate warming instead of 
cooling by saved fossil CO2.'' As we all know, 
nitrous oxide is 300 times more potent than CO2 
within the context of climate debate.
    Higher ethanol blends also result in increased DOCs, a smog 
precursor. Given that the upcoming revised 8R ozone max, which 
I believe the administrator has to get out by March 12 or so, 
could result in a number of new ozone nonattainment areas for 
counties across the Nation, for counties of members of every 
one of this committee, who are right now in attainment will be 
in nonattainment, it's unlikely that the mandated level of 
ethanol or biofuels could be distributed without exacerbating 
smog problems in those areas.
    These warnings, and they continue to come, were 
unfortunately ignored. Secretary Karsner indicated--and I think 
he used the word ``holistic approach.'' We couldn't agree more. 
We need a holistic approach to what our fuels policies should 
look like. Unfortunately for the refining industry, when you 
add up all the things I just mentioned, and then you throw in 
the fact that another committee of the Senate is looking at 
climate change legislation, my industry is looking at 
potentially conflicting legislation.
    Low carbon fuel standards, cradle-to-grave carbon 
analysis--We don't know where that's going, but this law has 
already been enacted, and we have to comply. Let's talk for a 
moment about flex-fuel vehicles. There are approximately 11 
million alternative fuel vehicles on the road today, according 
to the Alliance for Automobile Manufacturers. A small fraction 
of the 240 million-plus vehicles Americans are currently 
driving.
    The National Ethanol Vehicle Coalition estimates about 6 
million of these are FFVs. In addition, over the next several 
years, automobile makers have indicated that while they intend 
to produce more FFVs, they will still be producing gasoline-
only or hybrid vehicles at a rate of about 7 or 8 to 1, in 
relation to FFV production. The large volumes of renewable 
fuels mandated into new law will essentially force fuel blends 
greater than E10 into our Nation's gasoline supply.
    Preliminary analysis indicates these blends must be made by 
as early as 2010. That's less than 2 years away. The only 
vehicles capable of running such blends, until EPA, as the 
questions were asked to Secretary Meyers, are E85 vehicles. The 
automakers are going to have to warranty anything over those 
legacy vehicles, the 140 million plus the new ones that I 
referred to.
    Let me turn to the challenges associated with biofuel 
transportation and distribution. Last February, I appeared 
before this committee to discuss the infrastructure challenge 
associated not only with the implementation of EPACT 2005, but 
also with the potential increases to mandated volumes of 
renewables. Nothing has changed since then, except the dramatic 
frontloaded expansion of the RFS in the new law, which will 
increase strain on already congested transportation 
infrastructure.
    A June 2007 GAO report focused on the lack of 
infrastructure and the higher cost associated with biofuels. 
Among several findings, the report noted the cost of 
transporting ethanol to fueling stations could range from 13 
cents to 18 cents per gallon. In contrast, the overall cost of 
transporting gasoline from refineries to refueling stations is 
estimated to be 3 to 5 cents a gallon.
    The new law mandates blending of 100 million gallons of 
cellulosic ethanol in 2010. The Food and Agriculture Policy 
Research Institute estimates a shortfall of 73 million gallons 
from the 2010 cellulosic target. The safety valve or waiver 
provision of the RFS is inadequate. It provides for a too-
little-too-late retrospective attempt to address potential 
renewable supply shortfalls.
    Despite these challenges I discussed, the refiners and 
blenders are liable in the new law, regardless of biofuel 
supply shortages. We are held responsible. But more 
importantly, the consumer ultimately pays if the renewable 
industry fails to produce. It's hardly fair, but that's the 
reality in the new law. Once again, I want to thank you for the 
opportunity to appear before you today, and I look forward to 
your questions.
    [The prepared statement of Mr. Drevna follows:]

     Prepared Statement of Charles T. Drevna, President, National 
                  Petrochemical & Refiners Association

    Chairman Bingaman, Ranking Member Domenici, and members of the 
committee, I am Charles T. Drevna, President of NPRA, the National 
Petrochemical and Refiners Association. NPRA is a national trade 
association with more than 450 members, including those who own or 
operate virtually all U.S. refining capacity, as well as most of the 
nation's petrochemical manufacturers who supply ``building block'' 
chemicals necessary to produce products ranging from pharmaceuticals to 
fertilizer to Kevlar. I am grateful for the opportunity to share our 
views on the significant, and unfortunately negative, impacts that the 
recently enacted renewable fuel standard increase will have on energy 
markets, consumers and the American economy.
    There is universal agreement that alternative fuels will continue 
to be a strong and growing component of our nation's transportation 
fuel mix. However, as we have stated on many occasions, including last 
year before this committee, NPRA opposes the mandated use of 
alternative fuels and supports the sensible and workable integration of 
alternative fuels into the marketplace based on market principles. 
Energy policy based on mandates is not a recipe for success. There is 
no free market if every gallon of biofuels--including those that do not 
exist--is mandated. Mandates distort markets and result in stifled 
competition and innovation.
    Ethanol is currently used in more than half of U.S. gasoline 
supplies. And despite the misperceptions, our industry supports the use 
of renewables. In fact, we are currently the largest consumers of 
ethanol and will continue to rely on ethanol as a vital gasoline blend 
stock. However, we believe that allowing the market to operate is the 
best way to address consumer needs at reasonable prices.
    Before Congress sent the Energy Independence and Security Act of 
2007 (H.R. 6) to the President for his signature, the facts about 
ethanol mandates and the unintended consequences for both American 
consumers and the environment were fully disclosed. Unfortunately, 
these warnings were ignored. A June 2007 GAO report highlighted the 
higher costs associated with biofuels. Among several findings, the 
report noted: ``According to NREL (National Renewable Energy 
Laboratory), the overall cost of transporting ethanol from production 
plants to fueling stations is estimated to range from 13 cents per 
gallon to 18 cents per gallon, depending on the distance traveled and 
the mode of transportation. In contrast, the overall cost of 
transporting petroleum fuels from refineries to fueling stations is 
estimated on a nationwide basis to be about 3 to 5 cents per 
gallon.''\1\ The dramatic increase in the biofuels mandate under the 
new law will increase strain on our already congested transportation 
infrastructure, which could very likely drive the costs of shipping 
ethanol up even further. In addition to these costs being passed on to 
consumers, strained transportation avenues could create fuel supply 
problems.
---------------------------------------------------------------------------
    \1\ U.S. Government Accountability Office, ``Biofuels: DOE Lacks a 
Strategic Approach to Coordinate Increasing Production with 
Infrastructure Development and Vehicle Needs,'' GAO-07-713, June 2007, 
p. 23.
---------------------------------------------------------------------------
    Transportation challenges, the costs and strains, are only some of 
the problems associated with dramatically increased mandates of 
renewable fuels. Ethanol-powered vehicles also have lower fuel 
efficiency (due to ethanol's lower energy content compared to regular 
gasoline), as well as limited availability and infrastructure. 
According to the Department of Energy's Office of Energy Efficiency and 
Renewable Energy, flex fuel vehicles (FFVs)--cars that can run on 
either gasoline or a mixture of 85 percent ethanol and 15 percent 
gasoline (known as E85)--get ``about 20-30% fewer miles per gallon when 
fueled with E85.''\2\ Given this situation, AAA releases an ``E85 MPG/
BTU Adjusted Price'' in its daily fuel gauge report. It has not been 
uncommon for this report to show an E85 adjusted price that exceeds the 
price of a gallon of gasoline by as much as 80 cents.\3\
---------------------------------------------------------------------------
    \2\ 2U.S. Department of Energy, Office of Energy Efficiency and 
Renewable Energy, Fueleconomy.gov, http://www.fueleconomy.gov/feg/
flextech.shtml.
    \3\ For daily price information from AAA, see http://
www.fuelgaugereport.com/.
---------------------------------------------------------------------------
    The limited number of FFVs is also a problem if significantly 
larger volumes of renewable fuels are to be forced into the market. The 
only vehicles that can operate on fuel blended with more than 10 
percent ethanol (known as ``E-10'') are flex fuel vehicles. The 
Alliance for Automobile Manufacturers' website 
(www.discoveralternatives.org) notes there are currently 11 million 
alternative fuel vehicles on American roads--a small fraction of the 
240 million plus vehicles Americans are driving today.\4\ The National 
Ethanol Vehicle Coalition estimates about 6 million of these are 
FFVs.\5\ In addition, over the next several years, automakers have 
indicated that while they intend to produce more FFVs, they will still 
be producing gasoline-only vehicles at a rate of about seven or eight 
to one in relation to FFV production. The new ethanol mandate will most 
likely require fuel blends in excess of E-10 possibly as early as 2010. 
However, in addition to existing legacy fleets (e.g. cars that have 
been purchased up to this point in time that run only on gasoline and 
won't be retired for several years), there will be a new class of 
vehicles that may be unable to operate on required fuel blends. This is 
particularly important given the fact engine and fuel pump makers will 
not provide warranties for equipment if blends greater than E-10 are 
used with those products. I will address this in greater detail later 
in my testimony.
---------------------------------------------------------------------------
    \4\ U.S. Department of Transportation, Bureau of Transportation 
Statistics, ``National Transportation Statistics 2007'': http://
www.bts.gov/publications/national_transportation_statistics/html/
table_01_11.html.
    \5\ National Ethanol Vehicle Coalition website: http://
www.e85fuel.com/e85101/faqs/number_ffvs.php.
---------------------------------------------------------------------------
    Not only are biofuels more costly and less efficient than gasoline 
from a fuel supply perspective, but several recent studies and reports 
reveal biofuels mandates have led to price increases for food and 
unintended environmental consequences. Several trade associations 
representing grocers to restaurant owners to cattlemen note how 
biofuels mandates have dramatically increased the price of corn, making 
feed for livestock and cattle more expensive. This situation translates 
directly into higher food prices for American consumers. A FarmEcon.com 
study noted: ``The ethanol subsidy program is now increasing the cost 
of food production though side effects on major crop prices and 
plantings. The cost increases are already starting to show up in the 
prices of meat, poultry, dairy, bread, cereals and many other products 
made from grains and soybeans.''\6\ The OECD has also expressed concern 
over the food-vs-fuel conflict that has arisen from biofuels 
mandates.\7\
---------------------------------------------------------------------------
    \6\ Dr. Thomas Elam, Fuel Ethanol Subsidies: An Economic 
Perspective, FarmEcon.com, September 19, 2007, p. 2.
    \7\ Richard Doornbosch and Ronald Steenblik, Biofuels: Is The Cure 
Worse Than The Disease?, Organisation for Economic Co-operation and 
Development , September 2007.
---------------------------------------------------------------------------
    In addition to food price and supply effects, other recent studies 
have noted the negative impacts biofuels mandates are having on the 
environment. An Environmental Defense report revealed how a dramatic 
increase in ethanol plants is draining the Ogallala Aquifer, which 
stretches from Texas to Wyoming.\8\ The National Academy of Sciences 
has also written a report on the negative water supply impacts of 
increased biofuels production.\9\ Press reports from last year 
described how an increase in farm waste from the corn boom flowing into 
the Mississippi River has created an area off the Louisiana coast where 
shrimp and other sea life cannot survive.\10\ Finally, several 
scientists say dramatically increased biofuels production may 
significantly increase greenhouse gas emissions. Nobel Prize winner 
Paul Crutzen concluded increased biofuels production is accompanied 
with a dramatic increase of nitrous oxide (N2O) emissions, which have 
nearly 300 times greater warming potential than CO2.\11\ The 
European Union recently passed a law that may essentially ban certain 
biofuels due to environmental impacts.\12\
---------------------------------------------------------------------------
    \8\ Martha G. Roberts, Timothy D. Male, Theodore P. Toombs, 
``Potential Impacts of Biofuels Expansion on Natural Resources: A Case 
Study of the Ogallala Aquifer Region,'' Environmental Defense, October 
2007.
    \9\ National Academy of Sciences, ``Report in Brief: Water 
Implications of Biofuels Production in the United States,'' October 
2007.
    \10\ Tony Cox, ``Ethanol Demand Seen Harming U.S. Fishermen,'' 
Bloomberg, July 23, 2007.
    \11\ P. J. Crutzen, A. R. Mosier, K. A. Smith, and W. Winiwarter, 
``N2O Release from Agro-Biofuel Production Negates Global Warming 
Reduction by Replacing Fossil Fuels,'' Atmospheric Chemistry and 
Physics Discussions, August 1, 2007.
    \12\ John W. Miller, ``EU is Planning Measures to Protect Biofuels 
Industry,'' January 23, 2008, P.A11.
---------------------------------------------------------------------------
    While many point to cellulosic ethanol as a potential solution to 
these problems, that particular fuel poses its own set of challenges. 
Cellulosic ethanol technology is still very costly and is not 
commercially available--let alone produced at levels adequate to meet 
the new mandates in the new energy law. Early last year, the Energy 
Information Administration noted, ``Capital costs for a first-of-a-kind 
cellulosic ethanol plant with a capacity of 50 million gallon per year 
are estimated by one leading producer to be $375 million (2005 
dollars), as compared with $67 million for a corn-based plant of 
similar size, and investment risk is high for a large-scale cellulosic 
ethanol production facility.''\13\ The report noted that given those 
costs, no cellulosic plant had been built or was in operation at that 
time (February 2007). At 5 that same time last year, the Department of 
Energy announced they were allocating $385 million to help fund six 
cellulosic ethanol plants that would produce about 130 million gallons 
annually, but it is highly unlikely those plants will be producing at 
full capacity in time to meet the new law's 2010 mandate of 100 million 
gallons, and will not produce enough for the 250 million gallon target 
for 2011.\14\
---------------------------------------------------------------------------
    \13\ U.S. Energy Information Administration, ``Biofuels in the U.S. 
Transportation Sector,'' February 2007: http://www.eia.doe.gov/oiaf/
analysispaper/biomass.html.
    \14\ Wong, Jetta, ``U.S. Bioenergy Policies: What is Currently 
Being Done and What Needs to be Done?'', Environmental & Energy Study 
Institute, May 8, 2007, p. 13: http://www.eesi.org/publications/
Presentations/2007/jw_swedish_5-8-07.pdf.
---------------------------------------------------------------------------
    The Energy Policy Act of 2005 included a cellulosic ethanol mandate 
of 250 million gallons starting in 2013. The Food and Agriculture 
Policy Research Institute (FAPRI), however, projects only about 213 
million gallons of cellulosic may be produced in that year.\15\ This 
adds little support to the argument that a mandate will drive the 
technology and economics of producing a certain product. As previously 
mentioned, the new energy law mandates 100 million gallons of 
cellulosic in 2010--less than two years from now. FAPRI's estimate on 
cellulosic production for that year is only 27 million gallons--27 
percent of what is required in the law. That's a lot of ground to make 
up in a short time frame. Failure to meet these figures will prevent 
refiners from complying with the law, leading not only to cost 
increases from unavoidable and onerous financial penalties, but 
potentially creating significant supply shortages.
---------------------------------------------------------------------------
    \15\ Food and Agricultural Policy Research Institute, ``World 
Biofuels: FAPRI 2007 Agricultural Outlook,'' p. 319.
---------------------------------------------------------------------------
    The new energy law calls for a Renewable Fuels Standard with not 
one but four different mandates that will equal 36 billion gallons by 
2022. It requires that 9 billion gallons of renewable fuel be blended 
into the transportation fuel supply this year, ratcheting up to 36 
billion gallons in 2022. In addition, it contains three other subset 
mandates: an ``advanced biofuel'' requirement of 600 million gallons in 
2009, scaling up to 21 billion gallons in 2022; a specific cellulosic 
biofuel mandate of 100 million gallons in 2010, ratcheting up to 16 
billion gallons in 2022; and a biodiesel mandate of 500 million gallons 
in 2009 moving up to 1 billion gallons in 2012. Each of these fuels has 
to reach certain carbon reduction targets. We understand that this is 
the law of the land and you have the commitment of the domestic 
refining industry that we will do our very best to comply. However, 
this mandate will have significant detrimental effects to our country 
and its consumers that extend beyond what could be accomplished through 
any sort of legislative change short of repeal.

          THE PETROLEUM INDUSTRY FACES COMPLIANCE PROBLEMS NOW

    The Energy Policy Act of 2005 created the first mandatory Renewable 
Fuel Standard (referred to as RFS1 later in this testimony). It 
required 7.5 billion gallons of ethanol to be blended into our nation's 
fuel supply by 2012, with refiners responsible for showing compliance 
with the mandate through a credit program. EPA promulgated 
comprehensive regulations (72 FR 23900; 5/1/07) implementing this law 
and the regulatory program began on September 1, 2007. It requires that 
the mandated volumes of renewable fuels for the appropriate compliance 
year (i.e. ethanol and biodiesel) be used in transportation fuel supply 
through a credit trading and banking program. EPA created an averaging 
program with a calendar year compliance period that stipulates what 
percentage of RFS credits refiners must hand over in relation to their 
contribution to our country's fuel supply in order to comply with the 
law.
    The new energy bill requires 9.0 billion gallons of renewable fuels 
in 2008. Assume hypothetically for the moment that 12 billion gallons 
of renewable fuels actually will be produced and imported in 2008 (at 
best a problematic assumption). This does not help a refiner's RFS 
compliance in 2008 unless at least 9.0 billion gallons is actually 
blended in gasoline or diesel. It is most doubtful there is enough 
infrastructure available for that to happen.
    Gasoline is a hydrocarbon. When gasoline is combusted in a vehicle, 
a portion of the exhaust emissions that come from the tailpipe consist 
of hydrocarbons. Hydrocarbon emissions also evaporate from a vehicle's 
gasoline tank on a hot day. Such emissions are a precursor to the 
formation of ground-level ozone, or smog. One strategy to reduce ozone 
concentrations is to limit hydrocarbon emissions from the combustion of 
gasoline. This can be accomplished by a maximum standard on the Reid 
vapor pressure (RVP) of summer gasoline. RVP is an indicator of 
gasoline's volatility. Lower RVP reduces 7 gasoline's hydrocarbon 
emissions. Summer RVP standards are usually a per-gallon maximum 9.0, 
7.8, or 7.0 pounds per square inch (psi). EPA and states have 
controlled summer gasoline RVP for over 15 years.
    When ethanol is added to gasoline, the gasohol blend has a higher 
RVP than gasoline without ethanol. Therefore, adding ethanol to 
gasoline can exceed RVP limits. Section 211(h)(4) of the Clean Air Act 
provides a 1 psi RVP waiver (i.e. fuel blends can be 1 psi higher than 
the applicable maximum 9.0, 7.8, or 7.0 psi) for conventional gasoline 
with 9-10 vol% ethanol. This means that gasohol can exceed the 
applicable RVP limit by 1 psi if the blend contains between 9 and 10 
vol% ethanol, leading to the formation of more smog-creating emissions.
    If a delivery truck pulls up to a retail station in the summer with 
a load of gasohol (E10--10 percent ethanol, 90 percent gasoline) and 
the underground retail tank has had no E10 deliveries before, then the 
RVP regulation may be violated because the retail tank would have less 
than 9 vol% ethanol (the average of summer conventional gasoline 
without ethanol still in the tank and the new delivery of E10 could 
result in less than E9 after the new delivery). Therefore, if the 
retail station starts the summer with conventional gasoline without any 
ethanol, it cannot convert to E10 until the summer season ends and the 
summer RVP regulation does not apply. This obviously constrains the 
conversion of conventional gasoline retail stations to E10 this summer.
    As previously noted, the RFS program includes credit banking and 
trading. RFS credits are called renewable identification numbers 
(RINs). Each volume of renewable fuel produced is assigned a RIN that 
is separated from that physical volume when it is blended into the fuel 
supply. Refiners then buy that RIN credit from the terminal doing the 
blending and use it for RFS compliance. Sometimes refineries detach the 
credits themselves if they blend ethanol onsite (which only happens for 
an extremely small percentage of the fuel supply) or if they own the 
terminal doing the blending (which isn't always the case). RINs cannot 
be used for compliance by a refiner until it is detached from a barrel 
of ethanol or biodiesel (usually when it is blended with gasoline or 
diesel).
    One RFS compliance option for refiners in 2008 is carryover of a 
2008 RFS deficit to 2009. However, that refiner cannot carry over a 
deficit for two consecutive years (see Clean Air Act section 
211(o)(5)(D), inserted by the Energy Policy Act of 2005, and RFS1 
regulations at 40 CFR 80.1127(b)). It is not clear that that refiners 
can fully comply in 2009 with 2009 RINs and purchase additional RINs in 
2009 to also meet its RFS deficit for 2008. The RIN supply in 2009 may 
not be large enough. Lots of ethanol may be produced and imported in 
2009, but not all of it may be blended in gasoline in 2009 and release 
RINs that be used by a refiner to demonstrate compliance.
    Certainly it is possible that some refiners will meet their RFS 
obligation in 2008 without a deficit carryover. However, it is unlikely 
that all refiners will meet their RFS obligation in 2008 without one. 
It may also be unlikely that all refiners will be able to meet out year 
obligations given the limitations on deficit carryovers.

                    RINS COULD BE INVALIDATED BY EPA

    Section 202(a)(1) of H.R. 6 states: ``. . .  and, in the case of 
any such renewable fuel produced from new facilities that commence 
construction after the date of enactment of this sentence, achieves at 
least a 20 percent reduction in lifecycle greenhouse gas emissions 
compared to baseline lifecycle greenhouse gas emissions.'' This is 
repeated in section 210(a)(1) with explicit guidance for this year: 
``For calendar year 2008, transportation fuel sold or introduced into 
commerce in the United States (except in noncontiguous States or 
territories), that is produced from facilities that commence 
construction after the date of enactment of this Act shall be treated 
as renewable fuel within the meaning of section 211(o) of the Clean Air 
Act only if it achieves at least a 20 percent reduction in lifecycle 
greenhouse gas emissions compared to baseline lifecycle greenhouse gas 
emissions.''
    These two legislative provisions raise doubts about the validity of 
RINs generated by plants that commence construction after enactment in 
December 2007. That new facility will produce ethanol or biodiesel with 
RINs that could be declared later by EPA as invalid because the new 
facility does not comply with EPA's new RFS rules (not yet promulgated 
and hereafter referred to as RFS2) to implement these legislative 
provisions. The refiner is required by the existing RFS regulations 
(hereafter referred to as RFS1) at 40 CFR 80.1131 to replace invalid 
RINs with valid RINs, ``regardless of the party's good faith belief 
that the RINs were valid at the time they were acquired.'' The existing 
provision relating to RIN validity and lack of clarification on whether 
or not RINs will be good under RFS2 will contribute to market 
instability this year because of the lack of certainty that all RINs 
are valid.
    Section 210(a)(1) states: ``For calendar years 2008 and 2009, any 
ethanol plant that is fired with natural gas, biomass, or any 
combination thereof is deemed to be in compliance with such 20 percent 
reduction requirement and with the 20 percent reduction requirement of 
section 211(o)(1) of the Clean Air Act. The terms used in this 
subsection shall have the same meaning as provided in the amendment 
made by this Act to section 211(o) of the Clean Air Act.'' This does 
not apply to new biodiesel plants. Furthermore, this legislative 
provision ensures that new ethanol plants ``fired with natural gas, 
biomass, or any combination thereof is deemed to be in compliance'' in 
2008 and 2009, but does not guarantee that they will be in compliance 
after 2009. Therefore, this legislative provision also creates the 
possibility that RINs from new plants could be declared invalid later 
by EPA.
    This uncertainty will contribute to RIN market instability this 
year and in out years because of the lack of assurance that all RINs 
are valid.
       market speculators could adversely influence rin supplies
    Given the lack of supply, infrastructure and the mandate's 
aggressive schedule, the RIN market will be extremely tight this year 
and for the foreseeable future, creating more impetus for speculators 
to try to profit through creating RIN scarcity. Such an occurrence 
could contribute to an increase in RIN prices and impact prices 
consumers pay at the pump.
    In 40 CFR 80.1128(b) of the RFS1 regulations, EPA permits any party 
that has registered with the Agency to hold title to an unassigned RIN. 
Therefore, a speculator who is not a RFS obligated party can buy RINs 
for later resale. This situation could take RINs off the market for a 
while and contribute to perceptions of short-term RIN shortages. In 
other words, speculators could hoard RINs for the sole purpose of 
trying to drive up their price.

   NEW CELLULOSIC BIOFUEL WAIVER PROVISIONS PROVIDE FOR LAST-MINUTE 
                           REGULATORY CHANGES

    The new energy law added a waiver provision for cellulosic biofuel 
(see Clean Air Act section 211(o)(7)(D)). EPA can reduce the applicable 
regulatory volume of cellulosic biofuel if the projected volume is 
expected to be lower than the statutory volume. If the Agency makes 
this decision, then it must notify obligated parties ``not later than 
November 30 of the preceding calendar year.'' In addition, ``For any 
calendar year in which the Administrator makes such a reduction, the 
Administrator may also reduce the applicable volume of renewable fuel 
and advanced biofuels requirement established under paragraph (2)(B) by 
the same or a lesser volume.''
    The provision, as currently written, obviously does not give RFS 
obligated parties much lead time for compliance planning. They may not 
have more than 30 days notice of what the final regulatory volumes will 
be for the following calendar year.
    Promoting ``on ramps'' is a preferable approach to this sort of 
policy; where the Administration promulgates a short-term regulatory 
forecast with a high degree of confidence and sets a mandate level two 
years out according to that projection. A few years later, the 
Administration promulgates another short-term regulatory forecast with 
a high degree of confidence and sets out year mandates accordingly. In 
this case, the Administration does not have to reduce the regulatory 
targets with an ``off ramp,'' while still achieving the goal of 
promoting alternative fuels and maintaining market stability. Such a 
policy provides regulatory and market certainty. It allows for an 
honest assessment of logical options. It will not limit the amount of 
renewable fuels available, but rather ensure all renewables that 
actually exist will be used while preventing a situation where refiners 
are faced with the choice of using something that is not available or 
paying a hefty penalty.
 the new rfs mandate will require mid-level ethanol blends, but there 
are several barriers and problems associated with getting these blends 

        INTO THE MARKETPLACE AND CONSUMERS' ABILITY TO USE THEM

    As previously mentioned, the large volumes of renewable fuels 
mandated in the recently enacted HR 6 will essentially force fuel 
blends greater than E-10 (10 percent ethanol, 90 percent gasoline) into 
our nation's gasoline supply. Preliminary industry analysis indicates 
these blends may need to be produced to meet the mandate by as early as 
2010--less than two years away. The only vehicles capable of running 
such blends are E-85 vehicles. As discussed earlier, these vehicles 
represent only 6 million out of over 240 million registered vehicles on 
the road. The rest of the gasoline-only vehicles currently in the 
marketplace, and the approximately 16 million that will be produced 
annually over the next several years, cannot run on blends greater than 
E-10. The corrosive nature of ethanol eats away at automotive pipes and 
creates engine problems in these vehicles. In order for blends between 
E-10 and E-85 (i.e. blended gasoline that contains somewhere between 10 
and 85 percent ethanol, called ``mid-level ethanol blends'') to be 
viable in the fuel supply, automakers will have to certify that cars 
can run on these blends and warrantee those vehicles.
    Ethanol infrastructure presents another barrier to RFS 
implementation. Existing fuel pumps and underground tanks cannot 
accommodate fuel blends greater than E-10 for reasons similar to those 
relating to cars. In order for the volumes of renewable fuels mandated 
in the new energy law to make it into the market place, tank and pump 
makers have to certify and provide warranties for all the equipment 
needed to handle mid-level ethanol blends. This could be a timely 
process and the new mandate schedule fails to provide the market with 
that sort of time. Without certification and warrantees, the 
infrastructure to accommodate mid-level ethanol blends won't get built. 
Refiners may then may find themselves in a situation where they won't 
be able to comply with the law because of their inability to blend the 
requisite volumes of renewable fuels into the fuel supply. This could 
create a significant number of supply problems.

THE PRIMARY RFS COMPLIANCE FUELS, BIODIESEL AND ETHANOL, MAY CONTRIBUTE 
         TO INCREASES IN OZONE LEVELS (SMOG) DURING THE SUMMER

    EPA has concluded that biodiesel increases NOX emissions 
and reduces fuel economy because of its lower energy content. See 
http://www.epa.gov/otaq/models/analysis/biodsl/p02001.pdf. This will be 
a problem because NOX emissions are a ground-level ozone 
precursor.
    As previously discussed, ethanol increases the Reid vapor pressure 
(RVP) of the fuel. Higher ethanol blends results in higher volatile 
organic compound (VOC) emissions, another ozone precursor, in the 
summer months. Also, given that the upcoming revised 8-hour ozone 
National Ambient Air Quality Standards (NAAQS) could result in many new 
ozone non-attainment areas, it is unlikely that the mandated level of 
ethanol can be distributed in summer 9.0 psi RVP conventional gasoline 
areas without exacerbating ozone problems in non-attainment areas or 
creating new non-attainment areas. The expansion of non-attainment 
areas will impose constraints on the usage of ethanol that will result 
in increased costs because the distribution system will be pushed away 
from the low-cost solution. These additional costs will be borne by 
consumers. In addition, the de facto result of expanding non-attainment 
areas is the creation of a significant conflict between NAAQS and the 
new RFS.

         CONGRESS SHOULD SUSPEND THE TARIFF ON IMPORTED ETHANOL

    Given the problems discussed above and the significant strain on 
our nation's fuel supply system associated with the dramatically 
increased ethanol mandate in HR 6, Congress should suspend the tariff 
on imported ethanol in order to maximize the supply of renewable fuels. 
This is not a new position for NPRA; NPRA advocated this position in 
testimony before the Senate Commerce, Science, and Transportation 
committee in May 2006. Removing the tariff is critical to providing 
refiners more flexibility that will be desperately needed to comply 
with the newly expanded ethanol mandate.

                               CONCLUSION

    NPRA members are dedicated to working cooperatively at all levels 
to ensure an adequate supply of clean, reliable and affordable 
transportation fuels. We stand ready to work with the Senate and House 
to ensure a stable and effective fuels policy that utilizes a diversity 
of resources to improve our national security, assist our consumers and 
protect our environment. As my testimony indicates, the new RFS creates 
several problems in the fuels marketplace--many of which may be 
insurmountable. In addition to consumer impacts, backlash from 
potential negative impacts of this law could ultimately end up 
threatening the availability of alternative fuels in the marketplace. I 
appreciate this opportunity to testify today and welcome your 
questions.

    The Chairman. Thank you very much for that testimony.
    Mr. McAdams.

 STATEMENT OF MICHAEL J. McADAMS, EXECUTIVE DIRECTOR, ADVANCED 
                       BIOFUELS COALITION

    Mr. McAdams. Thank you, Mr. Chairman, ranking member, and 
members of the committee. My name is Michael McAdams, and I'm 
testifying on behalf of the Advanced Biofuels Coalition. It is 
a great privilege and responsibility to appear before you today 
to discuss last year's legislative accomplishment, and the 
impacts in the area of renewable fuels and their markets.
    In a world where technology and every molecule counts, you 
should be commended for your bipartisan effort to initiate and 
enhance a renewable fuels program in this committee. The 
leadership that this committee demonstrated is one which our 
coalition supported from the beginning, and continues to 
support moving forward.
    I also want to applaud the efforts of the first generation 
renewable fuels producers, both ethanol and biodiesel, for 
their market accomplishments, as well as the efforts of the 
refining industry, which has made significant investments to 
make more environmentally friendly fuels we use today, in which 
my members will blend with in the future. This needs to be an 
effort of partnership, with a goal of meeting America's growing 
need for energy demands.
    As Secretary Karsner previously testified before this 
committee, it is a matter of silver buckshot, not a silver 
bullet. The Advanced Biofuels Coalition is a group of companies 
whose second-generation technologies hold great promise to 
deliver significant quantities of high-quality renewable fuels. 
Our core policy goal focused on technology neutrality, 
feedstock neutrality, and subsidy parity. The theme, ``Every 
Molecule Counts,'' is a good starting place to describe what is 
occurring in the biofuels marketplace.
    Our coalition represents many of the various technology 
types which are defined as advanced biofuels in the new law. 
Most of the companies will make molecules which can be used in 
heating oil, diesel, jet fuels, or gasoline. Some make a 
molecule which could be utilized in the refining process and 
made into a fuel product. Many of the ABC companies are 
striving to produce a molecule that can and will be blended 
with today's fuels, and would be totally fungible in today's 
engines and pipelines.
    These molecules vary chemically and have different 
characteristics fromour first-generation brethren. They are not 
ethanol. They are not biodiesel. The legislation signed into 
law recognizes this in many of the specific definitions. For 
example, we have three biotech members who would be able to 
utilize sugars to make fungible renewable fuel products. 
Another company, Virant, would use a thermochemical process 
that converts sugar into renewable fuels. Still other companies 
can use a range of food oils, animal fats, or biomass, using 
Fischer-Tropsch, hydro-treating, cellulosic, or bioemulsion 
processes to produce diesel or jet fuels.
    Utilizing America's vast cellulosic resource, from 
agriculture waste to sustainable forest biomass, many of these 
technologies either directly or in partnership can produce 
superior performance and fungible fuels. Several of the 
biotechnology process companies are working on a solution which 
could utilize an existing ethanol facility to make diesel or 
jet fuel. Others could partner with enginatic cellulosic 
companies in a second phase of the process, in taking sugar and 
making an entire range of products.
    I have provided several slides in my appendix to the 
testimony. The first slide describes the size and shape of the 
new RFS program, which each of its various volume requirements 
by technology type. As you can see, the RFS program creates 
multiple fuel types and assigns volumes. One of the key 
objectives for our coalition is the ability to contribute to 
the overall 36-billion gallon mandate set for 2022.
    As currently designed in the legislation, some ABC 
companies would be included in the advanced biofuels pool which 
allocates 4 billion gallons, or biomass diesel pool of 1 
billion gallons. Others would participate in the cellulosic 
pool of 16 billion gallons. In the event certain technologies 
as allocated under the RFS falls short, we would argue that 
other technologies be allowed to help meet the overall 36-
billion gallon mandate. This clarity and neutrality will help 
these companies move forward and compete in the investment and 
capital funding marketplace to build their plants.
    The new law calls for specific life cycle reductions for 
each of the various types of fuels. We would urge that EPA be 
very deliberate and provide flexibility in order to meet these 
requirements. Given the current state of disagreement about 
life cycle models and components, EPA needs to provide clarity 
and consistency over what models will be used to evaluate the 
performance of all renewable fuels. We would suggest that 
additional credit be given to those fuels which exceed the 
requirements.
    In a worst-case scenario, a bright line standard may 
exclude a number of renewable fuels from the marketplace, 
making it more difficult to reach the volume levels desired. 
The new law provided a strong signal to markets around the 
world that America is serious about our mission to bring 
renewable fuels content into the market. But many questions 
remain about just how these provisions will be implemented.
    We urge the Senate to continue to promote tax, feedstock, 
and technology neutrality in pursuit of this ambitious and 
important national goal. Thank you, again, for the opportunity 
to be before you today, and I'll look forward to answering your 
questions.
    [The prepared statement of Mr. McAdams follows:]

Prepared Statement of Michael J. McAdams, Executive Director, Advanced 
                           Biofuels Coalition

    Mr. Chairman, Ranking Member, and members of the committee, my name 
is Michael McAdams, and I am testifying on behalf of the Advanced 
Biofuels Coalition.
    It is a great privilege and responsibility to appear before you 
today to discuss last year's legislative accomplishment and the impacts 
in the area of renewable fuels and their markets. In a world were every 
molecule counts you should be commended for your bipartisan effort to 
initiate an enhanced Renewable Fuels program in this committee. The 
leadership that this committee demonstrated is one which our coalition 
supported from the beginning and continues to support moving forward.
    I want to also applaud the efforts of first generation renewable 
fuels producers, both ethanol and biodiesel, for their market 
accomplishments, as well as the efforts of the refining industry, which 
has made significant investments to make more environmentally friendly 
fuels we use today and which my members will blend with in the future. 
This needs to be an effort of partnership with a goal of meeting 
America's growing energy demands. As Secretary Karsner previously 
testified before this committee it is a matter of ``silver buckshot not 
a silver bullet''.
    The Advanced Biofuels Coalition is a group of companies whose 
second generation technologies hold great promise to deliver 
significant quantities of high quality, renewable fuels. Our core 
policy goals focus on technology neutrality, feedstock neutrality and 
subsidy parity.
    The ``theme every molecule counts'' is a good starting place to 
describe what is occurring in the biofuels marketplace. Our coalition 
represents many of the various types, which are defined as advanced 
biofuels under the new law. Most of the companies will make molecules 
which can be used in heating oil, diesel, jet fuels or gasoline. Some 
make a molecule which could be utilized in the refining process and 
made into a fuel product. Many of the ABC companies are striving to 
produce a molecule that can and will be blended with today's fuels and 
would be totally fungible in today's engines and pipelines. These 
molecules vary chemically and have different characteristics from first 
generation fuels. They are not ethanol or biodiesel. The legislation 
signed into law recognized this in many of the specific definitions.
    We have three biotech members who would be able to utilize sugars 
to make fungible renewable fuel products. Another company would use a 
thermal chemical process that converts sugar into renewable fuels. 
Still other companies can use a range of food oils, animal fats or 
biomass utilizing Fischer-Tropsch, hydro-treating, cellulosic, or 
bioemulsion processes to produce diesel or jet fuels.
    Utilizing America's vast cellulosic resource from agricultural 
waste to sustainable forest biomass many of these technologies either 
directly or in partnership can produce superior performance and 
fungible fuels. Several of the biotechnology process companies are 
working on a solution which could be utilized in existing ethanol 
facilities to make diesel or jet fuel. Others could partner with 
enzymatic cellulosic companies in a second phase of the process of 
taking the sugars to a range of products.
    I have provided several slides* in the appendix to my testimony. 
The first slide describes the size and shape of the new RFS program 
with each of its various volume requirements by technology type. As you 
can see the RFS program creates multiple fuel types and assigns 
volumes. One of the key objectives for our Coalition is the ability to 
contribute to the overall 36 billion gallon mandate set for 2022. As 
currently designated in the legislation some ABC companies would be 
included in the advanced biofuels pool which allocates 4 billion 
gallons, or the biomass diesel pool of 1 billion gallons. Others would 
participate in the cellulosic pool of 16 billion gallons.
---------------------------------------------------------------------------
     *Graphics have been retained in committee files.
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    In the event certain technologies as allocated under the RFS fall 
short we would argue that other technologies be allowed to help meet 
the overall 36 billion gallon mandate. This clarity and neutrality will 
help these companies move forward and compete in the investment and 
capital funding market place to build their plants.
    The new law calls for specific life cycle reductions for each of 
the various types of fuels. We would urge that the EPA be very 
deliberate and provide flexibility in order to meet these requirements. 
Given the current state of disagreement about life cycle models and 
components EPA needs to provide clarity and consistency over what 
models will be used to evaluate the performance of all renewable fuels. 
We would suggest that additional credit be given to those fuels which 
exceed the requirements. In a worst case scenario, a bright line 
standard may exclude a number of renewable fuels from the market place 
making it more difficult to reach the volume levels desired.
    The new law provided a strong signal to markets around the world 
that America is serious about our mission to bring renewable fuels 
content into our market. But many questions remain about just how these 
provisions will be implemented.
    We urge the Senate to continue to promote tax, feedstock and 
technology neutrality in pursuit of this ambitious and important 
national policy. Thank you for the opportunity to testify before you 
today and I look forward to answering any questions.

    The Chairman. Thank you very much. Mr. Dinneen, go right 
ahead.

 STATEMENT OF BOB DINNEEN, PRESIDENT AND CEO, RENEWABLE FUELS 
                          ASSOCIATION

    Mr. Dinneen. Thank you, Mr. Chairman. It's a pleasure to be 
here, Senator Domenici. Thank you for the invitation to be 
here, members of the committee. My statement is in the record, 
I presume, so I'm just going to chat about a few of the things 
we've heard about already today.
    I would note, for example, that the statement that we heard 
just a few minutes ago is exactly the reason why we need an 
RFS. Because left to their own self-interest, the refiners will 
not maximize the potential of renewable fuels. They will find 
1,000 different reasons why it doesn't make sense. So Congress 
was right in 2005 to require for the very first time that some 
percentage of the fuels that they market be from renewable 
sources.
    That 2005 bill was a tremendous success, and I believe the 
building upon that success with the bill that passed last 
December is good legislation, and you should be proud of what 
you did, and it is achievable. The legislation moves ethanol 
beyond just grain. It moves ethanol just being a blend 
component in gasoline to perhaps 1 day being a real alternative 
to petroleum. It moves ethanol to more sustainable energy 
technologies, for the very first time introducing the notion 
that motor fuels ought to have some greenhouse gas metric 
associated with it.
    That's important stuff. It is a tremendous achievement for 
this congress. This bill is absolutely achievable. There are 
questions about whether or not we can meet the aggressive 
targets for supply. Let me tell you--Yes, we can. With 
conventional ethanol, today there are 136 plants in operation. 
Each of you have plants in your own states. We are processing 
about 8 billion gallons of ethanol today, and 14 million tons 
of distillers feed that is adding to feed supplies across this 
country.
    But we've got 62 plants that are currently under 
construction, that'll almost double the size of this industry. 
There is no question that the 9 billion gallons required for 
2008 and the 15 billion gallons ultimately required of 
conventional biofuels will be met. With regard to cellulosic 
ethanol, 100 million gallons in 2010, it looks like a really 
big number here in 2008 with only one plant that is actually 
producing cellulosic ethanol today. But I will tell you that 
without the signal that this bill sent to the marketplace to 
invest in these technologies, it would never happen.
    You told the marketplace to finance these technologies. You 
told our industry to do the research. We are doing it. There is 
not a company I represent that doesn't have a cellulosic 
ethanol research program underway. There is cellulosic ethanol 
production today in Wyoming. Not much, but it's a start, some 
woody biomass. As has already been mentioned, there is another 
commercial-sized facility under construction in Georgia with 
range fuels, but there are many others.
    Archer Daniels Midland has a fiber process that they hope 
to have in operation soon that'll extend their ethanol supplies 
by 15 percent. Abengoa, which has production in New Mexico, has 
a cellulosic research facility under construction today. You 
look at all the other companies, from Bluefire that looks to 
produce cellulosic ethanol from a landfill outside of Los 
Angeles, to Poet, which is looking to build a facility in Iowa 
utilizing corncobs and corn spillover.
    I can't tell you whether or not acid hydrolysis or 
engimatic conversion, or thermochemical conversion is 
ultimately going to be the most economic way to process ethanol 
from cellulosic materials, but I can tell you that it will 
happen, and I believe 100 million gallons by 2010 is absolutely 
achievable. There's a lot that's going on that we don't even 
know about. I just learned about this facility that was in 
production a couple of weeks ago. So I can assure you we will 
meet those targets.
    With respect to logistics, clearly moving 8 billion gallons 
of ethanol around today is a challenge, but we are doing it. We 
are building upon the virtual pipeline with rail and barge and 
some truck. Terminals are adding capacity today. We were at a 
terminal last Friday up in Baltimore where they will be able to 
take unitrains of ethanol, and then pipeline-ship it to other 
terminals in the area.
    There is a lot going on. The signal that you had sent to 
the marketplace has been heard, and we will meet the targets 
that are involved. It's going to have tremendous benefits. An 
analysis that we did of the bill that you passed in December 
suggested we will have $1.7 trillion increased in GVP from 2008 
to 2022 as a result of this bill. It'll be responsible for 1.1 
million new jobs, green jobs, green-collar jobs. It's going to 
be critically important.
    The most important element, I might add, from the analysis 
we recently did, that this bill by 2022 will reduce greenhouse 
gas emissions by 176 million tons. Senators, that's the 
equivalent of taking 26 million vehicles off the road. That's 
what you started. It is achievable. Are there some things that 
probably need to be fixed? Yes. But fundamentally, this is good 
legislation, and I thank you for it.
    [The prepared statement of Mr. Dinneen follows:]

     Prepared Statement of Bob Dinneen President & CEO, Renewable 
                           Fuels Association

    Good morning, Chairman Bingaman, Ranking Member Domenici, and 
Members of the committee. My name is Bob Dinneen and I am president and 
CEO of the Renewable Fuels Association, the national trade association 
representing the U.S. ethanol industry. I am pleased to be here this 
morning to discuss the positive impacts ethanol and other renewable 
fuels are having on our economy and environment, and the tremendous 
role the Energy Independence and Security Act of 2007 (``2007 Energy 
Act'') will have in moving renewable fuels forward.
    Due to the visionary and invaluable work of this committee, the 
2007 Energy Act represents a remarkable revolution in energy policy in 
this country. By coupling increases in vehicle efficiency and renewable 
fuel use, America is taking the most immediate steps available that 
will have the greatest impact in securing a more sustainable energy 
future. The 2007 Energy Act clearly sets forth a path toward greater 
energy security and environmental sustainability.

                               BACKGROUND

    Today's ethanol industry consists of 137 ethanol plants nationwide 
that have the capacity to turn more than 2 billion bushels of grain 
into 7.6 billion gallons of high octane, clean burning motor fuel, and 
more than 14 million metric tons of livestock and poultry feed. There 
are currently 62 ethanol plants under construction and 8 plants 
undergoing expansions. It is a dynamic and growing industry that is 
revitalizing rural America, reducing emissions in our nation's cities, 
and lowering our dependence on imported petroleum.
    America's domestic ethanol producers are providing significant 
economic, environmental and energy security benefits today.
    In an overall environment of slowing economic growth, the U.S. 
ethanol industry stands out in sharp contrast. According to a report 
set to be released in late February from economist John Urbanchuk of 
LECG, LLC, the American ethanol industry is a job creating engine. The 
increase in economic activity resulting from ongoing production and 
construction of new ethanol capacity supported the creation of 238,541 
jobs in all sectors of the economy during 2007. These include more than 
46,000 additional jobs in America's manufacturing sector--American jobs 
making ethanol from grain produced by American farmers.
    Ethanol is also helping to stem the tide of global warming, today. 
The use of low carbon fuels like ethanol is reducing greenhouse gas 
emissions from the more than 200 million cars on American roads. The 9 
billion gallons of ethanol we will produce in 2008 will reduce 
greenhouse gas emissions by more than 14 million tons, or the 
equivalent of taking 2.5 million vehicles off the road.\1\ These 
benefits will only increase as new technologies, new feedstocks and new 
markets for renewable fuels are created.
---------------------------------------------------------------------------
    \1\ Air Improvement Resources, Inc., February 2008.
---------------------------------------------------------------------------
   2007 ENERGY ACT--ENERGY SECURITY THROUGH INCREASED PRODUCTION OF 
                                BIOFUELS

    The 2007 Energy Act provides meaningful incentives for investment 
in the production and infrastructure for biofuels in the U.S. Expansion 
of the domestic biofuels industry will provide significant economic 
benefits in terms of a larger and more robust economy, increased 
income, new job creation in all sectors of the economy, and enhanced 
tax revenues at both the Federal and State levels. Increased biofuels 
production and use stimulated by the expanded RFS will also enhance 
America's energy security by displacing imported crude oil. 
Specifically, expansion of the U.S. biofuels industry will\2\:
---------------------------------------------------------------------------
    \2\ Economic Impact of the Energy Independence and Security Act of 
2007, Renewable Fuel Standard, by John M. Urbanchuk, Director, LECG LLC 
(January 2008).

   Add more than $1.7 trillion (2007 dollars) to the gross 
        domestic product between 2008 and 2022;
   Generate an additional $436 billion (2007 dollars) of 
        household income for all Americans between 2008 and 2022;
   Support the creation of as many as 1.1 million new jobs in 
        all sectors of the economy by 2002;
   Generate $209 billion (2007 dollars) in new Federal tax 
        receipts; and,
   Improve America's energy security by displacing 11.3 billion 
        barrels of crude oil between 2008 and 2022 and reduce the 
        outflow of dollars to foreign oil producers by $817 billion 
        (2007 dollars) between 2008 and 2022.

    Finally, the 2007 Energy Act will greatly enhance the climate 
change benefits attributable to today's renewable fuels industry by 
encouraging more sustainable technologies and reducing the carbon 
footprint of future energy production. An analysis conducted for the 
RFA using the U.S. Department of Energy's existing GREET model shows 
that increasing the use of ethanol and other renewable fuels to 36 
billion gallons annually by 2022 could reduce greenhouse gas emissions 
by some 176 million metric tons, equal to removing the annual emissions 
of more than 27 million cars from the road.\3\
---------------------------------------------------------------------------
    \3\ Air Improvement Resources, Inc., February, 2008.
---------------------------------------------------------------------------
      THE 2007 ENERGY ACT STIMULATES CELLULOSIC ETHANOL PRODUCTION

    By expanding the Renewable Fuel Standard (RFS), requiring 36 
billion gallons of renewable fuel be used annually by 2022, and 
specifically that 21 billion gallons of that goal must come from 
advanced biofuels, history will look back upon the enactment of the 
2007 Energy Act as the moment America chose a new energy policy path. 
And by requiring that nearly 60 percent of the new RFS be met by 
advanced biofuels, including cellulosic ethanol, Congress has provided 
the necessary assurance for ethanol producers and investors that a 
market for their product will exist. As a result, the commercialization 
of these important next generation ethanol technologies will develop 
far sooner than conventional wisdom suggests.
    For example, last November, Range Fuels, Inc. broke ground on a 
commercial cellulosic ethanol plant located in Treutlen County, 
Georgia. The facility will use wood and wood waste from Georgia's pine 
forests and mills as its feedstock. Verenium is operating a cellulosic 
ethanol pilot plant and research and development facility in Jennings, 
Louisiana, and expects to complete a demonstration-scale facility using 
plant matter and farm scraps like sugarcane bagasse and wood chips as 
feedstock to produce cellulosic ethanol in 2008 at the same site. 
Abengoa Bioenergy operates a cellulosic biomass-to-ethanol pilot plant 
in York, Nebraska that will research and test proprietary technology 
for use in commercial-scale conversion of biomass into ethanol. POET 
Energy with expand an existing corn-based ethanol facility in 
Emmetsburg, Iowa into a bio-refinery that will include production of 
cellulosic ethanol from corn cobs and stover. And Iogen plans to build 
a cellulosic ethanol facility utilizing wheat and barley straw in 
Shelley, Idaho.
    A recent report by the U.S. Department of Commerce's Bureau of 
Manufacturing and Services, Energy in 2020: Assessing the Economic 
Effects of Commercialization of Cellulosic Ethanol, noted the 
commercial viability of cellulosic ethanol will strengthen the 
competitiveness of many domestic industries and have a positive effect 
on the U.S. economy. In fact, the report found that annual benefits for 
American consumers would total $12.6 billion if cellulosic ethanol 
production increased; U.S. crude oil imports would fall 4.1 percent if 
20 billion gallons of cellulosic ethanol were produced in 2020, which 
is approximately 40 percent of current crude oil imports from 
Venezuela; and, the global price of oil and the domestic U.S. fuel 
price would be 1.2 percent and 2.0 percent, respectively, lower than 
projected.
    In addition to the RFS, many of the other biofuels programs 
authorized by the 2007 Energy Act make the expanded RFS absolutely 
achievable. The 2007 Energy Act moves ethanol and renewable fuels 
beyond being just a blending component in gasoline, and guarantees that 
sufficient volumes of ethanol will be available to support the 
meaningful expansion of E-85 and flexible fuel vehicle technology.

    THE 2007 ENERGY ACT ENCOURAGES GREATER INVESTMENT IN RENEWABLE 
                          FUEL INFRASTRUCTURE

    As the demand for fuel ethanol grows, the infrastructure available 
to transport, store and blend ethanol into gasoline has expanded as 
well. The U.S. ethanol industry has been working to expand a ``Virtual 
Pipeline'' through aggressive use of the rail system, barge and truck 
traffic. As a result, we can move product quickly to those areas where 
it is needed. Many ethanol plants have the capability to load unit 
trains of ethanol for shipment to ethanol terminals in key markets. 
Unit trains are quickly becoming the norm, not the exception, which was 
not the case just a few years ago. Railroad companies are working with 
our industry to develop infrastructure to meet future demand for 
ethanol. We are also working closely with terminal operators and 
refiners to identify ethanol storage facilities and install blending 
equipment. We will continue to grow the necessary infrastructure to 
make sure that in any market we need to ship ethanol there is rail 
access at gasoline terminals, and that those terminals are able to take 
unit trains.
    A new ethanol trading and distribution center recently opened in 
Manley, Iowa, for example, that will help the industry distribute 
ethanol more efficiently. There will be more than 75 ethanol plants 
within 275 miles of the Manley terminal in operation by the end of 
2009--representing approximately 5.1 billion gallons. The Manley 
Terminal LLC will have storage capacity for 20 million gallons of 
renewable fuels. The facility will improve the efficiency of ethanol 
distribution by consolidating shipment in larger 70 to 95-car unit 
trains, and by improving utilization of ethanol suppliers' tank cars.
    Today, there is limited shipment of ethanol via pipeline. However, 
several major pipeline owners are considering various ethanol pipeline 
shipment scenarios. And the U.S. Department of Transportation has 
initiated a project to work with the industry to overcome barriers to 
pipeline shipments. Looking to the future, completion of a study on the 
feasibility of transporting ethanol by dedicated pipeline, as was 
included in the 2007 Energy Act, from the Midwest to the East and West 
coasts will be critical.

                         TECHNICAL CORRECTIONS

    As with any new law, there will be technical corrections and other 
adjustments necessary to allow renewable energy markets to function as 
intended under the 2007 Energy Act. The RFA respectfully offers for 
your consideration the following modifications to provisions in the 
2007 Energy Act that will allow the markets to work as effectively as 
possible.

   The 2007 Energy Act provides for public notice and comment 
        in other determinations by the Administrator regarding 
        lifecycle greenhouse gas emission, except for those provided in 
        the definitions for ``cellulosic biofuel'' and ``lifecycle 
        greenhouse gas emissions.'' Notice and comment should be 
        required for all lifecycle emissions determinations.
   The 2007 Energy Act excludes the possibility for plants 
        using corn starch, which is defined as ``conventional 
        biofuel,'' to qualify as ``advanced biofuel.'' Advanced 
        biofuels must meet a 50 percent reduction in greenhouse gas 
        emissions. However, one pathway for the use of cellulosic 
        feedstocks is for corn stover and other cellulosic material to 
        be co-processed with corn starch. The existing provision could 
        be interpreted as precluding the ethanol produced from such a 
        facility from being considered advanced biofuel. Moreover, with 
        new more sustainable technologies, it is quite possible that 
        corn-derived ethanol may one day meet the 50 percent reduction 
        in greenhouse gas emissions benchmark of advanced biofuels. 
        Corn starch ethanol plants should be incentivized to reduce 
        their greenhouse gas emissions, and reaching the targets 
        established for other processes should be rewarded. One option 
        is to delete the term ``conventional biofuel'' and the 
        exceptions for corn ethanol from the definition of advanced 
        biofuels. Given the strict requirements in the 2007 Energy Act, 
        there is no reason to preclude any facilities from the benefits 
        otherwise provided for achieving a 50 percent reduction in 
        greenhouse gas emissions.
   To address potential supply issues of cellulosic and 
        biomass-based diesel to meet the required volumes, the 2007 
        Energy Act includes specific waivers of their required volumes. 
        However, the 2007 Energy Act also states that the Administrator 
        may reduce the overall renewable fuel and advanced biofuel 
        volume requirements, potentially solely in light of the 
        reductions of these particular biofuels. These provisions 
        arguably conflict with the criteria for such waivers under 
        Section 211(o)(7)(A) and appear to be without regard to whether 
        other renewable fuel or advanced biofuels are available to make 
        up the difference. Under these provisions as written, 
        interested parties may also lose the ability to participate in 
        the process. There is no policy reason to allow for reductions 
        of the overall advanced biofuel or renewable fuel requirements 
        if there is more than adequate supply of other renewable fuels 
        or advanced biofuels.

    Any reductions of the advanced biofuel and renewable fuel 
        requirements should be limited to the criteria under Section 
        211(o)(7)(A) and any amounts of cellulosic biofuel or biomass-
        based diesel that are waived should be made up with other 
        advanced biofuels or renewable fuels. In other words, any 
        necessary waivers of cellulosic biofuel or biomass-based diesel 
        should not reduce the required volumes for advanced biofuel or 
        renewable fuel if other biofuels can make up the difference. 
        This preserves the incentives for cellulosic biofuels, but 
        accounts for the potential that the industry cannot keep pace, 
        while preserving the overall goal of the 2007 Energy Act to 
        require a specific amount of renewable fuel be sold each year 
        to reduce greenhouse gas emissions and dependence on foreign 
        oil.

   In recognition of the need and importance of E-85, the 2007 
        Energy Act included an expansion of the Petroleum Marketing 
        Practices Act (``PMPA'') to ensure that E85 infrastructure 
        could be installed at stations run by franchisees, if they 
        chose to. Specifically, the amendment prohibits restrictions by 
        franchisors on franchisees or any affiliate of the franchisee 
        related to the installation of renewable fuel infrastructure 
        and advertising and sale of such renewable fuel. However, 
        renewable fuel is defined in the amendment to the PMPA to 
        include only E85 and certain biodiesels. Thus, the 2007 Energy 
        Act's amendments to the PMPA do not address mid-level blends of 
        ethanol.

    In addition to E85, fuels with lower ethanol content, such as E15 
        or E20, may play an important and key role in meeting the new 
        renewable fuel standard requirements. As such, this amendment 
        should be expanded to include all fuels that utilize renewable 
        fuels in any form.

                               CONCLUSION

    The enactment of the 2007 Energy Act is a testament to what we can 
do when we work together toward a shared vision of the future. By 
increasingly relying on domestically produced renewable fuels, 
including next generation technologies such as cellulosic ethanol, we 
can begin the hard work necessary to mitigate the impact of global 
climate change, reduce our dependence on foreign oil, and leave a more 
stable and sustainable future for generations that follow.
    The Senate Energy and Natural Resources committee will continue to 
have an invaluable role to play in making sure our nation successfully 
increases the use of domestic, renewable energy sources. Without 
question, more work will be needed and the U.S. ethanol industry stands 
ready to work with you to assure the journey you embarked upon with 
passage of the 2007 Energy bill is realized.
    Thank you.

    The Chairman. Thank you very much.
    Mr. Jennings.

STATEMENT OF BRIAN JENNINGS, EXECUTIVE VICE PRESIDENT, AMERICAN 
                     COALITION FOR ETHANOL

    Mr. Jennings. Thank you, Mr. Chairman, Ranking Member 
Domenici, and members of the committee. My name is Brian 
Jennings. I am the Executive Vice President for the American 
Coalition for Ethanol. We are very grateful for the leadership 
that this committee established in getting the RFS provisions 
included in the Energy Independence and Security Act. 
Implemented properly, this far-reaching RFS will unleash the 
ability for both grain and cellulosic ethanol to provide the 
Nation with a meaningful supply of clean-burning, cost-
effective renewable fuel for years to come.
    According to the National Commission on Energy Policy, by 
the year 2020, the combination of the new RFS schedule and 
landmark cafe requirements in the energy bill will reduce by 
$73 billion annually the transfer wealth to foreign oil 
suppliers. This new RFS will also, as Bob Dinneen mentioned, 
support the rapid scalability of cellulosic biofuel 
technologies and encourage terminal operators to make the 
infrastructure investments to offload, store, and blend more 
ethanol.
    To the question you had, Mr. Chairman, about the ability of 
the logistics and infrastructure system to handle this volume, 
I concur with what Mr. Dinneen said. In fact, in the last 6 
months, the blending economics of ethanol--in other words, the 
bargain price of ethanol--has made it very profitable for 
petroleum operators and petroleum marketers to make the kind of 
infrastructure investments that indeed can bring on or saturate 
this new production. So we feel very confident about that. 
Hiccups can occur when you introduce a product into new areas, 
but the emerging markets and the infrastructure is indeed in 
place.
    This morning, I would like to focus on a significant 
concern about penalizing corn-based ethanol for so-called 
indirect land-use changes during the life cycle analysis 
provisions of the RFS. There is a mounting effort to argue or 
to claim that the use of grain in the United States to produce 
biofuel is triggering land-use changes in developing countries, 
and that the greenhouse gas emissions resulting from these 
activities should be counted against ethanol in determining its 
life cycle emissions.
    This theory assumes that United States corn ethanol is 
responsible for causing previously uncultivated land, such as 
rainforests in Brazil, to be cleared for agricultural 
production, when clearly other elements and factors are at 
play. It then calculates the greenhouse gas emissions 
associated with this activity, and shifts those emissions to 
the life cycle analysis of corn ethanol. We maintain there is 
not a direct cause and effect relationship between these 
events.
    The purpose of the Energy Independence and Security Act is 
to establish a framework for substantially reducing our 
expensive and risky reliance on petroleum, not to develop an 
implementation model which would drive a wedge between various 
beneficial forms of biofuel. Today, corn-based ethanol is the 
most effective and the primary means we have for achieving the 
greenhouse gas reduction objectives of the legislation.
    Indeed, the law deems that corn ethanol reduces greenhouse 
gasses compared to baseline gasoline by 20 percent. Very soon, 
cellulosic biofuel will be able to make even more dramatic 
reductions in greenhouse gasses. It is unmistakable. Decrease 
in petroleum use and greenhouse gas emissions in this country 
will require both grain and cellulosic biofuel. Now, we do 
recognize that in order to conduct a thorough and fair life 
cycle analysis of ethanol, domestic direct land-use changes may 
be considered.
    Fortunately, corn and other biofuel crops in this country 
reduce, recycle, and reuse greenhouse gasses as those crops 
grow. Nevertheless, if EPA applies an arbitrary indirect land 
use model which penalizes and undermines the benefits of corn 
ethanol in the RFS rulemaking, ACE will be forced to oppose the 
rule. We encourage the committee to clarify, if you take up the 
technical corrections bill, that the calculation of life cycle 
greenhouse gas emissions is limited to domestic impacts.
    With the little time that I have left, I want to highlight 
an opportunity that this energy bill indeed does provide, and 
it's been mentioned by previous speakers. A robust 36-billion-
gallon renewable fuel standard necessitates that ethanol will 
comprise a significant part of the fuel supply, at least one-
third of the fuel supply, creating opportunities for new blends 
of ethanol beyond those available today--E10 and E85.
    Based upon preliminary research that my organization co-
sponsored with the Department of Energy to look at the optimal 
blend of ethanol in gasoline, we discovered that new mid-level 
ethanol blends, such as E20 and E30, have the possibility to 
outperform gas in terms of fuel economy and tailpipe emissions. 
Now, more work needs to be done, but we look forward to working 
with members of this committee and Federal agencies to identify 
the additional testing and data necessary to underpin our 
preliminary findings and create a pathway for the approval of 
these new and promising midlevel blends.
    With that, Mr. Chairman, thank you very much for the 
opportunity to be here. I look forward to your questions.
    [The prepared statement of Mr. Jennings follows:]

    Prepared Statement of Brian Jennings, Executive Vice President, 
                  American Coalition for Ethanol (ACE)

    Thank you Chairman Bingaman, Ranking Member Domenici, and Members 
of the committee. My name is Brian Jennings and I am Executive Vice 
President of the American Coalition for Ethanol (ACE). ACE is the 
largest organization in the U.S., uniting businesses, organizations and 
individuals that support ethanol production and use. Nearly 1600 
ethanol producers, prospective ethanol producers, commodity and farm 
organizations, farmers and ranchers, investors, and businesses that 
supply goods and services to the U.S. ethanol industry comprise the 
grassroots membership of ACE.
    I am honored with this opportunity to address the committee today 
on an issue of critical significance to the U.S. biofuels industry: 
implementing the new renewable fuels standard (RFS) provisions of H.R. 
6, the Energy Independence and Security Act (EISA) of 2007 (P.L. 110-
140). The RFS program set forth in the bill is historic and should help 
catalyze dramatic growth in the U.S. biofuels industry in general and 
the cellulosic biofuels industry in particular.
    ACE is grateful for the leadership of Senators Bingaman and 
Domenici and their staffs in 2007 to establish a new, more ambitious 
RFS schedule. The course you charted in writing, introducing, and 
approving the Senate RFS of 36 billion gallons by 2022 in June of last 
year established the framework that was eventually included in the EISA 
2007. Enactment of this bill may be the most profoundly important shift 
toward renewable fuels and away from our risky and expensive reliance 
on fossil fuels ever taken in the U.S.
    The passage of the original RFS as part of the Energy Policy Act of 
2005 helped to propel the ethanol industry to extraordinary growth. At 
the conclusion of 2007, 137 plants were in operation in the U.S. 
producing more than 6.5 billion gallons of ethanol, far exceeding the 
4.7 bgy expected last year from the original RFS. Moreover, ethanol is 
now blended with more than one-half of the nation's fuel supply. EISA 
2007 amended and increased the RFS, requiring 9 billion gallons of 
renewable fuel use in 2008, stepping up to 36 billion gallons by 2022.
    Under the modified RFS, corn-based ethanol (conventional biofuel) 
is capped at 15 billion gallons by 2015 (approximately 5 billion 
bushels of corn for ethanol), while 21 of the 36 billion gallons in 
2022 must be derived from advanced biofuel such as cellulosic and non-
corn-based ethanol. This ambitious 36 bgy RFS will unleash the promise 
of ethanol as the principal alternative to gasoline in the U.S. and 
provide the nation with a stable supply of clean-burning, homegrown, 
renewable fuel for years to come.

                      IMPLICATIONS OF EISA OF 2007

    According to the National Commission on Energy Policy, the 
combination of the new RFS schedule and landmark corporate average fuel 
economy (CAFE) requirements in EISA 2007 will achieve numerous economic 
and environmental benefits:

   Reduction of transfer of wealth abroad of $73 billion per 
        year in 2020 and $129 billion in 2030, using current prices 
        ($90 per barrel oil, $3 per gallon gasoline)
   Reduction in U.S. oil use of 2.8 million barrels a day by 
        2020, and 5 mbd by 2030.
   U.S. consumer fuel savings of $71 billion per year in 2020, 
        and $161 billion in 2030, using approximate current prices.
   Reduction in U.S. CO2emissions by 320 million 
        metric tons in 2020, and 675 mmt in 2030.
   Reduction in passenger vehicle emissions by 15 and 30 
        percent, respectively, under what they otherwise would be.
   Reduction in 2020 of approximately 4 percent of projected 
        total net U.S. CO2 emissions versus what they would 
        otherwise be.

    Numerous additional positive effects will result from the 36 bgy 
RFS in EISA 2007. It will attract additional investment in the 
production of corn-based ethanol. Furthermore, it will drive private 
and public research entities and entrepreneurs to partner and rapidly 
scale-up cellulosic ethanol production technologies. And finally, it 
will give confidence to the petroleum industry that ethanol will be a 
more consequential component of the U.S. fuel supply, encouraging 
terminal operators and others to make the infrastructure investments to 
off-load, store and blend more ethanol. These infrastructure 
investments will compliment the progress already made by petroleum 
marketers due to ethanol's recent favorable blending economics, which 
have made it profitable for petroleum marketers to make infrastructure 
investments for storing and distributing ethanol.
    Since the new RFS was enacted we have reviewed it thoroughly and 
compared its requirements with the on-the-ground practical reality of 
producing biofuels to meet its goals. The timing of today's hearing is 
pivotal because EPA is beginning to consider how it will implement the 
RFS, and this hearing will help inform that process.
    There are a few provisions in the final bill that merit scrutiny, 
as they may inadvertently undermine efforts of the industry to meet the 
new RFS schedule. I wanted to take this opportunity to address one 
significant issue that we have identified which, unless addressed, will 
make it nearly impossible to achieve the full economic and 
environmental potential of this new biofuels program: concerns about 
penalizing corn-based ethanol for so-called ``indirect land use 
changes'' during implementation of the lifecycle analysis (LCA) 
provisions of the RFS. Following a comprehensive discussion of this 
primary concern, I will also note other issues of importance to ACE 
members.

   LIFECYCLE ANALYSIS OF GREENHOUSE GAS EMISSIONS--INDIRECT LAND USE 
                                CHANGES

    The new RFS schedule provides various carve-outs for renewable 
fuels based on their ability to reduce lifecycle greenhouse gas (GHG) 
emissions:

    Conventional Biofuel.--is ethanol from corn starch, and 
conventional ethanol facilities that commence construction after the 
date of enactment of EISA 2007 must achieve a 20 percent reduction in 
lifecycle GHG emissions compared to gasoline.
    Advanced Biofuel.--is renewable fuel (other than from corn starch) 
from biomass that reduces GHG emissions by 50 percent compared to 
gasoline. Cellulosic ethanol and biomass-based diesel qualify as 
advanced biofuel under the RFS.
    Cellulosic Biofuel.--is renewable fuel derived from cellulose, 
hemicellulose, and lignin, and achieves a 60 percent reduction in GHG 
emissions compared to gasoline.

    We are concerned that the definition of lifecycle GHG emissions in 
the bill may be construed by EPA in a manner that unfairly penalizes 
domestic grain-based ethanol, based on dubious linkages made to land 
clearing and agricultural practices in developing countries. There is a 
growing effort on the part of some interests, including EPA, to argue 
that the use of grain in the U.S. to produce ethanol is contributing to 
land use changes in developing countries and that the resulting GHG 
emissions should be counted against ethanol in determining its 
lifecycle emissions.
    The theory behind this indirect land use link goes as follows: 
First, a flawed presumption is made that the rise in U.S. corn prices 
is caused entirely by the demand for corn-based ethanol. Then, it is 
assumed that increased demand for corn in the U.S. is causing 
previously uncultivated land in developing nations, for instance 
rainforest in Brazil, to be cleared for agricultural production. This 
is referred to as an ``indirect land use change.'' It calculates the 
GHG emissions resulting from indirect land clearing and then assigns 
those estimated emissions to the LCA of corn-based ethanol in the U.S. 
There is no logical cause and effect relationship between these events. 
Moreover, it is inappropriate and impractical to use indirect land use 
changes to penalize grain-based ethanol in favor of other forms of 
biofuel. The purpose of EISA 2007 is to substantially reduce our risky 
and expensive reliance on petroleum and fossil fuel, not to drive a 
wedge between various beneficial forms of biofuel. Today, corn-based 
ethanol is the most important alternative available to accomplish the 
objective of the legislation. In the future, advanced and cellulosic 
biofuel will make more dramatic reductions in GHGs. But in the final 
analysis, our nation's effort to reduce petroleum use and GHG emissions 
will require both grain and cellulosic based biofuels.
    We recognize that in order to conduct a thorough LCA of GHG 
emissions from biofuel crops, direct land use changes may be 
considered. Market-driven factors which signal U.S. farmers to devote 
more acres to corn for ethanol and away from other crops are referred 
to as direct land use changes. While these direct land use changes may 
be calculated in LCA, it needs to be noted that corn and other biofuel 
crops reduce, recycle, and reuse GHGs as those crops grow.
    The Greenhouse gases, Regulated Emissions, and Energy use in 
Transportation (GREET) model developed by Dr. Wang of the U.S. 
Department of Energy, Argonne National Laboratory, establishes an 
objective and reliable framework for comparing the lifecycle GHG 
emissions from various fuels and feedstocks. GREET examines direct land 
use changes, and recognizes that biofuel feedstock crops such as corn 
recycle carbon emissions. On a per-gallon basis, GREET indicates that 
dry-mill corn-based ethanol (from natural gas powered facilities) 
reduces GHG emissions by 18 to 29 percent over gasoline. It is 
estimated that biomass-fired dry-mill corn-based ethanol facilities can 
reduce GHG emissions by as much as 54 percent compared to gasoline. 
According to GREET, cellulosic ethanol can reduce GHG emissions by as 
much as 90 percent.
    We recognize other models that can be used to analyze LCA GHG 
emissions of various fuels, but if EPA were to apply arbitrary indirect 
land use modeling and penalize grain-based ethanol in the RFS 
rulemaking, ACE will work to oppose the rule and encourage Congress to 
provide a common sense remedy. Further, ACE is going on record today to 
state it will vigorously work to oppose any proposed Low Carbon Fuels 
Standard (LCFS) legislation that attempts to use indirect land use 
changes in foreign countries in determining the LCA GHG emissions of 
grain-based ethanol.
    We strongly oppose the application of indirect land use changes as 
the basis for determining GHG emissions for domestic, grain-based 
ethanol because that method has many shortcomings.
    First, land clearing has been going on in developing countries for 
centuries, driven by population growth and the economic aspirations of 
farmers and consumers living in those countries. Land clearing occurred 
long before biofuels were a meaningful part of the energy supply.
    Today, agricultural markets are affected by global factors, and 
land use changes continue as a result of a wide variety of reasons, 
including but not limited to:

   Global economic growth--especially in nations such as China 
        and India where citizens are acquiring wealth and desiring the 
        lifestyle of Americans, eating more protein, and demanding 
        higher quality foods;
   Population growth;
   Internal land use and land tenure policies; and
   Weather factors

    According to the Food and Agricultural Policy Research Institute 
(FAPRI), the main factor driving crop prices (and as a result land use) 
in any given year is weather. This is perhaps most clear today in the 
recent case of wheat, where poor weather reduced yields in Europe, 
Australia, and North America, caused world wheat prices to rise, and 
resulted in great interest around the world to increase planted acreage 
for wheat. Given all these factors that affect crop markets and land 
use decisions, to base the GHG emissions of a fuel derived from a crop 
such as corn upon volatile global economics and weather conditions is 
bizarre, unworkable, and unfair. It is impossible to link with 
confidence land clearing in any particular country to the use of grain 
in the U.S. to produce ethanol.
    Furthermore, ascribing GHG emissions from land clearing in 
developing countries to biofuels production in the U.S. would hold the 
domestic ethanol industry to a uniquely punitive standard, one that no 
other U.S. industry would face under a national cap and trade program 
to limit GHG emissions. Under existing cap and trade proposals pending 
in Congress, including those introduced by Senators Bingaman and 
Specter and Senators Lieberman and Warner, certain U.S industries such 
as oil companies will be responsible for obtaining permits for the 
fossil fuels that they introduce into commerce. Users of fossil fuels 
and products derived from the use of fossil fuels will be indirectly 
affected by such regulation as costs for those fossil fuels increases 
in response to annual rationing of carbon credits under the cap. In no 
case would a U.S. industry be responsible for indirect effects of its 
activities on GHG emissions in other nations.
    In a global economy, virtually all economic activity in the U.S. 
will have direct and indirect economic and environmental impacts around 
the world. Thus, to consistently apply the principle that U.S. entities 
should be accountable for GHGs emitted in foreign countries, one would 
need to hold U.S. businesses and individual consumers responsible for 
all direct and indirect GHG emissions from foreign factories used to 
produce the goods consumed in the U.S., because those businesses or 
individuals create the market demand that leads to the foreign economic 
activity. Similarly, we would need to demand that foreign nations that 
import grain and other commodities from the U.S. be responsible for our 
domestic emissions generated in the cultivation or manufacture of those 
goods. This makes no sense.
    In summary, ascribing indirect effects associated with land 
clearing in foreign countries not only singles out the U.S. biofuels 
industry for uniquely unfair treatment, it establishes an unworkable 
precedent for regulation of other U.S. industries under future GHG 
control programs. The consideration of land use effects in LCA of GHGs 
should be limited to domestic direct impacts associated with growing 
grains for ethanol production. ACE hopes that the committee will 
clarify in a technical corrections bill that the calculation of 
lifecycle GHG emissions is limited to domestic impacts.

             OPPORTUNITIES FOR MID-LEVEL BLENDS OF ETHANOL

    Enactment of EISA 2007 with an ambitious new RFS guarantees that 
ethanol will comprise more than 10 percent of the U.S. fuel supply, 
creating opportunities for new blends of ethanol beyond those available 
to motorists today; E10 and E85.
    To further the probability of new mid-level blends such as E15, 
E20, or E30, ACE and the U.S. Department of Energy cosponsored an 
Optimal Ethanol Blend Level Investigation, conducted by the Energy and 
Environment Research Center of the University of North Dakota in 
conjunction with the Minnesota Center for Automotive Research of 
Minnesota State University-Mankato. We released the findings of this 
scientific study in this very committee hearing room on December 5, 
2007, with the assistance of Senators Dorgan and Thune, Assistant 
Secretary Karsner of the Department of Energy, Undersecretary Dorr of 
the Department of Agriculture, and key environmental and consumer 
advocates.
    The purpose of the scientific investigation was to utilize EPA and 
automaker test procedures to identify if mid-level blends of ethanol 
could have a beneficial application in standard autos. The research 
indicates that we haven't begun to recognize the value of ethanol--in 
energy conservation and environmental terms. If the U.S. were to be 
able to use 20 or 30 percent ethanol, it would result in an 
extraordinary reduction in our reliance on fossil fuels and 
dramatically extend the nation's fuel supply.
    The investigation revealed unprecedented data that E20 and E30 
blends can provide better fuel economy than regular gasoline (even in 
standard, non-flex-fuel cars), with fewer harmful tailpipe emissions. 
That shatters the myth about ethanol's fuel economy ``penalty'' that 
has been based solely on the energy content of ethanol.
    Even though this was a preliminary study we are encouraged that 
intermediate blends of ethanol could have positive implications for 
fuel efficiency, cleaner air, and energy security. ACE intends for our 
study to provide a catalyst for further analysis and research to 
support our results. Already, this additional research is underway with 
E20 in the State of Minnesota, providing further support to our 
findings and effort to make these blends a reality. Approving the use 
of blends such as E20 and E30 will be a top priority for ACE in the 
future, and we look forward to working with Members of the committee on 
creating a pathway for the approval of these blends.
    One way to help ensure the availability of mid-level blends of 
ethanol, is to guarantee the rapid implementation and funding of Title 
II, Section 244 of EISA 2007, which creates a new grant program within 
the Department of Energy to assist petroleum marketers by installing 
``blender pumps'' that enable consumers to choose to fill up on blends 
such as E20 or E30. We encourage the committee to help ensure this 
program is implemented and funded.

                 OTHER ISSUES OF CONCERN AND CONCLUSION

    Another significant issue that I would like to raise is the need to 
provide incentives for the corn ethanol industry to become more 
efficient in terms of lifecycle GHG emissions in the future. Technology 
innovations are driving the future of the U.S. ethanol industry. Corn 
ethanol plants are becoming more efficient in their use of energy and 
water, in many cases cutting use of these inputs by half compared with 
rates only a few years ago. And there are dozens of new companies in 
the process of commercializing technology to convert a range of 
cellulosic feedstocks to ethanol and other cutting-edge biofuels. In 
the original Senate-passed version of the new RFS program, there was a 
1.5 credit for every gallon of ethanol produced from plants that used 
at least ninety less fossil fuel inputs than conventional plants. That 
provision provided important encouragement to the ethanol industry to 
continue to seek innovative ways to reduce fossil fuel inputs and GHG 
emissions associated with those fuels. ACE recognizes the need for 
ethanol plants to become as efficient as possible in the coming years 
with respect to the use of both energy and water and we are proud of 
the work being undertaken currently to the develop technical advances 
necessary to achieve those goals. We hope that the committee would 
consider restoring this provision in a technical corrections bill.
    Finally, we are concerned that the discretion granted to EPA in 
implementing the advanced biofuels portion of the RFS could be used 
liberally by the agency, thus undermining the achievement of the 
program milestones set by Congress. Inappropriate use of the waiver 
authority by the agency could create future market uncertainty and 
hinder efforts by this emerging segment of the industry to gain access 
to needed capital investment.
    In conclusion, I would like once again to express my profound 
thanks to Senators Bingaman and Domenici and your staffs for your work 
to design and enact the new RFS. Thank you also for the opportunity to 
offer our views today, and, on behalf of the members of ACE, I commend 
your leadership on ethanol issues. This historic program has the 
potential to revolutionize the American biofuels industry, help reduce 
our dependence on foreign oil and dramatically reduce emissions of 
greenhouse gases from transportation sector. I look forward to your 
questions.
    Thank you.

    The Chairman. Thank you very much. I'm told Senator Craig 
has a question he wanted to put to one of the witnesses related 
to a particular issue, and he will have to leave after that. So 
go right ahead.
    Senator Craig. Thank you very much. I'll ask only one 
question, and it's a refinery question. The small refinery 
extension that was included in the Senate RFS, but left out of 
the final RFS, can this be fixed through rulemaking, or do we 
need to think this will require a legislative fix?
    Mr. Drevna. Senator, to answer your question, NPR already 
prides itself in addressing almost all issues, and we confront 
them directly, and we think we confront them forcefully. 
Unfortunately, this is one that we politely take a pass on. We 
have members who are the largest of the large, and the smallest 
of the small, and everyone in between. So on small refinery 
exemptions, we have no position. So I'm sorry I can't give you 
the answer you're looking for.
    Senator Craig. That's not your style at all to duck a 
question. All right.
    Mr. Drevna. I'm learning, Senator. I'm learning.
    Senator Craig. All right. Thank you very much. Appreciate 
it. Thank you, Mr. Chairman.
    The Chairman. Thank you very much. Let me ask a couple of 
questions, and then defer to Senator Domenici and Senator 
Salazar. Let me ask about this RINs credit market, as people 
understand it. I think you talked about it in your testimony, 
Mr. Drevna, and one of the suggestions is that these RFS 
credits or RIN might be--the time that they could be usable 
might be extended beyond 12 months to make compliance easier in 
the early years of this mandate.
    I'd be interested in your thoughts as to whether that's a 
useful thing to think about, or if that's needed, or do you see 
any problem with this RINs market?
    Mr. Drevna. I can answer your second question first, 
Senator, the problem with the RINs market. We have the same 
position on RINs going forward in the Bill of 2007 as we did in 
EPACT 2005. We believe that only obligated parties should be 
the ones who can separate with RINs and who have the ownership 
of these things once the ethanol or the biofuel is delivered to 
us.
    We talked about our concerns about the system being skewed 
or the system being rigged. If we open this up to an open 
market--let me suggest that NPRA is always for an open market. 
We think that's the way to go. Unfortunately, this bill is not 
an open market, so I think those RINs have to be carefully 
controlled and understood exactly who has ownership of them and 
where they can go. That being said, the timeframe for holding 
on or to be able to use a RIN is critical to the industry, and 
to the consumer. I mean, ultimately, it's going to end up 
figuring out we're going to work all this at the pump.
    Mr. Dinneen talked about a virtual pipeline. Unfortunately, 
I can't come forward to this committee and say, ``Well, we 
virtually comply.'' We have to have certainty. Extending the 
RINs to some level--right now, we're going to have to sit down 
and figure out what that is. But given the fact that even 
though there's a potential for 9 billion gallons to be 
produced--I think it was Senator Domenici in his opening 
remarks who stated that even if it's produced, can we get it to 
where it has to be? If we can't, we're noncompliant. That's why 
we're looking at how the life cycle of the RINs are very 
important. Twelve months may not be long enough.
    The Chairman. Mr. Dinneen, did you have a thought on that?
    Mr. Dinneen. I do. Actually, I think the way that EPA 
implemented the rule gives a great deal of flexibility already 
to refiners, because the way they defined the 2005 Act and all 
the implementation from 2005 will extend to the new RFS is that 
the RINs have a life of essentially the year in which they are 
created, and in addition get up to 2 years.
    RINs will have a value, depending on what the relative 
market is with respect to ethanol and gasoline. Right now, RINs 
are trading for about 3 cents a RIN, because the price of 
ethanol is so much cheaper than gasoline. It's just better for 
refiners to purchase the ethanol than to purchase a RIN. But 
nobody believes that there's going to be a shortage of them. 
Nobody believes that it's going to be a hassle. There are 
probably 800 million RINs that can be used for 2008 already.
    So I think the system is working exactly as intended. It is 
providing refiners with the flexibility Congress wanted them to 
have. We can only market the RINs to an obligated party. So if 
they then go to a broker or something that might influence the 
market in some way, it's because refiners then traded or sold 
them to them. So I think the system is plenty flexible for 
refiners and is working just fine.
    Mr. Drevna. Senator, may I comment?
    The Chairman. Yes, please.
    Mr. Drevna. When you look at the total number of gallons 
that are, again, frontloaded on this thing, 2008 is going to be 
very problematic. 2009 is going to be very problematic. There 
may not be enough RINs out there when we're going to 
essentially double the EPACT 2005 mandate of 2012. So I think 
that is a very valid concern of the refiners. Just not the 
refiners--all obligated parties, that are refiners, blenders, 
and importers. Thank you, sir.
    The Chairman. All right. Let me stop with that, and defer 
to Senator Domenici for questions.
    Senator Domenici. I guess I am kind of wondering as we see 
all of you and who you represent, am I correct that we don't 
have any witnesses that represent the businesses that are 
currently large and big in transportation and pump delivery at 
the car level right now in the United States? They're not at 
this table.
    How come? Are they not playing in this game? All this 
infrastructure that we've got now across America, by the 
hundreds of millions of dollars, or billions, is it going to be 
used? Are we going to substitute for it? How does all of that 
work? Shouldn't there be a witness here telling us what the 
delivery systems that are out there think about this? Are they 
represented? No. Why not, Mr. Drevna? I don't mean why are they 
not at the table. Why are they----
    Mr. Drevna. If I may speak for what I call the combined 
fuels industry, just not the refiners, but refiners, pipelines, 
terminals, and marketers, we've worked very closely together 
over the years. Implementation of the ULSD program, 
implementation of the RFS EPACT of 2005. I can't answer why 
they weren't invited here, sir, but we are working very 
closely, and we will work with them, because the pipelines, the 
terminals, as someone mentioned, we've got the 1500 terminals 
throughout the country putting----
    Senator Domenici. But the question is, are they working 
with the government? Are they hard at work trying to be part of 
getting----
    Mr. Drevna. I think as Mr. Meyers mentioned in this 
testimony, EPA is holding various stakeholder meetings, and I 
am very positive that those groups either are or will be part 
at the table.
    Senator Domenici. Mr. Dinneen.
    Mr. Dinneen. I would just say, the refiners are the 
obligated parties here. I mean, they're the ones that are 
responsible for making sure the fuel is ultimately used, and 
they will have contractual relationships with gasoline 
marketers to make sure that occurs. The Society of Independent 
Gasoline Marketers of America and NACS, the convenience store 
folks, they certainly have been very well-represented 
throughout the rulemaking process. We work with them. I know 
Charlie's group works with them very closely to make sure that 
they are part of this whole program.
    Senator Domenici. Mr. Drevna, you note in your testimony, 
``limited infrastructure for transporting ethanol is an 
immediate problem.'' I just went over that, and spoke as if you 
were moving and the whole system was working. If we can't get 
ethanol transported now, how are we going to get the rest of 
this in play?
    Mr. Drevna. Sir, that again, that's one of the problems I 
wanted to highlight both in our written testimony and oral 
testimony is that this thing is so frontloaded. Nothing's 
really changed. People have been working and thinking about 
this, but nothing has really changed since I testified in front 
of you last year about the concerns we have on infrastructure.
    If you look at the removal of MTBE, and the addition of 
ethanol, that wasn't without its problems, but it wasn't 
insurmountable in the fact that it was RFG area, we knew we had 
to get things to it. This bill, as currently constructed, is 
going to require ethanol in every gallon of gasoline throughout 
the country. There are certain areas throughout the country 
where you have to sit and think, ``Is that the right thing to 
do?'' because of summertime problems of fuel blends.
    The pipelines are going to have to say--and we're going to 
have to potentially make two or three different blends of 
product to ship in the pipelines, which are already having too 
many separate kinds of products being shipped. That's what we 
talked about, the infrastructure. It's not easy to get blending 
facilities permitted at 1500 terminals throughout the country, 
especially in some areas of the country where we can't get 
anything permitted.
    Mr. Jennings. Senator Domenici, thankfully we're not having 
to rely upon the refiners to get our product to the terminals, 
and we are doing so pretty effectively today. About 60 percent 
of the ethanol that moves around the country is shipped via 
rail, and we are increasingly using unitrains, which is 90 
cars, 30,000 gallons a car, so you have about essentially 3 
million gallons of ethanol moving all over the country all the 
time.
    If you were to move all 36 billion gallons of renewables by 
train--which you won't--but if you would, that would take 14 
million unitrains. That seems like a really big number, and it 
seems insurmountable, until you consider that that's less than 
4 percent of the rail traffic today.
    We can do this. We're going to do it by continuing to use 
barge where it makes sense, rail where it makes sense, and in 
the future, potentially pipelines where it makes sense. All of 
the pipeline companies are looking at whether or not it makes 
economic sense, because you can do it physically, but whether 
or not it makes economic sense to do that. The bill that you 
passed indeed requires the Department of Energy to investigate 
those potential opportunities, as well.
    The infrastructure issues are not trivial, but there's 
certainly nothing that cannot be overcome. Our member companies 
can read MapQuest as well as anybody else. We'll get product to 
wherever it needs to be.
    Mr. Jennings. Senator Domenici, if I could add something to 
that.
    Senator Domenici. Sure.
    Mr. Jennings. I stated earlier that the blending economics, 
the value of ethanol, the price of ethanol in the last 6 months 
sent a signal to the marketplace. What I meant by that is it 
sent a signal to terminal operators and petroleum marketers to 
make the kind of infrastructure investments so that they can 
profit from ethanol, and they're doing that all around the 
country and they have been. A lot of this activity took place 
in the Carolinas, in Georgia, particularly in Atlanta, and 
increasingly in Florida.
    What we will see as a result of both those market-driven 
factors and with this new RFS and the signal that it sends is 
that those will become important in emerging markets over the 
first quarter of this year and throughout 2008. So, we do feel 
confident that those partners that you mentioned that need to 
be at the table have been when it comes to making some of those 
infrastructure investments and that we can get this done.
    Will it happen seamlessly without hiccups? We can't say 
that. There are offloading issues when you unload rail cars, 
but we feel very good about the possibilities of making this 
happen in a very consistent, seamless way.
    Senator Domenici. One more, Mr. McAdams.
    Mr. McAdams. Senator Domenici, I just want to, again, make 
a medium-term comment. Many of the companies that I represent 
are developing technologies that would alleviate this whole 
infrastructure requirement. Many of these technologies could 
literally partner in a standing ethanol facility, making 
fungible product. It wouldn't be in ethanol. It would be a 
hydrocarbon molecule. That's why I went through the molecule 
piece in my testimony.
    Senator Domenici. Right.
    Mr. McAdams. It would literally be able to use the current 
infrastructure in place, in the current engines. Now, I'm not 
going to suggest that they're going to be able to help in the 
2008/2009 timeframe, but from 2012 forward, these technologies 
hold a lot of promise, and would significantly reduce cost to 
the consumers.
    Senator Domenici. I understand. Thank you, Mr. Chairman, 
thank you, witnesses.
    The Chairman. Senator Salazar.
    Senator Salazar. Thank you very much, Chairman Bingaman and 
Senator Domenici. It's always an honor to be a part of this 
committee and working with both of you on these issues. For us, 
the passage of this 36-billion-gallon RFS was, I think, was one 
of the major achievements of this Energy committee, and I'm 
very proud to have been a part of that effort.
    My two questions really relate to how we arrived at what 
some people have said is an ambitious goal. I hear all of you 
saying that it's a doable goal, how we get there, and I have 
one technical question and then one that's a broader question. 
My first one is a technical question for you, Mr. McAdams, and 
that is I believe that the language that we used in terms of 
the kind of feedstock that can be used was a much better 
definition of what frankly came up at conference and what got 
into this committee.
    For me, when I look at the plant being constructed in 
Georgia, or I see the massive multimillion acres of beetle kill 
that we have in the State of Colorado today, I looked at woody 
biomass as one of those things that we ought to be looking at, 
and that fits the feedstock utility that you were referring to. 
So would you be in agreement that that's one of the technical 
fixes that we ought to be making to the RFS as we move forward 
in examining where we are?
    Mr. McAdams. I spoke to several of my cellulosic companies 
that would use the very material that's been excluded. By the 
way the definitions were written, some of them will sign a 
letter that will be going to the Act committee on Friday. I 
would request, Senator Bingaman, on November 27 of last year, 
the Advanced Biofuels Coalition wrote a letter to you, Speaker 
Pelosi, and Members of the House, raising some of the issues 
that we saw with the original House draft.
    If you would like to put that in the record, I'd be 
delighted to provide that for the record. But, yes, the short 
answer would be, yes, sir.
    Senator Salazar. I would be very interested, and I'm sure 
the members of this committee would be, to get that kind of 
information, because I think we have a vision and agreement of 
where we want to go with respect to biofuels. But the reality 
is that there are some technical issues that I think need to be 
addressed to help us get there. Let me ask a second, more 
generic question, to all of you.
    We in this committee and on the Finance committee, which 
Senator Bingaman and I sit on, as well as the Agriculture 
committee, have been working very hard on advanced biofuels and 
cellulosic ethanol. You know I have a tax credit provision in 
title 9 of the Farm Bill that will help us move forward, I 
think, with opening up new opportunities with cellulosic 
ethanol.
    We had legislation that went to the floor of the United 
States Senate last year which would have garnered 59 votes that 
would have been a very significant finance package that would 
have been a part of the energy bill that would have gone 
forward. There were major incentives in that legislation to 
help us create this new frontier of renewable energy for 
America.
    If you will just each of you take 30 seconds, and I'll 
start with you Mr. Jennings, and we'll just go across the 
table, and talk to me about the importance of that finance part 
of the package for this energy future that we're dealing with, 
starting with you.
    Mr. Jennings. Thank you, Senator Salazar. You're correct. 
That sort of incentive is critical to help launch these new 
technologies. The entrepreneurs that are looking at cellulosic 
biofuel, whether it's range fuels in your home State or the 
dozens of others that are scattered around the country, need a 
little confidence from the lending community, and frankly, the 
lenders do, as well, that they can take the risk to dive into 
these technologies. The lenders are going to need to see those 
sort of incentives from the public sector, and those 
entrepreneurs, those businesses are, as well.
    So, I concur with you. It's a critical component to getting 
cellulosic ethanol off and running, and so we would support 
that.
    Senator Salazar. Mr. Dinneen.
    Mr. Dinneen. I will uncharacteristically take less than the 
30 seconds you've allotted me and say, yes, we supported that 
enthusiastically.
    Senator Salazar. Thank you.
    Mr. McAdams.
    Mr. McAdams. Not only do we support that effort. We also 
compliment you with your amendment on the Farm Bill which 
clarified that the cellulosic language should not be cellulosic 
alcohol, but cellulosic biofuels, to allow this new partnership 
of technologies to take place in the future. So absolutely.
    Senator Salazar. Thank you.
    Mr. Drevna.
    Mr. Drevna. Senator, we support and always have supported 
RND for industries that are up and coming. What we don't 
support is having other industries pay for that, through 
punitive taxes. I believe we should be putting a lot of effort, 
as our member companies are, putting into cellulosic research 
and have been. But I think it should be done on an equitable 
basis, not a punitive tax----
    Senator Salazar. Where do you think we should get the money 
then to----
    Mr. Drevna. I think government or public partnerships are 
fine. But we can't penalize one industry and help another one. 
We've got to make sure all homegrown industries in this country 
are, I believe, are treated fairly.
    Senator Salazar. Ms. Werner, do you have a comment on that?
    Ms. Werner. Yes. We support the tax provisions to help move 
the new technologies forward, and in fact, this will be part of 
a congressional briefing that we're doing next week. We'll be 
looking at budget and tax issues facing renewables and energy 
efficiency technology.
    Senator Salazar. Just a closing quick comment to the panel. 
I think this is an agenda that is here for us. At least, for 
this Senator and I know for a number of my colleagues, for a 
long time to come. It's not a fad that's going to pass in a 
month or 2 years or 5 years, and there's going to be a lot of 
learning in the process, whether it's technical fixes with 
respect to how we define the feedstocks and neutrality, or how 
we as a national government deal with this huge issue of 
national security and how we incentify this reality to occur. I 
look very much forward to working with your associations and 
your members. Thank you very much.
    The Chairman. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman, and my apologies to 
you and the witnesses for being late. This is one of those 
times where you're trying to be everywhere, and you can't do 
it. Thank you all. I want to ask you a question, if I could, 
Ms. Werner, about biomass, which of course is extraordinarily 
important in the rural West, where we see this as an 
opportunity to take steps that are good for the environment and 
good for rural communities, and especially a significant 
economic bonanza for a lot of our rural areas.
    The key is to really do it right. Here in the Senate, we 
have wrestled in particular with the definition of biomass, 
both in our committee and on the floor. We have tried to strike 
a balance so as to ensure that there would be adequate 
material, particularly from the Federal lands, and we would be 
sensitive for the protection for old-growth. We did it in a 
bipartisan way, and we felt that it was well-received, frankly, 
by both folks in the forest products industry and from the 
environmental community.
    Unfortunately, the House went a different direction, and 
that is what emerged in the final legislation, and I find it 
very troubling, and I think quite a few other members of the 
Senate do, as well, on a bipartisan basis. We've got literally 
millions of acres of overstocked forests in our country that 
badly needs thinning, and we need these forest health projects, 
as I mentioned. This is something that is good for the 
environment, and good for the economy.
    I chaired a hearing in the Subcommittee on the Forests 
recently where witness after witness raised questions about 
this, and every Western member hears about it. So now, we've 
got to figure out how to get this definition changed, and come 
up with something that strikes a more realistic balance. I want 
to get your sense of why this is an important issue, and what 
your thoughts are on how the Congress ought to move forward 
with development of biomass fuel by thinning and approaches 
that are sensible on Federal forestland.
    Ms. Werner. Thank you very much, Senator Wyden. I must 
mention that just last week I was at a conference, the 
Harvesting Clean Energy Conference in Portland, Oregon, and 
this whole issue at this 600-plus conference was talked about 
very, very greatly, because of so many concerns about the huge 
amount of woody biomass that is available that would not be 
allowed under the terms of the current definition.
    So, as I try to do in my written testimony, is to lay out a 
lot of the rationale for why this exclusion, we believe, is 
inappropriate and, in fact, that if we really are concerned 
about sustainable forest management and all of the other 
attributes that it can really mean for communities across the 
country, certainly in the West, where people are dealing with 
enormous challenges in terms of the need for thinning, which 
makes sense for prevention of catastrophic wildfires, where it 
makes sense for overall restoration forestry, that it is a 
really critical and diverse feedstock that should be tapped. 
Therefore, we would very much hope that the Congress would see 
fit to rectify this omission.
    Senator Wyden. I appreciate your testimony and advice on 
this, and we're going to want your counsel in the days ahead. I 
know Chairman Bingaman has great interest in this, and Senator 
Domenici. What happened, we had this come up at length in the 
committee and under the leadership of Chairman Bingaman's 
staff, we spent a lot of time thrashing through that 
definition, we were able to improve it further as it went 
forward in the Senate, and I think what we've got now as a 
result largely of the handiwork of the House of Representatives 
is a definition that is actually going to block needed forest 
management and thinning and biomass work going forward.
    When what we need is to be significantly more proactive, 
and at least in Senate, we've done it in a way that's brought 
the environmental community and the forest products sector 
together. So we thank you for your counsel. We'll be back to 
ask for additional counsel and your expertise as we go forward.
    Ms. Werner. Thank you, Senator Wyden. If I could just 
amplify one issue, as well, and that is I had also mentioned in 
my testimony that we were concerned about--and I know you share 
this concern--in terms of the need to make sure we really 
reduce greenhouse gas emissions. But by the risk of not 
thinning, that we actually when we think about catastrophic 
wildfires, the amount of carbon that goes into the atmosphere 
is also catastrophic to our atmosphere.
    Senator Wyden. Thank you, Mr. Chairman.
    The Chairman. Let me ask one other question, and then we'll 
terminate the hearing. But Mr. Dinneen, I asked this question 
of the first panel. Regarding the Range Fuels cellulosic 
ethanol plant that is being constructed down in Georgia, could 
you give us your opinion as to whether the cellulosic ethanol 
that's produced from that would count toward the RFS?
    The way I understand the legislation, it is that the 
biomass that's going to be used in that plant in Georgia is 
coming from private forests, and the legislation does not allow 
biomass from those sources to be considered as part of 
renewable fuel under the definition. Do you have that concern, 
or am I wrong about that?
    Mr. Dinneen. I'm not sure that the definitional implication 
there is really a factor. I think if they're producing ethanol 
from wood waste, which is what their plan is, it should most 
certainly qualify under the greenhouse gas metric that is 
established in the bill. Now, having said that, the reason 
everybody assumes that that is the case is because they look at 
DOE's existing GRET model.
    If you plug in their process in that model, it would 
suggest between an 80 and 90 percent reduction in greenhouse 
gasses. The issue that Mr. Jennings raised earlier, however, 
about indirect impacts leaves some uncertainty. Until EPA 
promulgates a rule and gives a little bit more direction as to 
exactly how they intend to implement the greenhouse gas 
thresholds in that element of the bill, nobody really knows. 
But I think it's a safe bet that cellulosic ethanol will be 
able to meet those targets.
    The Chairman. The concern about this biomass coming from 
private forests that are not allowed to be considered under the 
renewable fuel definition, that's not a concern?
    Mr. Dinneen. If you would indulge me, let me get back to 
the committee on that specific question. I am not aware that 
that issue had been raised, but I will look into it and get 
back to you.
    The Chairman. All right. Thank you all. I think it's been 
useful testimony. We appreciate you being here, and that 
concludes the hearing.
    [Whereupon, at 11:29 a.m. the hearing was adjourned.]


                               APPENDIXES

                              ----------                              


                               Appendix I

                   Responses to Additional Questions

                              ----------                              

                               Renewable Fuels Association,
                                 Washington, DC, February 21, 2008.
Hon. Jeff Bingaman,
Chairman, Energy and Natural Resources Committee, United States Senate, 
        Washington, DC.
Hon. Daniel Akaka,
U.S. Senate, Washington, DC.
Hon. John Barrasso,
U.S. Senate, Washington, DC.
    Dear Chairman Bingaman and Senators Akaka and Barrasso: The 
Renewable Fuels Association (RFA) appreciates the opportunity to 
respond to follow up questions from the February 7, 2008 hearing on the 
positive impacts ethanol and other renewable fuels are having on our 
economy and environment, and the tremendous role the Energy 
Independence and Security Act of 2007 (``2007 Energy Act'') will have 
in moving renewable fuels forward.
    As I stated in my testimony before the committee, the enactment of 
the 2007 Energy Act is a testament to what we can do when we work 
together toward a shared vision of the future. By increasingly relying 
on domestically produced renewable fuels, including next generation 
technologies such as cellulosic ethanol, we can begin the hard work 
necessary to mitigate the impact of global climate change, reduce our 
dependence on foreign oil, and leave a more stable and sustainable 
future for generations that follow.
    Attached please find the RFA's responses to questions from Members 
of the committee. If there is any additional information you would like 
the RFA to provide, please do not hesitate to ask.
            Sincerely,
                                               Bob Dinneen,
                                                   President & CEO.

              Responses to Questions From Senator Bingaman

    Question 1. Could you comment on whether the cellulosic ethanol 
produced from the Range Fuel facility in Georgia would count toward the 
RFS? We understand that the feedstock is intended to come from 
commercial wood waste and private forests, which do not qualify as 
``renewable biomass.''
    Answer. Cellulosic ethanol produced using feedstock from commercial 
wood waste and private forests may count toward the RFS if the 
feedstock meets certain conditions. The restrictions seem overly broad 
for the intended purpose. Because these limitations may substantially 
restrict qualifying feedstock, it is possible that Range Fuels may find 
it difficult to produce cellulosic ethanol that would qualify. It is 
the RFA's understanding, however, the conversion system employed by 
Range Fuels at the Georgia facility will be able to convert a broad 
range of feedstocks, depending upon quantity and availability, into 
cellulosic ethanol.
    Question 2. There seem to be some differences of opinion on how 
much authority the Administrator has to reset the mandate. Is it your 
understanding that the Administrator will have the legal authority to 
set all the applicable volumes required in the RFS to zero after 2016? 
Does this concern you?
    Answer. The RFA is not concerned for the following reasons. The 
2007 Energy Act constrains any initial waiver of the mandate with two 
very high hurdles that the RFA does not expect to come into play. Under 
Section 211(o)(7), waivers are limited to situations where 
implementation of the requirements would ``severely harm the economy or 
environment of a State, a region, or the United States'' or where 
``there is an inadequate domestic supply.'' Furthermore, the statute 
states that the waiver may be in whole or in part which the RFA reads 
as indicating the waiver as limited to the extent necessary to 
alleviate whatever adverse effect is found or to compensate for the 
supply level that is missing and no more. Thus, it would be very hard 
to envision a situation where the initial waiver takes the RFS level to 
zero.
    Any additional modification under the new provision, Section 
211(o)(7)(F), would more likely involve an increase and must comply 
with the factors in Section 211(o)(2)(B)(ii), application of which 
could not reasonably lead to a zero RFS level. Section 211(o)(7)(F) 
only applies if the initial waiver is a substantial one--greater than 
20 percent in two consecutive years or greater than 50 percent in a 
single year. In such an event, the 2007 Energy Act refers the 
Administrator back to the original list of factors to set the mandate 
level--the same factors that apply after 2022. So, in essence, this 
provision merely accelerates the 2022 determination. The Administrator 
could decide in that rulemaking to increase the RFS levels to make up 
for any initial waivers that were issued to alleviate hiccups during 
the startup of the program. In the unexpected consequence of severe 
environmental harm, it could involve a decrease but again any such 
decision would be made through rulemaking and would be bounded by the 
factors in paragraph (2)(B)(ii).\1\
---------------------------------------------------------------------------
    \1\ The factors are:
     (I) the impact of the production and use of renewable fuels on the 
environment, including on air quality, climate change, conversion of 
wetlands, ecosystems, wildlife habitat, water quality, and water 
supply;
     (II) the impact of renewable fuels on the energy security of the 
United States;
     (III) the expected annual rate of future commercial production of 
renewable fuels, including advanced biofuels in each category 
(cellulosic biofuel and biomass-based diesel);
     (IV) the impact of renewable fuels on the infrastructure of the 
United States, including deliverability of materials, goods, and 
products other than renewable fuel, and the sufficiency of 
infrastructure to deliver and use renewable fuel;
     (V) the impact of the use of renewable fuels on the cost to 
consumers of transportation fuel and on the cost to transport goods; 
and
     (VI) the impact of the use of renewable fuels on other factors, 
including job creation, the price and supply of agricultural 
commodities, rural economic development, and food prices.
---------------------------------------------------------------------------
                                 ______
                                 
                Response to Question From Senator Akaka

    Question 1. During today's testimony, you gave some interesting 
facts regarding how expansion of the U.S. biofuels will benefit the 
economy and the Gross Domestic Product (GDP), as well as create new 
jobs (particularly for green-collar workers). You also mentioned that 
distribution, particularly to rural/remote areas, should not be a 
problem, as presently, distribution is facilitated by railcars. Having 
more fuel to distribute implies that there will be more railcars used 
in transport.
    Do your calculations and observations include remote areas with 
limited, renewable biomass that are not on the continental U.S., e.g., 
Hawaii and the US territories? Will distribution costs be a limiting 
factor for these areas, especially for Hawaii, which does not benefit 
from railcar transport? If so, what suggestions would you have for 
Hawaii to limit or reduce these costs?
    Answer. The RFA's analysis covers all 50 United States, including 
Hawaii, but does not include U.S. territories (e.g. Guam, American 
Samoa, USVI, etc). Distribution costs are not expected to be a major 
problem or impediment for the biofuels industry in these areas for 
several reasons. First, their geographic isolation from the Continental 
United States suggests that biofuels will be produced from locally 
available feedstocks (sugarcane, molasses, bagasse, or agricultural 
waste in Hawaii) and supplied to local markets. Second, these biofuels 
industries are likely to be self contained with production located near 
feedstock supplies. The relative small geography and few concentrated 
markets for biofuel in Hawaii will utilize existing transportation 
modes (largely truck) with little need for extensive new rail 
infrastructure. It is also worth noting that while 60 percent of 
ethanol is transported via rail today, a growing percentage of ethanol 
is now traveling via barge--a method of transportation that will 
benefit markets such as Hawaii. Further, the smooth implementation of 
Hawaii's own ethanol program and investments by companies such as Gay & 
Robinson Ag-Energy LLC in a 12 million gallon ethanol plant in West 
Kauai are further proof that transportation and infrastructure issues 
are not a barrier to the use of biofuels in Hawaii.

              Responses to Questions From Senator Barrasso

    Question 1. What is your organization's best projection for the 
amount of corn-based ethanol that will be available for sale in 2008?
    Answer. To the best of our information, the RFA projects more than 
9 billion gallons of grain-based ethanol will be available for sale in 
the U.S. in 2008.
    Question 2. When, during the year (preferably by month) do you 
anticipate the amount of corn-based ethanol will be available for 
physical delivery?
    Answer. The RFA does not collect monthly ethanol production and 
demand data. The RFA relies on monthly ethanol production and demand 
data from the Energy Information Administration. The RFA does, however, 
track the approximate online dates (by quarter) of new ethanol 
production facilities. In response to Question #3, we have attached a 
chart that show anticipated ethanol plants coming online through the 
first quarter of 2009.
    Question 3. Would you summarize the current construction trends 
within the ethanol plant industry and provide the committee with a 
plant-by-plant assessment that is anticipated to be coming online over 
the course of 2008?
    Answer. Attached please find a chart* that shows anticipated 
ethanol plants scheduled to come online (by quarter) for 2008 and the 
first quarter of 2009.
---------------------------------------------------------------------------
    * Chart has been retained in committee files.
---------------------------------------------------------------------------
                                 ______
                                 
     Responses of Brian Jennings to Questions From Senator Bingaman

    Question 1. In your written testimony, you point out that there is 
no incentive for increased energy efficiency in corn ethanol plants. 
Could you elaborate on what kinds of efficiency gains might be 
achievable?
    Answer. The ethanol industry is constantly innovating and 
developing new and more efficient technologies to convert corn to 
biofuel. The most well-known example is the E3 Biofuels plant in Mead, 
Nebraska. This plant employs a conventional ethanol plant, a cattle 
feedlot, and a biodigester to produce ethanol. The cattle feedlot 
collects cow manure, which is then converted to methane by the 
biodigester to provide fuel for the ethanol plant. The DDGS are not 
dried, and are fed to the cattle on the plant site, further saving 
energy. In all, this configuration results in a savings of more than 90 
percent of the fossil fuel used in a typical ethanol plant.
    Another company, ICM of Colwich, Kansas, is implementing a dry 
fractionation technology, which separates the husk or bran from the 
corn kernel prior to fermentation. This material is gasified and used 
to fuel the plant, potentially reducing fossil energy demand by up to 
60 percent. As with the E3 Biofuels plant, even higher energy 
efficiencies can be gained if such a state-of-the-art ICM plant is 
located close to cattle feedlot and the DDGS are not dried prior to 
feeding them to the cattle.
    ACE believes that the ethanol industry will continue to innovate, 
and additional gains in energy efficiency will be achieved in the 
future. These energy efficiency gains will have important greenhouse 
gas benefits. However, unless the incentives are provided in federal 
law to reward this innovation, it is unlikely that plant developers 
will invest the capital necessary to deploy these energy-saving 
technologies. ACE hopes the committee will consider adding incentives 
for corn ethanol plants to achieve a sliding scale of efficiency 
improvements up to100 percent reduction in fossil fuel use.
    Question 2. I understand that you are concerned about your 
industry's ability to meet greenhouse gas reduction targets that 
include indirect emissions from land use changes. We believe that the 
EPA Administrator has sufficient flexibility to accommodate new 
calculations of greenhouse gas reductions that take these indirect 
emissions into account. Is the flexibility given to the Administrator 
insufficient to mitigate your concerns? Why?
    Answer. For a number of reasons ACE believes that the flexibility 
provided to the Administrator is not sufficient to mitigate our 
concerns. Moreover, we believe that the entire concept of including 
indirect greenhouse gas emissions in the calculation of lifecycle 
greenhouse gas emissions for the purposes of determining regulatory 
compliance with the greenhouse gas reduction criteria in the Energy 
Independence and Security Act is so fraught with problems that it 
cannot be fairly or accurately implemented.
    As you know, the recently passed Energy Independence and Security 
Act of 2007 includes a new renewable fuel standard schedule that 
requires new ethanol plants whose construction begins after December 
19, 2007 to achieve a 20 percent reduction in lifecycle greenhouse gas 
emissions compared with petroleum.
    The law defines ``lifecycle greenhouse gas emissions as:

          the aggregate quantity of greenhouse gas emissions (including 
        direct and significant indirect emissions such as significant 
        emissions from land changes), as determined by the 
        Administrator, related to the full fuel cycle, including all 
        stages of fuel and feedstock production and distribution, from 
        feedstock generation and delivery and use of the finished fuel 
        to the ultimate consumer, where mass values for all greenhouse 
        gases are adjusted to account for their relative global warming 
        potential.

    This must be compared with the ``baseline lifecycle greenhouse gas 
emissions,'' which are defined as:

          the average lifecycle greenhouse gas emissions, as determined 
        by the Administrator, after notice and comment, for gasoline 
        and diesel (whichever is being replaced by renewable fuel) sold 
        or distributed as transportation fuel in 2005.

    There are several problems with this approach that cannot be 
overcome given the current construction of the law. The effect of these 
provisions could be to penalize corn ethanol inappropriately and thus 
disqualify corn ethanol plants constructed after December 19, 2007 from 
participating in the RFS, thereby preventing the attainment of the 15 
billion gallon per year RFS target:
    There are several problems with this approach that cannot be 
overcome given the current construction of the law. The effect of these 
provisions could be to penalize corn ethanol inappropriately and thus 
disqualify corn ethanol plants constructed after December 19, 2007 from 
participating in the RFS, thereby preventing the attainment of the 15 
billion gallon per year RFS target:

    1. The estimation of indirect lifecycle greenhouse gas impacts 
cannot be done accurately or without the influence of hysteria 
associated with false claims by those who simply seek to find ways to 
limit the use of corn ethanol in the nation's gasoline supply.

    As we have just seen from the recent publication in Science Express 
of the fraudulent analysis of indirect greenhouse gas emissions 
attributed to corn ethanol by Searchinger et al. it is extremely 
difficult, if not impossible, to accurately determine indirect 
greenhouse gas emissions. Land clearing occurred long before biofuels 
were a meaningful part of the energy supply. Today, agricultural 
markets are affected by global factors, and land use changes continue 
as a result of a wide variety of reasons, including but not limited to:

   Global economic growth--especially in nations such as China 
        and India where citizens are acquiring wealth and desiring the 
        lifestyle of Americans, eating more protein, and demanding 
        higher quality foods;
   Population growth;
   Internal land use and land tenure policies; and
   Weather factors, including drought like the one that has 
        decimated the Australian grain crop recently.

    The refereeing and peer review process used by Science Express to 
assess the legitimacy of the Searchinger et al. analysis broke down 
entirely, and led to this seemingly reputable scientific journal 
publishing wildly erroneous claims of greenhouse gas emissions from 
land clearing allegedly linked to the production of corn ethanol in the 
United States. Major newspapers across the country then picked up the 
story and published articles, thereby lending credence to these 
unsupportable claims.
    Since then, reputable reviewers have demonstrated clearly that this 
analysis is fatally flawed in numerous ways and in fact land clearing 
rates are slowing at the same time that ethanol production in the 
United States is growing rapidly and U.S. grain imports and holding 
steady. Despite this fact, Alex Farrell, Associate Professor of the 
Energy and Resources Group at the University of California at Berkeley, 
recently sent a memo to the California Air Resources Board (CARB) 
making erroneous allegations similar to those made by Searchinger et 
al., which will be used to inform the analysis of the greenhouse gas 
lifecycle emissions for domestic ethanol by CARB.
    Despite this recent sad history on this topic, it is likely that 
efforts will continue to be made by some to make unsupportable claims 
of indirect greenhouse gas emissions from the production of ethanol in 
the United States. The handling of these murky and impossible-to-prove 
claims by EPA in its analysis of lifecycle greenhouse gas emissions may 
well lead to future litigation by interests on all sides of this issue 
under EISA and the Administrative Procedures Act.

    2. The inclusion of ``indirect emissions'' as a factor in the 
regulation of biofuels is wholly inconsistent with existing state and 
international greenhouse gas control regimes as well as proposals in 
Congress regulate other U.S. entities under cap and trade approaches.

    Despite the fact that all economic activity produced both direct 
and indirect greenhouse gas emissions, the standard for determining 
greenhouse gas emissions for biofuels set forth in ESIA 2007 is 
uniquely punitive and one that no other entity in the world will be 
held to in regulating and controlling emissions of greenhouse gases; in 
no other case will an entity be held responsible for indirect 
emissions, particularly indirect emissions occurring on a foreign 
country over which the regulated entity has no control.
    Under existing cap and trade proposals pending in Congress, 
including those introduced by Senators Bingaman and Specter and 
Senators Lieberman and Warner, certain U.S industries such as oil 
companies will be responsible for obtaining permits for the fossil 
fuels that they introduce into commerce. Users of fossil fuels and 
products derived from the use of fossil fuels will be indirectly 
affected by such regulation as costs for those fossil fuels increases 
in response to annual rationing of carbon credits under the cap. In no 
case would a U.S. entity be responsible for indirect effects of its 
activities on GHG emissions in other nations.
    If Congress insists on setting this new precedent, then it should 
apply it equally to all regulated entities in any legislation to reduce 
greenhouse gas emissions. In a global economy, virtually all economic 
activity in the U.S. will have direct and indirect economic and 
environmental impacts around the world. Thus, to consistently apply the 
principle that U.S. entities should be accountable for GHGs emitted in 
foreign countries, Congress would need to hold U.S. businesses and 
individual consumers responsible for all direct and indirect GHG 
emissions from foreign factories used to produce the goods consumed in 
the U.S., because those businesses or individuals create the market 
demand that leads to the foreign economic activity. Similarly, the U.S. 
would need to demand that foreign nations that import grain and other 
commodities from the U.S. be responsible for our domestic emissions 
generated in the cultivation or manufacture of those goods.

    3. EISA includes an inappropriate definition of ``baseline 
lifecycle greenhouse gas emissions.''

    If Congress insists on retaining the flawed concept of including 
indirect greenhouse gas emissions in any lifecycle analysis, then the 
baseline for comparing alternative fuels such as ethanol should not be 
the average lifecycle greenhouse gas emissions from 2005 gasoline; it 
should be the fuel that likely will replace ethanol--petroleum derived 
from Canadian sands and, in the future, coal-to-liquids.
    If corn ethanol were removed from the nation's gasoline supply, or 
if potential future increases in corn ethanol production are 
disqualified from participating in the RFS program, then gasoline 
prices would rise relative to the base case where corn ethanol remains 
in gasoline and the use of marginal, carbon-intense types of petroleum 
would be further encouraged. As a result, the volumes of gasoline 
reduced by the elimination of corn ethanol would not be replaced with 
fuel that meets the definition of ``average lifecycle greenhouse gas 
emissions'' set for the in EISA 2007. They would be replaced today with 
the most expensive and greenhouse gas intensive substitutes, gasoline 
derived from Canadian tar sands and in the future, coal--to-liquids 
(CTL), which now is economical at $90 per barrel oil and would become 
even more competitive as a result of price increases associated with 
removing five percent of the volume of gasoline now met with biofuels.
    In fact, according to a February 12, 2008 article in Greenwire 
(``Climate: Midwest refinery pollution may soar, as climate and energy 
policy clash''):

          the industry-wide trend to buy more Canadian crude has a 
        largely hidden consequence of increasing global warming 
        pollution from Midwest oil refineries, which is expected to 
        soar by as much as 40 percent during the next decade. The 
        industry is looking to vast reserves of tar-soaked clay and 
        sand lying underneath Alberta's swampy forests as a profitable 
        and reliable source of oil. But researchers calculated that 
        refining the Canadian petroleum produces 15 percent to 40 
        percent more carbon dioxide than conventional oil.

    4. In conducting comparisons of lifecycle greenhouse gas emissions, 
EPA should be required to compare apples to apples.

    An accurate assessment of all greenhouse gas emissions from 
biofuels and petroleum should include a number of features that likely 
will not be performed by EPA as a result of the construction of the 
legislation. Instead of comparing direct emissions from the average 
lifecycle carbon content of petroleum in the fuel supply in 2005 with 
direct and indirect emissions from biofuels, as the ESIA legislation 
would require, to be credible such an analysis would need to compare 
direct and indirect emissions from petroleum with direct and indirect 
emissions from biofuels. This would involve examining all the 
petroleum-related emissions associated, for example, with the direct 
expenditure of energy and money related to the hundreds of billions of 
dollars spent each year through the U.S. military to protect access to 
world oil supplies in the Middle East and elsewhere, including all the 
strategically-located bases, the use of the Navy to protect shipping 
lanes and all the derivative greenhouse gas emissions from all the 
activity related to this expenditure. As these vast sums of money spent 
annually to protect access to oil supplies ripple through the world 
economy, they generate enormous amounts of economic activity and 
associated greenhouse gas emissions that heretofore have not been 
included in assessments of the lifecycle greenhouse gas emissions from 
petroleum use, and frankly probably cannot be accurately counted.

    5. Conclusion.

    The most appropriate remedy in this case is to revise EISA to 
require a lifecycle comparison of the direct greenhouse gas emissions 
from ethanol and from the fuel that would replace it, were ethanol 
removed from the fuel system.

    Question 3. There seems to be some differences of opinion on how 
much authority the Administrator has to reset the mandate. Is it your 
understanding that the Administrator will have the legal authority to 
set all the applicable volumes required in the RFS to zero after 2016? 
Does this concern you?

    Question 3. There seems to be some differences of opinion on how 
much authority the Administrator has to reset the mandate. Is it your 
understanding that the Administrator will have the legal authority to 
set all the applicable volumes required in the RFS to zero after 2016? 
Does this concern you?
    Answer. Under the RFS provisions of EISA, EPA can reset the mandate 
for advanced biofuels after 2016, potentially even to zero. ACE 
recognizes that EPA should have some flexibility to reset the standard 
if cellulosic biofuels technologies are not commercialized as fast as 
we anticipate. However, to allow the Administrator to waive the RFS 
after 2016 is potentially very problematic. By then many billions of 
dollars of additional investment will have been made in existing 
ethanol plants that will be relying on the market certainty provided by 
the RFS. Moreover, in light of the fact that the cellulosic biofuels 
industry will need considerable investment in order to become 
commercially viable, the degree of uncertainty that the current EISA 
provisions send to the capital markets for the post-2016 period is 
troubling. At a minimum, prior to exercising such waiver authority, EPA 
should be required to weigh carefully the impact of such a step on 
existing investment, demand for alternative forms of fuel to replace 
volumes of ethanol that would no longer be required, and obtain the 
concurrence of the Secretaries of Energy and Agriculture.
                                 ______
                                 
    Responses of Robert J. Meyers to Questions From Senator Bingaman

    Question 1. If the final rule is not ready in January 2009, how 
will the new biodiesel carve out mandate, which begins in 2009, be 
handled?
    Answer. The Agency is working expeditiously to complete the rule 
for implementing the 2009 RFS requirements. As part of the rulemaking 
process, we will issue and provide an opportunity for public comment on 
a proposed rule. We are also developing several contingency options for 
giving effect to the EISA 2009 biomass-based diesel standard should the 
rule not be issued until after January 2009. We are developing these 
options in consultation with our RFS program stakeholders.
    Question 2. How will EPA interpret the federal biomass definition--
which includes biomass from federal lands that are ``regularly occupied 
by people''? We are unclear as to what might constitute land 
``regularly occupied by people,'' and whether that standard would 
require permanent residents, or simply an established number of 
visitors?
    Answer. As part of its rulemaking to implement the RFS provisions 
of EISA, EPA will propose and seek comment on interpretations of key 
statutory terms, including this aspect of the definition of ``renewable 
biomass.'' We will decide how to interpret those provisions in light of 
the public comments we receive in the course of the rulemaking.
    Question 3. Could you comment on whether the EISA greenhouse gas 
regulations give the Administrator sufficient flexibility to ensure the 
success of the RFS greenhouse gas regulation?
    Answer. EISA establishes specific lifecycle greenhouse gas (GHG) 
reduction thresholds for certain renewable fuel types: renewable fuel 
from facilities that commence construction after enactment of EISA, 
advanced biofuels, biomassbased diesel and cellulosic biofuel. The 
statute also includes provisions that provide flexibility with respect 
to these GHG threshold requirements. First, the Act gives EPA the 
discretion to adjust these thresholds downward by the ``minimum 
possible'' amount but no more than 10% for each threshold. Second, the 
statutory definition of ``lifecycle greenhouse gas emissions'' provides 
EPA with some discretion in identifying and quantifying the relevant 
emissions.
    EPA is still in the process of interpreting many aspects of the 
EISA. We also are still in the process of conducting the technical 
analysis required for the rule. As we move forward with this technical 
analysis as well as the rulemaking process, we are confident that we 
can successfully implement the new EISA renewable fuel provisions.
    Question 4. You stated in your testimony that this RFS will create 
new obligated parties compared to the EPAct 2005 RFS. Could you give us 
some examples of these new obligated parties?
    Answer. Under EPAct 2005, the RFS volume mandate applied only to 
gasoline, so obligated parties were generally limited to producers and 
importers of gasoline used for motor vehicles and engines. EISA applies 
the volume mandate to ``transportation fuels'' (defined to include both 
gasoline and diesel fuel) used in motor vehicles and engines and 
nonroad vehicles and engines. Consequently, EISA may affect new 
parties, including a number of small businesses that have not been 
regulated under this program in the past.
    Question 5. We understand that there are problems with the existing 
EPAct 2005 waiver authority, which remains in place for conventional 
biofuel in EISA. Could you comment on how the waiver might be improved? 
Also, could you comment on how you think EPA might go about 
implementing the different waivers for the various carve outs, 
including the credit generation for cellulosic biofuel?
    Answer. The Agency believes that EISA addressed any issues with the 
general waiver provision established in EPAct 2005 by expanding the 
categories of entities that may petition for a waiver to include 
regulated parties in addition to States. It also authorizes EPA to 
consider a waiver on its own motion. No additional modification of the 
waiver provision appears necessary at this time.
    EPA has yet to determine how we will implement the general waiver 
authority or the specific waiver authorities for the biomass-based 
diesel and cellulosic biofuel standards, although we believe that these 
waiver provisions can be implemented within the established RFS program 
structure by adjusting compliance requirements to conform with any 
standards adjusted in response to a waiver petition. The Agency also 
has not made any final determination on how to implement the provisions 
concerning sales of credits in the event that EPA reduces the required 
volume of cellulosic biofuels under section 211(o)(7)(D). We anticipate 
setting the prices of credits based on the criteria in EISA and making 
these credits available to the obligated parties for purchase so they 
can meet their compliance obligations.
    Question 6. One of our witnesses for the second panel, NPRA, 
expressed in its written testimony a concern that biofuel facilities 
that begin construction in 2008, and are therefore not legally 
obligated to comply with the greenhouse gas emission standards, would 
then be subject to those greenhouse gas regulations in 2009. Could you 
clarify EPA's interpretation of when the greenhouse gas standards for 
new construction will go into effect?
    Answer. The Agency has not made any final interpretive 
determinations pertaining to the GHG requirements established in EISA 
that would apply to renewable fuel produced by a facility that 
commences construction in 2008, after enactment of EISA. The transition 
provisions in EISA provide that a facility that commences construction 
after enactment must meet the GHG threshold for their product to be 
considered renewable fuel in 2008 under the current RFS program, 
although the provisions also stipulate that renewable fuel produced by 
ethanol plants fired by natural gas, biomass or any combination thereof 
is deemed to comply with the GHG threshold for 2008. For years after 
2008, we expect the GHG threshold would apply from the date our 
upcoming regulations go into effect. Thus, a facility that commences 
construction after enactment of EISA should expect that they will be 
subject to the GHG threshold for any renewable fuel produced in 2008 
and for any fuel produced after the effective date of the upcoming 
regulations. As noted above, EISA's transition provisions separately 
address compliance by renewable fuel from facilities that commence 
construction after enactment of EISA and that are fired by natural gas, 
biomass or any combination thereof. EPA is currently evaluating the 
full scope of this provision for determining compliance with the GHG 
threshold.
    Question 7. There seem to be some differences of opinion on how 
much authority the Administrator has to reset the mandate. Is it your 
understanding that the Administrator will have the legal authority to 
set all the applicable volumes required in the RFS to zero after 2016?
    Answer. Under certain identified circumstances EPA has discretion 
to adjust the renewable fuel volume levels in 2016 and later. However, 
while the statute does not prohibit reducing the levels to zero, there 
are clear procedural and substantive limitations on EPA's discretion to 
make such a decision.
    If any of the four required volumes are lowered by more than 20% in 
two consecutive years or more than 50% in one year, EPA is required to 
issue a rule to change such required volumes for all subsequent years, 
but not prior to 2016. Further, EPA is required to go through notice 
and comment procedures prior to issuing such a rule. Any adjustments to 
the volumes required in the Act would need to be fully supportable as 
an appropriate exercise of Agency discretion. EPA would need in such a 
rulemaking to set volumes that, under the then current circumstances 
and facts, promote the purposes of this provision by achieving a 
reasonable balance of all of the factors Congress required that we 
consider in section 202(a)(2)(B)(ii) for setting the standards for the 
dates beyond those specified in section 202(a)(2)(B)(i).
    Question 8. Could you comment on whether the cellulosic ethanol 
produced from the Range Fuel facility in Georgia would count toward the 
RFS? We understand that the feedstock is intended to come from 
commercial wood waste and private forests, which do not qualify as 
``renewable biomass.''
    Answer. The Agency is in the process of developing its proposal on 
various EISA provisions and has not made any final determination on our 
interpretation of the section defining renewable biomass. Until then, 
specific determinations on qualifying fuels and facilities are not 
possible.

    Responses of Robert J. Meyers to Questions From Senator Barrasso

    Question 1. Does the EPA have any position with respect to 
extending the small refinery exemption to the RFS, included in the 2005 
Energy Policy Act, but not included in the 2007 Energy Bill?
    Answer. EISA does not modify or include any specific language 
regarding the possible extension of the small refinery provisions 
established in EPAct 2005. Nevertheless, in the process of promulgating 
the regulations required for EISA, EPA is still required to satisfy our 
obligations under the Small Business Regulatory Enforcement and 
Fairness Act. In doing so we will be evaluating, as we have for all of 
our recent fuel rules, the potential impact on small businesses such as 
small refiners, and we will propose regulatory flexibility as needed to 
provide appropriate relief.

    Question 1a. If small refineries were granted exemption to the RFS, 
what, if any affects, could be anticipated on the goals of the 
legislation and on the energy market?
    Answer. EISA established specific renewable fuel volume standards 
which refiners, importers and blenders (other than oxygenate blenders) 
are required to meet. Each year, EPA is required to publish a RFS 
requirement for the following year. This standard is established based 
on the projected production volumes of the gasoline and diesel 
transportation fuels. This standard is expressed as a percentage and is 
used by obligated parties to calculate their individual renewable 
volume obligations. If small refineries were granted an exemption from 
the RFS, the overall renewable fuel volume standards established in 
EISA would not be affected, but individual obligations would have to be 
set at a higher percentage for the larger obligated parties. EPA is 
currently in the process of analyzing the impacts of the new renewable 
fuel volumes mandated under EISA. While it is clear that the new RFS 
requirements may have a significant impact on complying parties' 
operations and costs, we have not completed the analysis to determine 
what effect the small refiner exemption would have on energy markets.
    Question 2. Some individuals speculate that the ethanol industry is 
facing a de facto ``blend wall'' due to the practical limit of a ten 
percent blend, which some experts estimate to be in the range of 11 to 
12 billion gallons. I understand these claims are made in part due to a 
combination of small engine warranty concerns for ethanol blends above 
ten percent, and statewide air quality caps, such as those imposed in 
California. What is EPA's opinion of these potential practical 
barriers, in terms of increasing and assimilating future ethanol 
production?
    Answer. EPA is aware of the concerns about a practical limit on the 
total volume of E10 that can be used in the market. EPA is also aware 
of the potential barriers to widespread distribution of E85 and use of 
mid-level ethanol blends (ethanol-gasoline blends with greater than 10 
percent ethanol content). EPA's primary concern rests with the effect 
such mid-level blends may have on the emissions and components of 
gasoline-powered vehicles and engines. Although modern vehicles and 
engines are designed to operate on E10, concerns exist that levels of 
ethanol over 10 percent in non-flex-fuel vehicles and engines might 
result in durability and performance problems and increases in 
emissions. There are also specific concerns regarding the use of such 
blends in small engines, such as those used in lawn and garden 
equipment, which typically are less able to adjust properly to changes 
in fuel composition.
    Because mid-level ethanol blends are not currently approved for use 
in non-flexfuel vehicles and engines, such blends will require a fuel 
waiver from EPA before being sold for use in a gasoline-powered 
vehicles or engines. A comprehensive test program that provides the 
data necessary to support a determination on the impacts of the use of 
mid-level ethanol blends and, subsequently, any waiver application, 
will require sufficient time to conduct the emissions and durability 
testing on a representative profile of vehicles and engines. For these 
reasons, EPA has been communicating with governmental and private 
organizations studying the effects of mid-level ethanol blends on 
vehicles and engines, as well as with stakeholders, such as small 
engine manufacturers, who have concerns that mid-level ethanol blends 
might cause damage to engines and emission-control devices.
    Under the Clean Air Act, emissions of new gasoline fuels such as 
mid-level ethanol blends are also required to be tested for potential 
health effects. Results from testing already underway for E10 may be 
applicable for mid-level ethanol blends if it can be shown that such 
blends have the same impact on emissions as E10.
    With regard to statewide air quality caps, we would defer to the 
California Air Resources Board (CARB) in that the gasoline emissions 
models that govern their gasoline composition regulations may have to 
be revised if they choose to accommodate the modeling of mid-level 
ethanol blends. We are unaware of any other air quality caps that would 
act as a barrier to the blending of ethanol at levels greater than 10 
percent. However, some states do have laws which require that gasoline 
meet certain performance standards such as ASTM specifications that may 
require revisions in order to accommodate such blends.
    Finally, in order to accommodate mid-level ethanol blends, the 
gasoline distribution infrastructure may require some equipment changes 
in order to be compatible with ethanol blends higher than 10 percent.
    Most of the vehicle barriers associated with mid-level ethanol 
blends could be avoided by the increased sale of flex-fuel vehicles 
(FFVs), which can operate on up to 85 percent ethanol with gasoline 
(E85) and the greater use of E85 in these vehicles. The E85 refueling 
infrastructure is currently limited, and the current market pricing of 
E85 is typically insufficient to encourage significant numbers of FFV 
owners to fuel on E85. However, given the proper market signals there 
could be a significant increase in the use of ethanol in the form of 
E85.
    Question 3a. In the May 1, 2007 edition of the Federal Register (p. 
23907), EPA estimates the greater demand for corn as a feedstock for 
ethanol production, corn prices were expected to rise to $2.32 (in 
2004) dollars; soybeans to $5.26 per bushel; and a $12 annual increase 
in the per capita wholesale food cost. What has been the actual 
experience with respect to these price levels since the release of 
those estimates?
    Answer. The EPA estimates referenced in this question were provided 
as part of EPA's rulemaking for the Renewable Fuel Standard (RFS) under 
EPAct 2005. Thus, these estimates referred to 2012 renewable fuel 
volumes, as specified by that statute.
    Renewable fuel volumes have increased more quickly than the 
scenarios we modeled; therefore price impacts in recent years have been 
higher than the prices included in the Federal Register notice for the 
RFS. In that notice, we predicted a more modest impact on commodity 
prices, since supplies would have had more time to adjust to changes in 
demand.
    The actual prices for corn and soybeans are as follows:

          i. Average nominal corn prices have increased from $2.00/
        bushel in 2005, to $3.04/bushel in 2006, to $4.00/bushel in 
        2007. From http://www.ers.usda.gov/data/feedgrains/
        FeedGrainsQueriable.aspx.
          ii. Average nominal soybean prices have increased from $5.66/
        bushel during the 2005/2006 growing season to $6.43/bushel 
        during the 2006/2007 growing season to a projected price of 
        $10-$10.80/bushel for the 2007/2008 growing season. From http:/
        /usda.mannlib.cornell.edu/usda/current/OCS/OCS-02-11-2008.pdf.

    It is important to note that a range of factors have impacted 
commodity prices, therefore the observed price changes may not be 
directly attributable to the RFS. First, higher levels of production of 
ethanol above the Renewable Fuel Standard volumes, driven by market 
forces, raised the demand for edible biofuel crops such as corn. 
Second, drought in Australia directly increased wheat prices and caused 
ripple effects throughout the coarse grains markets. Third, higher than 
anticipated economic growth throughout the world, particularly in China 
and India, coupled with a weak dollar led to stronger than anticipated 
demand for U.S. agricultural exports. Furthermore, the adoption of 
biofuel mandates in other countries outside of the U.S. also 
contributed to the increase in world commodity prices.
    As for food prices, USDA estimates that current total per capita 
food prices have increased from $3,423 per person in 2005 to $3,616 per 
person in 2006 (the most recent year currently available.) From http://
www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/table15.htm.
    However, because USDA's per capita food expenditures are calculated 
at the consumer retail level, a direct comparison to wholesale food 
price changes estimated for the RFS analysis is not appropriate. 
Furthermore, many factors influence per capita food prices, beyond the 
ones described above.
    Question 3b. Given the experience to date, what are the current 
estimates for each of the above categories for 2012 prices (in 2004 
dollars)?
    Answer. We are currently in the process of analyzing the impacts of 
the new renewable fuel volumes mandated under EISA.
    Question 3c. What changes, if any, has EPA made to revise its 
modeling methodology to ensure the greatest accuracy possible with 
respect to price impacts from renewable fuels standards?
    Answer. EPA, in consultation with USDA, continues to update 
assumptions in the agricultural sector modeling framework to reflect 
the most up-to-date information available, given resource constraints. 
For example, we have added the most recently available crop acreages to 
better capture recent increases in corn production. Furthermore, we are 
working to add an international component to our agricultural sector 
modeling capabilities to capture changes in global trends on the 
domestic agricultural markets.
    Question 4. What predictions does the agency have for grain 
commodity prices in the intervening years before 2012? How will prices 
in these years affect implementation of the RFS.
    Answer. We are currently analyzing the impacts of EISA on commodity 
prices and plan to include estimates of those impacts in our upcoming 
Notice of Proposed Rulemaking.
    Question 5a. In your testimony, you referred to waiver authority 
granted to EPA under the Energy Policy Act of 2005 and the Energy 
Security Act of 2007. Do you believe that grain commodity price effects 
would trigger EPA action under this waiver authority? If so, what 
measure would EPA use as a trigger?
    Answer. The general waiver authority established in Section 211(o) 
of the Clean Air Act authorizes the Administrator, in consultation with 
the Secretary's of Agriculture and Energy, to waive a RFS volume 
requirement in whole or in part if, in response to a petition by any 
person subject to the requirement and after providing public notice and 
an opportunity to comment, the Administrator determines that the 
requirement would severely harm the economy or environment or if 
inadequate domestic supply exists. Should the Agency receive a petition 
for a waiver, the Agency would need to evaluate any concerns raised 
with respect to grain commodity price effects and whether such effects 
are a direct cause of RFS program requirements. The petitioner would 
need to support their claim that significant harm would occur if a 
waiver were not granted. EPA is in the process of evaluating various 
approaches to exercising the waiver authority.
    Question 5b. What action would the agency take to modify the RFS 
implementation if commodity prices triggered waiver authority?
    Answer. The Agency would need to evaluate the increased commodity 
prices and their impact on the economy, and if it were appropriate to 
grant a waiver, EPA would modify the relevant volume requirements for 
complying parties.
    Question 6a. Will consumer food price effects trigger EPA action 
under this waiver authority? If so, what measure would EPA use as a 
trigger?
    Answer. Should EPA receive a petition for a waiver, the Agency 
would need to evaluate concerns raised with respect to consumer food 
prices, the extent to which any price increases are a result of RFS 
program requirements, and the impact of the food prices on the economy. 
The petitioner would need to support their claim that severe harm to 
the economy exists. EPA is in the process of evaluating the appropriate 
approaches for exercising the waiver authority.
    Question 6b. What action would the agency take to modify the RFS 
implementation if commodity prices triggered waiver authority?
    Answer. The Agency would need to evaluate the increased food prices 
and their impact on the economy, and if it were appropriate to grant a 
waiver, EPA would modify the volume requirements for complying parties.
    Question 7. Is EPA aware of any preliminary or reviewed academic 
studies suggesting first generation biofuels could exceed the carbon 
footprint of conventional gasoline?
    Answer. EPA is aware of many studies that have been conducted 
looking at the carbon footprint of biofuels compared to that of the 
petroleum fuel they would replace. EPA previously conducted a ``well-
to-wheel,'' or life cycle, GHG analysis of biofuels for the RFS 
regulations issued in 2007. We are now expanding this work and our 
methodology to meet the requirements in the EISA.
    Most existing work, including EPA's RFS analysis for the 2007 
rulemaking, indicates a net GHG benefit from the use of biofuels. 
However, several recent articles (Science 2/2007) have considered the 
GHG impacts of land use changes that occur with the production of 
biofuels, and suggest that the conversion of land into crop production 
may negate the GHG benefits of biofuels. We will evaluate this new 
research and continue to refine our research on the impact of land use 
changes to meet EISA language requirements.
    Question 7a. What is the conventional wisdom of the science on this 
issue within the EPA?
    Answer. Methodologies exist and are being improved to estimate the 
life cycle GHG impacts of biofuel production and use, including 
consideration of the impacts of land use change. However, this type of 
analysis requires a number of inputs and assumptions that EPA is 
continuing to evaluate. As suggested by the articles described above, a 
significant concern is the potential GHG impact of more agricultural 
commodities (e.g., corn and soybeans) being used to produce first 
generation biofuels, leading to more worldwide production of these 
commodities, resulting in land use changes, i.e., acres being converted 
from existing use into crop production. Some researchers point to the 
potentially large one-time impact this land use change could have in 
terms of GHG emissions and highlights the need for more work in this 
area. This type of analysis is fairly new in its application to 
biofuels and requires predictions about land use changes that would 
occur with and without sound land use policies in place, here and in 
the rest of the world. The recent papers confirm the importance of 
doing a thorough job of life cycle GHG emissions analysis to assure 
that policies promoting certain alternative fuels have their intended 
benefits, and EPA is continuing to evaluate the recent work.
    Question 7b. Is EPA conducting any similar modeling on its own with 
respect to the carbon footprint of first generation biofuels, what are 
the results, and when will they be available?
    Answer. Yes, EPA has developed a methodology to conduct a lifecycle 
GHG analysis as required by the EISA. The Act requires EPA to determine 
the life cycle GHG impact of renewable fuels and specifically requires 
that we include ``. . . significant emissions from land use changes.'' 
Currently we are in the process of refining this methodology and 
seeking input from key stakeholders and experts in this area--including 
consideration of recent studies. EPA plans to provide details on its 
methodology and seek public comment on its modeling approach, inputs 
and results as part of the Notice of Proposed Rulemaking for the EISA 
renewable fuels rulemaking.
    Question 7c. To the extent that future analysis and review does 
reveal a carbon footprint that exceeds conventional gasoline, is it 
possible for cornbased ethanol achieving the requisite 20 percent LCFS 
reduction?
    Answer. If future analysis shows that the lifecycle GHG emissions 
of any renewable fuel exceeds the baseline for conventional gasoline or 
diesel, then it would not meet the 20% or lower GHG threshold for 
renewable fuel.. However, the EISA 20% lifecycle GHG requirement for 
renewable fuel only applies to new facilities that commence 
construction after enactment of EISA. EISA ``grandfathers'' renewable 
fuel produced from existing production facilities, which would allow a 
substantial amount of corn-based ethanol to be an eligible renewable 
fuel under EISA regardless of GHG analysis results.
                                 ______
                                 
   Responses of Charles T. Drevna to Questions From Senator Bingaman

    Question 1. You state in your written testimony that there is a 
limit to how much ethanol your industry can absorb. Could you give us a 
rough idea of how much ethanol refiners and blenders have the capacity 
to blend into finished gasoline today?
    Answer. NPRA is concerned that there will be insufficient 
infrastructure to use 9.0 billion gallons of renewables in gasoline and 
diesel this year to meet the statutory requirement. Approximately 6.8 
billion gallons of ethanol was supplied in 2007. The General Accounting 
Office and numerous press reports have detailed the cost implications 
of blending this quantity of ethanol. Obviously, the petroleum industry 
must expand infrastructure capacity in every year, including 2008.
    The industry is currently assessing the limits of existing blending 
infrastructure capability as well as trying to make a determination of 
what additional infrastructure will be needed to meet the dramatic 
increase in the ethanol mandate for 2008. Obstacles to blending 9 
billion gallons of ethanol into the fuel supply this year include 
assessing available blending infrastructure and ethanol transportation 
constraints. Similarly, because the ethanol mandate was increased by 
two-thirds this year (from 5.4 billion gallons in the Energy Policy Act 
of 2005 to 9.0 billion gallons in the Energy Independence and Security 
Act of 2007) and did not provide for any time for advanced planning, we 
must make determinations as to how many markets currently lacking 
ethanol blending infrastructure may need to be supplied blends of up to 
E-10 for refiners to comply with the law.
    Another handicap discussed in NPRA's testimony is summer RVP 
regulations. This effectively prevents conversion from E0 to E10 at a 
retail station during the summer months. This is a handicap because if 
we wait until late September to begin conversions at retail stations, 
this could reduce the volume of ethanol that can be blended in gasoline 
this year.
    Question 2. Could you comment on how you see market growth in 
biodiesel affecting compliance with the RFS? Will increased use of 
biodiesel increase your members' options for meeting their renewable 
fuel requirements?
    Answer. Market growth in biodiesel can assist in compliance with 
RFS regulations. The current biodiesel market is very low (a few 
hundred million gallons in 2007) compared to ethanol (almost 7 billion 
gallons in 2007). While an increased biodiesel market could improve our 
ability to comply with the enacted RFS, we believe that there are a 
number of factors that could impede biodiesel market growth.
    First, the lack of warranties on the existing diesel fleet that do 
not cover blends higher than 5 volume percent biodiesel may constrain 
biodiesel market growth. The Engine Manufacturers Association (EMA), 
for example, released the following: ``Based on current understanding 
of biodiesel fuels and blending with petroleum-based diesel fuel, EMA 
members expect that blends up to a maximum of B5 should not cause 
engine or fuel system problems, provided the B100 used in the blend 
meets the requirements of ASTM D 6751, DIN 51606, or EN 14214. If 
blends exceeding B5 are desired, vehicle owners and operators should 
consult their engine manufacturer regarding the implications of using 
such fuel.\1\'' This could effectively ``cap'' the use of biodiesel at 
B5 in the short-term. B100 also has a significantly higher cold-filter 
plugging point than petroleum diesel. Therefore, care must be taken in 
cold weather because biodiesel can gel at low temperatures. Further, 
biodiesel has approximately 8-10 percent less energy content per gallon 
than petroleum diesel and this fuel economy impact could also constrain 
the growth of biodiesel. Finally, biodiesel can also increase 
NOX emissions relative to petroleum diesel.\2\ Because 
NOX is a ground-level ozone precursor, significant biodiesel 
growth could contribute to air quality problems, especially if EPA 
reduces the ozone NAAQS in March 2008.
---------------------------------------------------------------------------
    \1\ To view a press release from EMA: http://
www.enginemanufacturers.org/admin/content/upload/106.pdf To view EMA's 
``TECHNICAL STATEMENT ON THE USE OF BIODIESEL FUEL IN COMPRESSION 
IGNITION ENGINES:'' http://www.enginemanufacturers.org/admin/library/
upload/297.pdf
    \2\ See EPA's analysis of biodiesel emissions: http://www.epa.gov/
otaq/models/analysis/biodsl/p02001.pdf
---------------------------------------------------------------------------
    Question 3. Could you comment on the recent progress toward having 
E10 approved for markets that have traditionally not allowed the fuel, 
such as the Southeast and California? If these areas allow E10, does 
compliance with the RFS become easier for your members?
    Answer. E10 has never been banned in the Southeast. Some states 
(i.e., Alabama, Florida, Georgia, Missouri, North Carolina, and Oregon) 
are revising ethanol blending regulations, but these regulatory changes 
do not include lifting E10 state bans.
    Regarding California, under the current CARB regulations 
(California Reformulated Gasoline Phase 3), it is very difficult to 
produce gasoline with 8 volume percent or 10 volume percent ethanol due 
to limits on NOX formation. This NOX limit, along 
with distribution system complexity and historical availability of 
ethanol in California, has resulted in a practical state wide standard 
of 5.7 volume percent ethanol (2003--present).
    In 2007, CARB enacted a revision to the California Reformulated 
Gasoline Phase 3 regulation that includes an updated version of the 
Predictive Model. This regulatory revision will become effective on 
December 31, 2009. The updated Predictive Model will make it easier to 
blend 10 volume percent ethanol into gasoline, provided that the 
gasoline producer can reduce the sulfur content of gasoline to prevent 
an overall increase in NOX emissions. This poses challenges 
and will increase costs for refiners and could have a significant 
impact on the consumer.
    The updated Predictive Model can be used voluntarily in California 
prior to December 31, 2009, which could result in increased volumes of 
gasoline blended at 10 volume percent ethanol. However, limitations on 
fungible gasoline distribution will prevent the industry from taking 
advantage of this provision on a broad scale. CARB is considering an 
additional regulatory revision that would provide greater flexibility 
to increase ethanol use without changes to fungible gasoline 
specifications. If enacted, this latest revision could become effective 
in mid-2008.
    National E10 may be a compliance strategy, but it will only be part 
of RFS compliance because already a little more than half of U.S. 
gasoline contains ethanol. Making the rest of the country E10 will use 
about an additional 7 billion gallons of ethanol annually, but still 
leave us short of the rising RFS obligation after 2013. Even if all 
gasoline is E10 in 2022, then the ethanol use in that E10 will only be 
16-17 billion gallons, far short of the statutory requirement of 36 
billion gallons of renewable fuels in 2022. We will need to supplement 
national E10 with massive quantities of biodiesel, E85, and gasoline 
blends higher than 10 volume percent ethanol if approved by EPA (i.e., 
E15 or E20).
                                 ______
                                 
    Response of Michael J. McAdams to Question From Senator Bingaman

    Question 1. Could you describe to us some of the emerging 
technologies currently being developed by members of the Advanced 
Biofuels Coalition, which will not qualify as either biomass-based 
diesel or cellulosic biofuel, as defined in the Energy Independence and 
Security Act of 2007?
    Answer. As the committee is aware we have a number of technologies 
represented in the Advanced Biofuels Coalition. One of the Coalitions 
concerns is that some technologies may use sugars to make a variety of 
products which could be used in the gasoline pool but not be made from 
cellulosic material as defined under the law or produce ethanol as its 
product. These technologies would produce a range of hydrocarbon 
molecules which would be a renewable fuel, but would not be a biomass 
based diesel or cellulosic derived fuel. Some of these companies could 
partner with first generation technologies, such as current corn based 
ethanol plants. However the output would not be ethanol. In this 
hypothetical the fuel product might be considered a conventional 
biofuels fuel not advanced biofuel. Therefore the question arises would 
it be allowed to count toward the first 15 billion gallon pool under 
the RFS. The definition of renewable fuels provides that it would be a 
covered product as an advanced biofuel. Another area that is ambiguous 
is the area of jet and heating oil. Depending on what feedstock or 
process would be used might impact which classification the fuels would 
fall under in the law. These advanced biofuels would bring advantages 
in terms of performance of the fuels and fungibility in the current 
system. If the intent of the statute was to bring new renewable fuels 
to the market place we would suggest that the language be give as broad 
a reading as possible to enable the language to accommodate these 
types' of second generation fuels. In the event the committee would 
seek to change these definitions more specific definitions would 
provide more certainty for a number of companies and their fuels.
                                 ______
                                 
      Responses of Carol Werner to Questions From Senator Bingaman

    Question 1. Do you believe that the EPA Administrator has 
sufficient flexibility to ensure the success of the greenhouse gas 
reduction requirements?
    Answer. As discussed in my testimony, it is very important that the 
Renewable Fuel Standard (RFS) in the Energy Independence and Security 
Act of 2007 (P.L. 110-140) help reduce greenhouse gas emissions (GHG). 
I identified three main areas where the Administrator plays a 
significant role in ensuring the success of the GHG reduction 
requirements: 1) the definition of lifecycle GHG emissions as well as 
how this is determined for renewable fuels and petroleum-based fuels; 
2) the modification of required GHG reduction percentages; and 3) the 
waivers to reduce the required volumes of renewable fuel. Based upon 
current knowledge, I believe the language as enacted is sufficiently 
flexible for the Administrator to implement the RFS in a timely manner 
to meet the GHG reduction requirements set forth in the law.

              MAIN AREAS OF FLEXIBILITY FOR ADMINISTRATOR

Definitions which include Lifecycle Greenhouse Gas Emissions
    In Sec. 201 the Administrator is given broad authority to create a 
methodology for how to determine the Lifecycle Greenhouse Gas Emissions 
for the different fuels regulated under the RFS program. When 
determining what to include in the methodology, the Administrator also 
has the responsibility to determine what is and is not considered a 
``significant indirect emission.'' As described in my testimony this 
could be a very important factor in reducing GHG emissions. 
Furthermore, the Administrator also may include ``any other 
anthropogenically-emitted gas that can contribute to global warming'' 
as a greenhouse gas. The Administrator has the ability to develop a 
stringent or lenient methodology for calculating lifecycle GHG as he 
sees fit at the time while also allowing new information (such as new 
greenhouse gases) to be added as necessary. This section's flexibility 
will allow the Administrator to formulate an aggressive methodology to 
successfully reduce GHG emissions, while other sections mentioned below 
should ensure that the methodology will not cause significant harm to 
the developing renewable fuels industry or any of the interconnected 
industries affected by the standard. Given the Administrator's 
expansive authority it will be important to have a transparent process 
with public participation for the development of the methodology and 
its interpretation.
Modification of Greenhouse Gas Reduction Percentages
    In Sec. 202(c) the Administrator may make reductions in the 
required GHG emissions of the variety of fuels included in the program. 
The Administrator shall make the minimum adjustment possible and shall 
not reduce the required percentage by more than 10 percent for each 
fuel (from 20 to 10, from 50 to 40 and from 60 to 50 percent). The 
Administrator may make these reductions for each category based on 
``commercially feasible for fuels made using a variety of feedstocks, 
technologies, and processes to meet the applicable reduction.'' The 
Administrator is also required to review the adjustment in the 
requirement not later than 5 years after the adjustment was made. This 
section also gives the Administrator the ability to make subsequent 
adjustments if he determines that there has been ``significant change 
in the analytical methodology used for determining the lifecycle 
greenhouse gas emissions.''
    The flexibility provided by this section allows the Administrator 
to adapt the RFS program based on the growing and evolving body of 
information available on feedstocks, technologies and lifecycle 
analysis methodologies. This is very important because the industry is 
rapidly changing and must be assessed for its ability to meet the goals 
(GHG reductions) enacted by the law without the law becoming a barrier 
to further growth in the industry. Adjustments to the GHG reduction 
requirements allows the industry to be as aggressive as possible 
without setting the bar too high and inadvertently capping the industry 
at its current level.
Waivers to Reduce the Volumes of Renewable Fuel
    In Sec. 202(e)(2) and (3) the Administrator shall reduce the volume 
of cellulosic biofuel or biomass-based diesel given certain 
circumstances. To reduce the applicable volume of cellulosic biofuel 
required under the program the Administrator must find that the 
projected volume of cellulosic biofuel production is less than the 
minimum applicable volume. The Administrator can reduce the applicable 
volume of biomass-based diesel required under the program if he 
determines that there is ``significant renewable feedstock disruption 
or other market circumstances that would make the price of biomass-
based diesel fuel increase significantly.'' The Administrator may also 
reduce the renewable fuel and advanced biofuels required under the 
program when reducing the volume requirements for either cellulosic 
biofuel or biomass-based diesel.
    This section gives significant flexibility to the Administrator, 
possibly too much flexibility. The first RFS (passed in the Energy 
Policy Act of 2005, PL 109-58) provided many positive benefits for the 
biofuels industry; some would argue the most significant benefit was a 
stable and guaranteed marketplace which made investing in biofuels a 
smart choice. The first RFS as well as the current RFS is a signal to 
the investment community that the Federal government is committed to a 
market for biofuels. This is highly attractive for venture capitalists 
and other investors. To provide this stable market for biofuels the 
Administrator should show extreme caution when implementing the waiver 
section of the RFS which would basically reduce the marketplace and the 
stability for cellulosic biofuel production as well as biomass-based 
diesel.
    Question 2. You make a compelling case that the ``renewable 
biomass'' definition as it relates to woody biomass is too narrow. How 
could the ``renewable biomass'' definition be broadened to allow 
sustainably harvested woody biomass, while still protecting our 
national forests?
    Answer. This question goes right to the heart of the issue at hand. 
In broadening the definition of renewable biomass to include biomass 
from sustainably managed woodlands, it is essential that we do not 
reduce the quality of stewardship that we have come to expect from the 
managers of our public lands. For biomass harvests to be eligible for 
the RFS, they should satisfy two important additional criteria: 1) the 
harvest should improve the stand in which it occurs, and 2) the harvest 
should be compatible with (and complement) the management objectives 
outlined in the management plan for the forest in which it occurs. 
Fortunately, there is an existing definition of `renewable biomass' 
that accomplishes both of these objectives--the definition found in the 
Senate-passed versions of both the Farm Bill and the Energy Bill. This 
language (Sec. 9001(12) of H.R. 2419 EAS) allows for the inclusion of 
materials harvested from public lands that are byproducts of 
preventative treatments prescribed to reduce hazardous fuels, address 
outbreaks of disease or forest pests, or to restore ecosystem health. 
By explicitly including these materials in the definition of renewable 
biomass, the RFS will encourage and incentivize those silvicultural 
activities that are needed to improve stand conditions across much of 
the public domain.
    The Senate definition included in the 2007 Farm Bill also dictates 
that woody biomass from public lands will be eligible only if it is 
harvested in accordance with applicable land management plans. These 
management plans, required for all management units on public lands, 
are multiple-value, multiple-use management directives that must 
address all aspects of the resource, including biological, economic, 
and social factors. Among these factors, management plans for national 
forests must ``provide for diversity of plant and animal communities 
based on the suitability and capability of the specific land area in 
order to meet overall multiple-use objectives . . .'' (16 USCS  1604 
g[3][B]). These federal management plans are thorough documents, 
individually tailored to the unique ecological and cultural conditions 
found at each national forest or management unit and written by 
professional foresters, ecologists, and wildlife managers. These 
documents are far better guidelines for sustainable management at the 
local level than simple exclusions or attempts at drafting broad, 
universal sustainability standards. Any forester will tell you a 
substantive management plan is the cornerstone of sustainable forestry. 
Even the best plan is only valuable if properly implemented, though. 
Because there has been so much distrust of federal land management 
agencies, it is important to begin earnest efforts to rebuild this 
trust. Public transparency and legislative oversight will be key 
components of this process.
    In addition to requiring compliance with management objectives 
already in place, the Senate definition incorporates additional 
requirements for old growth management and large tree retention. These 
requirements, taken from the Healthy Forests Restoration Act of 2003 
(16 USCS  6512[e][2]), mandate that managers ``. . . shall fully 
maintain, or contribute toward the restoration of, the structure and 
composition of old growth stands according to the pre-fire suppression 
old growth conditions characteristic of the forest type, taking into 
account the contribution of the stand to landscape fire adaption and 
watershed health, and retaining the large trees contributing to old 
growth structure.'' These requirements have been criticized for lacking 
an objective definition of old growth, but a universal definition of 
old growth that is valid for all forest types and ecosystems does not 
exist. The stand structure and ecosystem functioning of an old growth 
Douglas-fir forest is different from an old growth aspen forest or an 
old growth stand of northern hardwoods. These provisions require old 
growth to be locally defined ``based on the structure and composition 
characteristic of the forest type'' (16 USCS  6512[e][D]).
    As you can see, the Senate definition satisfies the two essential 
criteria that I outlined in the first paragraph: 1) the harvest should 
improve the stand in which it occurs, and 2) the harvest should be 
compatible with (and complement) the management objectives outlined in 
the management plan for the forest in which it occurs.
    Although the Senate definition of renewable biomass is an 
improvement over the current law, there is room for yet more 
improvement. In Sec. 9001(12)(iii) of H.R. 2419 EAS (the Senate-passed 
Farm Bill), eligible public lands are defined as National Forest System 
land or `public lands' as defined by the Federal Land Policy and 
Management Act of 1976 (43 USCS  1702[e]). This definition defines 
public lands as lands administered by the Department of the Interior 
(DOI) through the Bureau of Land Management (BLM). This does not 
include lands managed by other arms of DOI, such as the National Park 
Service, Fish and Wildlife Department, and Bureau of Indian Affairs. 
Many of these lands are also in need of ecological restoration or 
preventative treatments, treatments that are extremely costly (as I 
discussed in my testimony). If the definition of renewable biomass 
excludes these lands than an opportunity to provide a market incentive 
to do these treatments will be lost.
    The Senate definition also allows for the inclusion of any and all 
organic materials harvested from private lands--with no provisions for 
sustainable management of these lands. As I have said before, a 
substantive management plan is the cornerstone of sustainable forestry. 
Public forests are required to have a management plan in place and 
private forests should be subject to a similar requirement, if they are 
to be included in the RFS. The addition of a required management plan 
(similar to the one required under the Forest Land Enhancement Program 
[16 USCS  2103(e)], for instance) to the definition would be an 
important step in ensuring sustainability as the RFS is enacted. 
Ideally, this provision would be coupled with assistance funds to aid 
landowners and state forestry officials with the preparation and review 
of the large number of management plans that may result from this 
requirement. In the absence of such funding, however, a management plan 
requirement is still an important safeguard and a fundamental component 
of sustainable forestry.
    In passing this preferable definition of renewable biomass in two 
separate pieces of legislation, it is clear that the Senate understands 
the value of our public lands in providing an important feedstock for 
production of renewable fuels. Additionally, this definition would do 
more to ensure sustainability and improve the condition of our public 
resources than the simple exclusions found in current law.

        Response of Carol Werner to Question From Senator Akaka

    Question 1. I read with interest your comments that, given the lack 
of data regarding the impact of indirect land use effects on the 
lifecycle of GHG, the wisest course of action would be to focus on 
feedstocks that do not induce land use changes. You include algae as 
being one of the favorable alternatives.
    Can you provide some information on current science and development 
of algae, as a renewable fuel source? What are the advantages and 
disadvantages of using algae, as compared to the other favorable 
alternatives you mentioned? Are you aware of technology that uses algae 
to produce a fuel source that can be used, and presumably distributed, 
within the existing infrastructure?
    Answer. Current Science and Development.--The concept of growing 
high-oil varieties of algae for biofuels is not new, and, in fact, much 
of what we know is from research completed more than a decade ago. From 
1978 to 1996, the National Renewable Energy Lab (NREL) collected over 
3,000 strains of freshwater and marine algae, including macroalgae 
(seaweed), emergents (partially submerged plants), and microalgae from 
all over the United States as part of the Aquatic Species Program 
(ASP). Researchers focused their efforts on microalgae for biodiesel 
(mono alkyl esters) production because those species produce more of 
the necessary kinds of natural oils.\1\
---------------------------------------------------------------------------
    \1\ National Renewable Energy Laboratory (DOE). A Look Back at the 
U.S. Department of Energy's Aquatic Species Program: Biodiesel from 
Algae. Close-Out Report. July 1998.
---------------------------------------------------------------------------
    Compared to terrestrial oilseed crops, these simple aquatic 
organisms were found to make much more efficient use of solar energy, 
water, CO2 and other nutrients. The ASP determined that 
microalgae are capable of producing 30 times the amount of oil per acre 
of crop compared to terrestrial plants. Another key advantage over 
other dedicated energy crops is that those algae-producing acres need 
not be arable land, thus eliminating competition with food, feed, and 
fiber crops. Furthermore, algae can grow in saltwater or wastewater, 
minimizing competition with agricultural, domestic, and industrial 
needs for scarce freshwater resources.
    Two basic systems exist for large-scale algae production: open 
ponds and closed ``photobioreactors''. The photobioreactor, where algae 
grow within specially designed plastic bags, allows for more control 
over temperature and protects against potentially contaminating 
species. Performing tests in Hawaii, California, and New Mexico, the 
ASP focused on the open pond system, which researchers concluded would 
be the more economically viable method of production due to its 
relatively cheap capital costs. These shallow ponds consisted of 
circulating water, to ensure all organisms had equal exposure to 
sunlight, and utilized waste CO2 from coal-fired power 
plants to feed the algae. Absorbing CO2 from the flue gas 
emitted by coal-fired power plants represents the third major benefit 
of using algae as a transportation fuel feedstock; the carbon is 
essentially used twice for energy production before being released into 
the atmosphere, thereby increasing the Btu-to-greenhouse gas emission 
ratio.
    Even utilizing the relatively cheap open pond method, the ASP 
determined that large-scale algae production was cost prohibitive. 
Using all components of the algal biomass, and not just the 50-60% oil 
present in high-oil varieties, will likely be the key to a cost 
effective system. Beta-carotene, nutritional supplements, and other 
high-value health and beauty products can be derived from algae. The 
carbohydrate part of the biomass can be used for ethanol production or 
even co-firing in a coal-fired power plant. Animal feed is another 
valuable co-product.
    In 1995, the Department of Energy eliminated funding for the ASP, 
focusing its resources instead on ethanol. Research in the area stalled 
for about a decade, until the last couple of years when private and 
public investments have accelerated significantly. There are several 
start-up companies working to commercialize an algae-to-biofuel 
process; some have partnered with major oil corporations. The 
Department of Defense has also spurred activity with its BioFuels 
program, while states such as Texas and Virginia have provided funding 
as well. Some companies have claimed production numbers in excess of 
10,000 gallons of biodiesel per acre of algae, but these have yet to be 
proven in long-term, real world demonstrations. Conservative estimates 
are closer to 1,000 gallons per acre, comparable to ASP findings.\2\ 
Some companies are using the inexpensive open pond system, while others 
believe they can overcome the large capital cost of a closed 
photobioreactor. Some are building stand-alone production systems, 
while others are adding to existing systems or building in the capacity 
to make valuable co-products. It remains to be seen which formula, if 
any, will yield economically viable production costs that can compete 
with fossil fuels.
---------------------------------------------------------------------------
    \2\ Correspondence with John Sheehan, Vice President of Strategy 
and Sustainable Development for LiveFuels, Inc., and lead author of 
NREL Aquatic Species Program Close-Out Report: February 2008.
---------------------------------------------------------------------------
    One of the many projects initiated in the last year is run by 
Cellana, a joint-venture between Royal Dutch Shell and HR Biopetroleum. 
The partners announced in November 2007 that they will build a pilot 
facility on the Kona coast of the Big Island in Hawaii to grow non-
modified marine algae for biodiesel. They will use an open pond system 
on a site leased from the Natural Energy Laboratory of Hawaii Authority 
(NELHA), adjacent to existing algae ponds used for the pharmaceutical 
and nutrition industries. The Cellana plant will use bottled 
CO2 in its demonstration-stage operation.\3\
---------------------------------------------------------------------------
    \3\ Shell Press Release: November 12, 2007.
---------------------------------------------------------------------------
    Vertigro, a joint venture between Valcent Products Inc. and Global 
Green Solutions*, has been running a demonstration of a closed 
photobioreactor system since last fall. The facility is located in El 
Paso, Texas, and is also selling the algal biomass to the food, 
pharmaceutical, health and beauty industries. The closed system 
engineered by Vertigro is modular, so future algae producers could 
increase capacity one acre at a time.
---------------------------------------------------------------------------
    * Valcent Products Inc. creates and designs consumer and industrial 
products. Global Green Solutions develops alternative energy and 
greenhouse gas reduction technology.
---------------------------------------------------------------------------
    While most of the work with algae-derived transportation fuels has 
focused on biodiesel, algal oils can be processed into jet fuel as 
well. In November 2007, Chevron partnered with NREL to identify and 
develop appropriate strains of algae for use in transportation fuel, 
including jet fuel.\4\ In January 2008, Chevron announced that it will 
work with California-based Solazyme** to commercialize algae-to-fuel 
technology.
---------------------------------------------------------------------------
    \4\ Chevron Press Release: October 31, 2007.
    ** Solazyme is a synthetic biology company, specializing in genetic 
engineering of marine microbes for the energy, chemical, and 
pharmaceutical industries.
---------------------------------------------------------------------------
    Massachusetts-based GreenFuel Technologies is working with 
Sunflower Electric Power Company to test an algae production system 
that will feed off the flue gases from a Sunflower coal plant in 
Kansas. Once the production and harvesting is brought up to commercial 
scale, the company plans to convert the algal biomass to biofuels and 
animal feed. In 2007, GreenFuel built a similar facility adjacent to a 
power plant in Arizona, but the project was halted after two weeks 
because the algae grew faster than the harvesting equipment could 
handle.
    Scientists and engineers from Old Dominion University have received 
about $500,000 from the state of Virginia to build cultivation tanks to 
grow algae in wastewater. The facility will only be able to produce 
around 70,000 gallons of biodiesel per year, but the algae also perform 
a valuable service for the local waterways by absorbing nutrients such 
as nitrogen and phosphorous before the wastewater is discharged.\5\ 
Similar research is taking place at the University of Minnesota, where 
a closed system will utilize the waste heat from a water treatment 
facility to compensate for the cold climate.\6\
---------------------------------------------------------------------------
    \5\ Old Dominion University Press Release: December 14, 2007.
    \6\ University of Minnesota Press Release: January 15, 2008.
---------------------------------------------------------------------------
    The Defense Advanced Research Projects Agency (DARPA), part of the 
Department of Defense, is working to develop economically viable 
production of biobased military jet fuel through its BioFuels Program. 
Sandia National Laboratories, in collaboration with UOP, LLC, Cargill, 
and Arizona State University, is researching algae production and 
conversion technologies under a $6.7 million DARPA grant. The Energy & 
Environmental Research Center at the University of North Dakota 
received about $5 million for a similar project, which should be 
complete in mid-2008.\7\ Grant recipients are expected to deliver a 
minimum of 100 liters of a JP-8 jet fuel alternative for DOD 
testing.\8\
---------------------------------------------------------------------------
    \7\ University of North Dakota Energy & Environmental Research 
Center Press Release: December 6, 2006.
    \8\ DARPA Biofuels Solicitation: July 5, 2006.
---------------------------------------------------------------------------
          ADVANTAGES AND DISADVANTAGES OF ALGAE AS A FEEDSTOCK

    Much will be learned in the next 2-3 years as these research, 
development, and demonstration projects are completed and move toward 
commercialization. The field of plant genetics has made many advances 
since the ASP ended, which may help bring down costs. But the fact is 
that high production costs remain the principal barrier to bringing 
algae-based biofuels to market. Current estimates run in the $20 per 
gallon range, which clearly is not competitive with petroleum.
    Another possible barrier to large-scale commercialization of 
biofuels in general is infrastructure. Pipelines are the most cost 
effective way to transport liquid fuels, but ethanol and biodiesel are 
currently transported by truck, rail, and barge. Ethanol raises 
concerns about stress corrosion cracking, while biodiesel may have 
``trail back'' issues, where trace residues left behind contaminate jet 
fuels later transported in the same pipeline.\9\ Meanwhile, the 
trucking and rail sectors are operating at full capacity and may have 
trouble meeting the needs of a rapidly expanding biofuel industry. The 
good news for biodiesel, however, is that once it makes it to the 
pumps, it can be used in any diesel engine without modification.
---------------------------------------------------------------------------
    \9\ Anduin Kirkbride McElroy. ``Pipeline Potential.'' Biodiesel 
Magazine: February 2007.
---------------------------------------------------------------------------
    Experts agree that the potential for algae-based biofuels to meet a 
significant portion of our needs is high, but commercial production 
should not be rushed without careful consideration of all its impacts. 
For example, recent work on lifecycle analysis has placed a new focus 
on indirect land emissions--emissions associated with agricultural 
expansion in another location (either in the U.S. or abroad) directly 
resulting from the increased demand for agricultural products caused by 
shifting domestic farmland from food to fuel production. While a 
standard methodology for life cycle emissions analyses including 
indirect effects has yet to be agreed upon, a number of studies 
indicate that the conventional biofuels produced on agricultural land 
have the potential to increase emissions of greenhouse gases relative 
to fossil fuels--exacerbating climate change instead of mitigating it. 
This makes it critical to focus on wastes, residues, and other 
feedstocks that will not result in land use changes.
    Unintended environmental impacts could become an issue with 
commercial production of algae for biofuels as well, particularly in 
regards to genetic modification. Invasive aquatic plant species such as 
Giant Salvinia, Water Hyacinth, and Eurasian Water milfoil have spread 
throughout many states over the past several decades, causing problems 
such as crowding out native species, reducing water oxygen levels, 
blocking sunlight, and clogging water intakes.\10\ Microalgae's ability 
to grow so rapidly, even doubling within a matter of hours, could be 
devastating if a strain with containing a harmful gene were to spread 
to wild freshwater or saline populations. Closed algae production 
systems allow for more safeguards than open ponds, but the potential 
for transfer of the microscopic organisms would still exist.
---------------------------------------------------------------------------
    \10\ USDA National Agricultural Library. http://
www.invasivespeciesinfo.gov/aquatics/main.shtml
---------------------------------------------------------------------------
    Of course, algae are not the only biofuel feedstock that avoids the 
land conversion issues facing today's corn-and soy-dominated industry. 
Waste materials*** such as forest thinnings, municipal solid waste, 
agriculture and animal processing residues, and leftover vegetable oils 
can all be sourced without putting more pressure on arable land. Some 
of these feedstocks also have their own unique advantages. For example, 
providing a market for otherwise low-value woody biomass makes healthy 
forest management practices more economically viable, thus reducing the 
potential for catastrophic, high-emitting wildfires. Finding a use for 
municipal solid waste could potentially alleviate some of the pressure 
on communities to find more landfill space.
---------------------------------------------------------------------------
    *** It should be noted that, as technology stands today, not all of 
these feedstocks are in direct competition with one another. Cellulosic 
plant material and municipal solid waste are being developed for the 
production of ethanol, a gasoline additive. Oils and animal fats are 
converted to biodiesel, for use with diesel engines. However, thermal 
conversion technologies may bring about the ability to process 
cellulose into a diesel substitute in the future.
---------------------------------------------------------------------------
    Also, some feedstocks have regional advantages. Woody biomass will 
be more plentiful in forested states (like the Southeastern United 
States), while agricultural residues will come from farm states and 
fish processing waste will come from coastal states. Algae grow best in 
areas with ample sunlight and warm temperatures. The desert southwest 
is particularly attractive for algae production because there is plenty 
of non-arable land and solar energy.
    As a group, however, these waste materials do share one clear 
advantage over algae as a biofuel feedstock: they are available today 
at low cost. On the other hand, alga has the potential to provide a 
tremendous amount of energy, many times what you will get out of other 
types of biomass.

                              CONCLUSIONS

    There are many start-up companies and universities working hard to 
turn the high energy potential of algae into a commercially viable 
biofuel. This recent push for research, development, and 
commercialization of algae-based biofuels comes after a decade of 
focusing on corn ethanol and soy biodiesel, which have the potential to 
have serious land conversion and climate change implications. Algae can 
grow in brackish water on non-arable land, feed off the waste 
CO2 from coal-fired power plants, and produce up to 30 times 
more oil per acre than produced by terrestrial oilseed crops. The main 
barrier is high production costs that cannot compete with the current 
production costs of fossil fuels. Another potential problem is the 
possibility of genetically-modified algae escaping the algae production 
facilities and harming wild ecosystems. Federal funding of research or 
oversight of research could accelerate progress in developing 
commercially viable technologies while also mitigating environmental 
risks, including those related to genetic modification.
                                 ______
                                 
   Responses of Alexander Karsner to Questions From Senator Bingaman

    Question 1. I am pleased that DOE is a strong supporter of 
cellulosic ethanol; however, I am concerned that we might not be doing 
enough to support other kinds of second generation technologies. Could 
you comment on how DOE is working to advance other advanced biofuel, 
such as cellulosic biobutanol and biocrude from algae?
    Answer. There are a number of other advanced biofuels that have 
promising potential as gasoline and diesel substitutes. In recent 
years, DOE's Office of Energy Efficiency and Renewable Energy has 
focused almost exclusively on cellulosic ethanol primarily due to the 
relative volumetric substitution available and the fact that cellulosic 
ethanol demonstrates the greatest potential for significant near-term 
commercialization.
    However, DOE is increasing and broadening its efforts on next-
generation biofuels using a variety of feedstocks and conversion 
technologies. For instance, on January 29, 2008, DOE announced $114 
million in awards for small scale biorefineries that use next 
generation technologies.
    DOE is reviewing a wide range of potential alternative fuels beyond 
cellulosic ethanol, including algae and biobutanol.
    Biobutanol is a liquid alcohol fuel that can be used in today's 
gasoline-powered internal combustion engines. The properties of 
biobutanol make it highly amenable to blending with gasoline. For 
example, recently, DuPont and British Petroleum, among others, have 
begun investing in R&D to develop more cost-effective biobutanol 
production processes.
    Question 2. Could you comment on whether the cellulosic ethanol 
produced from the Range Fuel facility in Georgia would count toward the 
RFS? We understand that the feedstock is intended to come from 
commercial wood waste and private forests, which do not qualify as 
``renewable biomass.''
    Answer. Section 211(o)(1) of the Clean Air Act, as amended by 
section 201 of the Energy Independence and Security Act of 2007 (EISA 
2007), defines ``renewable biomass'' to include planted trees and tree 
residues from actively managed tree plantations on non-federal land 
cleared prior to the enactment of EISA 2007, and slash and pre-
commercial thinnings that are from non-federal lands. It is our 
understanding that the Range Fuel facility will rely on biomass 
consistent with the statutory definition, and therefore, cellulosic 
ethanol produced at the Facility would count towards the RFS.

     Responses of Alexander Karsner to Questions From Senator Akaka

    Question 1. The Environmental and Energy Study Institute testified 
today that, given the lack of data regarding the impact of indirect 
land use effects on the lifecycle of GHG, the wisest course of action 
would be to focus on feedstocks that do not induce land use changes. 
Furthermore, algae represents a feedstock with great potential for high 
yields and little or no indirect emissions, because it does not require 
the use of arable land currently in food production. Therefore, it 
concerns me even more that Secretary Bodman, when testifying before the 
Committee on the FY09 Budget, implied that research on algae, as a 
renewable fuel source, falls under the purview of NOAA, and not DOE. 
What is DOE's position on algae, as a renewable fuel source? Is it as 
favorable an alternative as the perennial grasses that you mention in 
your testimony?
    Answer. DOE is committed to targeting its R&D effectively to 
develop cost effective, clean renewable fuels. To that end, we are 
investigating the potential of a wide range of feedstocks, including 
algae, to synthesize alternatives to petroleum-based fuels. The 
Department is preparing a report for Congress, as required under the 
Energy Independence and Security Act of 2007, to assess the use of 
algae as a renewable (biofuels) feedstock. In preparing the report, the 
Department has discussed ongoing algae research with other Federal 
Agencies, including the Environmental Protection Agency, and the 
Departments of Defense and Agriculture.
    Perennial grasses and algae offer different solutions to different 
concerns. Perennial grasses are being developed as a cellulosic 
feedstock primarily for producing transportation fuels such as ethanol 
that can be used in gasoline-powered engines, while algae is being 
considered as an aquatic species that would be grown for its lipid (and 
therefore hydrocarbon) content and used in diesel engines. Oilseed 
crops are more similar to algae in that they are also lipid producers 
that can be used in diesel fuel applications. Currently, biodiesel 
produced from oilseed crops such as soybeans is commercially produced 
on arable land while algae is still in the research and development 
stage.
    Question 2. How does DOE plan to work with NOAA in research and 
development initiatives for algae as a renewable fuel source?
    Answer. The National Oceanic and Atmospheric Administration (NOAA) 
has primarily acted to understand, monitor, and respond to harmful 
algal blooms (HABs) in our country's coastal and lake regions. Although 
DOE and NOAA are not currently working together on the development of 
algae biofuels, it is quite likely that the expertise NOAA has 
developed in forecasting and monitoring HABs could be of great value to 
monitoring algal growth in dedicated large-scale cultivation ponds used 
for biofuels production. Furthermore, based on the advanced sensing 
technologies and high level predictive models that have been developed, 
we see a good synergy developing between DOE and NOAA in the algae to 
biofuels area. Should algae cultivation for biofuels production ever 
move off-shore to our coastal regions, information maintained at NOAA's 
National Oceanographic Data Center would be useful in the long-term 
monitoring of the effects of growing production algae at such a large 
scale as well as monitoring these cultures for contamination by 
invading species.

   Responses of Alexander Karsner to Questions From Senator Barrasso

    Question 1a. Does DOE have any position with respect to extending 
the small refinery exemption to the RFS, included in the 2005 Energy 
Policy Act, but not included in the 2007 Energy Bill?
    Answer. The Administration has not developed a position at this 
time with respect to extension of the small refinery exemption. DOE is 
currently in the process of evaluating the exemption under the EISA 
2007 revisions to the program and will make a recommendation as 
directed by EPACT 2005 by the end of 2008. We believe that the small 
refineries exemption from compliance of the RFS program in EPACT 2005 
was maintained within EISA 2007. Additionally, we believe that the 
timing of the small refineries exemption, which extends until the end 
of 2010 under EPACT 2005 was maintained within EISA 2007. However, the 
provisions for determining an obligated party's RFS requirements have 
changed to include all manufacturers, blenders or importers of 
transportation fuel as opposed to gasoline. Additionally, the renewable 
fuel volumetric requirements have changed significantly from EPACT 2005 
to EISA 2007. These changes may alter the number of exempted refineries 
and complying party's requirements. Under the small refiner's exemption 
for EPACT 2005, DOE is required to determine by December 31, 2008 
whether compliance with the RFS requirements would impose a 
disproportionate economic hardship on small refineries, and if such a 
finding is made, the EPA Administrator must extend the exemption from 
the RFS program for an additional two years.
    Question 1b. If small refineries were granted exemption to the RFS, 
what, if any affects [sic], could be anticipated on the goals of the 
legislation and on the energy market?
    Answer. Since at this point in time DOE has not fully evaluated the 
small refineries exemption under the EISA 2007 revisions to the RFS 
program we can not comment on the effects the legislation may have on 
the goals of the program or energy markets.
    Question 2. Some individuals speculate that the ethanol industry is 
facing a de facto ``blend wall'' due to the practical limit of a ten 
percent blend, which some experts estimate to be in the range of 11 to 
12 billion gallons. I understand these claims are made in part due to a 
combination of small engine warranty concerns for ethanol blends above 
ten percent, and statewide air quality caps, such as those imposed in 
California. What is DOE's opinion of these potential practical 
barriers, in terms of increasing and assimilating future ethanol 
production?
    Answer. Today the vast majority of the nation's ethanol is marketed 
for use in vehicles and engines as a blend up to 10 percent (E10) in 
gasoline. The only other way of using ethanol is in the form of E85 in 
specially designed flexible fuel vehicles. However, less than one 
percent of all ethanol used in U.S. transportation fuel comes in the 
form of E85. Given the new renewable fuel standard requirements for 
significant increases in biofuels as well as increased domestic 
production of ethanol, the El0 market is becoming saturated and may in 
fact reach the ``blend wall'' in the next 24 to 36 months--the 
equivalent of 10 percent of all gasoline sold. There are two paths to 
increase ethanol markets beyond the 12 to 14 billion gallons (which the 
``wall'' represents), which are being pursued in parallel: Expand E85 
markets at a significantly accelerated pace, including maximizing 
flexible fuel capability across the vehicle fleet amongst all 
manufacturers that serve the US market as well as E85 fueling stations; 
and certify intermediate gasoline blends to use up to 15 or 20 percent 
ethanol (i.e., E15, E20), letting market forces drive ethanol supply 
distribution (based on successful engine/emissions testing and EPA 
approval).
    While the Department is aware that several state fuel quality 
specifications as well as air quality caps may currently impede 
nationwide use of El0 and beyond, we are encouraging several states in 
the Southeast to modify and/or harmonize their fuel quality 
specifications in order to facilitate the use of El0 in their 
respective states.
    DOE recognizes that there may be potential engine operational and 
emission issues, among other concerns, with E15 and E20 gasoline 
blends. Accordingly, DOE began testing E15 and E20 in summer 2007, on 
small engines and vehicles.\1\ DOE testing of higher ethanol blends on 
small engines currently covers full life emissions, durability, and 
temperature on leaf blowers, line trimmers, pressure washers, and small 
generator sets. An expanded test plan to include marine engines, all-
terrain vehicles (ATVs) and motorcycles is under development. The DOE 
intermediate blends test plan on vehicles is evaluating vehicle exhaust 
and evaporative emissions, catalyst durability and aging, cold-start 
operation and drivability, and fuel system and catalyst materials 
compatibility. Given the new Renewable Fuel Standard as well as 
anticipated saturation of the El0 market within the next few years, the 
Department recognizes the urgent need for continued and expanded 
testing towards evaluating the viability of intermediate blends between 
El 0 and E85 as an element to achieving the renewable fuels mandates.
---------------------------------------------------------------------------
    \1\ Testing will be done against a baseline of E0 and E10.

                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

Statement of Patrick Rita, Vice President, Government Affairs, American 
                       Forest & Paper Association

    The American Forest & Paper Association (AF&PA) appreciates the 
opportunity to share our perspective on the Renewable Fuels Standard 
(RFS) that was enacted as part of PL 110-140, the Energy Security and 
Independence Act of 2007. As you may know, the forest products industry 
is a leader in the generation and use of renewable energy from biomass 
residue in our mills. On average, the industry uses approximately 60 
percent carbon neutral biomass energy and produces about 89 percent of 
the bio-based fuel generated by industrial sectors. This is 
accomplished while adhering to disciplined market based standards of 
accountability that ensures the wood fiber we use is grown in a 
sustainable manner.
    AF&PA is the national trade association of the forest, pulp, paper, 
paperboard, and wood products industry. The industry accounts for 
approximately 6 percent of the total U.S. manufacturing output, employs 
more than a million people, and ranks among the top 10 manufacturing 
employers in 42 states with an estimated payroll exceeding $50 billion. 
We support policy efforts to increase our nation's energy security and 
our member companies are leading the effort to achieve this objective 
by combining advanced technology and innovative manufacturing practices 
with responsible stewardship of our natural resources.
    AF&PA urges Congress to modify the definition of renewable biomass 
in the RFS provision of PL 110-140, which currently restricts 
eligibility based on forest types and successional stage and 
disqualifies fiber from public ownerships. We also recommend adding 
criteria to the waiver and study aspects of the RFS that will help 
balance the resource needs of existing biomass users, the emerging 
resource needs of the cellulosic biofuels industry, and the health, 
viability and productivity of our agricultural and forest lands 
throughout the country.
    The definition of renewable biomass in the RFS statute creates a 
number of implementation challenges and would meaningfully reduce 
landowner options and raise fiber costs for manufacturers of wood and 
paper products. We urge Congress to revisit this issue and replace the 
existing definition of ``renewable biomass'' with the definition 
contained in Sec. 102(4) from the version of H.R. 6, the Energy 
Security and Independence Act that passed the Senate on June 21, 2007.
    As written, the definitional approach in PL 110-140 regarding tree 
plantations established prior to enactment excludes large swaths of 
timberland and provides a disincentive to prospective market entrants 
who wish to grow new forests. This language also excludes materials 
from forests in the Lake States, Northern New England, Central 
Appalachians, and other regions that are managed to allow natural tree 
regrowth, with potentially negative effects on jobs and economic growth 
in these already distressed rural areas. In addition, the renewable 
biomass definition in the RFS encourages would-be producers of 
renewable fuel to focus their procurement efforts on existing softwood 
plantations, which are already intensively managed and supply 
substantial amounts of fiber to existing biomass users.
    Second, the prohibition on the use of ``slash and thinnings'' from 
either old growth or forests on any list of imperiled forests is 
unworkable because of numerous technical ambiguities that make it 
difficult, if not impossible, to map and apply. We are concerned the 
prohibition in practice will either exclude large amounts of wood fiber 
out of confusion or an abundance of caution, or be enforced entirely in 
the breech because of difficulties verifying the source of the 
generally low value fiber being used to produce biofuels. In any event, 
landowner decisions regarding harvest are driven primarily by regional 
market dynamics which make harvesting old growth timber to produce low-
value biomass impractical.
    Third, the exclusion of fiber from public lands prevents the 
utilization of low value materials removed from the forest to reduce 
fire risk and improve forest health. There are over 90 million acres of 
Federal public lands that are at high risk of uncharacteristic fire, 
insect, or disease outbreaks. Eliminating the biofuels market as a tool 
to reduce hazardous fuel loads will exacerbate the decline in 
infrastructure needed to do this work, placing both forests and 
adjacent communities at increased risk.
    In addition to definitional modifications, AF&PA urges Congress to 
further amend the RFS by adding language that would allow a state to 
petition for a waiver from the RFS mandate if its implementation would 
severely harm the long-term agricultural and silvicultural capability 
of a region of the country. We believe that allowing states to seek a 
waiver if mandated production levels threaten the ability of natural 
resources in the state or region to satisfy production levels, in 
addition to meeting demand from existing biomass feedstock users that 
rely on the same resource to produce food and manufacture products, 
would improve the standard. Enhancing the waiver will help maintain a 
working balance between the resource needs of existing biomass users 
and the emerging resource needs of the cellulosic biofuels industry. 
The modification would also help preserve the health, viability, and 
productivity of our agricultural and forest lands throughout the 
country as well as economies in rural areas.
    We also propose expanding the study by the National Academy of 
Sciences to include assessment of the impact of an expanded RFS on 
users and producers of biomass as well as options for long-term 
agricultural and silvicultural capability. Cellulosic ethanol 
production will be derived, at least in part, from woody biomass and we 
believe examining the impacts on forest landowners and wood and paper 
products manufacturers would better inform the study. The suggested 
language regarding agricultural and silvicultural capability will help 
maintain a working balance as the standard is being implemented.
    The forest products industry is a leader in developing innovative 
energy solutions that decrease our reliance on fossil fuel and is the 
largest producer of biomass energy in the country. We urge Congress to 
assist our efforts by supporting an unbiased definition of renewable 
biomass, ensuring the long-term silvicultural and agricultural 
capability of regions, and maintaining the current biomass needs of 
existing facilities.
    We thank the committee for creating an opportunity to comment on 
this important issue and look forward to working with you in the coming 
months to craft a workable and balanced renewable energy policy.
                                 ______
                                 
    Statement of J. Patrick Boyle, President and CEO, American Meat 
                               Institute

    Mr. Chairman, Ranking Member, and Members of the committee, thank 
you for allowing us the opportunity to submit testimony. AMI has 
provided service to the nation's meat and poultry industry--an industry 
that employs more than 500,000 individuals and contributes more than 
$100 billion in sales to the nation's economy--for more than 100 years.
    AMI members include 250 of the nation's most well-known meat and 
poultry food manufacturers. Collectively, they produce 90 percent of 
the beef, pork, veal and lamb food products and 75 percent of the 
turkey food products in the U.S. Among AMI's member companies, 60 
percent are small, family-owned businesses employing fewer than 100 
individuals and some are publicly trade and employ tens of thousands.
    AMI commends the committee for holding the hearing. It is very 
valuable to call attention to the need for greater diversity in 
biofuels and energy. AMI is very supportive of efforts to develop 
energy from many bio-based sources including animal fats and 
byproducts. While this hearing specifically focuses on the effects on 
the energy markets, it is clear that any development in the energy 
market for food-based biofuels has profound impacts on our member 
companies as significant consumers of feed.
    AMI member companies are concerned about the short-term and long-
term economic consequences of burning more feed and food as fuel on the 
meat and poultry community. The goal of energy security is commendable 
and should be considered in relative context to risk posed to domestic 
and international food security. By utilizing a key food ingredient as 
the dominant input for biofuels, the program has coupled food prices to 
fuel prices.
    The Energy Independence and Security Act of 2007 (EISA), its 
predecessor the Energy Policy Act of 2005 (EPAC), and existing biofuel 
subsidies and trade protections have concentrated the adverse impacts 
on animal agriculture producers and consumers' food budgets. When the 
EPAC was signed, food inflation was coincidently at its ten-year 
average of 2.3 percent. In January 2008, the CPI food index was 4.9 
percent, which is more than twice the ten-year average. Food inflation 
creates a drag on the economy and reduces the purchasing power of 
consumers. The consequences of this added inflation contributes to an 
increased food bill of nearly $200 for a household of four. This 
increase carefully matches the projections of an August 2007 Iowa State 
University study, which indicated that per capita impact at $47 per 
person\1\.
---------------------------------------------------------------------------
    \1\ Iowa State Univ; Tokgoz, Elobeid, Fabiosa, Babcock, Hayes, Yu, 
Dong, Hart, & Beghin. ``Emerging Biofuels: Outlook of Effects on U.S. 
Grain, Oilseed, and Livestock Markets,'' (2007).
---------------------------------------------------------------------------
    In 2007, livestock and poultry producers saw their feed prices rise 
by more than 65 percent and are expecting an equally difficult 
environment for 2008. Food-based biofuels production has had an 
influence on food prices and substantial influence on the prices 
farmers pay for feed. For many years, the economic well-being of the 
meat and poultry industry closely tracks that of our most immediate 
supplier, the animal agriculture producer. The recent red ink in the 
animal sector may be most pronounced in the cattle sector. As 
illustrated in the graph below*, cattle producers suffered significant 
losses through 2007, largely from increased feed costs.\2\ On Feb 1, 
2008, USDA released figures indicating the beef calf herd for 2007 was 
the smallest since 1951, an indication of market adjustments due to 
substantially higher feed costs.
---------------------------------------------------------------------------
    * Graph has been retained in committee files.
    \2\  Ibid. Lawrence. (2008).
---------------------------------------------------------------------------
              FOOD-BASED BIOFUELS IMPACT ON FEED AND FOOD

    The rise in demand for corn has pressed market forces to demand 
higher corn, soybeans, and all feed prices. Consequently and among 
other impacts, the change in price and availability has led animal 
agriculture producers to consider alternatives to their feeding, 
nutrition, and dietary regimen. These changes can and do impact meat 
and poultry quality, consumer offerings, livestock and poultry farm 
efficiency, and the management of livestock and poultry operations.
    It is for these reasons articulated in the following testimony that 
AMI is asking Congress and the Administration through tax, other 
legislative and regulatory vehicles to consider policies that account 
for impacts on animal agriculture and food, and ultimately places the 
U.S. in a more competitive position in terms of energy security, 
diversity, and availability as well as food security.
    Corn is one of the largest components in the diets of livestock and 
poultry. Swine rations often contain about 60-85 percent corn, poultry 
rations contain about 65-75 percent, and beef animals often have diets 
averaging 35 to 65 percent shell corn--although some producers will 
feed 100 percent corn to beef animals as either shell corn, flaked, or 
silage. As a result of a significant increase in ethanol production, 
animal nutritionists are being confronted with a new challenge in 
attempting to incorporate a significant amount of ethanol's byproduct 
or distillers grains into existing feed rations and maintain meat and 
poultry quality and the economic well-being of livestock and poultry 
producers.
    Initial research has demonstrated that animal performance measured 
by weightgained/ day, meat yield, leanness, environmental impact 
(manure production), and other factors have provided initial indicators 
that livestock and poultry on distiller grain rations have 
underperformed their corn-rationed peers. The very high fiber content, 
nutrient variability, limited digestibility, and different mineral 
profile of distiller grains are the key limiting factors of its ability 
to be used as a substitute for corn.
    As domestic feed and food prices have increased, other major grain 
producing regions have responded to the added inflationary pressures. 
USDA identifies three main grain production areas in the world, the 
United States, Argentina, and China.\3\ Unfortunately, since mid-2007 
Argentina has taxed and limited exports licenses for grains. In 
November, Argentine Economy Minister Miguel Peirano stated that 
``increasing the cost of exports also is designed to reduce domestic 
inflation.''\4\ On January 1, 2008, China ``imposed a 5 percent tax on 
exports of corn, rice and soybeans and a 20 percent levy on wheat 
exports. Food prices in China gained 18.2 percent in November. The 
[Chinese] government has also sought to slow price increases by selling 
grain from stockpiles and canceling tax rebates.''\5\ These trade 
restrictions contribute to added pressure from a food-based biofuels 
program on domestic animal agriculture producers and food supplies.
---------------------------------------------------------------------------
    \3\ USDA. Hoffman, Baker, Foreman, & Young. ``Feed Grains 
Background,'' (Mar. 2007).
    \4\ Bloomberg.com. Craze & Raszewski. ``Argentina Raises Taxes on 
Exports of Corn, Soybeans,'' (2007).
    \5\ Bloomberg.com. Hur.``Corn Rises to an Eleven-Year High as China 
Sets Export Taxes on Grains,'' (2008).
---------------------------------------------------------------------------
    As the Environmental Protection Agency (EPA) begins the rule-making 
process for EISA, we look forward to working with them to develop a 
rule that provides for meaningful consideration of the consequences of 
a food-based biofuels program. In EISA, EPAC, and the Clean Air Act and 
subsequent amendments, Congress provides the Administration and EPA 
authority and discretion. It will be very critical for EPA to 
thoroughly examine the issues, utilize their technical expertise, and 
exercise their discretionary authority to account for unintended 
domestic and international consequences of food-based biofuels and 
develop a rule to enhance energy security.
Policy Recommendations
          1) Congressional and Administration leaders should develop 
        and implement a plan to decouple the increasing price 
        correlation of food from fuel. They can begin by eliminating 
        the mandate for corn-based ethanol and reducing or eliminating 
        the tax credit for ethanol. As stated by Dr. Thomas Elam, ``in 
        light of current gasoline prices the Federal subsidy program is 
        no longer needed to promote ethanol production. The existence 
        of the subsidy is, today, severely distorting crop prices while 
        adding little, if anything, to the stated goals of the 
        renewable energy program.''\6\
---------------------------------------------------------------------------
    \6\ FarmEcon.com. Elam. ``Fuel Ethanol Subsidies: An Economic 
Perspective,'' (2007).
---------------------------------------------------------------------------
          2) To aid consumer confidence in renewable energy and expand 
        the market, it would be beneficial for Congress to allow the 
        ethanol tariff on imported biofuels to expire in 2008. This 
        would potentially expose consumers to more renewable energy and 
        broaden the diversity of our energy sources.
          3) In light of studies concerning ethanol by-products, 
        usability, nutrition, and safety\7\, Congress should provide 
        federal research funding into renewable energy byproduct 
        safety, quality, and usability (i.e. storage and 
        transportation). Directing research on these topics will 
        ideally provide animal agriculture producers with nutrition 
        guidance for producing safe and high quality meat and poultry 
        products.
---------------------------------------------------------------------------
    \7\  University of Minnesota. Shurson. ``Testimony before the House 
Agriculture Subcommittee on Livestock, Dairy, & Poultry,'' (March 8, 
2007); Kansas State Univ. Jacob, Fox, Droulliard, Renter and Nagaraja. 
``Effects of Dried Distillers Grain on Cattle Fecal Prevalence and 
Growth of Escherichia coli O157 in Batch Culture Fermentations,'' 
(2008).
---------------------------------------------------------------------------
          4) Should benefits remain, Congress and the Administration 
        should not discriminate on the basis of feedstocks and bio-
        based energy. Consumers and businesses can benefit from many 
        new energy sources from such raw materials as animal fats, 
        tallow, and animal byproducts as their feed stocks as long as 
        the law does not prejudge or unduly favor one feed stock or 
        bio-based energy over another.
          5) Congress and the Administration should support a working 
        lands environmental program, which would reduce the regulatory 
        and legislative burdens on farmers that elect to grow crops on 
        land currently locked in the Conservation Reserve Program 
        (CRP), but still maintain environmental benefits to the land. 
        Should cellulosic biofuel commercialize, a feedstock will still 
        be needed from an acre of land. Some cellulosic models utilize 
        crop byproducts, but others may need a crop-based feedstock. To 
        minimize consumer inflationary impacts and to preserve the 
        economic well-being of animal agriculture, acres of land that 
        are tied up by regulatory limitations should be made available 
        to farmers to respond to market signals for existing and future 
        biofuels such as cellulosic.
          6) Congress should consider expanding the waiver authority 
        from EPAC and EISA requirements to ease the burdens of 
        competing input industries and food consumers. While the waiver 
        authority in the acts is a good start, it should provide 
        greater consideration for domestic or international consumers, 
        the impact on competing input industries, an on-ramp evaluation 
        for new mandates, as well as expedited timelines. While food-
        based biofuels policies are very costly for our sector of the 
        economy and all food consumers, these costs can be compounded 
        and escalate rapidly by bad crop years, weather events, and 
        other natural disasters. Thereby, making a meaningful waiver 
        policy essential to good food and energy security policy.

    The American Meat Institute is committed to working Congressional 
and Administration leaders to develop policy that balances our energy 
security and food security objectives. Thank you for the opportunity to 
submit this testimony. We appreciate the committee's interest in 
holding this hearing following the passage EISA.
                                 ______
                                 
         Alliance For a Safe Alternative Fuels Environment,
                                                  February 6, 2008.
Hon. Jeff Bingaman,
Chairman.
Hon. Pete V. Domenici,
Ranking Member, Committee on Energy & Natural Resources U.S. Senate.
    Dear Chairman Bingaman and Senator Domenici: As members of the 
Alliance for a Safe Alternative Fuels Environment (AllSAFE), the 
undersigned national organizations are pleased to submit their views 
for the record for your committee's hearing on the national renewable 
fuels mandate recently signed into law. The members of AllSAFE 
appreciate the compelling reasons that support expanding the market for 
renewable fuels, including ethanol. However, any alternative fuels 
requirements that emerge from the new mandate must fully consider the 
implications of gasoline blended with higher concentrations of ethanol 
on existing and new products powered by gasoline fuel.
    AllSAFE urges the committee and the federal agencies charged with 
implementing the new Renewable Fuels Standard (RFS) to carefully 
consider and respond to the serious concerns of over 200 million 
Americans that own and operate well over 300 million products, 
including recreational boats and marine engines, chainsaws, lawnmowers, 
motor vehicles, motorcycles, ATVs, snowmobiles, generators, and related 
vehicles and equipment. Mid-level ethanol blends (over 10 percent 
ethanol) may cause substantial damage to these consumers' engines, 
equipment and vehicles, which are designed to run on conventional 
gasoline, as opposed to the new flexible fuel vehicles (FFVs) that are 
specifically designed to run on much higher ethanol blends (e.g. E85).
    Indeed, as part of the Energy Bill that you and your committee 
ushered through the Senate, Congress included an important 
environmental safeguard (Sec. 251) which strengthens the Clean Air Act 
approval process for new fuels, including mid-level ethanol blends. 
This provision, passed with broad support in Congress and with the 
backing of industry, environmental and consumer groups, seeks to ensure 
that any new fuels approved by the Environmental Protection Agency 
(EPA) are compatible with existing and future engine products and will 
not contribute to air pollution.
    Section 211(f) of the Clean Air Act prohibits the introduction into 
commerce of a fuel or fuel additive unless that fuel or fuel additive 
is ``substantially similar'' to pre-existing fuels or fuel additives in 
use in the 1975 vehicle model year. In order to grant a ``sub sim'' 
waiver under Section 211(f)(4), EPA must determine that the fuel or 
fuel additive will not: (1) cause or contribute to the failure of any 
emission control device or system over the life of a vehicle; or, (2) 
cause or contribute to the failure of a vehicle to meet the emissions 
standards for which the vehicle has been certified. Until last year, 
however, Section 211(f)(4) stated that if EPA does not act on a 
petition for a sub sim waiver within 180 days of its submission, the 
petition is deemed granted, even in the absence of EPA action or 
consideration of the petition's merits.
    Recognizing this serious flaw, Congress approved a provision which 
strengthens the Section 211(f) waiver approval process, requiring EPA 
to ensure that any new fuel blend does not cause or contribute to the 
failure of an on-road or non-road emission control device. Further, the 
provision requires EPA to engage in a public notice and comment period 
in order that all relevant stakeholders, including engine manufacturers 
and consumers, have an opportunity to have their views heard. In 
addition, the period is extended to 270 days for EPA to affirmatively 
approve or deny a Sec. 211 waiver for the introduction of a new fuel, 
such as mid-level ethanol.
    Congress passed this provision because it recognized that there are 
significant risks and policy concerns with mid-level ethanol fuels when 
used in conventional products. AllSAFE estimates there are more than 
300 million pieces of existing on-road and off-road vehicles and 
equipment powered by gasoline engines. These products are valued at 
over $2 trillion. It is imperative that the U.S. Congress and the 
affected regulatory agencies (like EPA and DOE) make absolutely sure 
that there will not be any degradation of these existing and new 
products--particularly as a result of the increased heat and the 
increased corrosion that may result from mid-level ethanol fuels when 
used in on-road and off-road engines, boats, equipment, and vehicles.
    Currently, there is little available data on the emissions, air 
quality, public health or safety impacts of mid-level ethanol. To 
ensure that the approval of such fuels does not cause unintended harm 
to air quality or risk the safety of consumers, EPA and DOE should 
transparently and comprehensively examine all of the potential adverse 
impacts and risks of mid-level ethanol fuel blends, as Congress has now 
directed them to do. To be sure, the solution to these public policy 
concerns is not to ban or undermine the increased use of ethanol fuels. 
In fact, all the stakeholders (including the associations below) want 
to avoid consumer rejection of all ethanol blends (including E85) that 
will occur if mid-level ethanol blends damage consumers, their 
products, or their environment.
    Thank you for your consideration of our views.
            Sincerely,
                    National Marine Manufacturers Association,
                    Outdoor Power Equipment Institute,
                    Personal Watercraft Industry Association,
                    International Snowmobile Manufacturers Association,
                    Association of International Automobile 
                            Manufacturers,
                    Boat Owners Association of the United States 
                            (BoatU.S.),
                    Alliance of Automobile Manufacturers,
                    Motorcycle Industry Council,
                    Specialty Vehicle Institute of America,
                    Engine Manufacturers Association,
                    Association of Marina Industries.
                                 ______
                                 
                            Statement of API

    API supports a realistic and workable renewable fuels standard 
(RFS). Our industry is the nation's largest user of ethanol and is 
increasing the volume of renewable fuels in America's transportation 
fuel portfolio. Despite logistical and infrastructurerelated 
impediments, the industry used approximately 7 billion gallons of 
ethanol in 2007.
    The Energy Independence and Security Act of 2007 (EISA2007) creates 
a significantly increased RFS containing four interrelated parts. The 
RFS requires annually increasing minimum volumes of renewable fuels to 
be included in transportation fuel sold or introduced into the United 
States. This fourtier approach with various carveouts is very 
complicated, could lead to boutique blend requirements and inefficient 
credit markets and will be very challenging to implement. However, our 
members are dedicated to doing so, and believe the `advanced biofuel' 
requirements in the RFS incorporate a balanced approach of 
technologyforcing requirements with appropriate regulatory safeguards.
    The RFS under the Energy Independence and Security Act has been 
designed to result in significant reductions in greenhouse gas 
emissions. The ``advanced'' and ``biobased diesel'' biofuels mandates 
require a 50% reduction in lifecycle emissions from conventional fuels 
beginning in 2009. The ``cellulosic'' biofuels mandate requires a 60% 
reduction beginning in 2010. By 2022, the overall renewable mandate is 
36 billion gallon. These requirements represent a very significant 
contribution to addressing global climate concerns by our industry. 
There are obvious questions about meeting the mandates in out years. If 
the mandates are met and the fuel complies with the GHG requirements in 
the legislation, benefit will be created based upon what we know now.
    Looking ahead and taking climate and energy security considerations 
into account, the U.S. will need to develop all economically viable 
energy sources, including fossil and renewable fuel sources to meet 
expected demand. By relying, to the greatest extent possible, on market 
forces, understanding consumer impact and preferences, encouraging 
development of new technologies to meet environmental goals, and 
addressing secondary impacts of expanded renewable fuel usage, our 
industry and the nation will be better equipped to meet the energy 
challenges in the years ahead.
    Biofuels will become a significantly larger portion of U.S. motor 
fuels with implementation of EISA2007. Petroleumbased and renewable 
fuels will continue to advance with ongoing environmental improvements. 
As cellulosic ethanol and other second generation biofuels live up to 
their promise there will be a very large reduction in carbon dioxide 
from the transportation fuel pool. Our industry will strive to 
implement these challenging new mandates.

                                CONCERNS

    In passing EISA2007, Congress has spoken, and the new RFS is now 
law. Accordingly, API is committed to working with EPA during the 
rulemaking process to make this program as workable as possible. And, 
while we have very specific substantive concerns with certain 
provisions in the Act, none of these can or should be addressed by way 
of a ``technical corrections'' bill.
    We would like to take this opportunity to reiterate our concerns 
about certain provisions of EISA that we did not support during the 
energy bill debate last year and to also identify potential challenges/
ramifications.
Lead time
    EISA2007 requires almost a doubling of the RFS mandate in 2008. 
This doubling has occurred with no advance notice and will likely put a 
strain on the transportation infrastructure. The mandated volume for 
2008 far exceeds the industry's projected ethanol blending capabilities 
at fuel terminals during that timeframe, as well as the current 
domestic ethanol production capacity.
    EPA is required to issue revised regulations by the end of 2008 for 
the increase in the mandate in 2009 and beyond. This short, one-year 
deadline may not allow adequate time for EPA to conduct a thorough 
rulemaking with robust stakeholder input and thus could leave industry 
with insufficient notice to comply in 2009.
Transportation/distribution infrastructure
    By 2012 a total of 15.2 billion gallons of renewable fuel will need 
to be blended into the transportation fuel pool, approaching volumes 
requiring up to 10 percent ethanol blending in gasoline nationwide. 
Between now and 2012, tens of billions of gallons of ethanol will have 
to be transported out of the Midwest to other regions. This will put 
tremendous strain on existing transportation and storage facilities 
such as tankage capacity at terminals, terminal blending facilities, 
rail spurs at terminals, retail infrastructure, rail tank cars, marine 
vessels, etc. The need to construct additional blending and other 
facilities will also stretch state permitting agencies. These large, 
early year mandates are very high and will be difficult to meet with 
the existing transportation and blending capabilities even if fuel 
terminal blending is expanded as quickly as possible.
Cellulosic ethanol
    Similarly, longterm RFS mandate levels also may be unachievable. 
The cellulosic ethanol mandate begins at 100 million gallons in 2010 
and grows to 16 billion gallons in 2022. An additional 4 billion 
gallons of ``advanced'' biofuels are also mandated in 2022. Cellulosic 
ethanol is not currently produced on a commercial scale. Significant 
technology breakthroughs are needed for economic production of 
cellulosic ethanol. The timing of such technological breakthroughs is 
highly speculative. Even with breakthroughs in cellulosic ethanol 
production technology, significant logistical hurdles will need to be 
addressed. Gathering the feedstock (biomass such as forestry waste and 
switch grass), processing it, disposing of ``waste'' products, and 
delivering ethanol to markets at a cost comparable to gasoline have yet 
to be demonstrated on a commercial scale.
    Thus, the cellulosic ethanol waiver is a critically important 
feature of the RFS program because it provides flexibility if the 
volumes are not available to fill the mandated requirements. We 
strongly support this mechanism as essential to balancing the desire to 
force second generation technology with appropriate safeguards if the 
technology does not develop as anticipated.
Antibacksliding
    The EISA2007 anti-backsliding provision requires EPA to determine 
whether the renewable fuel volumes required by the Act will adversely 
impact air quality. Not later than 3 years after enactment, EPA is 
required to promulgate fuel regulations to mitigate any adverse impacts 
on air quality. This provision creates significant regulatory 
uncertainty for refiners. The use of ethanol will result in increased 
evaporative, tailpipe and permeation emissions of VOC and 
NOX. It is unfair to require refiners to use renewable fuels 
in increasing amounts and then to penalize them for doing so. Instead, 
the government should conduct a comprehensive study of the potential 
crossmedia environmental impacts of widespread use of biofuels and 
address secondary impacts including the impact on food supplies and the 
environment.These studies should be commenced immediately, so the air 
quality, land use and water resource impacts can be addressed as early 
as possible.
Preemption
    State-by-state biofuels mandates create additional boutique fuels 
and interfere with flexible compliance with the federal mandate. As 
EISA2007 does not contain federal preemption, compliance with the 
expanded mandate will be further complicated. States (and their 
political subdivisions), except California, should be preempted from 
setting state or renewable fuel mandates or lowcarbon fuel standards. 
Flexibility is critical for the reliable supply of fuels. The 
proliferation of state mandates will likely make it much more difficult 
for our industry to deal with tight supplies and to get fuel to where 
it is most needed during those times of tight supplies.
State barriers to blending
    In the southeastern states, a patchwork of regulatory standards 
(ASTM volatility standards relating to vehicle drivability) for 
gasoline impede the sale of gasolineethanol blends (E10), some by 
failing to accommodate the changes in fuel properties that occur when 
ethanol is added to finished gasoline and others by adopting differing 
standards on uncertain timetables. No two states have taken the same 
approach. As a result, refiner/marketers face potential noncompliance 
with state gasoline standards if they blend ethanol with fungible 
conventional gasoline that the integrated regional distribution system 
must deliver to them. Tailoring the base fuel at the refinery to assure 
compliance with the toughest standard would reduce gasoline supplies 
and increases fuel cost, thereby removing the incentive to blend 
ethanol. States served by common distribution systems should be 
strongly encouraged to align their gasoline specifications to 
facilitate blending with ethanol and aid reliability of supply. Our 
industry is working with individual states to remove these barriers so 
that 2008/9 compliance with the RFS can be enabled.
Ethanol blending above 10 percent
    The most economical and practical use of ethanol is as a 10 percent 
blend in gasoline, which should be maximized before considering more 
broadly higher ethanol blends. It requires no modifications to 
vehicles, no major changes to service station pumps and storage tanks, 
and has a long history of successful fuel use by consumers.
    Beyond 2012, compliance with the expanded RFS will require a ramp 
up in highconcentration ethanol blends, such as E85, for use in 
flexiblefuel vehicles, or increasing the level of ethanol in gasoline 
for all cars beyond 10 percent (E10+). Widespread use of high-
concentration blends would require that the major technological and 
economic hurdles of cellulosic ethanol conversion first be overcome. 
Consideration will also be given to E10+ blends where research supports 
them. EPA, DOE, the autoequipment and fuels industry are working 
together to conduct research on E10+ blends.

                               CONCLUSION

    API is committed to working with EPA during the rulemaking process 
to make this program as workable as possible. While API has concerns 
about the provisions contained in EISA2007, none of them are technical 
in nature. We do not support additional legislative efforts at this 
time.
                                 ______
                                 
                          American Forest Resource Council,
                                    Portland, OR, February 6, 2008.
Hon Jeff Bingaman,
Chairman.
Hon. Pete Domenici,
Ranking Member, Senate Energy and Natural Resources Committee, 304 
        Dirksen Senate Office Building, Washington, DC.
    Dear Senators Bingaman and Domenici: I am writing on behalf of 
members of the American Forest Resource Council (AFRC) to highlight a 
major concern with the treatment of woody biomass in the recently 
enacted EnergyIndependence and Security Act of 2007 (PL 110-140). As 
you conduct hearings to explore the effect of the legislation, I hope 
you consider making much-needed changes to the treatment of biomass in 
the renewable-fuel standard (RFS). AFRC represents approximately 90 
forest products manufacturing companies and landowners, from small 
family-owned companies to large corporations, in twelve western states.
    AFRC and its members believe that they are part of the solution to 
restoring and maintaining the health of public and private forests and 
preventing catastrophic wildfire while also providing sustainable wood 
products and sources of renewable biomass energy to Americans.
    As you know, many areas of rural America are experiencing a major 
forest health crisis due to unnatural hazardous fuel levels on millions 
of acres. Wildland fires continue to consume a record number of acres 
and there seems to be no end in sight. Last year, nearly 9 million 
acres were lost to wildland fire and this follows 2006's record setting 
9.8 million acre total. These fires destroy critical wildlife habitats, 
key watersheds, and recreation areas, while also placing life and 
property in harms way. Catastrophic wildfires also account for vast 
amounts of Green House Gas (GHG) emissions each year. Our nation simply 
must get serious about thinning these lands to restore forest health.
    America also faces great challenges in keeping private forestland 
owners in the business of practicing forestry, rather than converting 
these lands to less environmentally friendly uses (i.e., development). 
Many private forestland owners are under both economic and regulatory 
pressures that exacerbate these losses. Congress should be taking steps 
to provide incentives to private forestland owners who chose to 
continue practicing forestry.
    One partial solution to both of these challenges is the development 
of new markets to utilize woody cellulosic biomass, which can also help 
to meet our nation's domestic energy needs. There seems to be broad 
bipartisan support for making this important goal a reality. 
Unfortunately, the Energy Independence and Security Act of 2007 
actually moved our nation in the wrong direction in one critical area.
Definition of Renewable Biomass in Renewable Fuel Standard (RFS) (Sec 
        201)
    The definition included in PL 110-40 excludes wood or woody debris 
from public lands or National Forests as a source of renewable biofuel. 
Much of the current management on public land includes the removal of 
woody debris (for forest restoration, fire prevention, habitat 
improvements, etc.). This material has little to no value, but biofuel 
production has the potential to add value and reduce the cost of 
removal and the dollars needed to treat areas (in addition to supplying 
consumers with renewable fuel). The impact of this definition will 
instead drive these materials to landfills or to be burned in slash 
piles.
    The definition also excludes woody debris and biomass from 
thousands of acres of private forest land that is not managed as 
``plantation'' forests. Many private forestland owners across America 
don't manage their land as ``plantations.'' Instead, they may prefer 
their land more closely resemble natural forests and allow the forest 
to at least partially regenerate following harvest activities. The RFS' 
requirement that qualifying forests be ``planted'' and ``plantations'' 
means that these naturally regenerated trees will not qualify as 
renewable biomass. This is nonsensical and results in a major lost 
opportunity to develop biofuels from forests being responsibly managed 
in a condition other than plantations and will only drive more 
forestland owners out of forestry.
    The RFS would also exclude private forestland based on its 
successional stage and forest type. This is extremely unfeasible for 
forest landowners (especially the small non-industrial forest 
landowners) and not only discourages the creation of biofuels, but also 
penalizes private forestland owners who aren't managing their lands as 
young industrial-type forests.
    I hope the Congress will move quickly to amend the biomass 
definition contained within the RFS in order to remedy the obvious 
negative environmental consequences. Our industry continues be believe 
it is an integral part of the solution to the challenges facing our 
forests and energy security.
            Sincerely,
                                                Tom Partin,
                                                         President.

                                 

      
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