[Senate Hearing 110-700]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-700
 
                       TRANSFORMING FOREST WASTE
                          TO BIOFUELS AND THE
                        RENEWABLE FUELS STANDARD

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

                             FIELD HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION


                               __________

                            AUGUST 18, 2008

                               __________

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


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


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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY



                       TOM HARKIN, Iowa, Chairman

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

                Mark Halverson, Majority Staff Director

                    Jessica L. Williams, Chief Clerk

            Martha Scott Poindexter, Minority Staff Director

                Vernie Hubert, Minority General Counsel

                                  (ii)

  
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing(s):

Transforming Forest Waste to Biofuels and the Renewable Fuels 
  Standard.......................................................     1

                              ----------                              

                        Monday, August 18, 2008
                    STATEMENTS PRESENTED BY SENATORS

Thune, Hon. John, a U.S. Senator from the State of South Dakota..     1
Johnson, Hon. Tim, a U.S. Senator from the State of South Dakota.     4

                                Panel I

Bobzien, Craig, Forest Supervisor, Black Hills National Forest, 
  Custer, South Dakota...........................................     5
Kramer, Randy, President, KL Process Design Group, LLC, Rapid 
  City, South Dakota.............................................     9
Thompson, Hugh, Private Forest Owner, Aladdin, Wyoming...........    11
Troxel, Tom, President, Black Hills Forest Resource Association, 
  Rapid City, South Dakota.......................................     7
                              ----------                              

                                APPENDIX

Prepared Statements:
    Johnson, Hon. Tim............................................    26
    Bobzien, Craig...............................................    28
    Kramer, Randy................................................    31
    Thompson, Hugh...............................................    36
    Troxel, Tom..................................................    40
Question(s) and Answer(s):
Bobzien, Craig:
    Written response to questions from Hon. John Thune...........    46



                       TRANSFORMING FOREST WASTE
                          TO BIOFUELS AND THE
                        RENEWABLE FUELS STANDARD

                              ----------                              


                        Monday, August 18, 2008

                                       U.S. Senate,
                                  Committee on Agriculture,
                                   Nutrition, and Forestry,
                                           Rapid City, South Dakota
    The Committee met, pursuant to notice, at 2 p.m., at the 
South Dakota School of Mines and Technology, Classroom 
Building, Room 204 East and West, Rapid City, South Dakota, 
Hon. John Thune, presiding.
    Present or submitting a statement: Senators Thune and 
Johnson.

STATEMENT OF HON. JOHN THUNE, A U.S. SENATOR FROM THE STATE OF 
                          SOUTH DAKOTA

    Senator Thune. Thank you all for attending today. This is 
an official hearing of the U.S. Senate Committee on 
Agriculture, Nutrition, and Forestry, Energy Subcommittee. 
Today's hearing is going to explore how biofuels are produced 
from forest waste and how that will help to meet our nation's 
growing energy needs. In particular, we will focus on issues 
surrounding the definition of renewable biomass in the expanded 
Renewable Fuels Standard.
    We are joined today by a panel of experts within the 
biofuels and forestry industries. Their written comments have 
been submitted for the official record of the U.S. Senate 
Agriculture Committee. I also have statements from a number of 
environmental groups that wish to weigh in on this issue, as 
well. Although some of these groups were invited to attend the 
hearing, scheduling conflicts prevented representatives from 
testifying in person. Nevertheless, these statements will be 
included as part of the official hearing record.
    During today's hearing, witnesses will have an opportunity 
to provide a verbal statement and answer a series of questions 
on cellulosic ethanol production from forest material. The 
verbal statements, questions, and answers will be made part of 
the official record, as well.
    I want to thank Senator Johnson for joining us today. 
Senator Johnson is a member of the Energy Committee in the U.S. 
Senate. I would also like to thank Dr. Robert Wharton, 
President of South Dakota School of Mines and Technology, for 
hosting this event today. I also want to thank the staff and 
faculty of the South Dakota School of Mines and Technology for 
hosting this event and for making their assistance available 
and making the event a success.
    Biofuels production has had a dramatic impact on our State 
and national economy. The ethanol industry has created 
thousands of jobs throughout the Midwest, decreased our 
dependence upon foreign oil, and lowered our gasoline prices. 
Many economists have determined that the additional nine 
billion gallons of ethanol that has been added to our fuel 
supply this year has kept record-high gas prices from 
increasing an additional 30 to 50 cents per gallon.
    According to a recent Merrill Lynch study, biofuels are the 
single largest contributor to new fuel supplies in the world. 
According to the International Energy Agency, this trend is 
expected to continue, and I will quote from their study. 
``Biofuels have become a substantial part of the non-OPEC 
supply growth and will contribute 50 percent of the new fuel 
supply growth in the 2008-2013 period.''
    Clearly, ethanol has moved beyond a regional boutique fuel 
and is a major contributor to our transportation fuel supply. 
As we produce more ethanol, we must diversify the feedstocks 
that are used to produce the fuel, and we must also diversify 
ethanol production to include a much broader geographic area 
that stretches far beyond the corn and soybean belt.
    In December of 2007, Congress diversified our fuel supply 
by enacting the Energy Independence and Security Act of 2007. 
This law requires blenders and refiners to blend 36 billion 
gallons of ethanol into our fuel supply each year by 2022. Of 
that annual quota, 21 billion gallons must be cellulosic 
ethanol that is made from renewable biomass other than corn. 
Renewable biomass includes non-food-related feedstocks, such as 
wood chips, fast-growing trees, beta grasses, yard waste, 
algae, and crop residues, including corn cobs and stalks.
    However, the U.S. House of Representatives behind closed 
doors severely limited the definition of renewable biomass in 
the final phase of the energy bill debate in December of 2007. 
The final version of the definition of renewable biomass does 
not include any material removed or harvested from Federal 
lands and National Forests, regardless of how well these lands 
are managed. The definition of renewable biomass also excludes 
wood chips and tree thinnings from most non-industrial private 
forests.
    Accordingly, ethanol produced from this material, which is 
abundant in the Black Hills area, is not eligible for the 
Renewable Fuels Standard. Blenders and refiners have little 
incentive to purchase this fuel from an ethanol producer 
because it is excluded under the Renewable Fuels Standard which 
will go into effect next year. This problematic definition 
severely limits economic incentives for a substantial portion 
of the biomass originating from the Black Hills that could 
substantially produce biofuel. As a result, the Black Hills 
will be deprived from a great opportunity to improve forest 
health and reduce fire danger while growing the local economy 
and contributing to our nation's home-grown fuel supply.
    In a 2005 report entitled, ``The Billion Ton Study,'' the 
United States Department of Energy and the United States 
Department of Agriculture determined that over 100 billion tons 
of woody biomass can be sustainably removed from our private 
and public forests. This forest material is the byproduct of 
current logging activities or generated from hazardous fuel 
reduction treatments. If converted into ethanol, this material 
could produce between 5.5 and 6.5 billion gallons of ethanol 
each year using current technologies. This figure is roughly 
the total amount of ethanol produced in the United States in 
the year 2007.
    According to the Environmental and Energy Study Institute, 
with improvements in technology, we would be able to produce up 
to 105 gallons of renewable fuel from a single ton of woody 
biomass. According to this conversion factor, over ten billion 
gallons of renewable fuel are off-limits to the definition of 
renewable biomass in the 2007 energy bill. Our witnesses will 
go into greater depth and detail of how this flawed definition 
limits biofuel production, particularly here in the Black Hills 
area.
    In January of this year, I introduced a bill that would 
address the narrow definition of renewable biomass and correct 
it to include waste materials and thinnings from Federal forest 
land. Also, as a member of the Senate Agriculture Committee, I 
worked to make sure that the definition of renewable biomass in 
the 2008 farm bill includes waste materials and thinnings from 
Federal forests and non-industrial private forests. Under the 
2002 farm bill authorization, facilities that produce ethanol 
from these materials are eligible for loans, loan guarantees, 
and grants from the United States Department of Agriculture.
    Also, the 2008 farm bill includes a program that I authored 
called the Biomass Crop Assistance Program. This program takes 
a two-pronged approach to encouraging cellulosic ethanol 
production. It provides temporary targeted payments to 
producers who plant and harvest energy-dedicated crops in 
conjunction with the construction of a local biorefinery, and 
it also provides matching payments of up to $45 per ton for 
each ton of renewable biomass that is harvested, collected, 
stored, and then transported to a cellulosic biorefinery or 
used as another alternative fuel. This payment would include 
collection, storage, and transportation of forest waste 
collected here in the Black Hills. This type of assistance will 
help overcome the economic challenges of the first commercial-
scale biorefineries.
    More recently, I joined a bipartisan group of Senators and 
proposed a comprehensive energy bill called the New Energy 
Reform Act. This bill includes aggressive offshore drilling for 
oil and natural gas, incentives for new nuclear power plants, 
incentives for biofuels infrastructure, and over $8 billion for 
wind, solar, advanced vehicle technology, and other energy 
conservation measures. The New Energy Reform Act would also 
change the definition of renewable biomass to more closely 
conform to the 2008 farm bill. We hope to have an opportunity 
to move this bill soon after Congress convenes in September.
    With that introduction, I would also like, as I said 
earlier, to welcome and introduce my colleague from South 
Dakota, Senator Tim Johnson, and allow him to make some opening 
remarks, and then I will introduce our witnesses and look 
forward to hearing their testimony. Senator Johnson?

STATEMENT OF HON. TIM JOHNSON, A U.S. SENATOR FROM THE STATE OF 
                          SOUTH DAKOTA

    Senator Johnson. Thank you, Senator Thune. I appreciate 
your holding this important hearing. I want to also welcome 
today's witnesses and thank them for being here to provide us 
with their views.
    The National Forest lands in the U.S. are an abundant 
source of biomass capable of producing billions of gallons of 
renewable fuels. I am a member of the Senate Energy Committee, 
which echoes John's work on the Agriculture Committee.
    As we will hear from Randy Kramer of KL Process Design 
Group, the technology to change wood waste into biofuels is 
ready for commercial development. In the Southeastern U.S. and 
right here in the Black Hills, advanced ethanol companies are 
already breaking ground on cellulosic ethanol plants capable of 
turning woody biomass into ethanol.
    The U.S. can displace 30 percent of current oil consumption 
by 2030 through the efficient conversion of existing biomass 
supplies from agriculture feedstocks and by sustainably 
utilizing biomass from our National Forests.
    In December, Congress took a strong step toward achieving 
this ambitious target by passing the Energy Independence and 
Security Act. This bill doubles the amount of corn-based 
ethanol by 2015 and creates a new standard for producing the 
next generation biofuels from switch grass, wood waste, and 
other non-grain feedstocks.
    But, as is often the case when Congress creates sweeping 
and ambitious legislation, it is necessary to revisit aspects 
of the law and correct shortcomings. Here, I am talking about 
Section 211 of EISA that limits slash and pre-commercial 
thinning to those removed from non-Federal forest lands. This 
poorly crafted definition of renewable biomass should be 
modified to unlock the sustainable collection of biomass from 
National Forest lands.
    Several bills have been introduced in the Congress, 
including one by my colleague, Senator Thune, to correct this 
omission. We have a panel of experts today to explain the 
impacts of the current limitation and to offer suggestions as 
to how to modify current law. I believe that any change in the 
renewable fuel definition must provide for the sustainable 
collection of biomass from our public lands. In this regard, I 
believe there is near complete agreement.
    According to the U.S. Department of Agriculture, there is 
enough woody biomass in National Forest lands to meet the 
nation's goals for displacing all of our current oil imports 
from the Middle East. I would much rather that our country 
support the creation of a biofuels industry using the biomass 
from our forests than depend on Middle Eastern nations for our 
energy security. It also would provide clean air, employment, 
balance of trade, and control.
    Senator Thune, thank you again for holding this important 
field hearing and I look forward to the testimony from the 
witnesses.
    Senator Thune. Thank you, Senator Johnson.
    I want to turn to our panelists now. We are going to start 
with Craig Bobzien, the Forest Supervisor of the Black Hills 
National Forest. Before coming to the Black Hills in 2005, Mr. 
Bobzien served as Deputy Forest Supervisor in the Panhandle 
National Forest in Idaho. Over the years, Mr. Bobzien has 
acquired a wide range of working experience in silviculture 
timberl range, recreation, wilderness management, and 
administration. He is a certified Forester and a member of the 
Society of American Foresters.
    I will introduce the other panelists, as well, and then I 
am just going to turn it over and let Craig start and we will 
go in the order of introduction.
    Tom Troxel is with us, as well. He is the President of the 
Black Hills Forest Resource Association. Tom has been an active 
member of the Black Hills community and represents a diverse 
set of forest producers--forest product consumers, rather.
    Randy Kramer is the President and co-founder of KL Process 
Design Group, a biofuels engineering and project development 
firm located in Rapid City. KL's co-founder and Vice President, 
Dave Litzen, is also here with us today and I want to welcome 
them, as well, and look forward to their testimony.
    And finally, Hugh Thompson, who is a private forest owner. 
Hugh is a retired forest supervisor at Dixie National Forest in 
Utah and currently manages his family ranch along the border 
between South Dakota and Wyoming.
    So with that, those are the panelists who we will hear from 
and I want to start--and they have all been warned to try and 
confine, if they can, their oral comments to about 5 minutes. 
Anything that they have submitted in the form of written 
testimony will be made a part of the official record of the 
hearing. But I do want to begin now with Mr. Bobzien. Thanks 
for your work.

  STATEMENT OF CRAIG BOBZIEN, FOREST SUPERVISOR, BLACK HILLS 
             NATIONAL FOREST, CUSTER, SOUTH DAKOTA

    Mr. Bobzien. Senator Thune, Senator Johnson, thank you for 
this opportunity to discuss renewable woody biomass and the 
changes made to the Renewable Fuels Standard by the Energy 
Independence and Security Act of 2007. I am going to summarize 
my written testimony as requested here with some remarks on 
definitions and then move into more specifics regarding wood 
biomass as a byproduct of our vegetation treatments on the 
Black Hills forests as a means to sustain forest health here.
    The definition of renewable biomass in the Energy 
Independence and Security Act excludes most forest biomass 
materials from Federal lands except those that are obtained 
from the immediate vicinity of buildings and other areas 
regularly occupied by folks. The definition of renewable 
biomass in the Energy Act excludes most forest biomass 
materials from Federal lands except those in this vicinity, 
which also then would preclude its consideration of being 
counted toward the Federal Renewable Standard. It also then 
would not allow for this to be a source of renewable energy in 
much of the National Forest System.
    I would like to shift more specifically to the Black Hills 
National Forest. The Black Hills area has the potential for 
woody biomass to support energy production.
    The ponderosa pine forest here grows abundantly, and over 
time, much of the forest has become overly dense and requires 
thinning to maintain forest health. We thin the trees to reduce 
the threat of severe wildfires to communities, improve the 
forest health, and to improve wildlife habitat.
    In most cases, a portion of the forest is removed for 
commercial saw timber while desirable large trees are 
maintained. This activity also produces then woody biomass as 
the byproduct residue in the form of tops, limbs, and other 
small-diameter trees. We have a viable industry here in the 
Black Hills Forest, an extensive road system. The commercial 
timber harvest that occurs and the pre-commercial thinning that 
we use to thin these dense small-diameter stands produce 
approximately 207,000 green tons of biomass annually on the 
Black Hills Forest. About 90 percent of this is readily 
available along our forest roads in large piles.
    What I would like to do right now is illustrate some of the 
conditions on the forest with three photos for you, Senator 
Thune and Johnson, and for our audience.
    This first photograph here illustrates our conditions on 
the forest and how forest health is so important and our 
activities to maintain forest health is shown here. The upper 
area here is very dense. It has the gray--rather, in the red 
areas are the dense forest that has mountain pine beetle 
activity. This is a natural insect activity. We use thinning as 
a means to try to reduce these stand densities to curb some of 
the mortality caused by the mountain pine beetle and to create 
a different kind of an open forest structure, again, to reduce 
the chance of crown wildfire.
    In showing this activity, here are some of the piles that 
we have right now that are the biomass that reflects the 
residue that we have from this commercial removal of saw timber 
at sites. This is actually the central part of the forest, 
completed under a Healthy Forest Restoration Act project.
    The second photograph here illustrates an up-close version 
of the type of forest condition that remains after we have 
thinned the forest, showing removal of the fine fuels, which is 
biomass, and then these tops that have been placed here by the 
loggers that have taken these trees, and these are what are 
being stockpiled adjacent to these forest roads. This is a 
quantity that currently is available throughout much of the 
Black Hills Forest as we carry out these operations.
    And thirdly, over time, if we don't have markets for this 
material, then we are in a position where we go out as this 
biomass actually degrades in quality and it remains a fire 
hazard so we go ahead and burn these areas, which of course has 
smoke released into the atmosphere, CO2, and also then you have 
to go back and rehabilitate these sites so that they are 
productive once again and re-seed them so there is not noxious 
weeds growing in the sites.
    As I illustrated in those photographs what I want you to 
understand is our opportunities to use this considerable 
resource of biomass are limited. Right now, small quantities of 
this material is removed by the public for firewood, for home 
heating. We have some that are removed for posts and poles. 
This last summer, approximately 180 truckloads were taken for 
home heating by our National Guard. It was in an exercise to 
take those to the Lakota Tribe for their home heat.
    We have relatively small quantities currently are chipped 
in the forest and then transported to cabinet manufacturers 
here in the Black Hills and also for emerging markets that we 
have in public building heating systems and for cellulosic 
ethanol. In all, the total use of all these areas that I 
illustrated amounts to about ten to 20 percent of all of these 
residue piles are currently being utilized.
    And as I showed in the photographs, most of these are 
burned so that we will not have hot fires in the summertime 
going through those piles. As I indicated in the photographs, 
the burning releases carbon in the atmosphere and it impacts 
the soils.
    Now, the situation of excess biomass in the Black Hills is 
much the same for other National Forests in terms of the 
supply. For example, in Northern Colorado, the bark beetle 
infestation has killed nearly 1.5 million acres of lodgepole 
pine there. Efforts to reduce the fuel to remove the hazard 
trees are creating vast amounts of biomass which could be used 
for this renewable energy.
    Development of additional markets for this material would 
help defray the cost of treatments and result in more revenue. 
Utilizing this material as a renewable resource could help 
reduce our dependence on fossil fuels. It is going to benefit 
our forests, our air, and our communities.
    Thank you for the opportunity to address the subcommittee 
and I will answer any questions that you may have. Thank you.
    [The prepared statement of Mr. Bobzien can be found on page 
28 in the appendix.]
    Senator Thune. Thank you very much, Craig.
    Tom Troxel?

STATEMENT OF TOM TROXEL, PRESIDENT, BLACK HILLS FOREST RESOURCE 
             ASSOCIATION, RAPID CITY, SOUTH DAKOTA

    Mr. Troxel. Thank you, Senator Thune and Senator Johnson. 
On behalf of our members, I appreciate this opportunity to 
testify today.
    By defining renewable biomass in the 2007 energy bill to 
exclude most woody biomass from our nation's forest, Congress 
missed a tremendous opportunity to proactively contribute to 
our nation's energy independence, the health of our forests, 
improved air quality, reduction of greenhouse gases, improved 
watershed health, reduced risk of forest fires, and the 
economic viability and diversity of local communities.
    As has been discussed, the Renewable Fuels Standard 
requires the use of 16 billion gallons of cellulosic biofuels, 
a product that can be manufactured from, among other things, 
woody biomass, annually by 2022. However, I am not sure that 
the United States can achieve the 16 billion gallon Renewable 
Fuels Standard without utilizing woody biomass.
    For purposes of discussion, I have identified three sources 
of woody biomass from our forests: Logging slash, sawmill 
residues, and submerchantable trees.
    Logging slash are the tops, limbs, and unmerchantable 
portions of the trees that are cut and most slash is piled on 
the landings for later burning. Every slash pile that is burned 
is energy produced, but wasted. Utilizing this slash for energy 
production would reduce management costs, increase revenues to 
the landowner, and significantly reduce emissions compared to 
burning piles.
    Most sawmill residues are now utilized for products like 
animal bedding, landscaping, wood pellets, and particle board. 
However, about 200 railroad cars of wood chips are still 
shipped each month from the Black Hills to a pulp and paper 
mill in Longview, Washington, at considerable expense in 
freight and energy cost.
    Thinning small tress is very expensive, mostly because of 
limited markets for products from those trees. However, 
thinning those small trees is an important silvicultural 
treatment to improve vigor and growth of the forest and to 
reduce the risk of fires. New markets for these small trees 
would benefit all forest land owners.
    One of the long-term management challenges is that the 
annual forest growth in the Black Hills National Forest is 
about twice the rate of timber harvest. The recent fires and 
the ongoing mountain pine beetle epidemic in the Black Hills 
National Forest are symptoms of an overstocked forest combined 
with a period of severe drought.
    The Forest Service's most recent estimate of their current 
year fire suppression cost is $1.6 billion. Rather than 
spending more and more money fighting fires, taking proactive 
steps to manage our forests to reduce the risk of catastrophic 
fires just makes good sense.
    If woody biomass from Federal lands does not contribute to 
the Renewable Fuels Standard, then the likelihood of producing 
cellulosic biofuels from woody biomass in the Black Hills is 
very slim. On the other hand, with a new definition of 
renewable biomass that includes Federal lands, the large 
quantity of woody biomass originating in the Black Hills 
National Forest could provide anchor volume for woody biomass 
from other forest lands.
    I have read about concerns from some groups about mining 
the National Forests for biomass and degrading our forests, but 
I believe those concerns are baseless. Like all National 
Forests, the Black Hills National Forest is sustainably managed 
according to an in-depth forest plan prepared in accordance 
with the National Forest Management Act. The forest plan 
contains sustainable management strategies and direction for 
sensitive areas, wildlife habitat, water quality, snags, and 
other environmental protections.
    The entire South Dakota Congressional delegation has been 
very supportive on issues regarding the Black Hills National 
Forest, especially funding, and I and our members are very 
appreciative. I want to specifically thank you, Senator Thune, 
for introducing S. 2558 that would modify the definition of 
renewable biomass with regard to Federal forest land. We 
support that bill.
    We would also support language to further modify the 
definition of renewable biomass with regards to private forest 
land, similar to the definition of renewable biomass in the 
2008 farm bill. Ideally, that would provide opportunities for 
local businesses to expand and diversify their utilization of 
sawmill residues and to explore better utilization of slash and 
submerchantable trees. With the possibility of better 
utilization, increased revenues, and reduced costs, we could 
expect better forest management by all forest land owners.
    By expanding the Renewable Fuels Standard definition of 
renewable biomass to include Federal lands, Congress would 
simultaneously contribute to better forest management, increase 
energy independence, improve air quality, healthy watersheds, 
and strengthening and diversifying local businesses and 
communities.
    I appreciate the opportunity to testify today and I would 
be happy to answer questions after the others' testimony.
    [The prepared statement of Mr. Troxel can be found on page 
40 in the appendix.]
    Senator Thune. Thank you, Tom.
    We turn now to Randy Kramer.

STATEMENT OF RANDY KRAMER, PRESIDENT, KL PROCESS DESIGN GROUP, 
                 LLC, RAPID CITY, SOUTH DAKOTA

    Mr. Kramer. Senator Thune, Senator Johnson, thank you for 
the opportunity to provide testimony.
    Beginning in 2001, KL has collaborated with researchers at 
the South Dakota School of Mines and Technology to develop a 
thermal-mechanical process to make ethanol from ponderosa pine, 
which is found in abundance in the Black Hills National Forest. 
The research resulted in what we believe to be the first 
demonstration plant capable of commercial operations using wood 
waste to produce ethanol. Ethanol production from this plant 
will offset transportation for ethanol coming into the Black 
Hills from long distances.
    Our efforts and research are dedicated to forest 
stewardship that includes finding better uses for gathered 
forest and mill waste that otherwise provides added fuel to 
forest fires. The Black Hills National Forest supervisor and 
his staff have been cooperative in our research efforts and we 
all agree the Black Hills National Forest is an exemplary case 
study in proper use of a National Forest, respecting the 
interests of both citizens and forest products industries that 
coexist in and around the Black Hills.
    KL is uniquely qualified to discuss the implications and 
effects of the cellulosic ethanol provisions legislated in the 
2007 energy bill. Beyond our experience in grain and cellulose-
based ethanol plant design, our engineers are veterans of oil 
exploration and refining and our project managers are veterans 
of combat operations in oil-rich areas of the world.
    While our team's cellulosic ethanol technology helps reduce 
the United States' dependence on foreign oil, our plants 
eliminate particulate emissions resulting from controlled and 
uncontrolled fires in our National Forests, costing the Federal 
Government millions of dollars to manage. For all of the 
combustion engines on the road today, there is no better 
technology than biofuels produced from wood waste that can 
readily demonstrate a self-sustaining and environmentally 
responsibility solution to our nation's current energy needs.
    With the new mandate to increase the use of ethanol made 
from feedstocks other than grain, commercialization of these 
technologies is needed now to meet the RFS. KL stands ready to 
meet that need. While we begin the commercialization of 
cellulose-based ethanol, we must protect grain-based ethanol 
and guard against misrepresentations driven by oil, grocery, 
and extreme environmental special interests that either link 
high grain prices to the production and use of ethanol or 
wrongly portray that the utilization of wood waste coming from 
existing Federal timber sales will turn our National Forests 
into tank farms for biofuels production.
    There are many factors that cause food prices to rise, and 
it is well known through USDA statistics that oil price 
increases, not the production of ethanol, is the main reason 
for increases, the price of oil itself. Incentives and public 
support for both corn- and cellulose-based ethanol must be 
maintained, just as the incentives for oil discovery were put 
in place and maintained since 1925.
    This past spring, President Bush said the United States has 
not built a refinery since 1976. In fact, the 84 new ethanol 
plants built over the last 10 years have effectively replaced 
the need for approximately eight new average-sized oil 
refineries. Again, this bright spot in renewable energy growth 
was overshadowed by the media who conveyed the negative, 
misinformed messages sent out by special interests, which 
ultimately led to a slowdown in the capital markets that once 
supported this industrial growth of ethanol production. We need 
to get it back on track.
    As we grow our cellulosic-based business model, our plants 
will be smaller and decentralized throughout the United States, 
co-located with or close to biomass sources immune to the geo-
agricultural constraints and dependence on regulated markets 
associated with grain-based ethanol production, thereby 
eliminating or reducing the cost of transporting biomass 
material and in close proximity to populated areas with a 
requirement to use biofuels. This design disarms critics who 
believe ethanol production is too remote from the end user and 
makes use of biomass that is either burned or landfilled.
    To illustrate, in the Black Hills National Forest, where 
tons of particulate matter are pushed into the atmosphere 
through the prescribed burning of underbrush, it can be used as 
a feedstock to produce renewable energy, potentially dropping 
the price of fuel in the Black Hills by five to ten cents.
    As we plan for our next plant, a key consideration is the 
ability to use the incentives put in place by the 2007 energy 
bill. However, as the bill was finalized, we now understand 
that the National Resources Defense Council influenced 
legislation that exempted biomass taken from the National 
Forests to count toward the Renewable Fuels Standard. 
Specifically, credits intended for cellulosic ethanol 
production from biomass harvested from our National Forest 
through Federal programs already in existence were taken away 
by special interests without the support of our legislators. 
The intent of this last-minute provision was to discourage the 
harvesting of material from the National Forests for biofuels 
production.
    However, the drafters failed to understand that existing 
timber harvest programs already allowed for the removal of 
material from the National Forest. Any reasonable person would 
understand that processing waste thinnings into a clean-burning 
fuel is less destructive to the environment than burning it in 
place.
    To illustrate, the Black Hills National Forest today has 
1.2 million dry tons of thinnings and slash on the ground. As a 
feedstock for a cellulose plant with electrical power 
cogeneration capability, this material could be used to produce 
50 million gallons of ethanol while exporting 100,000 megawatt 
hours of electrical power. To put this amount of energy 
production into perspective, the Rapid City area consumes 
approximately five million gallons of ethanol per year and 
650,000 megawatts of power. At today's consumption rate, the 
material that is currently collected and piled in the Black 
Hills could provide 10 years of ethanol and 2 months of 
electrical power for Rapid City.
    In the case of commercial timber harvested through these 
Federal programs, mill waste from the operations fit perfectly 
with our business model, but the burden of segregating non-
credit qualifying bits of National Forest mill waste from 
private or State timberland that do qualify is as impractical 
as it sounds. Imagine the complexity of separating mill waste 
for the sake of recovering valuable cellulosic ethanol credits. 
The cost would likely outweigh the credit.
    We live near a National Forest and consider ourselves 
active stewards of the environment. Our desire is not to clear-
cut the forest to produce biofuels, but given existing timber 
harvest programs, credits from these operations are critical to 
the near-term success of cellulosic ethanol.
    To conclude, we want to thank Senators Thune and Johnson 
and Representative Herseth Sandlin for bringing this important 
forest management and renewable energy issue to Congress. Just 
as they joined in an effort to save Ellsworth Air Force Base, 
we are proud to see this demonstration of unity, along with 
assembling bipartisan support throughout the House and Senate 
for this legislation. Thank you.
    [The prepared statement of Mr. Kramer can be found on page 
31 in the appendix.]
    Senator Thune. Thank you very much. We appreciate it.
    Now we will turn to Hugh Thompson.

  STATEMENT OF HUGH THOMPSON, PRIVATE FOREST OWNER, ALADDIN, 
                            WYOMING

    Mr. Thompson. I thank you kindly, both Senators, for 
inviting me to testify before the Senate Agriculture Committee 
today. As a South Dakotan hurt by high fuel prices, concerned 
about domestic energy security, and interested in seeing 
economic development in our State and in our area, this is an 
important hearing.
    As a rancher and landowner with timber and brush on my 
property, I am particularly interested in the potential use of 
wood as a feedstock for renewable energy and the production of 
cellulosic ethanol, in particular. It is common knowledge that 
most folks don't eat a lot of wood waste, but you can make fuel 
from it and that is my interest as a land owner.
    Following my Federal assignment, I served 4 years as Deputy 
Director for the Utah Department of Natural Resources, where I 
also had oversight for the Utah Energy Office. I returned home 
back to the ranch in 2004 and am now fully engaged along with 
my farmer-rancher family in trying to make a living off the 
land. I have always been interested in how we can manage our 
lands in a sustainable manner to produce income. Raising hay, 
grain, livestock, leasing hunting privileges, and doing 
occasional timber harvest are all traditional sources of 
revenue for South Dakota and Wyoming ranchers.
    In the 21st century economy, we are looking for new 
markets, including the potential of using our lands to grow 
feedstock and to use the residue we already have on hand for a 
future cellulosic biofuel industry.
    This Congress and this administration has done much to 
promote wood as a transportation fuel source. For all the good 
that has been done and for an issue that requires the utmost in 
professional management, it is distressing to see its 
definition cloaked in the thinly veiled environmentally 
preservationist terms used in the EISA. As currently written, 
the law places confusing parameters on significant acreages of 
private forest lands that do not fall within the category of, 
quote, ``actively managed plantations.'' Specifically, the 
present definition appears to restrict what can be collected 
for use as a biofuel feedstock from naturally growing and 
regenerating forests, which make up more than 90 percent of our 
nation's non-Federal forests.
    Specifically, I see at least three fundamental problems 
with the current definition of renewable biomass in the 
Renewable Fuels Standard. The first one, potentially 
disqualifying material removed from the forest through 
necessary and appropriate forest management activities. Proper 
forest management focuses on moving the forest toward its 
desired condition. Whether that condition is to produce wood or 
fiber, to recruit desirable tree species, or protect against 
insects and disease, to improve habitat, or any other desired 
outcome, appropriate management often includes removing 
materials from the forest that can and ought to be used 
productively is impossible. By using definitions like slash, 
private trees, residues, pre-commercial thinning to limit the 
material that can be used productively, the definition 
contradicts rather than promotes good forest management.
    Second, creating a chain of custody confusion for 
transportation fuel producers. I think this has already been 
alluded to. The current definition suggests that different 
parts of the same tree may or may not be considered qualifying 
feedstock for renewable fuel production. Biofuel producers 
required to demonstrate compliance with the standard would have 
to sort out which of the incoming raw materials constitute 
qualifying feedstock.
    And the third one, preventing an opportunity to improve 
Federal forest management to the benefit of adjacent private 
forest owners. Private forest owners understand that the risk 
to their lands often is as much determined by the type of 
management occurring on adjacent lands as it is by their own 
management practices. By placing significant limitations on 
wood coming from Federal lands, the current definition 
discourages the opportunity to provide sufficient supply for a 
facility that could process feedstock from both the Federal and 
adjacent private lands at the same time. In this region, 
private forest feedstocks are probably not sufficient to be 
stand-alone economical and need the Federal land feedstocks to 
sustain a viable industry.
    Senator Thune, you have introduced legislation in the 
Senate, S. 2558, which amends the definition so that our 
National Forest System can be responsibly managed for biofuel 
production. I strongly support your legislation as sensible 
public policy. I also support any similar legislation that will 
bring forward the language in Section B of the farm bill 
definition.
    Thank you for the opportunity to testify and I will be 
happy to answer any questions that you may have.
    [The prepared statement of Mr. Thompson can be found on 
page 36 in the appendix.]
    Senator Thune. Thank you, Hugh, very much. I thank all of 
you for your testimony.
    What I would like to do is ask some questions of the panel 
and then allow Senator Johnson to pose some questions, as well, 
and I want to start with Mr. Bobzien. You had touched on, I 
think, in some of your testimony some of the answers to this, 
but I want to maybe get a little bit deeper into it. Are there 
characteristics of the Black Hills National Forest that make 
this forest particularly well suited for biofuels production?
    Mr. Bobzien. Yes, there are. First, it is really a tree 
growing forest from an environmental standpoint. Trees grow and 
they regenerate abundantly on the Black Hills Forest, and over 
time, there is a need to manage the density and environmentally 
it is good to remove the excess trees from the forest.
    Secondly, the industry that we have currently here on the 
forest and with potential markets also lend themselves toward 
utilization of biomass.
    And thirdly it would enhance the economics and the social 
support that we have through our principal management trying to 
maintain a diverse and healthy forest that the public is proud 
of, and when we remove these products in an environmentally 
sound and with economic benefits, this all lines up to be a 
very good source for biomass for our communities, the industry, 
and the forest.
    Senator Thune. As a follow-up question to that, you kind of 
touched on this, too, but summarize the forest stewardship 
benefits of responsibly and sustainably removing biomass from 
the Black Hills. I mean, tell me how that is going to impact 
pine beetle management. Would it help with that? Fire 
suppression activities, wildlife habitat, those types of 
sustainability issues.
    Mr. Bobzien. Yes. The photograph, the first photograph I 
shared, Senator Thune, gave an illustration of that and how we 
are able to reduce this dense forest and reduce that stock in 
there, especially when we have had drought conditions, to try 
to maintain forest health through proper stocking and also 
provide different diversity and wildlife habitat. It is a 
renewable resource and the fact that we have an ongoing need to 
address wildfire risks, all those coupled together are part of 
our overall plan of stewardship. It includes using this excess 
material as biomass as an important component, to help us 
manage the forest and reducing burning that produces waste in 
the atmosphere.
    Senator Thune. How about if there were greater economic 
demand for forest waste material, how does that impact some of 
the large fire suppression costs of the Forest Service 
operation budgets and outcomes, and obviously that is something 
we have dealt with a lot here in the last few years, with lots 
of fires, and I know that we in the delegation have worked to 
secure additional funding for dealing with fire--risk 
management, fire prevention, that sort of thing. Tell me how 
this might impact the cost the Forest Service has to deal with 
as a result of the threat of fires.
    Mr. Bobzien. Well, Senator, I am aware of legislation, and 
while I can't lobby, certainly information that we have show 
that the fire costs have gone from 13 percent of the Forest 
Service budget in 1991 to 48 percent of the Forest Service 
budget today. And so in that scenario, where we have a flat 
budget, we have a substantial reduction in our forest programs 
as a result of all of this increased fire cost. That impacts 
our ability to do things such as some of the hazardous fuel 
reduction or the removal and management of the forests, as well 
as every other program including recreation, research, and 
things of that nature. So money there and large fire costs do 
reduce our ability to invest, say, in the proactive thinning of 
the forest to reduce some of these hazardous fuels out there, 
whether for forest health, to reduce the risk of wildfires, and 
those sorts of activities.
    Senator Thune. How could we incentivize the production of 
biofuels from forest waste and tree thinnings without mining 
the forests for biomass? One of the arguments that is made 
against including these types of biomass from a National Forest 
in the definition that would allow for cellulosic ethanol 
production to meet the Renewable Fuels Standard is that these 
forests will then be--you know, we will start mining those and 
it will become more aggressive in terms of thinning in order to 
meet the RFS. What are some ways that you could think of we 
might be able to incentivize production of biofuels from forest 
waste that would not in any way jeopardize the forests or 
create this issue of mining our forests for biomass materials?
    Mr. Bobzien. Well, first, Senator, I look at mining 
typically used as something that is not renewable, and as I 
described earlier, is we look at this, where we are using it 
for forest health reasons, we have a renewable resource and our 
responsibility to all the American people is to manage that in 
a sustainable and renewable way that people like to see that 
done. So from a public policy standpoint, first and foremost, 
this is to maintain a healthy forest that the citizens of the 
country want to see. So that is on the public side.
    On the private side, that is to try to give as much 
flexibility, I think, to the private sector to develop this, as 
we have suggested today, to find new markets for this, that 
those kind of incentives then would actually be an 
environmental benefit, as well, with the ground, like not 
having to burn that material, and to provide energy for the 
country in several different forms.
    By having this material available and having the condition 
of the forests both renewable and sustainable; all make a 
desirable situation that our people want to see over time. It 
all fits together well as a renewable resource.
    Senator Thune. Let me ask--thank you, Craig. Let me ask Tom 
Troxel here, how much biomass do you think could be removed 
from the Black Hills National Forest each year for biofuel 
production? That would include slash materials, small-diameter 
trees, logging residue, sawmill wood chips and sawdust. What is 
the universe that we are talking about here that you might be 
able to use to meet an RFS if that definition were changed?
    Mr. Troxel. I broke woody biomass into three categories, 
and one of those, the submerchantable trees, and I would look 
to the Forest Service to give an estimate of that quantity.
    The second is sawmill residues, and one thing I do want to 
be sure to clarify is that we have lots of existing uses for 
sawmill residues, and I used the Merillat particleboard plant 
as one example. I think it is in our best interests to try to 
complement the existing uses and not try and compete them and 
detract from the existing uses of those wood residues.
    So after we utilize as much of the sawmill residues as 
possible locally, we still ship about 200 rail cars of wood 
chips to pulp mills in Longview, Washington, every month. How 
long that makes economic sense or energy sense, I am not sure. 
The economics and the dynamics of that have changed with the 
cost of fuel increasing as sharply as it has. But there are 
roughly 100 tons per rail car, 200 rail cars per month, and so 
that works out to about 240 tons a year.
    And then on the slash piles, our best estimate is that the 
loggers in the Black Hills on all ownerships produce about 
5,000 of those slash piles every year, and I understand that 
Craig Bobzien and the folks in the Black Hills National Forest 
are working with some research people from Denver to try and 
quantify what the--try and quantify the amounts of material 
that are available from those piles.
    Senator Thune. And back to Craig, in your testimony, you 
mentioned about 207,000 tons annually of biomass could be 
available in the Black Hills.
    Mr. Bobzien. Yes, I said that, sir, and that would be what 
would be readily available next to roads, like we showed in the 
photograph there. Some of our--while we have an extensive road 
system, some, you can take a chip truck currently to some, and 
not to some of the others. There is more biomass available that 
is more difficult and more expensive to retrieve. Yes, that is 
an estimate of what we have that is readily available next to 
main forest roads.
    Senator Thune. Well, if the number that I had was accurate 
that came from the Renewable Energy Institute, it said you 
could actually get 105 gallons of cellulosic ethanol per ton of 
biomass, that would--if my arithmetic is correct, and there is 
a reason I didn't go to South Dakota School of Mines and 
Technology--but there is over 20 million gallons just in the 
207,000 tons that you talked about, which would be the 
equivalent, if you were going to build a biorefinery, of a 20-
million-gallon refinery, which would be a substantial, I would 
think, refinery. So in any event, it seems to me, at least, 
that in the best of the readily retrievable amount that is out 
there, it is a significant amount.
    I have got some questions for Mr. Kramer and for Mr. 
Thompson, as well, but I want to allow Senator Johnson to ask 
some questions for these panelists, so go ahead.
    Senator Johnson. Thank you, Senator Thune.
    First, Mr. Bobzien, I believe that a robust renewable fuels 
industry using wood waste as a feedstock to produce cellulosic 
ethanol is another tool to managing our public lands. What 
types of benefits do you think communities located near 
National Forest lands can realize from a renewable fuels 
industry utilizing forest biomass? Also, how do you think the 
management of public lands would be changed if we could 
establish a vibrant renewable fuels industry in the Black 
Hills?
    Mr. Bobzien. Thank you, Senator Johnson. Well, the first 
thing is, again, it is a condition where people could benefit 
from a healthy forest. That is where this all starts. And so 
the removal of some of the products from the forest are 
important to maintaining the forest health in much of the 
forest.
    Second, having the industry, as I pointed out, would reduce 
our smoke that we would be producing in the atmosphere, even 
though we try to burn when it is the very best ventilation in 
the atmosphere, we still produce smoke and it impacts the 
communities in the wildland burning, and so that would be a 
benefit to reduce that.
    Also, we would be taking that slash material that could 
threaten and create some hot fires prior to it being disposed. 
Those are some of the most important things I first see.
    And then for the industry, depending on how the renewable 
energy is developed, as several of the other panelists noted 
how that energy could be used locally, that would be an 
industry decision or a Congressional decision, based on how our 
laws relate to the use of this material.
    Senator Johnson. In the past few years, one of the most 
successful hazardous fuels reduction projects undertaken by the 
Black Hills National Forest was the Prairie Project along 
Highway 44 west of Rapid City. Would the current definition of 
renewable biomass materials that is provided for in the 2007 
EISA have excluded wood waste from the project from counting 
toward meeting the RFS?
    Mr. Bobzien. Actually, the Environmental Protection Agency 
still is responsible to interpret what are some of the 
definitions that apply there, so I don't have a pat answer for 
you. I can't say in regards to whether that would be included 
or not. Clearly, we have areas not only close to communities 
such as the Prairie Project, but in other parts of the forest 
where we have this residue that could be available for 
renewable energy production.
    Senator Johnson. Mr. Troxel, provided the Congress can 
modify the definition of renewable biomass, what improvements 
to the Forest Service Timber Sale Program or other commercial 
programs can the Forest Service pursue with producers in order 
to increase the value of harvesting the types of small-diameter 
trees and woody biomass necessary for incentivizing cellulosic 
ethanol plants?
    Mr. Troxel. The most important thing that the Congress can 
help do is to give some stability and predictability to the 
National Forest Timber Sale Program, and most of what we have 
talked about here is driven by the values of the saw timber 
that the Forest Service sells in their Timber Sale Program.
    I have a graph. This top line is the allowable sales 
quantity from the Black Hills Forest Plan, and this is the line 
of actual accomplishments, going back to the remand of the 
Forest Plan by the Chief of the Forest Service in 1999. And all 
of the South Dakota delegation have worked very hard with us to 
increase funding and increase this program, but we are only now 
getting back to the level that the Forest Service predicted we 
would be at in 1998.
    This is the sort of thing that is very tough to go to 
bankers or investors and say, we want you to put up 30 or 40 or 
50 million dollars on a plant or a facility that is dependent 
for half to two-thirds on supplies of woody biomass from the 
National Forest.
    Some specific ideas on how to do that, Mr. Bobzien alluded 
to the fire spending and how that is taking a larger and larger 
proportion of the Forest Service budget, and I think if the 
Congress would recognize that as part of the appropriations 
process, that would be very helpful. Right now, the Forest 
Service is on track to overspend their fire appropriations and 
they are actually in the process of going out and taking away 
money from forests like the Black Hills National Forest. They 
are taking away $400 million nationally, and that is a very 
disruptive step.
    Stewardship contracts are something that would be helpful. 
I think they allow the Forest Service to be more efficient. 
They can keep more of their money on the forests. It reduces 
the amount of overhead funding they send to the Washington 
office and the regional offices and allows them to combine more 
types of work in a single contract, which makes those more 
efficient.
    From the industry side, stewardship contracts tend to give 
more stability and predictability over the long term. There is 
still an issue with, we call it cancellation liability funding, 
that the Forest Service is required to maintain funds in the 
event that the contract was canceled, and there is legislation 
proposed that would deal with that.
    So I would say those things are steps that the Congress 
could take that would help get more stability and 
predictability, which is really the bottom line of what we need 
to see more of in order to incentivize the sorts of utilization 
that we are talking about today.
    Senator Johnson. Mr. Thompson, if the Black Hills can 
develop a viable cellulosic ethanol industry, utilizing biomass 
from public and private forest lands and thereby boosting the 
value of the timber from these lands, how would you predict 
that this type of energy production affects the development and 
highest and best use of private forest land in the Hills? Would 
land use and development patterns change?
    Mr. Thompson. I think, Senator Johnson, any time that you 
can develop a market for material that we have out there on our 
private forest lands that will help keep the farmer and the 
rancher on the land is going to be good for the local 
community. It is going to keep that land from being subdivided 
into 20-acre ranchettes. It is going to allow the tax structure 
and the assessment values on ag to provide those services for 
ag when sub-development will cost the county and the State 
additional dollars in infrastructure. Anything you can do to 
keep the rancher on the land, keep it from being unfragmented 
and keep it in more natural habitat will be a benefit to the 
community.
    Senator Johnson. Mr. Thompson, is there enough privately 
held land in the Black Hills to allow a meaningful and viable 
ethanol industry to exist?
    Mr. Thompson. Not on a stand-alone basis, Senator. I think 
it has to go hand-in-hand with the material that is on the 
Black Hills National Forest, as well. We need them both, and it 
is kind of a symbiotic relationship. They have got to go hand-
in-hand. Definitely, the private lands can't stand alone and 
support the kind of industry that we are talking about today.
    Senator Johnson. Mr. Kramer, it seems to me that one 
challenge facing your company caused by the new definition of 
renewable fiber is separating out wood waste collected from 
private lands and that collected off of public lands. If an 
ethanol company is supplied woody biomass material collected 
from different classifications of land, can you explain how 
that complicates your company's compliance with the current 
law?
    Mr. Kramer. [Off microphone.] Yes, sir. I can tell you 
[inaudible] we have a good idea where it came from, but we 
don't know exactly where it came from. [On microphone.] How is 
that? We have a good idea where this came from, but we don't 
know exactly where it came from. If it came from Hugh's land, 
for instance, and his land was adjacent to the National Forest, 
and the Baker Brothers were out there doing the clean operation 
[inaudible] subscribed forest plan, and yet they might have 
gone onto Hugh's land for some other reason, if this got into 
the same bin, the same truck, it would be very, very difficult 
to segregate the dust, the sawdust that is in here and to be 
able to understand what kind of [inaudible] from Hugh's land or 
from the National Forest, which we can't [inaudible]. So it is 
very difficult.
    Senator Johnson. What kind of penalty would you generate if 
you mixed products?
    Mr. Kramer. I don't think that we would have a legal issue 
as far as taking it or not or using it. It is the issue of 
losing the effect of the credit, which is financially credited 
on our balance sheet and cash-flow. We have to depend much like 
the corn plants did in the early days on some form of subsidy 
to keep us going while we develop commercialized technology.
    Senator Johnson. Thank you, Senator Thune.
    Senator Thune. Mr. Kramer, as a manufacturer of ethanol 
from Black Hills wood chips, do you anticipate or see the need 
for any modifications from the current Black Hills National 
Forest Management Plan in order for the trimmings and slash to 
be utilized by a cellulosic ethanol plant?
    Mr. Kramer. Senator, I don't think that we need to change 
the existing plans that are out there today. From the numbers 
that we have done, there is enough to sustain at least one 
ethanol plant to the tune of about 50 million gallons, which is 
enough size for our business model. That means that you can 
produce about 50 million gallons over the course of a 
[inaudible] that location. But the Forest Plan is not 
[inaudible] today. It does need to be modified, and that is why 
I think it is important that we make sure that people 
understand we are not asking for more, just for what we are 
[inaudible].
    Senator Thune. What kind of transportation, feedstock 
transportation issues have you experienced with your current 
plant? It strikes me that one of the difficulties is, 
obviously, a kernel of corn is very deferent, and one of the 
issues that we tried to address in the 2008 farm bill with 
regard to cellulosic ethanol in the energy title was payment 
for storage, delivery, transportation, and that sort of thing. 
What types of issues have you dealt with in terms of 
transportation?
    Mr. Kramer. It has been exactly the cost of--what I pointed 
out in my testimony. Where corn prices are high, the reason for 
those prices going up has a whole lot to do with oil prices 
being high and production of corn and the transportation of 
corn to the ethanol plants. Those costs are no less as 
important for us when it comes to delivering the sawdust, for 
instance, from [inaudible] South Dakota or from Wyoming. At $45 
a ton, the folks that are bringing us that sawdust are not 
making a lot of money and it really has a lot to do with the 
price of oil. So the learning point from that was for us to co-
locate the plant with a sawdust mill waste provider.
    We have the keep that program that is out there [inaudible] 
put in place. It is going to offset about 50 percent of those 
costs if you look at that pair line. So it is important that we 
move along with the promulgation of the rules and start 
applying for those [inaudible].
    Senator Thune. Do you anticipate that transporting biomass 
feedstock to the Black Hills would negatively impact tourist 
travels or tourism in the Black Hills? if not, why not? What is 
your----
    Mr. Kramer. I am going to ask Dave Litzen to weigh in, and 
then I would like to have a little----
    Mr. Litzen. I am a graduate of South Dakota School of Mines 
and I did a little math before the hearing.
    Senator Thune. That's where all the smart people in my 
school went.
    [Laughter.]
    Mr. Litzen. But using the amount that we believe is already 
in the Hills in terms of biomass slash on the ground, the 1.2 
million tons that is existing, it would take about, we figure, 
80,000 trucks to move that material out of the forest into a 
centralized location. Now, those 80,000 trucks would be spread 
over a 10-year period. Assuming that the consumption of ethanol 
in this area is about five million gallons a year, we would 
build a five million gallon-a-year plant. Therefore, that 
establishes a 10-year lifespan of this biomass that already 
exists, 8,000 trucks a year, more or less. Forty-five trucks a 
day is what that amounts to. And according to some of the 
traffic maps that we have looked at, that is about a 1-percent 
increase in travel on the highways. So again, rough math based 
on some of the numbers that we are familiar with.
    Senator Thune. And with regard to your business plan, how 
is the current definition of renewable biomass that is in the 
RFS affecting or impacting the plans that you have to produce 
cellulosic ethanol in the Black Hills National Forest?
    Mr. Kramer. Like Craig Bobzien brought this up earlier, 
[inaudible] predictability is everything for us and capital 
markets, when it comes to looking for a loan for the next 
plant, it is based on contracts that we have, the input and the 
output, both the feedstock coming in and the ethanol going out.
    In the case of the input coming in, the Department of 
Energy has a loan guarantee program with 29 stipulations that 
you have to meet. One of them is that we have to be contracted 
for the feedstock to come into the plant. This--the way the law 
is written right now, we can't take the credit from the 
National Forest material and thereby that negates that loan 
guarantee program. It cancels it out. So we really can't use 
that loan guarantee program.
    So from [inaudible], from looking at the next plant for us, 
knowing that the technology is still in commercial development, 
and every day we make advances on that, but the bottom line is 
we are going to be stuck with one plant until the capital 
markets improve, either for an adjustment----
    [Inaudible]
    Mr. Kramer [continuing]. Corn ethanol market improves, and 
that the negativity out there--the negativity that is out there 
on the corn-based ethanol, it influences the capital market for 
cellulose-based ethanol and absolutely hurts us.
    Senator Thune. The Mines graduates are really talented.
    [Laughter.]
    Senator Thune. Mr. Thompson, and Senator Johnson already 
asked a couple of questions that I wanted to get at with regard 
to the private land owners, but just sort of a general 
question. What information can the forest land owner community 
provide the committee, the Ag Committee and the Congress, to 
help in our oversight of the EPA and USDA's efforts with regard 
to this issue?
    Mr. Thompson. I think the biggest assistance we can be to 
the committee and to the Federal agencies is the ability of the 
private land owners to give you quick feedback and quick 
turnaround. We are not constrained with all of the bureaucratic 
measures that are put on the Federal agencies and we can give 
you turnaround information very quickly. We can be adapting, 
and I think this industry has to be adapting. It has to be 
light on its feet. And land owners, I think, the producers of 
the biomass feedstock can be lighter on their feet than perhaps 
the Feds.
    Senator Thune. Well, I do want to say, because I think it 
is--I toured the National Renewable Energy Laboratory last week 
in Golden, Colorado, and they are doing a lot of testing and 
experiments with cellulosic ethanol production from various 
feedstocks, including corn stover, including wood chips, 
including switchgrass, all of which we have an abundance of 
here in South Dakota. But their goal is to have cellulosic 
ethanol competitive with $65 oil by the year 2012, and 
furthermore, they believe that to hit the 21 million--21 
billion, I should say, gallon RFS that is called for in the RFS 
by 2022, that we will have to build an additional 400 
biorefineries, and that assumes 50 million, I guess, gallons 
per refinery, which would create up to 40,000 jobs.
    I think a lot of those jobs can be created right here in 
South Dakota, but it is going to take a change in the 
definition that will allow the feedstocks that are available 
here in the Black Hills, the biomass that is available out 
here, to be used, or cellulosic ethanol production in that 
definition changed so that it fits within the RFS. And that is 
why I hope that by continuing to elevate this issue and getting 
more people engaged in it, we will be able to persuade the 
Congress that that is the right direction to go.
    And I think it is really important that people realize that 
in many cases, what we are talking about here are these 
residues, or waste, slash piles, those sorts of things, are 
things that have no economic value and, in fact, impose a cost, 
an economic cost as well as an environmental cost. And we ought 
to be looking at ways that we can derive some value, some 
beneficial use from those things, and this is a remarkable 
opportunity, I think, for South Dakota and it is very 
regrettable and unfortunate that this was excluded from the 
definition in the energy bill last year. We are going to try 
and rectify that. And so we appreciate your ongoing support and 
input on that.
    What I would like to do at this time--we have a few 
minutes--is just open it up to our panelists for some 
questions. If there is anybody in the audience, and we won't be 
able to take a lot of questions, but we will take a few 
questions here if anybody has questions for any members of the 
panel. And we will bring you a microphone.
    Mr. Kadis. John Kadis, State Senator from Rapid City. Could 
you specify who in the middle of the night, who the forces were 
the prevented us from having the definition that you have to 
come back on at this stage?
    Senator Thune. Well, the definition in the energy bill last 
year, the Senate bill included Black Hills National Forest. It 
went into conference with the House. All I know are reports 
that I have read, and some of the reporting that has been done 
on this suggests that at sort of the 11th hour, that the 
leadership in the House, and primarily Speaker Pelosi, had that 
definition changed so that it didn't include Black Hills 
National Forest for eligibility in the Renewable Fuels Standard 
in the bill. So again, that is based upon reporting on that. 
All we know is that it was in there and then all of a sudden it 
wasn't, and that happened very late in the process.
    Mr. Crandall. [sp.] I think you can hear me without the 
microphone. While you have Dave Litzen up there with a degree 
and experience, I would ask you to address the question 
[inaudible] are based upon having five gallon [inaudible]. Ask 
him to run the equation backwards. Ethanol comes from carbon. 
Carbon is in the trees. Carbon is in the cellulosic content. If 
you just count the carbon molecules in a ton, the amount of 
ethanol potential per ton escalates dramatically, and he is in 
a better position [inaudible], but since a big driver of the 
economics is that [inaudible] 105 gallons per ton [inaudible] 
ask him how much the potential is when science catches up with 
reality.
    The second point is that while that stuff is on the ground 
out there, it is 60 percent water. No one in South Dakota that 
is in the harvesting business with private land owners is going 
to haul water. They will reach the point where they will take 
the water out while it is in the pile. They will reduce it in 
size, [inaudible] pay for that [inaudible] 220, 240, 250 
gallons per ton. When those compounding economics come back to 
South Dakota, they are going to take the form of a massive 
amount of [inaudible]. I would ask you the question, Senator.
    [Laughter.]
    Senator Thune. Mr. Science?
    Senator Thune. Do you want to take a shot at that, Dave? It 
is a good question. I can't answer it.
    Mr. Litzen. Thank you, Mr. Crandall, for putting me on the 
spot. The numbers that David brought up and just the maps 
[inaudible], the 100--I believe the 105-gallon per dry ton 
conversion is probably based on the theoretical availability in 
a ferment aging process. Some of the numbers that Dave is 
projecting, and I don't know that it goes over 200 gallons a 
ton, again, depending on the feedstock, but it probably would 
take a technology like, for instance, you know, Chris 
[inaudible] is working on here through gassification-type 
processes that will convert the entire biomass to [inaudible].
    There are differences of opinion as to [inaudible] we 
believe in the fermentation process because there is the 
opportunity to produce not only ethanol from the process, but 
also usable carbon dioxide and a solid byproduct that can be 
converted to electrical power, as well. So there are different 
applications for different circumstances. Again, our 
preferences are likely going to fall in that fermentation 
technology or 105 gallons per ton maximum. But again, there are 
other ways to do this and there is more than one solution.
    Senator Thune. More questions, anybody? Yes, sir?
    Audience Member. If the Forest Service was meeting their 
allowable [inaudible], how much more biomass would be available 
[inaudible] on hand now?
    Mr. Bobzien. It is very close. It should be very close, 
because the operations we have right now are very close to the 
forest plan levels.
    Senator Thune. Anybody else?
    [No response.]
    Senator Thune. OK. Any closing comments from members of our 
panel? I want to give you all a chance before we adjourn here 
to make any final observations or thoughts. If there is a 
question that we didn't ask you that you would like to have 
been asked or some information you would like to get on the 
record, please feel free to do that. Again, we appreciate very 
much your being here today and your input.
    All right, one more here. James?
    Audience Member. Senator Thune, maybe it would be 
appropriate to get on the record along with [inaudible] both 
you and Senator Johnson hereafter to get before us and help 
support the forests we have got and [inaudible] on the record 
and ask Mr. Bobzien what the actual growth [inaudible], and 
recognizing that since 1900 this forest has grown from 1.5 
million to over six million inventory, I think [inaudible] the 
current annual growth.
    Senator Thune. Mr. Bobzien, do you care to answer that 
question, what the annual growth is?
    Mr. Bobzien. I would be happy to provide that fact for the 
record. I don't have that right off the top of my head, Senator 
Thune. I will present the forest-wide growth amount, and then 
for those areas within the forest that we have managed for 
sustainable forest products. I will present those facts to you 
for the record in each one of those categories.
    Senator Thune. OK. That, I would appreciate. That would be 
useful information to have, as well.
    Again, I want to thank everybody for their participation. 
This is an issue which, at the low end, it is 207,000 tons, at 
the high end, if it is 1.2 million tons, that is a lot of 
potential cellulosic ethanol and potentially a lot of jobs and 
economic development here for the Black Hills region. We 
certainly want to facilitate making that happen, particularly 
as cellulosic ethanol becomes commercially viable, and I don't 
think that is very far away. The technology is there. There is 
a lot of work being done already. KL is doing it. As I said, 
NREL in Golden, Colorado, is working on that. There are four 
[inaudible] right now from the Department of Energy that are 
working on converting other forms of feedstock into cellulosic 
ethanol, and I believe that that is the next generation of 
biofuels that will get us away from this debate of food versus 
fuel, which we hear a lot of these days with corn-based ethanol 
and which, I might add, incidentally, there is a lot of 
misinformation and distortion, as well. But nevertheless, the 
long range to get to 36 billion gallons of ethanol, we have got 
to move to the next generation of biofuels, which will be 
cellulosic ethanol made from many of the things that we talked 
about today, and many of which are in abundance right here in 
South Dakota and particularly here in the Black Hills. So I 
hope that we can fully utilize those in a way that not only 
preserves the health and the integrity of the Black Hills as a 
resource, but also takes many of these waste products that it 
generates and produces and reduce the fuel oil attributable to 
those and convert them into a beneficial and valuable resource 
from which we can derive an economic benefit here in Western 
South Dakota.
    So thank you all very much for attending. This hearing is 
adjourned.
    [Whereupon, at approximately 3:25 p.m., the committee was 
adjourned.]
      
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                            August 18, 2008



      
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