[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]




                       FULL COMMITTEE HEARING ON
               THE STATE OF THE RENEWABLE FUELS INDUSTRY
                         IN THE CURRENT ECONOMY

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

                                HEARING

                               before the


                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             MARCH 4, 2009

                               __________

          [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

            Small Business Committee Document Number 111-007
Available via the GPO Website: http://www.access.gpo.gov/congress/house

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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman
                          DENNIS MOORE, Kansas
                      HEATH SHULER, North Carolina
                     KATHY DAHLKEMPER, Pennsylvania
                         KURT SCHRADER, Oregon
                        ANN KIRKPATRICK, Arizona
                          GLENN NYE, Virginia
                         MICHAEL MICHAUD, Maine
                         MELISSA BEAN, Illinois
                         DAN LIPINSKI, Illinois
                      JASON ALTMIRE, Pennsylvania
                        YVETTE CLARKE, New York
                        BRAD ELLSWORTH, Indiana
                        JOE SESTAK, Pennsylvania
                         BOBBY BRIGHT, Alabama
                        PARKER GRIFFITH, Alabama
                      DEBORAH HALVORSON, Illinois
                  SAM GRAVES, Missouri, Ranking Member
                      ROSCOE G. BARTLETT, Maryland
                         W. TODD AKIN, Missouri
                            STEVE KING, Iowa
                     LYNN A. WESTMORELAND, Georgia
                          LOUIE GOHMERT, Texas
                         MARY FALLIN, Oklahoma
                         VERN BUCHANAN, Florida
                      BLAINE LUETKEMEYER, Missouri
                         AARON SCHOCK, Illinois
                      GLENN THOMPSON, Pennsylvania
                         MIKE COFFMAN, Colorado
                  Michael Day, Majority Staff Director
                 Adam Minehardt, Deputy Staff Director
                      Tim Slattery, Chief Counsel
                  Karen Haas, Minority Staff Director

        .........................................................

                                  (ii)



                         STANDING SUBCOMMITTEES

                                 ______

               Subcommittee on Contracting and Technology

                     GLENN NYE, Virginia, Chairman


YVETTE CLARKE, New York              AARON SCHOCK, Illinois, Ranking
BRAD ELLSWORTH, Indiana              ROSCOE BARTLETT, Maryland
KURT SCHRADER, Oregon                TODD AKIN, Missouri
DEBORAH HALVORSON, Illinois          MARY FALLIN, Oklahoma
MELISSA BEAN, Illinois               GLENN THOMPSON, Pennsylvania
JOE SESTAK, Pennsylvania
PARKER GRIFFITH, Alabama

                                 ______

                    Subcommittee on Finance and Tax

                    KURT SCHRADER, Oregon, Chairman


DENNIS MOORE, Kansas                 VERN BUCHANAN, Florida, Ranking
ANN KIRKPATRICK, Arizona             STEVE KING, Iowa
MELISSA BEAN, Illinois               TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             BLAINE LUETKEMEYER, Missouri
DEBORAH HALVORSON, Illinois          MIKE COFFMAN, Colorado
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, Pennsylvania, Chairman


HEATH SHULER, North Carolina         MARY FALLIN, Oklahoma, Ranking
BRAD ELLSWORTH, Indiana              LOUIE GOHMERT, Texas
PARKER GRIFFITH, Alabama

                                 (iii)



               Subcommittee on Regulations and Healthcare

               KATHY DAHLKEMPER, Pennsylvania, Chairwoman


DAN LIPINSKI, Illinois               LYNN WESTMORELAND, Georgia, 
PARKER GRIFFITH, Alabama             Ranking
MELISSA BEAN, Illinois               STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             GLENN THOMPSON, Pennsylvania
BOBBY BRIGHT, Alabama                MIKE COFFMAN, Colorado

                                 ______

     Subcommittee on Rural Development, Entrepreneurship and Trade

                  HEATH SHULER, Pennsylvania, Chairman


MICHAEL MICHAUD, Maine               BLAINE LUETKEMEYER, Missouri, 
BOBBY BRIGHT, Alabama                Ranking
KATHY DAHLKEMPER, Pennsylvania       STEVE KING, Iowa
ANN KIRKPATRICK, Arizona             AARON SCHOCK, Illinois
YVETTE CLARKE, New York              GLENN THOMPSON, Pennsylvania

                                  (iv)






                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Graves, Hon. Sam.................................................     2

                               WITNESSES

Kimpel, Mr. Nathan, President, New Energy Corp., South Bend, IN..     3
Howe, Mr. John,Vice President of Public Affairs, Verenium 
  Corporation, Cambridge, MA.....................................     5
Feraci, Mr. Manning, Vice President of Federal Affairs, National 
  Biodiesel Board................................................     7
Litterer, Mr. Ron, Chairman, National Corn Growers Association...     9
Hurst, Mr. Brooks, Member of Board of Directors, The Paseo-Cargil 
  Biofuels Plant, Tarkio, MO, On behalf of the Missouri Soybean 
  Association....................................................    11

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    29
Graves, Hon. Sam.................................................    31
Kimpel, Mr. Nathan, President, New Energy Corp., South Bend, IN..    33
Howe, Mr. John,Vice President of Public Affairs, Verenium 
  Corporation, Cambridge, MA.....................................    37
Feraci, Mr. Manning, Vice President of Federal Affairs, National 
  Biodiesel Board................................................    44
Litterer, Mr. Ron, Chairman, National Corn Growers Association...    49
Hurst, Mr. Brooks, Member of Board of Directors, The Paseo-Cargil 
  Biofuels Plant, Tarkio, MO, On behalf of the Missouri Soybean 
  Association....................................................    54

Statements for the Record:
Environmental Working Group......................................    58
Society of Independent Gasoline Marketers of America.............    64
Patrinos, Ph.D., Mr. Aristides A.N., President, Synthetic 
  Genomics Inc...................................................    66

                                  (v)


 
                       FULL COMMITTEE HEARING ON
    THE STATE OF THE RENEWABLE FUELS INDUSTRY IN THE CURRENT ECONOMY

                              ----------                              


                        Wednesday, March 4, 2009

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1:00 p.m., in Room 
2360 Rayburn House Office Building, Hon. Nydia Velazquez 
[chairman of the Committee] presiding.
    Present: Representatives Velazquez, Moore, Dahlkemper, 
Schrader, Kilpatrick, Clarke, Ellsworth, Sestak, Griffith, 
Halvorson, Graves, Luetkemeyer, Schock and Thompson.
    Chairwoman Velazquez. Good morning. I now call this hearing 
of the Small Business Committee to order.
    In his joint address to Congress last week, President Obama 
made it clear that there can be no economic recovery without 
energy independence. Entrepreneurs are already leading that 
charge. Small biofuels producers are not only addressing 
climate change, but are helping to end our reliance on foreign 
oil. Just as importantly, they are creating new jobs and 
ushering in a stronger, greener economy.
    The U.S. is now home to 176 biodiesel plants, up from just 
9 in 2001. Ethanol facilities are also on the rise. Thirty-one 
new plants opened in the last year, with facilities spanning 26 
states across the country. These businesses are generating jobs 
for thousands of Americans and breathing new life into rural 
economies. On top of that, they are making serious strides in 
developing cleaner, sustainable oil alter natives. Last year, 
production for biodiesel alone reached 690 million gallons.
    But despite their recent progress and enormous potential, 
many of these businesses are now struggling to survive. With 
the price of oil relatively low, the country has been lulled 
into a false state of complacency. The call for renewable 
fuels-which once rang loud and clear-has since died down. 
Meanwhile, the growing recession has also taken its toll. For 
biofuels entrepreneurs, the effects have been nothing short of 
devastating.
    Perhaps the greatest problem plaguing the renewable fuels 
industry is the diminished focus on energy prices. With oil 
hovering around $40 a barrel, demand for renewable fuels has 
fallen off considerably. Profits are down and, to make matters 
worse, so are investments. Most of us know it is only a matter 
of time before gas prices go up again. Unfortunately, many 
venture capitalists now view renewable energy as a long-term 
investment-one that few are willing to make in this uncertain 
economy.
    For the biofuels industry, dwindling investor interest has 
been compounded by the recession. Credit is drying up, and 
banks are not making loans. Even lending through the USDA's 
Farms Service Agency-traditionally a lender of last resort-has 
been jeopardized. Applications for FSA lending have shot up 200 
percent since last year. The agency is now worried about 
meeting demand in the coming fiscal year.
    The results of these drop-offs will be dire. Already, new 
construction for ethanol plants has slowed dramatically. At the 
same time, more than 25 facilities have closed nationwide, 
idling almost 2 billion gallons of fuel capacity. Businesses 
that have managed to survive are straining to meet even basic 
obligations like feedstock expenses.
    Many biodiesel and ethanol providers committed to these 
contracts when grain and vegetable costs were at a premium. 
Though prices have plummeted, businesses are still locked in at 
record rates.
    Two weeks ago, President Obama signed the American Recovery 
and Reinvestment Act into law. That bill includes more than $70 
billion in energy measures. But while provisions within the 
stimulus will encourage greater use of renewable fuels, they 
will not address every challenge. That is why we are here 
today-to discuss viable fixes to the problem. Already, a number 
of potential solutions have been raised, from increasing the 
blend wall for ethanol to extending targeted tax incentives. In 
this afternoon's hearing, we will examine a few of those 
suggestions.
    When oil hit $147 a barrel last summer, biofuels looked 
like the best way out of a full blown energy crisis. Today, 
they are the best way out of a dormant energy crisis. These 
businesses are not only creating new jobs, but they are working 
to ensure we are not caught in the crosshairs when gas prices 
go up again. That's more than energy independence-that's 
economic independence, and that's the new energy plan this 
country needs.
    I would like to take this opportunity to thank all of 
today's distinguished witnesses in advance for their testimony 
and, with that, I yield to Ranking Member Graves for his 
opening statement.
    Mr. Graves. Thank you, Madame Chair, and I want to thank 
you again for holding a fantastic hearing as far as I'm 
concerned because this is an issue that affects, very much 
affects, rural America as well as every citizen in America and 
you've always shown a very strong interest in small businesses 
both in our urban areas and in our rural areas.
    Energy is the life blood of our economy. U.S. economic 
prosperity is closely tied to the availability of reliable and 
affordable supplies of energy. This is not a new issue. 
However, with technology improving exponentially, the energy 
independence discussion has changed greatly over the past few 
years.
    The stark reality is that we import about 60% of the 
petroleum we currently need. To make our petroleum problem 
worse, we have not built a new refinery in the United States in 
over 30 years. It is stretching our refining capacity to the 
limit and affecting the volatility of energy prices.
    Efforts to open up the Arctic National Wildlife Refuge and 
the Outer Continental Shelf to oil and natural gas exploration 
should and must continue, but we cannot ignore the fact that we 
need renewable fuels to help take the strain off of our need 
for imported fossil fuel energy.
    It is not just the United States that is going to need more 
energy in the coming years. Our traditional energy supplies 
will be increasingly strained by dramatic growth in global 
demand. We need to focus on both short-term and long-term 
goals. Most certainly, investing in renewable fuels technology 
is a positive step toward energy independence. We must be 
forward thinking in our approach to meet our current needs and 
future requirements. These sources of energy could hold the key 
to energy independence in the future.
    Over the past few years of substantial growth in the 
renewable fuels industry, many policymakers who might have had 
legitimate concerns about the industry are beginning to see the 
value and positive outcomes that can be associated with 
renewable fuel sources. These positive results are found most 
immediately in rural America where the difficulty in attracting 
jobs, investments, and maintaining the infrastructure can be 
more complex.
    This hearing presents an excellent opportunity to learn 
more about the renewable fuels industry. Many of these 
producers are classified as small businesses by the Small 
Business Administration. Not unlike other industries, biofuels 
producers are facing difficult economic times with little 
available capital necessary for expansion and job creation. 
This is especially critical for small producers who do not have 
the available equity to leverage loans. The volatile economic 
conditions are also having a negative effect on this industry 
and today we hope to detail what, specifically, are the biggest 
impediments to growth, and offer policy options that could help 
the industry continue to grow.
    Again, Madam Chair, I appreciate you having this hearing. 
It's an issue that I'm intimately familiar with and thank you.
    Chairwoman Velazquez. Thank you and I welcome our first 
witness, Mr. Nathan Kimpel. He's the President and Chief 
Operating Officer of New Energy Corp. in South Bend, Indiana. 
New Energy Corp. was the first large scaled green field ethanol 
plant built in the United States. It started in 1984. It is 
scheduled to produce its two billionth gallon of fuel this 
year. Welcome sir. You have five minutes to present your 
testimony.

    STATEMENT OF NATHAN KIMPEL, PRESIDENT, CEO, NEW ENERGY 
                CORPORATION, SOUTH BEND, INDIANA

    Mr. Kimpel. Good afternoon, Madam Chairwoman, and Ranking 
Member Graves and Members of the Committee. My name is Nathan 
Kimpel and as the Chairwoman said, I'm President and Chief 
Operating Officer of New Energy Corp. New Energy is located in 
South Bend, Indiana and became operational in 1984 and we are, 
in fact, getting ready this year to produce our two billionth 
gallon.
    In 2008, New Energy purchased over $180 million worth of 
corn from local farmers, cooperative elevators and commercial 
grain companies. As you've already said, this is an important 
and timely hearing and I'm pleased to be here to discuss the 
unique challenges and economic difficulties currently facing 
New Energy Corp. and the U.S. renewable fuels industry. Today's 
renewable fuels industry consists of 170 bio-refineries located 
in 26 different states with the capacity to produce 12.4 
billion gallons of high octane clean-burning motor fuel. In 
2008, the renewable fuels industry's operating capacity 
increased by 2.7 billion gallons, a 34 percent increase.
    The U.S. renewal fuels industry is a dynamic and growing 
industry that is revitalizing rural America, reducing emission 
in our nation's cities and lowering our dependence on imported 
petroleum. Ethanol is becoming an essential component of the 
U.S. motor fuels market. Today ethanol is blended in 
approximately 70 percent of our nation's fuel and is sold 
virtually from coast to coast and border to border. Last year 
the U.S. renewable fuels industry produced and sold a record 
9.2 billion gallons, contributing significantly to the nation's 
economic and environmental energy security.
    The U.S. ethanol industry continues to have a positive 
impact on our nation's economy. U.S. ethanol producers have 
long been on the cutting edge of the green economy helping 
support more than 494,000 well-paying jobs in 2008 alone. 
Importantly, ethanol production provides a critical stimulus 
for struggling rural economies providing farmers the most 
important value added market for grains in more than a 
generation.
    The economic crisis is significantly impacting sustained, 
continued growth and development in our industry. Recently, the 
U.S. renewable fuels industry have been devastated by the 
scarcity of both short-term credit to finance on-going 
operations much less the long-term capital to finance expansion 
and new construction. The renewable fuels industry along with 
all of our small business partners, the American corn farmer, 
have fallen victim to many of the same problems that have 
affected other industries including high raw material costs, 
but in our case, collapsing oil and gasoline prices.
    Ethanol prices are partly driven by gasoline prices which 
are in turn driven by crude oil prices. Many input costs for 
producing corn are as well driven by crude oil prices. Both 
gasoline and crude oil reached record levels in 2008. Crude oil 
prices skyrocketed to $147 per barrel before sinking to below 
$40. According to the Energy Information Agency, gasoline use 
fell an estimated 3.3 percent in 2008, the sharpest decline 
since 1992 as prices hit record levels.
    Oil led the 2008 commodity boom and corn prices followed. 
Oil prices have fallen due in large and part to a weak demand 
from a slowing world economy. Falling gasoline prices have 
pulled ethanol down as well putting severe pressure on revenue. 
However, gasoline and ethanol prices have fallen much more than 
corn prices over the last year.
    In our company, we look at a concept called The Commodity 
Price Spread. This is essentially the difference between the 
daily market replacement prices of ethanol and corn expressed 
in a dollar per gallon basis.
    In January of 2008, the Commodity Price Spread was enough 
to cover all production and debt service cost plus make a 
reasonable contribution to return on investment. However, by 
July the Commodity Price Spread had narrowed to a point where 
an average or model plant was perhaps covering all variable 
cost and making a contribution to semi-variable cost but likely 
not covering the fixed cost of operation much less debt 
service. Since July, the Commodity Price Spread has vacillated 
between not even covering variable cost to making a 
contribution to fixed cost but rarely if ever making any 
contribution to debt service.
    Our projection for the balance of the year solely based on 
futures market for corn and ethanol show little improvement. 
Corn input costs are established as much as a year before cash 
sales by the farmer actually takes place. Our suppliers tell us 
at today's market price they are well below their production 
price. Unless agriculture production costs drop substantially 
this year, the price squeeze between corn and ethanol may well 
continue into next crop year.
    The RFS for 2009 which is effectively 9.5 billion gallons 
after imports and prior year credits are taken off is now not 
only the floor of demand but also the ceiling of demand. Today 
more than 25 ethanol plants have closed nationwide idling 
nearly two billion gallons of capacity.
    The outlook for New Energy Corp. and the U.S. ethanol 
industry will depend on several factors including economic 
growth which is consumer spending and gasoline demand, credit 
availability, oil and gasoline prices. We need to assure the 
continued viability of the industry as it stands today as well 
as provide for future evolution and innovation while 
stimulating thousands of green jobs. To do this, access to 
immediate and necessary operating capital is critically 
important to help weather the current economic conditions 
facing the industry.
    U.S. ethanol producers have answered the challenge to put 
forth in the RFS and are producing enough ethanol to fill the 
requirements and I might add for both this year and next year.
    Chairwoman Velazquez. Mr. Kimpel, time has expired.
    Mr. Kimpel. Okay.
    [The statement of Mr. Kimpel is included in the appendix at 
page 33.]
    Chairwoman Velazquez. So you will have an opportunity 
during the question and answer period to add any comments that 
you might want to make.
    Mr. Kimpel. Very good. Thank you.
    Chairwoman Velazquez. Our next witness is Mr. John Howe. 
He's Vice President of Public Affairs for Verenium Corporation 
in Cambridge, Massachusetts. Mr. Howe has held leadership roles 
in several organizations including the Coalition for the 
Commercial Application of Super Conductors and the National 
Association of Regulatory Utility Commissioners. Verenium 
Corporation is a leader in the development and 
commercialization of cellulosic ethanol. Welcome sir.

    STATEMENT OF JOHN HOWE, VICE-PRESIDENT, PUBLIC AFFAIRS, 
         VERENIUM CORPORATION, CAMBRIDGE MASSACHUSETTS

    Mr. Howe. Thank you very much, Madam Chair and Ranking 
Member Graves. I greatly appreciate your welcoming me here 
today for a critical hearing at a critical time. I'm going to 
summarize my pre-filed statement with seven fairly brief 
points.
    First of all, curbing our use of imported fuels is a 
massive challenge, but it is imperative that we meet it because 
of a convergence of three huge factors. Our country's monthly 
outlays for oil imports are sapping our economic and 
competitive strength. We're coming to grips with the reality 
that a global peak in oil production will arrive in a 
comparatively short time. And we've awaken to the fact that 
uncontrolled carbon emissions have thrown our climate into a 
disequilibrium that could threaten much of human civilization 
in the future if we don't address it soon.
    Low carbon advanced biofuels can help on all of these 
fronts. This is why they've turned in a fairly short time from 
being a nice-to-have option to a must have solution. Looking 
beyond today's anomalous short-term collapse of oil prices, we 
will need clean liquid fuels for the long haul. Once these new 
sources are commercially available, it will take years to scale 
them up to have a meaningful impact. We have no time to lose.
    Second, advanced biofuels will be tremendous engine for 
small business formation and growth. This industry by its 
nature will rely on small scale, geographically diverse 
production and regionally adapted feedstolks and processes. 
That means that large numbers of good, non exportable jobs in 
small businesses all over the country will be created as 
suggested by the map in my prepared statement.
    Third, there is solid technical progress to report. Just 
last month my own company, Verenium, finished commissioning one 
of the nation's first and indeed one of the world's largest 
true demonstration scale cellulose-to-ethanol plants. It's in 
southwest Louisiana. In January, we announced our first 
commercial plant in Florida that will generate hundreds of good 
jobs. Several competitors are likewise making good progress.
    The naysayers claim that advanced biofuels are a decade 
away and always will be. But it's simply not true. The 
ambitious production goals in the RFS can be met if we marshal 
the sense of urgency that our national situation requires. If 
we stick to the commitment and don't turn back, this is truly a 
case where we hold destiny in our own hands.
    Fourth, we must not downplay the obstacles and challenges 
facing advanced biofuels. Chief among these is financing. Even 
big established companies selling mature products find it hard 
to get credit in today's environment. For us, it's basically 
impossible. In the best of times, private lenders won't take 
technology risk on energy projects.
    So we have reached a financing logjam. First of a kind, 
commercial scale projects are essential to establish the track 
record upon which private capital can lend in the future. There 
is basically no other place to go for funding today except to 
the government for the loans, grants and loan guarantees to 
make such projects possible.
    Fifth, there are other complex risks in making advanced 
biofuels a commercial reality, the typical challenges of 
developing complex technological processes. We're having to 
work with the Ag sector to put together a fairly complex new 
supply chains to plant produce harvest and collect new kinds of 
feedstocks.
    There's the off-take market. You hear a lot today about the 
ten percent blend wall. Between legislation and regulation, our 
industry needs to get clarity on just how the ramp-up of 
biofuels to 36 billion gallons under the RFS squares with a 
quota under EPA regulations that will max out at about 12 
billion gallons of ethanol. Lifting the blend limit to 13 or 15 
percent will help, but it will merely postpone the issue for a 
couple of years. It offers no certainty at all for advanced 
biofuels producers who are expected to produce the lion's share 
of future new capacity.
    And then let's face it. Global oil markets are not exactly 
textbook Economics 101. They feature extreme volatility, 
strategic behavior and outright manipulation of price and 
quantity by large actors like OPEC whose agenda is to prevent 
biofuels from being established as a viable alternative source. 
As an American, I can think of few better reasons why we should 
move aggressively to increase our use of biofuels than the fact 
that OPEC wants us to think it's a bad idea.
    Sixth, let's not let this long list of challenges deter us. 
Let's focus on the vast potential inherent in advanced biofuels 
to renew our economy, create jobs, protect our environment, 
improve domestic security and global security for as these 
technologies go global they will democratize the balance of 
power in energy production and use around the world. That 
potential is real. I've included the summary of an excellent 
new report by Sandia and GM that finds that a large scale 
cellulose/ethanol industry meeting about one-third to about 
one-half of our liquid fuel needs is feasible and affordable 
within in a surprisingly compact geographic footprint. The key 
is a sustained, consistent policy commitment. A halfhearted 
approach won't do.
    If I may ask you for just a moment to close with a seventh 
point and personal observation, our economic calamity arose 
from many complex factors, but I believe the surge in world oil 
prices over the last four years is what triggered the 
avalanche. It drained our economy of $1 trillion of our 
families' accumulated wealth. It showed us that if we don't 
bring our dependency on oil imports under control, we will 
remain weakened for a long time.
    Given the realities of climate change and impending peak 
oil, there is no path to a truly sustainable recovery for our 
country that does not include commercially viable, scalable, 
environmentally sustainable technologies to produce liquid 
fuels from domestic feedstocks, in other words, advanced 
biofuels.
    The challenges in getting there are severe, but failure is 
not an option. Thank you very much.
    [The statement of Mr. Howe is included in the appendix at 
page 37.]
    Chairwoman Velazquez. Thank you, Mr. Howe.
    And our next witness is Mr. Manford Feraci. He's the Vice 
President of Federal First for the National Biodiesel Board. 
Mr. Feraci runs the Washington, D.C. office spearheading the 
organization federal regulatory efforts. The National Biodiesel 
Board is national trade association representing the biodiesel 
industry for research and development in the United States.
    Welcome.

STATEMENT OF MANFORD FERACI, VICE PRESIDENT, FEDERAL FIRST FOR 
                  THE NATIONAL BIODIESEL BOARD

    Mr. Feraci. Madam Chair, Ranking Member Graves, Members of 
the Committee, thank you for holding this important hearing 
today and I appreciate having the opportunity to testify on 
behalf of the National Biodiesel Board.
    As you said in your opening statement, the National 
Biodiesel Board is the national trade association for the U.S. 
biodiesel industry and we represent everything from biodiesel 
producers to feedstock providers to fuel marketers to 
technology providers. So we really do represent the whole 
waterfront, as you would say, of the entire industry.
    Biodiesel itself is a diesel replacement fuel. It's made 
typically from agricultural oils, waste greases such as yellow 
grease, also more commonly known as restaurant grease, and 
animal fats. It is refined to hit an ASTM D67 fuel 
specification. We comply with Tier 1 and Tier 2 emission 
requirements of the Clean Air Act.
    In the marketplace, the fuel is typically used in five 
percent blends in with conventional diesel fuel. But it can be 
used to the levels up to 20 percent. It's distributed through 
the mainstream existing petroleum infrastructure that we have 
right now. We're in about a little over 40 distribution 
terminals across the country and we're really excited that 
there's two major pipeline companies so far that have actually 
run biodiesel through a pipeline and we think that this holds a 
lot of potential to get our fuel distributed in the mainstream 
infrastructure which ultimately is in the nation's overall 
policy goals.
    There are significant public policy benefits associated 
with the use of biodiesel, the first being let's talk about 
energy security and reducing our dependence on foreign oil. 
With biodiesel production what you're getting is you're getting 
additional fuel production capacity and new fuel that's being 
added to our overall infrastructure. The 690 million gallons 
that we produced in 2008 displaced 38.1 million barrels of 
petroleum. In addition, it's also worthwhile to mention that 
biodiesel is an extremely efficient fuel and that you get 3.2 
units of energy for every one unit of energy it takes to 
produce the fuel.
    We're good for the environment. We've reduced direct carbon 
emissions by 78 percent compared to conventional diesel fuel. 
That's the equivalent in 2008 of removing 980,000 cars from the 
roadways.
    We have literally no sulfur emissions and if you talk about 
water use the water that was used to produce biodiesel in the 
United States last year was the equivalent that was used to 
maintain two large golf courses. So we are very efficient when 
it comes to that.
    We're creating jobs and economic opportunity in rural 
America. In 2008 alone, we supported over 51,000 jobs, added 
over $4.2 billion to the nation's economy, generated $866 
million in tax revenue for state, local and federal government. 
If we hit our potential which we estimate to be about 1.77 
billion gallons of production we'll support over 78,000 jobs 
and add over $6.6 billion to the overall economy.
    The other thing that I always thing is worthwhile to 
mention is that the existence of the U.S. biodiesel industry 
right now is really the driver that is encouraging this 
investment in some of the next generation feedstocks that 
people have heard about, for example, algae which we think 
holds great potential as a lipid source. There's a lot of 
research that's going on in it right now to make that 
commercial.
    Right now, in the advanced biofuels component when you're 
talking about biomass based diesels, we're really the only 
industry out there that is at commercial scale and we are the 
ones that are the ones that are the ones that are driving that 
research.
    All that said and all the success that we've had though is 
really in danger right now because our industry is facing some 
pretty severe economic hardship right now and it's a perfect 
storm of factors, lack of access to capital which is not unique 
to our industry, volatility in commodity markets, and lastly 
we've had uncertainty relating to federal policy which signals 
that the support for biodiesel going forward is tenuous at 
best.
    Now we're not asking for new programs. We're not asking for 
huge new initiatives. What we're asking for moving forward is 
the maintenance of what we have now because it's been working.
    The first thing that's vital to our industry is the 
biodiesel tax initiative. It achieves the goal of making our 
fuel price competitive with diesel fuel in the marketplace. 
It's a dollar per gallon tax incentive. So by making us price 
competitive, it makes it easier for us to market our fuel and 
get greater infrastructure and I think greater penetration in 
the fuel stream. Unfortunately we were pleased that the tax 
incentive was extended for one year through 2009, but the very 
short-term duration of these extensions are really drawing into 
question whether the commitment to biofuels.
    The second thing to mention real quick is we need a 
workable, renewable fuel standard. The 2007 Energy Bill put in 
for the first time a diesel replacement. It requires the 
replacement of diesel fuel in the marketplace with low carbon 
fuel. We're ready to meet that requirement. Unfortunately, the 
process that EPA is going through right now could have the 
effect of making it nearly impossible to meet those standards 
and I'd love to answer a question about that. I know my time is 
almost up here, but I would love to get more into that if we 
have the opportunity during questions.
    Thank you very much for the time.
    [The statement of Mr. Feraci is included in the appendix at 
page 44.]
    Chairwoman Velazquez. Thank you, Mr. Feraci.
    Our next witness is Mr. Ron Litterer. He's the Chairman and 
past President of the National Corn Growers Association. As a 
representative of NCGA, Mr. Litterer has advocated development 
of biotechnology, emphasizing the importance of responsible and 
accountable management. The NCGA is a producer directorate 
trade association headquartered in St. Louis that represents 
the interests of more than 30,000 farmers.

  STATEMENT OF RON LITTERER, CHAIRMAN, NATIONAL CORN GROWERS 
                          ASSOCIATION

    Mr. Litterer. Thank you, Madam Chair, and distinguished 
Members of the Committee. Thank you for the opportunity to 
testify today on behalf of the National Corn Growers 
Association regarding the state of the renewal fuels industry 
and the current economy.
    My name is Ron Litterer. I'm a farmer from Greene, Iowa 
where I grown corn and soy beans and I also have a hog 
finishing operation. I appear before you today as a grower and 
Chairman of the NCGA Board representing more than 32,000 
growers from across the country.
    For more than 20 years, NCGA has worked side by side with 
farmers, industry and government to build the ethanol industry 
from the ground up. Through our efforts corn growers across the 
country and the ethanol industry have helped America move 
closer to energy independence.
    Our industry has been and is currently a major force in the 
revitalization of rural American by creating green jobs and by 
stimulating economic activity in our communities. However, the 
corn ethanol industry along with many others is feeling 
pressure from the current economic downturn in the U.S. and 
world economies. It is imperative that at a time when our 
country is facing a worsening economic crisis we recognize the 
significant role of the existing grain-based ethanol industry 
has in promoting not only energy independence but a more stable 
and prosperous U.S. economy.
    During these uncertain economic times, corn growers and 
other Ag producers continue to face a number of serious 
challenges. We along with many industries continue to face a 
very volatile marketplace. Over the past three years, the price 
of corn has seen dramatic fluctuation. The decrease from record 
highs in 2008 have been dramatic with prices falling by more 
than 48 percent over the past eight months.
    Despite tough economic times, corn production is becoming 
increasingly more efficient. Today biotechnology enables 
farmers to apply fewer inputs to produce larger crops on the 
same land. Currently, it takes about 40 percent less land to 
grow a bushel of corn than in 1987 and energy use to produce a 
bushel of corn has fallen by an average of 50 percent.
    According to Keystone Center's Field to Market Report 
released January 2009, the production of corn in the U.S. has 
made significant measurable improvements and reducing energy, 
water, land use, and carbon emissions. In order to maintain our 
sustainability, improvements at that production level is 
imperative that the corn ethanol industry continue to grown and 
prosper.
    There is no doubt that rural America along with the rest of 
the country is undergoing a time of tremendous economic 
challenge. It is for this reason we would like to highlight the 
important impact that farmer-owned, homegrown fuel production 
has in bringing opportunity to the main streets of rural 
America.
    The role of the American farmer is changing, growing to 
encompass providing food, fiber, feed and fuel for our country. 
With the help of the U.S. biofuels industry our nation's rural 
economy is providing more opportunities for farmers through 
homegrown, renewable energy development.
    However, the well-being of our industry is threatened today 
by the declining state of our national economy. NCGA feels 
strongly that the continued economic vitality of the U.S. 
renewable fuels industry is crucial for attracting the 
investment in research and development of second generation, 
renewable feedstocks. For that reason, it is imperative that 
the existing grain-based ethanol industry and the accompanying 
infrastructure that has been built around that industry 
continue to prosper and remain viable in order to serve as a 
bridge for the next generation of biofuels.
    In conclusion, NCGA sees the grain-based ethanol industry 
as a critical part of the domestic energy security. It's 
inclusion as part of the nation's energy policy has 
strengthened and further diversified our nation's fuel supply 
in a time of global volatility and increasing demand for 
energy. Finally, despite these trying times, corn growers will 
continue to meet the growing demands of food, feed and fuel in 
an economical and environmentally responsible manner.
    I would like to thank the Committee for its time and look 
forward to any questions you may have.
    [The statement of Mr. Litterer is included in the appendix 
at page 49.]
    Chairwoman Velazquez. Thank you, Mr. Litterer.
    And now I recognize a gentleman, Mr. Graves, for the 
purpose of introducing our next witness.
    Mr. Graves. Thank you, Madam Chair. Our next witness is and 
by the way you have a very distinguished group of witnesses 
today.
    Our next witness is Brooks Hurst. Brooks and his family 
farm in northwest Missouri, 3,000 acres and their family is 
very active in biodiesel and ethanol production. Brooks himself 
serves on the board of directors for the Missouri Soy Bean 
Association and also on the board of directors of the Paseo-
Cargill Biofuels Plant which produces 30 million gallons of 
biodiesel a year and 40 million pounds of edible food grade 
glycerin.
    So, Brooks, thanks for being here.

  STATEMENT OF BROOKS HURST, BOARD MEMBER, MISSOURI SOY BEAN 
          ASSOCIATION AND PASEO-CARGILL BIOFUELS PLANT

    Mr. Brooks. Thank you, Mr. Graves, and I would also like to 
thank Madam Chair and Ranking Member Graves and all the other 
distinguished Members of the Committee for allowing me this 
opportunity to talk to you today about the biofuels industry.
    As Mr. Graves stated, I'm a farmer from northwest Missouri 
and I am a board member of a biodiesel production facility in 
Kansas City, Missouri and then I'm also a member and investor 
in a small ethanol plant in the town of Craig. So I've seen the 
great benefits that it brings to the small rural communities, 
close to home. The Craig ethanol facility, for instance, is 
about a 20 million gallon plant. So it's a really small plant. 
It has 300 farmer investors and so it's very important to the 
farmers around their markets.
    I also want to thank Madam Chair and Ranking Member Graves 
for your opening statements, the depth and understanding that 
you have of the situation that we're facing and so I will kind 
of just hit a few highlights of my written testimony since you 
obviously understand a lot of the problems we're facing.
    One of the things that I would like to say is that we would 
like to extend as Mr. Feraci pointed out the biodiesel fuels 
blenders credit. One of the issues that is facing us right now 
is in a volatile market which we've all heard about the 
volatile markets. It really helps to be able to lock in prices. 
As we go forward into the uncertainty of not knowing whether 
there's going to be a blenders credit in the year 2010 it makes 
it really hard in order for our facilities to lock in contracts 
that we can lock in at a profit.
    Another advantage I would like to point out the renewal 
fuels industry is that it is small producer owned plants 
scattered out across the country and one of the benefits this 
gets you is a catastrophic weather event like Hurricane Katrina 
doesn't affect biodiesel or ethanol production. We still go on 
producing renewable fuels for our country to use.
    I would also like to reiterate Mr. Feraci an issue or urge 
the speedy implementation of the Renewal Fuel Standard that 
Congress passed in the latest energy bill. I realize there are 
a lot of details to be worked out, but I think it's very 
crucial that we have a domestic impetus for demand. As everyone 
is well aware right now, the EU has embargoed biofuels, 
biodiesel, going into the European Union and we're working on 
trade talks to get that resolved, but there were several 
shiploads of biofuel sitting in the coast not being able to be 
exported. So not only do we need to work that trade issue out, 
but the renewal fuel standard would really help increase our 
demand domestically and making that important.
    I would also like to say that we have a byproduct of 
biodiesel which is glycerin and Mr. Graves mentioned that we 
have refining capacity in the Paseo-Cargill facility in Kansas 
City, but there are a lot of biodiesel production facilities 
that do not have the capability to refine glycerin. But it can 
be used as a fuel. In fact, there's been tests that it's a very 
effective fuel additive in No. 4 diesel and if we could 
establish, get the Energy Department to establish it as a fuel 
eligible for the biodiesel fuel credit I believe that would 
help set a floor for one of the critical byproducts of the 
biodiesel production.
    And with that, I'd like to say that we as a nation stand at 
a crossroads. The decisions that are made today will impact the 
country for years to come. It's my hope that my testimony will 
help demonstrate the importance of the biofuels industry and 
your Committee will consider my recommendations. It's crucial 
that we work together to ensure the U.S. biofuels industry 
continues to play an important role in rural development and 
growing our fuel supply.
    And with that, I'd again like to thank you, Madam Chair, 
Ranking Member Graves and all the other Members of the 
Committee for this opportunity to testify before you today and 
if you have questions, I'd be glad to answer.
    [The statement of Mr. Hurst is included in the appendix at 
page 54.]
    Chairwoman Velazquez. Thank you. Thank you, Mr. Hurst.
    I would like to address my first question if I may to Mr. 
Howe. President Obama reaffirmed his commitment to renewable 
fuels and energy security in his address to Congress last week 
and while there is tremendous opportunity from ethanol 
production from biomass we are not there yet. So can you talk 
to us about given the present economic situation that we're in, 
what will it take to get cellulosic ethanol to the marketplace?
    Mr. Howe. Madam Chair, I believe the key step that we have 
to take is to achieve some successful I would call proto-
commercial facilities. That is full commercial scale, first of 
a kind. These projects have not been built at commercial scale 
yet in this country. Our company has undertaken a significant 
private investment of $80 million to demonstrate a 
demonstration scale that's about on a log chart halfway from 
pilot to commercial. That was a major commitment that we made 
with our own shareholder funds.
    But to get to full commercial scale which we believe is in 
the range of 30-40 million gallons per year, we're talking 
investments of $200-$300 million if we can achieve success. I 
think we can't have a halfhearted approach. We need to decided 
we're going to make a full commitment to a handful of proto-
commercial facilities, establish the track record of 
reliability, identify what the problems are and then I'm 
confident as the economy returns private lenders will be able 
to step in and help the scale up.
    Chairwoman Velazquez. With the new provisions that are in 
place in the Farm Bill, how long will it take before we can 
achieve full scale commercialization?
    Mr. Howe. Well, as I think about the Farm Bill, I think of 
three provisions that were especially important. There is a 
cellulosic-ethanol producer tax credit of $1.01 per gallon, 
very helpful. Unfortunately it expires in 2012 and given the 
time frame that's really not going to be an effective 
inducement for new capital investment. So I would recommend 
that expiration date be extended for five-six years for example 
to really provide an incentive to attract some new investment.
    A second program that I think offers tremendous promise is 
the Biomass Crop Assistance Program. This will provide an 
inducement for agricultural producers, growers, landowners, who 
are by and large a fairly conservative lot. They may not want 
to move away from existing growing programs where they have 
subsidies, insurance programs, into a brave new world where 
those programs don't exist.
    So we need to get the BCAP program up and moving. I know 
there has been some concern about it, requests for an 
environmental impact statement that could delay it. Again, I 
think we need to make a commitment to do this at some 
significant scale.
    The third is the Loan Guarantee Program which the USDA is 
putting in place and that program needs to be funded robustly 
and the rules need to be looked at in order to make it feasible 
for private lenders to get behind projects.
    Chairwoman Velazquez. Thank you, Mr. Howe.
    Mr. Kimpel, you mentioned the immediate need for financing 
to cover daily operating expenses. As part of the Economic 
Recovery Bill, this Committee created a stabilization program 
to address those challenges and that initiative will allow 
small firms to take interest-free loans, those helping the 
businesses that you talk about whether the recession and pay 
down existing debt. Would you agree that this kind of program 
will be useful for the ethanol industry?
    Mr. Kimpel. Yes. Absolutely, it would. But while we are 
still considered small business, the scale of our business is 
mammoth. To build a 100 million gallon ethanol plant today, if 
anyone would build an ethanol plant today, is probably 
someplace in the neighborhood of $200 to $250 million. 
Operating cost today in our industry is probably someplace 
between $300 to $400 million. So the numbers are absolutely 
massive.
    We also have as John had referred to here the availability 
of loan guarantees. One of the interesting things about loan 
guarantees at 65 or 75 or 80 percent is that you can't even get 
a bank to look at you unless you have somehow a 100 percent. So 
even areas that have the capacity to take advantage of loan 
guarantees are going untapped simply because nobody will loan 
anybody anything.
    Chairwoman Velazquez. I guess that we need to talk to some 
of the banks who are taking TARP money and see if they will be 
willing.
    Mr. Kimpel. Yes.
    Chairwoman Velazquez. Since those loans are guaranteed by 
65 to 70 percent in the case of USDA and up to 85-90 percent 
under SBA. I guess that we need to bring the banks to talk to 
us and see what else it will take.
    Mr. Litterer, less than two years ago, this Committee held 
a hearing on renewable fuels. At that time, we learned about 
the small business boom in ethanol and biodiesel production. We 
also learned about the rural rejuvenation taking place as a 
result of that boom. Clearly, the picture has changed 
dramatically. What will it take for small producers to overcome 
these challenges and do you believe that the result build-up in 
capacity was too rapid?
    Mr. Litterer. First of all, I think we have to recognize 
that right now the most limiting factor to small producers is 
access to capital. That is an overriding issue and it's not 
just this industry. It's a lot of industries in our country. So 
if we could get that problem fixed, I think that would help a 
lot of producers.
    The other part of that is the pricing between gasoline and 
ethanol. If that would change, that would dramatically change 
the outcome for ethanol producers.
    As far as the build-up of capacity, I don't think any of us 
had a crystal ball to see what was going to happen with our 
economy. There's no question we were trying to meet a demand 
for phasing our MTBE. We met the challenges. We expanded. We 
believe we have a product that needs to be here long term for 
replacing imported crude oil and I think if we all had a 
crystal ball maybe we would have done some things differently, 
but looking at it at the time we think we did the right thing 
and I think the industry can rebound from this if we can get 
our credit situation solved.
    Chairwoman Velazquez. Okay. Thank you.
    Mr. Feraci, I know that your board has been supportive of 
the renewal fuel standard two and we all know that they are 
still in its regulatory phase and the good thing about it is 
that it will recognize biodiesel fuel for the first time. In 
the context of the recession, what will be the proper 
implementation of RFS 2? What will that mean for your industry?
    Mr. Feraci. Thanks for the question. The Renewal Fuel 
Standard, proper implementation of this, to have a program that 
is going to be workable, is absolutely vital to our industry. 
It really could be a make or break for us right now and given 
the way things are out in the economy and the way the market 
conditions are.
    RFS 2 the thing about it that was--From our industry's 
perspective, it was so groundbreaking. For the first time you 
have a renewal requirement in U.S. diesel fuel that you didn't 
have before and it's a component of the advanced biofuel 
schedule and you ramp up from 500 million gallons in 2009 to 
one billion gallons in 2012 and one of the requirements of that 
fuel is that fuel to qualify for that component of the program 
it has to reduce greenhouse gas emission by 50 percent.
    Now we have well-founded data that's over a decade old and 
has been refined consistently that shows when you look at 
direct emissions associated with biodiesel you get a 78 percent 
reduction.
    What our concern is right now is that the entire advanced 
biofuel schedule, the first component of it to roll out which 
is this biomass based diesel component, could be in jeopardy if 
the EPA doesn't implement this in a correct way. What we're 
concerned about is that due to some of the additions that 
they're throwing in with the calculation of greenhouse gas 
emissions you could have the effect of essentially 
disqualifying all vegetable oil from being used as a feedstock 
to meet what is the very first component of the biomass based 
diesel schedule and if you do that just quite frankly you 
simply don't have the feedstock to meet the program and the 
first component of the advanced biofuel schedule that rolls out 
is a failure. So it's imperative to us that this be done 
correctly.
    Chairwoman Velazquez. Do you have an ideas as to when EPA 
will implement it?
    Mr. Feraci. By statute, they were supposed to have a final 
rule in place by January 1 of this year. Now they clearly 
haven't done that. Based on conversations, we assume that we're 
going to see the NOPR here maybe within the next couple weeks 
and we certainly want to see that process move forward because 
getting a program up and running and that's workable is 
absolutely vital to us. But it has to be done in a correct way.
    Chairwoman Velazquez. Thank you.
    Mr. Graves.
    Mr. Graves. Thank you, Madam Chair.
    I want to kind of-I guess for everyone's interest-point out 
that the nice thing about biofuels whether it's ethanol or 
biodiesel, they're products that work and we have them right 
now. These are products that have to be further developed. 
These aren't products that have to be dreamed up or come up 
with. These are products that work right now and every gallon 
of biodiesel or ethanol that we use is a gallon of petroleum we 
don't have to find somewhere else.
    Ethanol can be produced from anything. It can be produced 
from corn. It can be produced from sugar. It can be produced 
from cellulose, anything that ferments. If it ferments, you can 
make ethanol out of it. And biodiesel is vegetable oil. That's 
what it is which kind of brings me to the environmental impact 
of biofuels.
    If you crack open a shipload of petroleum in the ocean some 
place you have a major environmental problem. If you crack open 
a shipload of ethanol, it's completely water soluble because 
it's alcohol or vegetable oil. You have a much, much different 
issue on your hands. That's the reason these products are so 
good.
    But we have an industry that is struggling and we have a 
lot of small plants out there. The vast majority of them as of 
recently we've had private investment in them, but for the most 
part they're farmer owned cooperatives. It's just a bunch of 
farmers getting together to raise capital and now they're 
caught up in the credit crunch because there's not a lot of 
credit available out there.
    So now I've made my soapbox pitch. But I do want to ask 
about the blenders wall that we have out there because right 
now it's ten percent of an ethanol blend and in our farm I know 
we run about 30 percent ethanol blend. What we do is go out and 
buy E85 which is an 85 percent blend. We bring it back. We 
blend it out in our own fuel tanks and get about a 30 percent 
blend which my mother uses in her car all the way to the trucks 
on the farm that we use. Biodiesel we've used as much as a 50 
percent blend in our tractors with no horse power loss 
whatsoever. So you can go much, much higher without any 
modifications to the system.
    But my question is how much impact is it going to have if 
we can make that jump to say 15 percent and I just think, Mr. 
Litterer, you may have mentioned it or somebody mentioned it 
but the question is actually for all of you. How much impact is 
that going to make when it comes to demand and helping out if 
we make the jump, say, to 15 percent ethanol blend and why 
can't do that? What is the reason for the 10 percent wall that 
we have?
    The same thing in biodiesel. If we set the bar higher. 
There is no reason why we shouldn't be able to do that. And 
again every gallon of biofuels that we use is a gallon of 
petroleum we don't have to find and I would rather be dependent 
on U.S. farmers than I would Saudi Arabia for our fuel any day. 
My question is what can we do and how big a challenge is that 
going to be to move that blenders wall up the scale for all 
those products and I'll start with you, Mr. Kimpel.
    Mr. Kimpel. Mr. Graves, we need to take you along on our 
next visit to see the automobile companies.
    There are obviously regulatory issues, but one of the 
issues that has been brought up to us every time that we talk 
to the automobile companies is exactly what you have talked 
about and that's the warranty issues and perhaps there are some 
legitimate issues there.
    But it is critical, absolutely critical, that we solve the 
blend wall and perhaps we're going to do it in steps. Perhaps 
it's going to be 12 percent and then 15 percent and then 20 
percent and whatever it takes to get us to the 35 to 36 billion 
gallons that we so desperately need to solve these issues that 
we've been talking about here today.
    But there are a number of initiatives that are going on as 
we speak. We have our partners in the industry, the Ag 
community, the Department of Energy, Environmental Protection 
Agency, USDA, all are actively involved in this. But taking 
that first leap and getting off the arbitrary limit that was 
established years ago at ten percent is critical.
    Several years ago, we had 140 billion gallons of spark 
ignition motor fuel in the United States. Ten percent of that 
if you get 100 percent market penetration doesn't even get us 
to where we need to be at the end of the conventional renewal 
standard much less get into the cellulosic and advanced 
biofuels. It is critical and it's critical also in the sense 
that we don't have to rail the stuff to every single corner of 
the country.
    Mr. Graves. Mr. Howe.
    Mr. Howe. Thank you very much, Mr. Graves.
    I'll pick up where Mr. Kimpel was just speaking about. We 
absolutely should go forward. We should push this limit as far 
as the science will justify. I know there have been concerns 
expressed by auto manufacturers about warranty on legacy 
vehicles, small engine manufacturers, boat operators and so 
forth. Those considerations need to be taken into account, but 
I'm not sure that they should dominate the issue. If there's a 
way that we can provide fuel that is a higher fraction of 
gasoline for the lawnmowers and weedwackers of the country most 
of the auto fleet will be able to use richer blends I think 
over time or can be designed to use richer blends.
    But ultimately down the road we can get a few more 
percentage points that will accommodate growth in grain ethanol 
in the next five, six, seven years. The RFS schedule calls for 
much higher use which is to be from cellulosic sources. So I 
believe that that fix does not really address the long-term 
challenge that we face.
    As I see it, there are only two other options. One is a 
complete change of chemistry to other kinds of molecules such 
as biobutanol, the problem being that the chemists have not 
determined that we can produced biobutanol that has as 
favorable an energy balance or a carbon balance as ethanol 
does. And the other alternative is E85. If we can make the kind 
of commitment to E85 that Brazil has made to all ethanol 
vehicles we can have essentially limitless growth or dramatic 
growth in the use of biofuels in the future of this country.
    I see this as an issue of standards. This is Windows and 
Mac. You can't say that Mac is inferior to Windows. In fact, a 
lot of people think it's a better operating system. But the 
problem is one of compatibility. So we need to look at how we 
can accommodate this new fuel for the future rather than 
necessarily adjust to the legacy fuel.
    Mr. Graves. Mr. Feraci.
    Mr. Feraci. From the biodiesel perspective, the issue is a 
little bit different because they're different fuels and 
different spaces in the economy. But overall as an industry our 
overall goal is to try to get five percent displacement in the 
overall U.S. diesel pool and from the macro sense the first 
real tangible step we can take is get the RFS 2 implemented in 
a successful way.
    But as an industry and this has been going on for some time 
we work pretty closely with engine manufacturers to try to get 
these higher level blends that you're talking approved for 
engine warranties. Right now, B5, everyone warranties B5 now 
and as a matter of fact we went through the process as an 
industry at ASTM to have a change in the D975 diesel fuel spec 
which is just conventional diesel fuel that if you have spec 
biodiesel up to B5 blend that's blended in with conventional 
diesel fuel it's just deemed to be D975. It's not some other 
sort of designation. So if you pair that with pipelines and 
other sorts of fuel infrastructure that's going to give you a 
significant amount of penetration into the fuel infrastructure.
    But getting up to B20, some manufacturers warranty. Some 
don't. We're constantly working with them to try to get them to 
do it because like you we agree. We think you can do it and 
have no detrimental impact on engines at all.
    Mr. Graves. Mr. Litterer.
    Mr. Litterer. I am not going to repeat what our first 
participants have said, but just to add to, I think that we 
have to address this very shortly and EPA is going to be key in 
this because that's where the science is going to be researched 
and they need to prove it. It's going to take maybe up to two 
years to get it implemented once the decision is made. So it's 
something that we need to work on immediately. It's one that if 
we're ever going to go to second stage ethanol production, the 
cellulosics, we have to get this issue resolved.
    Mr. Graves. Mr. Hurst.
    Mr. Hurst. Thank you, Mr. Graves.
    I also wanted to state the Underwriters Laboratory came out 
two weeks ago and basically said that they, which is an 
independent third party verification, could see no problem with 
12, 15 percent blend in any of the pipelines, in any of the 
infrastructure we have currently in introducing a 15 percent 
blend. So I thought that was important factor.
    And I also wanted to touch a little bit on biodiesel. One 
of the attributes of biodiesel is since we have eliminated 
sulfur, even a two percent blend increased the lubricity for 
your engine. So actually biodiesel, if you put a little bit of 
biodiesel, it's better than petroleum diesel right now for the 
lubricity.
    Mr. Graves. Thank you, Madam Chair.
    Chairwoman Velazquez. Thank you.
    I would just like to ask you a question. What will be the 
maximum amount and you are suggesting to increase it from 10 to 
12, 15, that will make it compatible with today's cars and 
infrastructure?
    Mr. Howe. We need to defer to testing to determine that 
number. I don't--We don't have expertise.
    Chairwoman Velazquez. Okay. Mr. Sestak.
    Mr. Graves. It's 30 percent on our farm. We know that.
    Mr. Sestak. Thanks, Madam Chairwoman.
    Could I ask you, sir? Go back to RFS. What do you see as 
the purpose of RFS? Its policy purpose?
    Mr. Feraci. I would say it's multi-faceted. From our 
perspective, you obviously get the energy security goal of 
displacing petroleum with renewable fuel. In our case, that 
would be biodiesel and increasing the amounts that you're 
getting on that side as well. Another stated goal of it is to 
have not only you're displacing petroleum but you're addressing 
the whole issue of climate change as well.
    Mr. Sestak. With that in mind, with what you said in your 
concerns, are you all right with a life cycle cost approach of 
it? I mean, was that what your problem was with the life cycle 
cost or is it the discount rate that they're trying to use?
    Mr. Feraci. It relates more to the whole idea of indirect 
land use changes and here's what our specific concern is.
    Mr. Sestak. In short, you don't do soybeans. Somebody else 
is going to soybeans and you have to take that cost in.
    Mr. Feraci. Yes, the idea that U.S. agricultural in 
particular has been pretty stable and it's extremely 
sustainable. It's somehow attributed with having deforestation 
in South America for example.
    Mr. Sestak. But if the goal as you said is climate, 
shouldn't we take that into account?
    Mr. Feraci. We should take it.
    Mr. Sestak. Up until now, ethanol has by and large not been 
performance-based criteria. The more you build the more subsidy 
you get. I was taken with RFS because it's the first time we've 
have a performance-based criteria. But part of that 
performance-based criteria is climate change.
    Mr. Feraci. Right.
    Mr. Sestak. So why not take an indirect land use?
    Mr. Feraci. We don't have an issues with taking into 
consideration indirect. By statute, you have to. In the RFS, it 
says that you have to account for significant indirect land use 
changes.
    Mr. Sestak. But your problem is that-
    Mr. Feraci. Our issue relates to the science of it. Right 
now, we know how to measure direct emissions.
    Mr. Sestak. Right.
    Mr. Feraci. We have a great model that's been out there for 
10 years now and that model has been refined over time to show 
a pretty definitive result across the board. The science of 
indirect land use change is so inexact right now that you could 
really put some false attributes on some fuels that aren't 
accurate. As a matter of fact, the Europeans in their 
renewables directive took a close look at this issue and they 
decided just to push it down the road in terms of having to do 
the indirect land use change calculations.
    We have no problems with that because we think at the end 
of the day that you're going to have a positive attribute and 
we're not going to have a negative impact on it. But what we do 
have an issue with is a science that's very undefined, 
unreliable and inexact at this moment attributing something 
negative to a biofuel that's really not there.
    Mr. Sestak. We had looked at the RFS. It's not a cap in 
trade. It's more of a floor in trade. But my question I guess 
then is what did you think about the discount rate and trying 
to trade off bad action today for bad action in the future.
    Mr. Feraci. We're not sure. I mean we haven't seen the rule 
yet in terms of what we're talking. They had a stakeholder 
briefing, EPA, with various groups. We haven't seen what 
they're going to do on the discount rate. By statute you're 
going to have to be compared to, our fuel is going to be 
compared to, 2005 emissions associated with diesel fuel and 
we're going to have to just play in the statute.
    Mr. Sestak. I agree that-Yes sir.
    Mr. Litterer. Could I just add a comment about the land use 
issue?
    Mr. Sestak. She's real tough on my time. No, go ahead.
    Mr. Litterer. That's all right.
    Mr. Sestak. I'm only kidding.
    Mr. Litterer. Just simply that in corn production our 
production is not static and it never has been. If you go back 
historically, we've about a two percent growth rate in corn 
production per acre per year. So in other words we can meet the 
growing demand for corn without adding a lot of additional 
acres and that is a key that I think a lot of fundamental of 
this research that is being left out of the picture and the 
equation that needs to be really considered. In fact, if you 
look at the tech providers in producing seed corn today, they 
say that we're even going to accelerate the rate of that growth 
because of the technology going into seed. So that goes to the 
science and the accuracy of the formulas they use in land use.
    Mr. Sestak. That's a good point. The reason I asked is I've 
always kind of felt that as valuable as ethanol and 
particularly now as we get into advanced fuels are that the 
lack of having a performance-based criteria although it helped 
economically it was about you billed more, you get more. It 
wasn't about does one of your plants use coal or natural gas. I 
mean there's a difference and you get the same tax subsidies 
for both. I'm not sure we-So that's why I was taken with RFS. 
But I understand it's the science of the ones that you have, 
not the concept.
    Chairwoman Velazquez. Time expired.
    Mr. Sestak. Thank you.
    Chairwoman Velazquez. Mr. Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    I just have one quick question for Mr. Howe. You made a 
comment awhile ago with regards to you had some suggestions 
with regards to SBA lending that you think would be able to 
help facilitate some of the loans to some of the plants. Could 
you elaborate on it just a little bit?
    Mr. Howe. I did mention the USDA loan guarantee program. 
The concern I was alluding to is there are restrictions in the 
terms of that program that limit the rate at which a lender for 
the balance of the non guaranteed portion that limits the rate 
that the lender can charge and also, of course, that balance is 
unguaranteed. The results of those conditions in the rule is we 
have found, and we've extensively tested the market, that 
there's very little appetite to participate in this program 
right now, certainly under today's conditions. So we believe 
there either needs to be a guarantee of a higher fraction or 
100 percent of the loan and some relaxation on the conditions 
on what the lender can charge for the balance of the loan. 
Because right now, it's a program that it's like we're 200 feet 
offshore and we're getting thrown a 100 foot rope. It's just 
not going to do the job.
    Mr. Luetkemeyer. Okay. So what you're saying is if the 
lender had the ability to have a higher rate of guarantee or 
could receive a higher rate of guarantee he would more inclined 
to lend. Is that what you're saying?
    Mr. Howe. That would help. However, I think it's the fact, 
the notion, of having to bear risk for projects for which 
there's not a technology track record. That itself is 
problematic. This is why our community has been saying that for 
the first projects of a kind the highest possible fraction of 
guaranteed loan is essential.
    We're only talking a handful of projects here so that we 
can establish that track record and then get off to the races. 
Private lenders have financed tremendous expansion of proven 
technologies like independent power, wind power, solar 
installations. But we have to get that fire started. We've got 
to do the first few projects. I think it's a good public 
investment for the government to get behind these first 
projects.
    Mr. Luetkemeyer. Okay. Which first projects are you 
referring to? Are you referring to cellulosic or are you 
referring to some other technology?
    Mr. Howe. This program is for biorefineries, advanced fuel 
biorefineries. So I think we are talking certainly about 
cellulosic, ethanol and other technologies that qualify under 
the RFS, in other words, that achieve significantly higher 
carbon reductions. So that's certainly our interest in it.
    Mr. Luetkemeyer. Very good. Thank you, sir.
    Thank you, Madam Chairwoman. I'm give you back my time.
    Chairwoman Velazquez. Mr. Griffith.
    Mr. Griffith. Thank you, Madam Chair. I am taken number one 
by the technology and the information and the expertise of the 
panel and thank you for being here.
    As a business man, there's something wrong here when we are 
not attracting private capital. Cargill, the largest privately 
owned company in the world should be a source of capital. Exxon 
should be a source of capital. Microsoft and many, many others 
and hedge funds and venture capital funds that look for 
opportunities that they see with great potential in the future 
and would love to invest in. Why do you think they are 
reluctant to invest in this area of energy production?
    Mr. Howe. I believe we are confronting a problem of public 
good. This is a classic public good problem that warrants 
government intervention. If we look at the benefit that the 
ethanol program has created for the country here was an 
excellent analysis done by Merrill Lynch about eight or nine 
months ago showing that the mere presence of the nine or ten 
billion gallons of ethanol in the nation's fuel mix helped to 
keep fuel prices, gasoline prices, about 15 percent lower than 
they would otherwise have been last year when we had that 
shocking episode of nearly $150 oil. What DOE has found is the 
American consumers saved $20 to $40 billion which I think is a 
tremendous payback on the $5 billion or whatever that was paid 
to the oil companies as subsidy for using ethanol.
    This is one of these instances. It's a tragedy of the 
commons problem where the benefit cannot be captured by the 
private investor. There is a critical need for the government 
to participate to facilitate these new technologies.
    Mr. Griffith. If the CAFE standards were raised to 47 to 50 
miles per gallon per average for a manufacturer, would you have 
a viable industry?
    Mr. Howe. I think we need to do everything we can looking 
out into the future. This is not either or. This is a both and 
situation. We need to conserve. We need to become efficient. We 
need to electrify. We need to do everything, you know, 
reconfigure our communities. But at the end of the day there 
will be a significant residual demand for liquid fuel that 
today is provided by petroleum that in the future needs to be 
provided by cleaner fuels as our petroleum supplies play out 
and as we come to grips with the necessity to reduce carbon 
emissions.
    Mr. Griffith. And if we have a two year drought that 
reduces the baseline product, what would we be looking at as 
far as our industry is concerned if we became dependent for 20 
percent of our fuel on biofuel or biodiesel?
    Mr. Litterer. You know, we haven't had a major drought in 
this country since-
    Mr. Griffith. Last year.
    Mr. Litterer. No, we really haven't. If you go back in 
history, we have not really had a major drought affecting crop 
production. We've had isolated regional droughts. But we have 
not had a major drought that has impacted production. We had 
problems a couple years ago but we have still produced in the 
last two years 13 billion and 12 billion respectively, the two 
highest corn production years in history and, sure, there are 
going to be some ups and downs.
    But to say we're going to have two years back to back major 
drought, if you look back historically, that just has not 
happened.
    Mr. Griffith. I see.
    Mr. Litterer. It hasn't.
    Mr. Griffith. I guess my question to you is what are the 
objections of private capital investing in this. I see such 
great potential for it and I'm sure there are people a lot 
smarter than I am that you're pitching this to in the private 
markets and they're not coming forward.
    Mr. Feraci. If you-there are a variety of things right now. 
I'm speaking from biodiesel perspective. There are a variety of 
things right now that are causing harm to the industry and 
making it difficult to attract that capital. The one thing that 
we-some of that we can control. Some of that we can't. I mean 
the one that would be helpful is that you have to have this 
stable policy framework that is reliable, that sends a signal 
that biofuels are not just a flash in the pan, that it's 
something that's going to be there for a while to draw this 
sort of investment in the terminal infrastructure and things 
like that that you really need to get infrastructure.
    Mr. Griffith. That makes perfect sense. Thank you all.
    Chairwoman Velazquez. Time has expired.
    Mr. Schock.
    Mr. Schock. Thank you, Madam Chairwoman. First, let me say 
I agree with the comments that have just been made and that is 
that we have to provide some level of consistency to the 
biofuel markets so that investors will want to continue to 
invest. Lenders, banks, financial institutions, venture capital 
firms will feel safe about making an investment in these plants 
and we as policymakers I think need to do what we can to shore 
up the market so that there is some consistency for those that 
are doing what it is we've asked them to do which is provide an 
alternative fuel for our country.
    Specifically, I'm concerned with our ethanol industry right 
now as they have taken a hit and I think it's extremely 
important not only for that industry but every other industry 
thereafter whether it be cellulosic or others that we hope to 
have that industry be successful not only for the jobs that 
they've created but also for the psychological benefit that it 
has as we mentioned with the investors and entrepreneurs 
wanting to invest in the next greatest, latest invention, if 
you will, when it comes to biofuels.
    With that said, I'm pleased that in my area, a group called 
Biofuels Manufacturers of Illinois, BMI, is in the process of 
starting a biodiesel plant right in my district. Currently, 
they've obtained all the necessary permitting, the land rights 
and are ready to build the plant. They actually have contracted 
already with an enduser for their products. So it's not pie in 
the sky, trust us if we build it, if we produce it, someone 
will buy it. But actually the Farmer Cooperative GrowMart has 
agreed to buy their biofuel once it is produced.
    I'm equally pleased that unlike some of the others that 
have come and gone in terms of the new biofuels they have 
partnered with the USDA lab in Peoria. Peoria, Illinois is home 
to one of four USDA Agricultural Utilization Centers and the 
researchers there have discovered a new crop which is currently 
termed a weed, pennycress, which has 36 percent oil in it, 
nearly twice as much of soybean, which is very exciting. 
Equally exciting I think is the fact that it's a winter crop 
which means it can be grown right now when the land is dormant 
and not being used, thus adding a second shift if you will to 
crop production into the agriculture industry.
    With all that being, they've had their hurdles if you will 
in getting that plant online and getting this idea to be not 
just an idea or a dream but actual reality and I'm just 
interested in hearing from Mr. Feraci what your organization 
specifically with biodiesels can do for a group of 
entrepreneurs and individuals who have gone a long way in terms 
of the work and the investment to help make that a reality.
    Mr. Feraci. Congressman, I know you've expressed a lot of 
interest in that project and we applaud your leadership on 
that. The National Biodiesel Board, we're a feedstock-neutral 
organization and the sort of research that you're talking about 
where they're looking at pennycrest as a potential oil seed 
crop is something that we're excited about. We encourage that 
going on.
    And as you look at the industry has it has grown to 
commercial scale, with each passing year, you're seeing 
increased diversity in the feedstock that we're using to 
produce fuel. Yes, soybean oil is still a very important 
feedstock to us, but you're seeing more restaurant grease and 
animal fat and now you're seeing things like camelina and 
pennycrest that are coming on list as viable feedstocks that 
you can use to produce a spec biodiesel that will be accepted 
in the marketplace. So we're extremely excited about that.
    Our organization with some of the things that you're, among 
some of the these that these enterprising individuals are 
probably going to run into is eventually at some point they're 
going to run into an issue with crop insurance and our 
organization does outreach with that to help them so that they 
get covered underneath that program.
    There is also going to be a grower outreach component to it 
as well because like you said they're rotating and I believe 
those will be acres competing with winter wheat. So again we do 
grower outreach. We talk about the benefits of it and there is 
clearly going to be a demand for this feedstock out there if 
the price is competitive and going forward we would be more 
than happy to work with you to make this project a success.
    Mr. Schock. Great. Thank you. What kind of help do you 
provide in helping? I know the other issue, of course, is our 
loan guarantees.
    Mr. Feraci. Right. In terms of just pointing them, we'd be 
more than happy to visit with them, see exactly what they're 
doing, what their needs are and see if we can't point them in 
the right direction in terms of programs they should be 
applying for.
    Mr. Schock. Okay. Great. Thank you.
    Chairwoman Velazquez. Ms. Halvorson.
    Ms. Halvorson. Thank you, Madam Chairman, and thank you, 
panel.
    It's great to see you and this is an issue that's near and 
dear to my heart. First of all, let me tell you I drive a 
flexfuel vehicle. I buy E85 everywhere I go because I believe 
if each and every one of us takes responsibility for ourselves 
and talk about it that's a big help because we need to buy 
American wherever we go and we should be doing this not only 
when gas is $4 a gallon, but even when it's lower.
    I just want to tell a story. I'm sure that everybody has a 
story to tell and you hear many of them. But I have a company 
in my district called Nova Biosource Fuels. It's in Seneca, 
Illinois and it's a renewable fuels business that's having 
financial trouble due to the economic crisis that we're in and 
it's probably no different than anybody else and it's a 
producer of biodiesel. It buys leftover grease from the fast 
food restaurants and turns that waste product into useable 
energy.
    Now I toured it a couple of weeks ago and now last Thursday 
they have announced that they will be ceasing production 
because they're unable to identify a lender to give them credit 
while they're waiting for money to come in. They need to buy 
their feedstock so that they can turn it around. They have the 
capacity to annually produce 230 million gallons of biodiesel 
which is equal to 55 million fewer barrels of crude oil if only 
they had the funds to be available to them. When oil is valued 
at $40 a barrel, it means over $2 trillion of U.S. wealth 
transfers out of this country.
    Now this is probably no different than anybody else and 
I've heard for the last hour and a half some of the different 
challenges and what's going on. We've heard about loan 
guarantees. We've heard about different challenges. They need 
$20 million. Now that's not something that's easily gotten and 
they've talked to several creditors.
    Now as a panel and whoever wants to answer this, if there 
was one thing you as a group would ask Congress, how would you 
ask Congress right now to help with this credit crisis because 
that is the problem? Simple, one thing and I shouldn't use the 
word ``simple.'' Nothing is simple when it comes to Congress, 
but everybody's having trouble getting credit and it's a 
vicious cycle and this is our problem. If they can get credit, 
they could keep their employees or their people employed and go 
out and get their product. What would you say to Congress on 
what you would need to get help for to keep these businesses 
going?
    Mr. Feraci. I'll take a stab at it.
    Ms. Halvorson. Thank you, Mr. Feraci.
    Mr. Feraci. You know, Nova Biosources are one of our 
members. They produce a quality fuel. They're a great company. 
I mean you've really put a face on what is a larger issue in 
our overall industry right. I know I'm sounding like a broken 
record here, but I would go back to you're talking about 
drawing in capital and having people have faith that there's 
going to be a long-term commitment to displacing petroleum with 
domestic renewable fuels.
    So I would give you two answers and you've heard me say 
them previously. You have to have a long-term extension of the 
tax incentive and you have to have a workable RFS 2 that's 
going to create a domestic market for these fuels. That sends a 
signal to creditors and investors that these industries are 
going to be around, these companies are going to be around, and 
there's going to be a marketplace for them to meet a demand in. 
I think that would go further than anything in terms of keeping 
companies like Nova Biosource around and we should.
    Ms. Halvorson. And how soon could we do that? I mean how 
quickly then could we help them stay in business, turn things 
around, so that they could do what they do best and that we 
could send the message and educate people out there that we're 
going to do everything we can here in Congress to help them 
because what we've done in the stimulus package is to help 
those who haven't gotten to this point. You know they're 
already up and running. They don't need that feed money or that 
seed money to get started.
    Mr. Feraci. If you look at the stimulus bill and there are 
some parallels to be drawn from it the idea of doing multi-year 
extensions on Section 45 on the renewable energy electricity 
production side is going to have the effect that you're talking 
about. The idea was that you're going to draw that capital in. 
The sooner that you can move on a longer term extension of 
biodiesel the better off we're going to be. The same thing on 
the renewable fuel side.
    I mean Congress has acted. The program was supposed to be 
up and running on January 1 of this year. The sooner that's 
implemented in a workable fashion the better off that they're 
going to be.
    Ms. Halvorson. Great. Thank you so much.
    Chairwoman Velazquez. Time expired.
    Ms. Halvorson. I guess we have to go vote. Thank you so 
much.
    Chairwoman Velazquez. Mr. Schrader.
    Mr. Schrader. Thank you, Madam Chair. We're competing with 
votes I guess here pretty shortly. I come from Oregon and very 
interested in the woody biomass. We're experimenting with other 
alternative, canola and other more convenient, if you will, 
alternatives to corn and biofuels. But I'm interested in the 
woody biomass, in particular, in the advance. So while a lot of 
the questions I know some of the answers will be similar. But 
how in particular can we help or what are the first steps for 
making woody biomass? And by that I mean particularly the 
forest woody mass. Over 50 percent of my state is Federal 
forest and I would like to use that to advantage.
    Mr. Howe. If I may take a crack at that, Mr. Schrader.
    With the stroke of the pen, Congress could alter the 
definition of eligible woody biomass which as you'll recall in 
the Energy Independence and Security Act something like 24 
percent of the available biomass was ruled ineligible for 
conversion to cellulosic biofuel and I think we have come to 
recognize that that needs to be changed in order to open up the 
kinds of feedstocks that you're talking about.
    We see tremendous potential for the conversion of woody 
biomass, the pulp and paper mills, residues. We can make our 
remaining paper industry and lumber industry more viable 
enabling them to produce co-products. So I would say that is 
probably the most important thing you could do. I think the 
technology would come along to meet that need fairly quickly.
    Mr. Schrader. Very good. Brazil has been very successful in 
promoting ethanol and biodiesel production. What have they done 
that's so different? Why is their circumstance, I'm not talking 
about the current economic crisis we're facing, but what's been 
their approach and why have they gone that route and we have 
not?
    Mr. Litterer. Well, I think they, of course, got started 
much sooner than we have. They've also made their automobiles 
so they can all use ethanol. I mean they've made that decision 
a long time ago. They can burn all levels of ethanol. They have 
capability with their automotive fleet and that's probably the 
biggest difference.
    Mr. Schrader. I go a different route than some of the other 
members here. I also have some small independent gasoline 
dealers in my district and there's a lot of concern and there 
was a point at which they had trouble getting ethanol this past 
winter. Some of the larger brand name oil companies are frankly 
hoarding it to make sure that their stations had opportunity.
    So how do I juxtapose that against the discussion there's 
plenty of ethanol out there in this crisis and stuff? How do we 
make sure the independents are guaranteed access to ethanol at 
five, ten, fifteen, pick a number, blend?
    Mr. Howe. Over time, we need to develop the infrastructure. 
We need to disabuse ourselves of the falsehood that ethanol 
can't be moved by pipeline. It can. It is. It's just that we're 
not doing it yet. In fact, it has started in Florida, pipeline 
infrastructure development. We need to maintain a good rail 
network obviously. But I think what we're talking about is not 
a shortage of production capacity. It really is distribution 
bottlenecks that have created those problems.
    Mr. Schrader. Okay. That's probably the area. The last 
quick question and I don't know if you can answer it. What's 
the price point for oil or barrel of oil or gallon of gas where 
it becomes optimum for investment in biofuel/biodiesel 
technology?
    Mr. Litterer. I'm not sure there's one price point that you 
can point to because you have crude oil, you have corn price, 
you have all these input that go into it. So I don't know that 
you could come up with one price.
    Mr. Schrader. What's the range? I guess I'll refine.
    Mr. Litterer. Body, I don't know. I think if we were at 
today's corn price probably and a $60 to $70 oil, we probably 
could be pretty competitive. But I really hesitate to throw too 
many numbers around here because it's a moving target.
    Mr. Howe. I think one important idea to throw in here is 
the long-term replacement cost for oil is probably in the range 
of $70. When prices went below $70, we saw oil companies, 
state-owned oil companies, and private developers worldwide 
start to pull back on development. So we are no longer 
replacing the oil that we are using up.
    Remember last year when oil was $80-$100 and rising and 
there was polling of American consumers. Would you be willing 
to live with an oil price that doesn't go below $70 if that 
provides the assurance for a renewable fuels industry to take 
root and develop, a lot of the Americans at that time would 
have been very happy to say, ``I'll sign up for $70 if I know 
that's my hedge.'' Now that oil went down to $36 to $40, where 
is that commitment? That's what we need.
    Mr. Schrader. Thank you.
    Chairwoman Velazquez. Ms. Dahlkemper.
    Ms. Dahlkemper. Thank you, Madam Chairwoman. I thank you 
for bringing forward to us this timely and critical meeting. I 
think there are few of us who are not concerned about our 
dependence on foreign oil and know the implications certainly 
on our domestic economy and our foreign policy.
    In my district, we have Lake Erie Biofuels and, Mr. Feraci, 
I guess I wanted to address you on a couple questions here, 
having sat down and talked to them a number of times about 
what's going on in that industry and Pennsylvania, I'm from 
Pennsylvania, and I think we're the fourth state I believe now 
that is going to be working towards a two percent blend. Is 
that correct? Four states?
    Mr. Feraci. Yes, you're definitely towards the front end.
    Ms. Dahlkemper. Yes. So obviously we're a long way. We have 
46 other states out there.
    But I guess my question is, first of all, I wanted to ask 
how many plants have closed recently because my understanding 
is there's a number of biodiesel that have closed or are very 
close to closing at this point.
    Mr. Feraci. Right. As well as we can-I mean the last survey 
of our members that we did there is 176 plants out there right 
now. Again, doing these surveys, we estimate that about one-
third, maybe even less, are actually operating and producing 
fuel right now.
    Ms. Dahlkemper. The others were all producing fuel at some 
point.
    Mr. Feraci. At some point, yes. It's still in the ground. 
They're operating biodiesel plants. They're just not running 
right now.
    Ms. Dahlkemper. And these are all over the country.
    Mr. Feraci. These are all over the country, yes.
    Ms. Dahlkemper. Okay. So my question is I guess because 
Lake Erie Biofuels, 80 percent of their production goes to 
Europe. Right now, they're in just kind of temporary issue with 
Europe stockpiling thinking they were going to go to a ten 
percent blend I believe, but they're still at 5.75 because of 
the economy. But they would like to sell domestically.
    Is the issue more of a blend requirement issue, you know, 
having a customer base here within our country or a capital 
issue in terms of why two-thirds of these plants have closed 
down?
    Mr. Feraci. We kind of tern it a ``perfect storm'' of a 
confluence of events that have come together that are all to 
the detriment of the industry, be it you have an unfavorable 
feedstock pricing versus the price of petroleum. You mentioned 
Europe. That's the world's premium diesel market that the 
Europeans are taking protection steps in our opinion to close 
that market down.
    But long term what we want to do and what we think is 
important and what was envisioned in the RFS2 is to create a 
domestic marketplace and a domestic draw to get fuel used in 
here in the U.S. so that Lake Erie Biofuel can sell their fuel 
here and that's what the RFS2 is all about.
    We're behind schedule on implementation of that. It has to 
be implemented in a workable way so that they're going to have 
a demand, a built-in demand, in this marketplace to replace 
petroleum diesel fuel with their product.
    Ms. Dahlkemper. So I guess that goes back to Mr. Griffith's 
question regarding investment and this all needs to come 
together to make this happen.
    Mr. Feraci. Absolutely and the one, a stable policy 
framework, something that's reliable that the private sector 
knows is going to be there for the long term is what you need 
to draw in this investment capital and provide the certainty 
that these guys need. If you look around the world where 
they've had successful implementation of renewables policy, 
Europe, we talked about Brazil. The one commonality is that 
they made a commitment and it was a long-term commitment and it 
was reliable and people knew that it was going to be there and 
we need to have the same thing here.
    Ms. Dahlkemper. Okay. Thank you very much. Appreciate it. I 
yield back my time, Madam Chair.
    Chairwoman Velazquez. Thank you. Let me just thank all the 
witnesses for your incredible contribution in the discussion of 
this important issue and, Mr. Feraci, regarding EPA and RFS2, 
I'm going to be looking into that issue and we're going to see 
as a committee what can we do to make sure that it is done and 
it is done properly without jeopardizing any of the industries.
    With that, I ask unanimous consent that Members will have 
five days to submit a statement on supporting materials without 
objections. So ordered.
    This hearing is now adjourned. Thank you. Off the record.
    [Whereupon the Committee adjourned.]

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