[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
SUBCOMMITTEE HEARING ON
IMPACTS OF OUTSTANDING REGULATORY
POLICY ON SMALL BIOFUELS PRODUCERS
AND FAMILY FARMERS
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
May 20, 2009
__________
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
Small Business Committee Document Number 111-025
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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 SUBCOMMITTEE
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
(iii)
?
C O N T E N T S
__________
OPENING STATEMENTS
Page
Dahlkemper, Hon. Kathy........................................... 1
Westmoreland, Hon. Lynn.......................................... 2
WITNESSES
Cook, Ms. Cheryl, Deputy Under Secretary of Rural Development,
U.S. Department of Agriculture................................. 3
Oge, Ms. Margo, Director, Office of Transportation and Air
Quality, U.S. Environmental Protection Agency.................. 5
Noble, Mr. Mike, President, Lake Erie Biofuels, LLC, Erie, PA.... 18
Wootton, Mr. Ben, President, Keystone Biofuels, Inc.,
Shiremanstown, PA.............................................. 20
Bafalis, Mr. Gregory, President & CEO, Green Earth Fuels, LLC,
Houston, TX.................................................... 22
Gaesser, Mr. Ray, Executive Committee Member, American Soybean
Association, Corning, IA....................................... 24
Duvall, Mr. Zippy, President, Georgia Farm Bureau Federation,
Greene County, GA.............................................. 25
Das, Dr. K. C., Associate Professor, Director, Biorefining and
Carbon Cycling Program, Driftmier Engineering Center,
University of Georgia, Athens, GA.............................. 27
APPENDIX
Prepared Statements:
Dahlkemper, Hon. Kathy........................................... 36
Cook, Ms. Cheryl, Deputy Under Secretary of Rural Development,
U.S. Department of Agriculture................................. 38
Oge, Ms. Margo, Director, Office of Transportation and Air
Quality, U.S. Environmental Protection Agency.................. 47
Noble, Mr. Mike, President, Lake Erie Biofuels, LLC, Erie, PA.... 54
Wootton, Mr. Ben, President, Keystone Biofuels, Inc.,
Shiremanstown, PA.............................................. 61
Bafalis, Mr. Gregory, President & CEO, Green Earth Fuels, LLC,
Houston, TX.................................................... 64
Gaesser, Mr. Ray, Executive Committee Member, American Soybean
Association, Corning, IA....................................... 69
Duvall, Mr. Zippy, President, Georgia Farm Bureau Federation,
Greene County, GA.............................................. 75
Das, Dr. K. C., Associate Professor, Director, Biorefining and
Carbon Cycling Program, Driftmier Engineering Center,
University of Georgia, Athens, GA.............................. 79
Statements for the Record:
Addendum to the Record, U.S. Environmental Protection Agency..... 85
(v)
SUBCOMMITTEE ON
REGULATIONS AND HEALTHCARE
HEARING ON IMPACTS OF OUTSTANDING
REGULATORY POLICY ON SMALL BIOFUELS
PRODUCERSAND FAMILY FARMERS
----------
Thursday, May 21, 2009
U.S. House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:00 a.m., in Room
2360 Rayburn House Office Building, Hon. Kathy Dahlkemper
[chairwoman of the Subcommittee] presiding.
Present: Representatives Dahlkemper, Ellsworth, Griffith,
King, Westmoreland and Schock.
Chairwoman Dahlkemper. I now call this hearing to order.
Thank you for joining us. Good morning.
As we move towards creating an environmentally sustainable
future, we must ensure that the renewable fuels industry
remains an important part of that future. Growth within this
sector has been explosive. The biofuels industry, which is
largely comprised of small firms and family farmers, is a
multi-billion dollar business. It sustains tens of thousands of
high-wage jobs and is giving new life to rural economies.
Just as importantly, it's paving the way for clean,
sustainable energy. Last year alone, production for biodiesel
reached 690 million gallons. In recent months, however, the
industry has faced a number of challenges that threatened to
weaken it considerably in the long term.
In today's hearing, we are going to examine these setbacks
and discuss ways to ensure that this important industry is not
irreversibly damaged. Biofuels producers are already struggling
with falling demand, as one third of biodiesel fuel remains
idle. With the price of oil hovering around $60 a barrel, the
enthusiasm for alternative energy has dampened. As a result,
many investors already skittish about the economy are backing
away. With investment down and credit tightening, biofuel
businesses are losing access to operating capital at a very
critical moment in this young industry's history.
In a February hearing, this Committee examined those
obstacles. Today, we will look at the draft regulations with
the EPA that have the potential to pose difficult challenges
for the biodiesel industry. According to the Energy
Independence and Security Act of 2007, all biofuels much
achieve a 20 percent reduction in lifecycle greenhouse gas
emissions, while advancing biofuels must have a 50 percent
reduction. Lifecycle emissions include direct and indirect
land-use charges. Measuring these charges is complex, and there
is no consensus over how to calculate these charges. As a
result, measurement is driven largely by assumptions and
perhaps by some speculation as well.
Another potential problem with this law is that the EPA
Administrator is only allowed to reduce the lifecycle
greenhouse gas emissions standard by 10 percent, even if the
current target is found not to be commercially viable.
Moreover, if a specific feedstock or agriculture practice is
found to produce too much greenhouse gas, it could be
permanently prohibited by the EPA. This might endanger
industries that rely on this type of feedstock or practice.
Fortunately, the EPA has the ability to be flexible in
drafting emissions profiles, and it is critical that the Agency
use that flexibility. To begin, it could accomplish a great
deal by drafting a clear, workable framework for small firms to
follow. As part of that process, biodiesel entrepreneurs should
be consulted.
In moving forward, it's important that the EPA accounts for
the needs of small firms and family farmers who are on the
front lines offering solutions that work for our environment
and our economy. We need to be sure that those leading the way
in both investing and innovating are not unduly burdened.
I would like to take this opportunity to thank all of
today's witnesses for their testimony. I am pleased that they
could be here today, and I look forward to hearing from them.
I would now like to recognize the Ranking Member, Mr.
Westmoreland for his opening statement.
Mr. Westmoreland. Thank you, Madam Chairman. Good morning,
and I appreciate everyone taking the time to be here today as
we review the impacts of regulatory policies on the biofuels
and farming industries. Today's topic is one of critical
importance for our nation. As we all know, energy is the
lifeblood of our economy.
Economic prosperity in the United States is closely tied to
the availability of reliable and affordable supplies of energy.
This is not a new issue. The way we discuss it, however, has
changed greatly. For example, agriculture remains Georgia's
number one industry and it has been the backbone of Georgia'
economy since its founding. Just like everybody who represents
a rural area here in Congress, small family farms dot the
landscape of my District back home.
Too often, we do not think of farmers as small business
people when, in fact, they were and continue to be America's
first small business.
Over the past few years, we have debated renewable energy
policies. Ethanol and biodiesel have received quite a bit of
attention, both here in Congress and across the nation. I do
not believe that the search for new energy sources should not
be a zero-sum game where we foster one industry to the
detriment of another. Our economy is driven by energy and we
must take a balanced approach to exploring ways to meet our
energy needs. That means looking for ways to increase
production of everything we need including oil, coal, and
nuclear capabilities in addition to these renewable fuels.
While looking to the future of energy independence, we have
to make certain the Federal Government in doing all it can to
provide the fuel for our current economy needs to grow. There's
continuing interest in expanding the U.S. biofuels industry as
a strategy for promoting energy security and achieving
environmental goals. However, increased biofuel production may
have placed desired policy objectives in conflict with one
another.
There are limits to the amount of biofuels that can be
produced from current feed stocks and questions about the net
energy and environmental benefits that they might provide.
Furthermore, rapid expansion of biofuel production may have the
unintended and undesirable consequences for agricultural
commodity costs, possible energy use, and environmental
degradation. We must continue to be mindful of these as we
further develop energy policy in this country.
Another problem we face is the possibility, or in my mind
the unfortunate certainty, of over-regulation of these
industries and the impact it will have on the biofuel refining
plants and the farmers who supply them. On May 5, 2009, the
Environmental Protection Agency published a proposed rule
implementing portions of the renewable fuel standard contained
in the Energy Independence and Security Act of 2007. Both
agriculture and biofuels industries have stated that this
regulation is not only burdensome, but may be based on faulty
science.
Today, we are looking forward to hearing from these
industries and these agencies about this and other regulations
that may threaten the advancement of renewable fuels as well as
the agricultural community.
I want to thank Chairwoman Dahlkemper for having this
hearing. It's of great importance and especially since the fact
that we're right in the discussion of an energy policy that's
going to come before this body very shortly.
Chairwoman Dahlkemper. Thank you, Mr. Westmoreland.
I would like to move now to the testimony from our
witnesses. Witnesses will have five minutes to deliver their
prepared statements. The timer begins when the green light is
illuminated. When one minute of time remains, the light will
turn yellow. The red light will come on when the time is up.
I would like to introduce our first witness on the first
panel. Ms. Cheryl Cook is the Deputy Under Secretary for Rural
Development for the United States Department of Agriculture. In
this position, Ms. Cook manages policies and programs in rural
development. The United States Department of Agriculture
provides leadership on food, agriculture, and natural
resources, rural development, and related issues.
Welcome, Ms. Cook.
STATEMENT OF CHERYL COOK
Ms. Cook. Thank you, Madam Chair, and good morning to you
and to other Members of the Subcommittee. It's my great
privilege to be here today.
In the interest of time, I'd like to submit my full
statement for the record and just summarize my remarks now.
USDA Rural Development is the lending arm of the U.S.
Department of Agriculture. We have since the 2002 Farm Bill
been actively involved in providing capital to the renewable
fuels and renewable energy industries. We believe that biofuels
hold great potential for reducing greenhouse gas emissions and
improving the nation's energy security and national security.
For rural America, renewable energy and biofuels mean more
job opportunities, more market opportunities for our farmers,
and opportunities for local ownership of business, creation of
new wealth and sustainable economic development.
Promoting clean, sustainable domestically-produced advanced
biofuels is a high priority for the President and for USDA and
for me, coming from the great state of Penn's Woods. The U.S.
is already a world leader in biofuels production, having gone
from 1.6 billion gallons of ethanol at the beginning of the
decade to over 2 billion gallons. Similarly with biodiesel, our
production is increasing at a tremendous rate. Of course,
access to capital is key to making sure that increase in
production can continue.
I'd like to acknowledge the vision, dedication, and hard
work of many people outside of government who took the chance
to get started in these industries in the private sector, as
well as those in government who have worked to make all of this
possible. It's been a long-standing effort, sustained on a
bipartisan basis over many years and at all levels of
government.
This is my eighth week at the U.S. Department of
Agriculture which in many respects makes me an old timer at
USDA. I come here after six years in the Pennsylvania
Department of Agriculture as the Deputy Secretary for Marketing
and Economic Development. Much of my time was spent convincing
our traditional economic development partners in State
Government that agriculture is, in fact, a business and should
have access to the traditional economic development capital,
such as in Pennsylvania's case, the Industrial Development
Authority funds, the Economic Development Financing Authority
funds, and certainly the Pennsylvania Energy Development
Authority which was reinstituted several years ago after being
in a closet for a few years.
But Pennsylvania, I think, has been a leader, as have some
other states. More than half the states now have some sort of
biofuels incentive. Under our mandate from Congress dating all
the way to 1980, it's incumbent on USDA and Rural Development
in particular to ensure there's some coordination between what
the Federal Government is doing and what State Government is
doing in advancing biofuels and renewable energy.
We received a new urgency when Congress gave us a whole new
set of tools in the most recent Farm Bill last year. We went
from what had been just the 9006 program in the 2002 Farm Bill
to now a whole range of programs beginning with the Section
9003 biorefinery assistance program, where we've made our first
loan, an $80 million loan guarantee, actually to Range Fuels in
Georgia where they are, as we speak, pouring concrete and
getting the pad ready to build a pine tree-based biorefinery.
We have a second project for another $25 million loan
guarantee in the works. We see people coming through the door.
Capital from the private sector is difficult, as you discussed
and we see ourselves playing a role there. By being able to
provide a loan guarantee, we reduce risks to the lender and
make those loans possible.
Section 9004 of the Farm Bill provides payments to
biorefineries to replace fossil fuels that they might have been
using for power, with biofuel or other bioresources, will be
out soon, as will be Section 9005, which is a bioenergy program
for advanced biofuels, getting to the cellulosic potential that
we've been told for the last five years would be realized
within five years.
Section 9005 and 9004 will be the subject of notices of
funds availability coming out within the next few weeks as we
prepare formal regulatory process for the out years. We'll do
this first year through a Notice of Funds Availability.
9007, the Rural Energy for America Program, or REAP, is the
new and improved version of what you've dome to know as 9006
from the last Farm Bill. We already have out on the street the
most interesting part, I think, of that new program which is
the energy audit capacity. We're offering grant opportunities
for third parties to do energy audits which is something
farmers need as well as other types of small businesses. The
rest of that program, which is a loan guarantee program as
well, will be out within the next week or two, again through a
notice of funds availability and competitive loan guarantees.
We are rolling out with a new sense of urgency. We have a
Secretary of Agriculture for whom biofuels and renewable energy
are a very high priority. The President weighed in on May 5th
with a directive instructing us to get going already and get
those things out on the streets. So we are peddling as fast as
we can and we will make those opportunities available.
I just want to share my personal excitement, having been a
part of the announcement back in Pennsylvania in January when
we reached the point of 40 million gallons of production and we
were able to assure the Governor that we could trigger our
(b)(2) requirement and begin our renewable fuels program in
Pennsylvania. I look forward to working with my colleagues at
EPA and with this Committee, to make all of this potential
real.
Thank you.
[The prepared statement of Ms. Cook is included in the
appendix.]
Chairwoman Dahlkemper. Thank you, Ms. Cook, and welcome.
It's always nice to have another Pennsylvanian here.
Ms. Cook. We are taking over.
Chairwoman Dahlkemper. That's right. Slowly but onward.
Thank you very much.
Our next witness, Ms. Margo Oge, is the Director of the
Office of Transportation Air Quality in the United States
Environmental Protection Agency. Ms. Oge has been with EPA
since 1980 and is responsible for regulating all emissions
within the U.S. The Environmental Protection Agency works for a
cleaner, healthier environment for the United States. Welcome.
STATEMENT OF MARGO OGE
Ms. Oge. Thank you, Madam Chairwoman, and Members of the
Subcommittee. I appreciate the opportunity to testify today. As
you know, Madam Chairwoman, you mentioned in your opening
remarks, recently EPA developed a proposed rule for Renewal
Fuel Standard and the proposal has been published at least on
our website and we're looking forward for public comments.
We believe that this proposed rule as required by EISA, is
a critical step towards achieving energy independence, creating
jobs in the United States, reducing greenhouse gas emissions
that cause global climate change and it requires really a
significant increase of renewable fuels in the marketplace to
replace fossil fuels. The total volume of renewable fuel must
reach 36 billion gallons by 2022. We estimate that the
potential climate and energy security benefits of this program
will be significant. We estimate that these greater volumes of
biofuels will reduce greenhouse gas emissions by 150 to 160
million CO2 equivalent tons on an annual basis. This is really
equivalent of taking 24 to 26 million cars off the road on an
annual basis. Clearly, this program will have significant
benefits for the farming community. We estimate that the net
U.S. farm income will increase about $7 billion.
Now we are sensitive to the potential impacts that
regulations, like this one, can have on small business and
recognize that many biodiesel production facilities are indeed
small business. We have heard from many of the small facilities
in the renewable fuel industry and I believe we have provided
as much flexibility as it is possible under the statute to
address the concerns in our proposal. Later, in this testimony
I will describe at least one key provision of the proposal
which we believe could be important to small business in the
biodiesel industry.
But first I want to briefly describe the key component of
the RFS2 program which is the lifecycle greenhouse gas impact
assessment of renewable fuels. Through EISA, Congress
established the first mandatory lifecycle greenhouse gas
reduction thresholds for renewable fuels. The law requires that
each category of renewable fuels must perform better when it
comes to the greenhouse gas emissions of the fuel, then the
fossil fuel that it replaces, in this case gasoline and diesel.
To implement these thresholds requires for EPA to look
broadly at the lifecycle analysis and to develop a methodology
that accounts for all factors that may significantly influence
this assessment. We recognize the potential implications of
this work. I believe we have worked with all the experts, the
academia, the industry, the public sector, to address the best
science available today in order to put this lifecycle
methodology together and also we believe that this methodology
meets our statutory obligations under EISA.
Also, we believe that the proposal is the beginning of a
very important dialogue and we recognize that these
uncertainties that we have laid out in the proposal are
important and we're soliciting peer review comments from the
scientific community, but also comments from the public at
large.
Now in regards to implications of lifecycle greenhouse gas
reduction requirements for biodiesel facilities and other small
renewable fuel producers, it is important to note that EISA
grandfathers renewable fuels produced from facilities that were
either in production or under construction prior to the
enactment of EISA in 2007. So in reality what this really means
is that approximately 110 U.S. biodiesel facilities with a
production capacity of about 1 billion gallons will qualify
towards the 15 billion gallons threshold for the non-advanced
biofuels that the statute requires.
Let me briefly mention one of the crucial flexibilities
that we believe would be key for the biodiesel sector. Under
this provision in our regulation, we propose to allow the use
of multiple feedstocks during the year such as soybeans and
waste grease, to use the average greenhouse gas reduction
profile from both those feedstocks, so that the project could
qualify for biomass diesel standard.
We're also proposing to lower the threshold for advanced
biodiesel to 40 percent from 50 percent. We believe that
allowing these two flexibilities would allow the biodiesel
industry to meet the 1 billion gallons of mandate in 2012.
Now in closing, I believe that we have put forward a
proposal that is responsive to congressional intent for the
renewable fuel program. The proposed rule offers a very
important opportunity for EPA to present the work that was done
and to have an open and transparent public dialogue with all
stakeholders including the biodiesel sector of farmers and
other stakeholders in the industry.
Again, I appreciate the opportunity to testify here in your
Subcommittee today and I'm looking forward to any questions
that you have today or any questions that you may submit to us
for a written response. Thank you.
[The prepared statement of Ms. Oge is included in the
appendix.]
Chairwoman Dahlkemper. Thank you, Ms. Oge.
Ms. Oge. And I'm sorry about my voice. I do have a very bad
cold which I usually don't get. But it's not swine flu.
Chairwoman Dahlkemper. We're so glad to hear that. H1N1 as
we like to call it.
I now recognize myself for five minutes. Ms. Oge, indirect
land use and its definition have generated a great deal of
concern for the biodiesel industry. In the Notice of Proposed
Rulemaking, the EPA seems to treat indirect land use and
international indirect land use equally. In the Energy
Independence and Security Act of '07, was it explicitly stated
that they are indeed the same?
Ms. Oge. That's a very important question, Chairwoman.
Clearly, the statute requires us to look at all steps from
planting the feedstock, all the way to the time that the
consumer uses this fuel. And in doing that the statute is
specific in requiring both direct and indirect significant
impacts including land use. So there's absolutely no question
to EPA's legal office that we must evaluate both direct and
indirect significant land use, domestically and
internationally.
Chairwoman Dahlkemper. What was your basis for including
the international indirect land use in the greenhouse gas
calculations?
Ms. Oge. The basis is that if you look at the profile of a
lifecycle of renewable fuel, let's say biodiesel, the most
significant impact of this lifecycle is the land use and the
most significant impact of the land use is the international
land use. It's 70 to 80 percent of the lifecycle impact. So not
including it you will have two problems. One, you would not be
consistent with the statutory requirements of EISA and second,
you would have scientifically a less accurate greenhouse gas
profile for renewable fuels because you would be excluding the
most significant impact.
Chairwoman Dahlkemper. Seventy percent of the impact is
international?
Ms. Oge. For biodiesel, it's about 70 percent, yes.
Chairwoman Dahlkemper. I guess the question is the indirect
costs as we're looking at oil-based fuels and are we really
looking at this in the same light?
Ms. Oge. We have used the same boundaries in looking at the
baseline which was the 2005 baseline for gasoline and diesel
fuel as required in the statute in the same boundaries for
looking on the lifecycle analysis of renewable fuels. So we're
using the same boundaries. For example, when we look at
petroleum fuel to estimate the baseline, we're not including
the energy that it took to produce the trucks that move the
fuel from diesel or gasoline fuel from extraction to the port
to be shipped to the United States.
The same thing with biofuels. We're not looking at the
energy that it took to build the tractors. But what we do for
petroleum, for example, we did take a look at the energy that
it took to extract petroleum from Nigeria and Saudi Arabia and
the energy that it took for the major lifecycle components to
bring it to the United States. So we believe that we have used
the same boundaries and the same approach, evaluating the
baseline of diesel and gasoline and then comparing it to the
renewable fuels.
Chairwoman Dahlkemper. And so if their trucks are coming
from Canada, for example, it's coming from the sand.
Ms. Oge. Yes.
Chairwoman Dahlkemper. Are you using that as part of--
Ms. Oge. Again, we're looking at the 2005, the baseline for
what percent the baseline included in the entire set, and if
it's part of that baseline, then it will be included. But
again, we're looking at the 2005 baseline for petroleum as
required by statute. And then we're looking at the 2022 profile
for fossil fuel emissions from renewable fuels which allows us
actually improve the lifecycle profile of renewable fuels for a
number of reasons.
First of all, we are assuming based on USDA's input that
the yield of biofuels will be much more significant of
feedstocks such as soy or corn in 2022 than it is today. So you
will require less land. Second, we have incorporate
improvements in the production facility of these renewable
fuels in 2022 which again reduces the energy and improves the
lifecycle. So that's basically how we have done the analysis
that has been extensively laid out in our proposal. And again,
we're seeking the public dialogue and public comments.
Chairwoman Dahlkemper. Thank you. My time is almost up, but
I wanted to ask Ms. Cook a question.
On May 5th, President Obama announced plans for an inter-
agency biofuels working group. This group will require the
USDA, the DOE, and the EPA to work closely together on biofuels
issues. Do you think collaboration between these three agencies
will result in a final rule that the biofuels industry can
embrace?
Ms. Cook.This is speculation, of course, but yes, the
President directed the Secretaries of Energy, Agriculture and
the Administrator of EPA to jointly co-chair this new inter-
agency working group. Clearly, it's his intent that his
Administration speak with one voice and get to a common
position, so I know we're going to work hard on that. We're
still putting the working group together. The three principals
will be the people who are on the working group. So we're
trying to coordinate schedules and get that put together.
Chairwoman Dahlkemper. What role do you see this working
group playing in the future of the biofuels debate?
Ms. Cook. As much a coordinating role as anything. Even
within USDA, Secretary Vilsack has reissued his Energy
Coordinating Council, just trying to make sure all of the hands
in USDA that have a piece of renewable energy are rowing in the
same direction. The same is true across agencies between Ag and
Energy and certainly with EPA.
Chairwoman Dahlkemper. Okay, thank you. I now would like to
recognize the Ranking Member, Mr. Westmoreland. I'll give you
the extra time that I took. Thank you.
Mr. Westmoreland. Thank you, Madam Chairman. Ms. Oge,
nearly all the witnesses on the second panel would disagree
with your statement, your written testimony that the indirect
land use methodology is scientifically supported. How would you
respond to that?
Ms. Oge. Well, as we have laid forward in our proposal for
the purpose of public comments, I believe that we have used the
best science and the best tools, modeling tools that are
available to EPA today. We have received input and support from
Ms. Cook's office, so the inputs that we're using, the models
that we use, they were in consultation with the USDA experts
and the Department of Energy experts. We have talked to the
academic institutions that are experts in this area.
So I strongly believe that we used the best science
available today and we have done it in a very open and
transparent forum. For example, when we started putting those
approaches and models together, we met with industry. We told
them what we were doing.
When we received the results, you know, it takes a long
time for those models to be producing results, we sat down
first with USDA and the Department of Energy and we shared
those findings. And then we shared them with the industry. So
we have done it in two ways. One, we have used the best science
available. Second, we have done it in a very transparent way
that we hope now to lay out all the assumptions and inputs for
comments.
But let me make it very clear that when it comes to
lifecycle, there are certain elements that are very certain.
Science is very certain. For example, we have a lot of
certainty if you use coal or natural gas, what is your carbon
increases from that facility in producing this renewable fuel.
When it comes to domestic impacts, land use, we have more
certainty. When it comes to international land use, there are
uncertainties. So we recognize that. And we have done a number
of sensitivity analyses in our proposal to show the impact of
those uncertainties.
So what we're seeking during the comment period is to have
a public dialogue, but also take all these pieces together, all
the models and have an extensive peer review process that will
then inform the Administrator and the President and the other
agencies how to proceed.
I believe we have used the best science available.
Mr. Westmoreland. Has this just been a rush to do this or
is it to wait on proven methodology, rather than just trying to
forge ahead with the best available science? So you're saying
that this is not just best available science, that there are
some certainties. Now these uncertainties, how does that play
into the overall methodology that you're using to come up with
these rules?
Ms. Oge. First of all, I don't believe that we have rushed
to decision. I believe we have taken the appropriate time
required to draft these regulations. Just to give you an
example--
Mr. Westmoreland. How long has that been?
Ms. Oge. It has been over a year and a half. Typically, it
takes a year to do a proposal. Actually, EISA required that EPA
finalize, propose and finalize this standard end of 2007. So we
sat down with our political bosses at the time and we said we
cannot do that. We cannot. This is too big and too important.
So please be assured that we have taken the appropriate time
because we realize the impacts that this will have to the
sector as a whole, especially the first generation of biofuels.
Second, in the proposal, we have analyzed the uncertainty
and we have done sensitivity analysis and we believe that
during the comment period we will have sufficient input that
will allow us to narrow the uncertainties so we can come up
with values that will be more defensible.
Mr. Westmoreland. Thank you. Ms. Cook, what part did the
USDA and I know you've been there a very short period of time,
so you may not know this for a fact, but do you know what kind
of active you played or the USDA played with the EPA in coming
up with this renewable fuel standard rule because I would think
that it would be very important for the USDA to play a big part
in how they came up with this on renewable fuels?
Ms. Cook. Agreed, and while I know we were involved, I'm
afraid it predates me as you suggested. I'd be happy to supply
that for the record. Most of that consultation would have been
with the more science-based parts of USDA as opposed to Rural
Development, the lending arm. But I'm sure our Research,
Education and Extension folks, certainly the Office of the
Chief Economist would have been involved in that and I'll be
happy to supply that for you.
Mr. Westmoreland. If you could supply that, I think that
would be very interesting for us to find out what kind of
information EPA wanted from you.
And also, just one quick question for Ms. Cook also. The
Commodity Credit Corporation part of the Farm Bill, can you
expand a little bit on the progress that the USDA is making in
regard to that?
Ms. Cook. Are you referring to the Section 9011 Biomass
Crop Assistance?
Mr. Westmoreland. I have no idea. I have no idea what I'm
referring to. Well, let me say this. I think I know what I'm
referring to. I just don't know what part of the bill that is.
Ms. Cook. Okay, fair enough. Our sister agency, the Farm
Service Agency has the lead in the BCAP, the Biomass Crop
Assistance Program. They are in the environmental review
process now and peddling as fast as they can and I'm afraid I
don't have specifics on dates, but I'd be happy to supply that
as well.
Mr. Westmoreland. If you do that, it will be fine, thank
you.
Ms. Cook. Sure.
Mr. Westmoreland. I yield back.
Chairwoman Dahlkemper. I recognize Mr. Ellsworth from
Indiana.
Mr. Ellsworth. Thank you, Madam Chair. Thank you both for
being here. It's obvious we're getting a lot of feedback on
direct versus indirect.
Ms. Cook, in your short tenure and maybe you'll have to get
to me, is it your understanding that the indirect is the
scientific community is backing the opinion of Ms. Oge or the
Environmental Protection Agency, in your short tenure are you
hearing the same thing, or can you get back to me on that?
Ms. Cook. In my short tenure, what I've learned is we will
finance anything that walks through the door.
Mr. Ellsworth. Sounds like Congress. I hope that changes.
If you can check into that and back that up and/or dispute
that. I would appreciate that.
Like I said, I'd be curious because Ms. Oge, with all due
respect, what we're hearing is that the indirect is not
scientific, that the scientific community is not behind the
indirect. So I think we need to get to the bottom of that.
Ms. Oge, can you elaborate for me, it's my understanding
with the information I've been given that there is a
discrepancy or a difference on EPA's direct emissions lifecycle
that now they're saying it's approximately 50 percent reduction
in greenhouse gas emissions for ethanol than previously
believed and can you elaborate on the reasons why this
reduction is now greater than previous EPA estimates?
Ms. Oge. You would have to give me a little more
information about the 50 percent. I don't have the memory of 50
percent reduction. But let me assume what the question is. So
if you look at the lifecycle you look at all the factors and
steps from the feedstock, producing the feedstock, all the way
to the time that you and I are using it in our cars and we're
burning it. And you look just at domestic impacts, both direct
and indirect, because there are indirect also, land-use impacts
when you look at domestic steps.
Then you probably would end up for about 50 percent
greenhouse gas reductions of corn, ethanol-based fuel in
relationship to the gasoline fuel that it replaces. Now when
you add the international, both direct and indirect land use,
especially the indirect land use, then that 50 percent is
reduced significantly. And the reason for that is because the
indirect land use is the biggest element of the lifecycle
analysis that has the highest greenhouse gas impacts.
Mr. Ellsworth. Thank you. Madam Chair, I don't have any
questions at this time as we'll go around a couple of times. I
yield back.
Chairwoman Dahlkemper. Yes, we're going to do another round
of questions. I was looking over your testimony, Ms. Oge, and
you are holding a two-day public workshop focused specifically
on lifecycle analysis during the comment period. If you're so
sure about the indirect land use, I'm questioning the need for
having this two-day workshop. Could you explain that?
Ms. Oge. Madam Chairwoman, let me make it very clear. We
have put forward the proposal that reflects the best input in
science that we have in developing the proposal. The purpose of
comment period is required by statute is to get public input.
So the public and the experts, the industry and general public
can have the opportunity to review the total record. For
example, on lifecycle analysis, there are thousands and
thousands of pages of modeling and input. So we would be very
arrogant to assume that we know everything, because if we knew
everything we would not go out with a proposal. We would have a
final decision.
So I want to make this very clear, my confidence is based
on the work that we have done putting the proposal together.
I'm not suggesting by any means that we will not refine the
proposal based on the public input. So we're doing three things
during comment period. One is we're holding a general public
hearing on June 9th, not just on lifecycle because there are
many, many elements on this renewable fuel standard. Lifecycle
is crucial, but there are many other elements anywhere from the
biomass definition, crops definition, how we have done the
analysis, the inputs and so forth. So that's a whole day of
public hearing. Everybody is invited and we're looking forward
to that hearing.
Then we're holding two days of specific meetings with
experts in the area of lifecycle and the importance of this is
the experts in lifecycle. They will have all the inputs that we
could not have published before proposal. And that will be very
crucial for us. And what you need to know is we have a very
open mind because we want to have a transparent process and
adopt the best science.
Third what we are doing now that the proposal is published
we will take all the elements of the lifecycle analysis, the
FAPRI model, the GREET model and the satellite data and we're
going to lay it out for peer review. So there will be three
components of public input before the Agency finalizes this
rule.
Chairwoman Dahlkemper. Thank you. We need to have the
correct science and we certainly need to have transparency
going forward. Thank you for clarifying that the EPA, and the
DOE, and the USDA can do to continue to work to ensure that
biodiesel remains a viable fuel?
Ms. Oge. Maybe Ms. Cook will help answer. But let me say
that we are very excited with the opportunity to implement the
renewable fuel standard, RFS2, the 36 billion gallons. It's
equivalent of replacing by 2022 close to 12 percent, 14 percent
of fossil fuel in 2022 time frame. The environmental benefits,
energy security benefits, and ag benefits are huge. So our
first and most important job right now at EPA, the
Environmental Protection Agency, is to make sure that we have
science right, we have the policy right, that this program is
implemented the way that Congress had intended us to implement
it.
Chairwoman Dahlkemper. Ms. Cook, do you have anything you
would like to add to that?
Ms. Cook. Sure. At this point, I think it's still a
minority of states that have implemented fleet purchase
requirements, I think that's certainly something Congress has
begun in the Farm Bill, as far as federal procurement goes, but
certainly, public dollars will be spent on fuel anyway. We
should be doing what we can to support this industry.
In addition, from a rural development standpoint what we're
looking at is the rest of the distribution network and the
infrastructure that needs to be there to actually get pumps
available. People will buy the stuff if it's readily available
at a pump. Getting it there can be a challenge. We have a lot
of--even in Pennsylvania, a lot of filling stations that just
aren't equipped to handle this stuff now, so that's kind of our
next challenge with some of our other business development
programs is to put the rest of the infrastructure out there.
Chairwoman Dahlkemper. Thank you. I now recognize Mr.
Westmoreland.
Mr. Westmoreland. Thank you, ma'am. Ms. Oge, I know that
you're the Director of the Office of Transportation and Air
Quality Office and Air Radiation. How long have you been at the
EPA?
Ms. Oge. I have been with EPA I think 29 years.
Mr. Westmoreland. Twenty-nine years?
Ms. Oge. And 15 years in charge of this office.
Mr. Westmoreland. And how long in charge of the office?
Ms. Oge. Fifteen years.
Mr. Westmoreland. Fifteen years. Wow. And when these rules
were put forth on May 5th of 2009, I'm assuming that you were
in this rulemaking process when all the scientific data was
looked at and you concurred that this is what should be done.
Is that correct?
Ms. Oge. It is correct that I concur that the scientific
work that was done in our office is the way to go. I would not
suggest that I have read all of the thousands and thousands of
modeling pages that have gone into this.
Mr. Westmoreland. Sure, when you were looking at all the
scientific evidence, how much evidence did you look at from the
biofuel industry or from the farmer as to how these rules may
affect them and did they have any input into how the rules
would affect them based on the scientific evidence that you
had?
Ms. Oge. From the beginning of designing this rule, but
also all the regulations that we do in our office, we pride
ourselves to have an open and transparent process where we do
have a dialogue with the regulated communities. In this
instance, the regulated communities is refiners, the blending,
the importers and the renewal fuel producers. So we do have a
broad dialogue. Typically, we get together with associations to
bring in individual members so from day one, we have had the
dialogue, how we're going to do this rule.
Mr. Westmoreland. You had a dialogue of how you were going
to the rule, but did you have any dialogue into how this rule
was going to affect the people that are actually making this
stuff?
Ms. Oge. It took about almost a year for the modeling to
take place and for the results to be available. So the results
became available, the preliminary results, I believe around
August of last year. And as soon as we received the results,
there were some impacts, like the biodiesel industry, so we
brought them into our office and we shared with them those
impacts. And because of those impacts we have attempted in the
proposal to lay out options that will minimize the impacts and
we're seeking comments and those are the options that I
mentioned in my oral testimony, but those are in my written
testimony.
Mr. Westmoreland. And let me ask you this, being with the
EPA for 29 years and being head of this department for the last
15, how much time have you spent on a farm or out looking at
some of these different places that produces biofuel and I mean
I know that--just how much time have you actually spent out on
a farm talking to some of these people that actually produce
this or the feedstock or whatever that's there, that they've
been able to show you the consequences of what some of your
rulemaking decisions might have on them?
Ms. Oge. My great grandfather and grandfather were farmers,
but they were in Athens. That's where I grew up, in Greece. I
have not spent any time on farms in the United States, if
that's your question, but I have spent many, many hours meeting
with farmers and meeting with renewable fuel producers
throughout the development, not only of this standard. Let's
not forget that RFS2 has been implemented, when it was still
implemented RFS1, so we have spent a lot of time implementing
RFS1.
And I'm saying this with confidence that the industry that
has been involved both RFS1 and RFS2, they will tell you that
we have had an open door process. We have extended ourselves to
talk to them and figure out what are the impacts and how we can
minimize the impacts on those industries. But again, what we
are doing here is we are implementing EISA, the way that
Congress passed it and we're trying to do the best thing that
we can to minimize the impact.
We believe biodiesel is important, not only from fossil
fuel emissions, but also it's important because it reduced
particulate matter--
Mr. Westmoreland. I've run out of time. I just wanted to
know how much time you've spent on the farm. And let me make a
suggestion to you. I made this same suggestion to some people
from the Federal Reserve and FDIC. Get out of Washington and go
spend some time with these farmers and these people that are
actually producing the product. I think you'll get a new
understanding for what some of your rules and regulations can
do to them that we can come up with in some of these nice
offices that we set up with, but when you go out and meet with
them and see the things that they are doing to protect our
environment and how they're re-using their water and what
they're doing with their waste and what they're doing with
their feedstock. I think you'd be amazed at that and it might
give you a little bit more incentive to understand where
they're coming from and what kind of scientific evidence that
they would like to see these rules based on.
Thank you very much.
Ms. Oge. I'll give you a commitment from now to the
finalizing rule I will visit the farm. Thank you. We will do
that.
Chairwoman Dahlkemper. Great idea. And I would now like to
recognize the gentleman from Indiana, Mr. Ellsworth, for five
minutes.
Mr. Ellsworth. Thank you, Madam Chair. Ms. Oge, I was
reading some of the testimony and I heard you talking about, I
think we're talking about land conversions and one of the
things you mentioned was satellite images. And there was a
couple others. But I'd like if you could talk a little bit
about that, how you looked at the land conversions, what that
data brought you and how the satellite images, what that told
you and if that dealt with the cause of land usage, what the
pictures, and I think if I'm not mistaken, it was from 2001 to
2004, those images. Do those pictures from the sky tell you why
that might--and the other things too, I didn't hear what they
were, but if you could just elaborate on that methodology.
Ms. Oge. Basically, we looked at four models. GREET is a
model that is used and developed by the Department of Energy.
FAPRI and FASOM are peer-review agricultural models. Basically,
the FAPRI model has been used for international use and the
FASOM for domestic use.
So let's talk about corn ethanol. To the extent in this
country that we're using more corn towards the production of
fuels, and less corn to export that our models between FAPRI
and FASOM that will tell us where this additional production of
corn will happen. That is the corn that is not going to be
exported from the United States to the global market.
And we're using the FAPRI model to tell us how much of that
corn in 2022, the corn volume, will be produced in Brazil
versus Nigeria or other countries. So we know that aspect of
the indirect impact that our biofuel market will have. What we
don't know though through FAPRI yet, is how--where is Brazil
going to go to produce this additional corn? Are they going to
use pasture land? Or are they going to use forests or are they
going to use grassland? Or are they going to use a combination.
And what we have done for this proposal is to use NASA
satellite data that shows us historically where did Brazil go
from 2001 to 2004 to additional land to produce additional corn
or additional soy?
For example, for the analysis that we have done, the
proposal is based that the majority of the land that Brazil is
going to use will come from pasture land where greenhouse gas
effects will be very minimal. But then the data shows that
about 4 percent, I believe 4.2 percent will come from forests
and that has a huge impact on the greenhouse gas emissions. So
what the analysis shows if that you do sensitivity analysis,
and you show something less than 4 percent, let's say 0 percent
from forests in 2022, what will happen from greenhouse gas
emissions and you see that it's significantly different.
And again, these are the elements that we're trying to peer
review. The peer review has started of the satellite data and
we believe we should have the results by end of June and we
will put those results out for public comments.
Mr. Ellsworth. So we're looking at Brazil and tracking what
they did and then modeling the United States after that. And
when you were also tracking taking into account other reasons
other than just corn ethanol and that production and maybe less
consumption or other uses or less demand? Are those all taken
into account too?
Ms. Oge. Yes, they are.
Mr. Ellsworth. Okay, thank you. Madam Chair, I yield back.
Chairwoman Dahlkemper. I now recognize the gentleman from
Illinois, Mr. Schock.
Mr. Schock. Thank you, Madam Chairman. Thank you, Ms. Oge,
for being here. I guess my question to follow up on those that
have been asked about, your rules, and my concern is
specifically the impact on the biofuels industry and the
country and specifically in my District which is the number one
employer, that being agriculture.
My understanding, and correct me if I'm wrong, is that the
EPA's Renewable Fuel Standard 2 methodology assumes that for
every acre of soybean crop that is used for or vegetable oil,
let's say, crop that's used to produce a biofuel, an equal acre
of ground is used then in the Brazilian Amazon or rainforest,
is basically put into production to replace that acreage? Is
that correct?
Ms. Oge. I would need to check on that. Obviously, we know
that it takes about 64 acres for a gallon of soy biodiesel. And
it takes about 64 acres for corn, for corn ethanol and over 400
acres for a gallon of biodiesel. So it's a factor of five. So
clearly, you have much more land, it takes much more land, five
times more to produce a gallon of biodiesel than it takes to
produce of corn ethanol.
I will have to get back to you in the assumptions of the
amount of land that it will take in Brazil for soybean oil
production versus the United States. I don't remember that
data.
Mr. Schock. But from reading your information it led me to
believe the assumption is that for every 100 acres that's taken
quote out of production or 100 acres in the United States
that's used for biofuels, a 100 acres of Brazilian ground is
put into production for soybean.
Ms. Oge. I don't remember. The only thing I remember is
that we're assuming that today and in 2022, you're going to
have higher yields from soybean in the United States. I don't
remember what we have done for Brazil. But again, I'll be glad
to get back that information.
Mr. Schock. Yes. Well, my concern is that with the new
rulemaking it's going to put these biofuel industries out of
business because my understanding is based on the current
rulemaking that the vegetable oil or soybean biofuels will not
meet your 50 percent greenhouse emissions standards that's
required. Is that correct?
Ms. Oge. Well, it is correct if you just look at soy-based
biofuel, but what we have laid out in the proposal is an option
is to allow the plants, the biodiesel plants to be able to
average the use of waste grease and soybean and the majority of
the plants do that today. I believe about 70 percent of the
plants have the ability and they do blend soybean for a few
months and then waste grease.
So what we have proposed is an option that if you average
the two, and then you lower the threshold from 50 to 40, about
a billion gallons of biodiesel could be introduced in the
marketplace to meet the standard.
Mr. Schock. Okay. I guess what struck me was that based on
what I read, the assumption was almost an equal swap. And in
looking at the statistics in Brazil versus the United States,
the assumption would be that you know basically as soybean or
biofuels production in the United States increased, and that
that crop was diverted, so to speak, to produce a biofuel, that
there would be commensurate surge of the production of that
crop in Brazil. And that is the assumption of what I read.
I guess my concern is that that's a fallacy because the
reality is during the same period where biofuels increased in
the United States, the production of those same crops in
countries like Brazil actually decrease.
Ms. Oge. I have with me Sarah Dunham, who has just given me
a note. She's in charge of our Climate Office. And she's
telling me that in the model we're not assuming one-to-one
ratio. So again, I'll be more than glad to get back to you on
that.
And again, that's the purpose of the public comment
process. If we make assumptions that scientifically are not
supported, we want to get the input and we want to change those
assumptions. But according to the note that I received that's
not the case. But again, we're going to respond back to you in
writing.
Mr. Schock. All I would say is that regardless of whether
it was a one-to-one or a two-to-one, the fact of the matter is
that the reaction has actually been negative, not positive in
terms of the effective production of soybeans in Brazil at the
same time and that crop in the United States has been diverted
towards biofuel production. So I guess I would suggest that it
might be a false assumption.
Ms. Oge. Well, let me make it clear. We're looking at 2022.
We're not looking today. So when we are doing the lifecycle
analysis for biodiesel from soy, we're looking at 2022, how
much biofuel will be required in 2022. And based on the FASSON
and FAPRI models, what will happen in the United States in 2022
for exporting soybean. And based on that, then we assume yield
improvements and other factors, production improvements and
that's where the data is coming from. So I don't think it's
comparable that you can compare what is going on today with
what we're looking about which is the 2022 production level.
And that's again what the analysis is then.
Mr. Schock. Sure, and I appreciate predictions. I just
think that it's much easier to have a serious debate about
what's happened over the past four years from 2004 to 2008 and
talk specifically with facts on production as opposed to
extrapolating what may or may not happen over the next ten
years.
I have one quick follow-up question if the Chairwoman would
be so kind to let me ask and that is did you look at all about,
since we're looking at cutting down on greenhouse emissions and
trying to save specifically forests and acreage in Brazil, at
the impact of our tariff on Brazilian imported ethanol and
specifically sugar cane as a--because there's a debate here,
obviously, on whether or not that should remain and the impact
that's having on reducing the amount of acreage put into
production there. Because I had the opportunity to travel there
with Majority Leader Hoyer last month and met with members of
their legislature who represent the Brazilian forests and their
point is simply that for them to not put it into production is
really to allow that land to do very little to generate
revenue.
And so if we remove those tariffs on the Brazilian sugar
cane ethanol, I might suggest that there would be a great
increase in the number or acres there put into production and
what impact that has.
Ms. Oge. We have not looked into removing the tariffs
because when we are doing this analysis we assume the current
U.S. policies. But let me assure you that we have had extensive
dialogue with Brazil. I was in Brazil last year. I haven't been
on a farm, but I did go to Brazil last year and I spent a whole
week with both the government officials, but also with
industry.
They have given us extensive input, the only country that
we have received extensive input on our models and we are in
the process to include their data. We believe the data has a
lot of basis to be included, so hopefully by the end of June
we're going to be able to lay out the input they have given us.
We also have committed that we will have a separate kind of
expert meeting in Brazil with the scientists in Brazil and I
think it's very important because Brazil and what is going on
there has a very big impact because of the indirect land use to
this regulatory program.
Mr. Schock. Thank you.
Chairwoman Dahlkemper. I now recognize the gentleman from
Alabama, Mr. Griffith.
Mr. Griffith. Madam Chair, I have no questions. Thank you.
Chairwoman Dahlkemper. With no further questions I want to
thank Ms. Oge and Ms. Cook for their testimony and for their
answers. We will now get the second panel ready. Thank you very
much.
The second panel can assemble, please.
[Pause.]
Welcome to our second panel. Thank you very much for taking
the time out of your busy days to come to Washington and
testify today in front of this Committee.
Again, I would like to tell the witnesses that you each
have five minutes to deliver your prepared statements. The
timer begins when the green light is illuminated. When one
minute of time remains the light will turn yellow, the red
light will come on when time is up, and I remind you to make
sure you time on your microphone when it's your time to speak.
Is my pleasure to introduce our first witness Mr. Mike
Noble. Mr. Noble is the President of Lake Erie Biofuels in
Erie, Pennsylvania, my District and my home town. Mr. Noble
helped build the facility that represents the fourth biodiesel
plant he has played a significant role in building. I'm proud
to say that Lake Erie Biofuels is Pennsylvania's first large-
scale biodiesel production facility, producing 45 million
gallons of biodiesel annually. As a leading producer of
biodiesel in the northeastern United States and as one of the
50 hottest companies in bioenergy, Lake Erie Biofuels has
proven that they can compete on a national and even global
level.
Thank you so much for coming and to testify today.
STATEMENT OF MIKE NOBLE
Mr. Noble. Thank you, Madam Chair. I'd like to thank the
Committee for having me today. I'm going to speak on behalf of
the RFS2 program mostly.
Lake Erie Biofuels does produce a high-quality, low-carbon,
renewable diesel fuel, replacement fuel. And it's readily
accepted in the marketplace. The U.S. biodiesel industry is the
only game in town when it comes to commercial scale production
of biomass-based diesel as defined in the RFS2.
The production of U.S. biodiesel is consistent with an
energy policy that values a displacement of petroleum, diesel
fuel with low-carbon, renewable fuel. There are significant
energy security and environmental and economic public policy
benefits associated with biodiesel use, yet the industry finds
itself in the midst of an economic crisis which threatens the
future and viability.
The NBB and its associates are not seeking or asking for a
creation of a new program, only a stable, reliable policy
framework for the one that exists. Implementation of workable,
realistic, RFS2 program is a key component to the framework.
RFS2 for the first time requires a renewable component in
the U.S. diesel fuel and provides a readily attainable schedule
for biomass-based diesel that increases from 500 million
gallons in 2009 to 1 billion gallons in 2012. To quality for
the program, the renewable fuel must reduce greenhouse gas
emissions by 50 percent compared to conventional diesel. But I
would like to point out that the cutout for biodiesel, when
they talk about the grandfathering, biodiesel--this cutout is
not part of that grandfathering, so therefore we would not
quality.
The science pertaining to direct emissions is well
established. The USDA and DOE lifecycle study was initially
published in 1998 and has been continually refined and updated
since this time. According to the model, biodiesel reduces
greenhouse gas emissions by 78 percent. By statute, the EPA
must consider significant indirect emissions when calculating
renewable fuel emissions profiles. Unfortunately, the appears
that the proposed rule by EPA unveiled May 5th relies on
uncertain and inexact assumptions pertaining to indirect land
use change, calculating biodiesel greenhouse gas emissions
profiles.
The result is that biodiesel produced from domestically-
produced vegetable oils are disqualified from the biomass-based
diesel program and there are many factors unrelated to U.S.
biodiesel production that impact land-use decision abroad. For
example, in Brazil, forestry, cattle ranching, subsistence
farming drive land-use decisions, yet the EPA proposed
methodology appears to attribute this change to U.S. biodiesel
production. This assumption defies common sense. If you look,
in fact, at the acreage in Brazil dedicated to soybean
cultivation actually decreased from 2004 to 2008, while U.S.
biodiesel production increased from 25 million gallons to 690
million gallons.
If U.S. biodiesel production drove Brazilian land-use
decisions to the degree that the EPA's proposed rule asserts,
the opposite would be true. As a result of these dubious land-
use assumptions, the EPA's proposed rule restricts feedstock
for low-carbon diesel replacement fuel to only animal fats and
restaurant grease. Vegetable oils account right now for about
60 percent of the feedstock that is available to meet the RFS2
biomass-based diesel targets. And the RFS2 volume goals simply
cannot be met if vegetable oils are disqualified from the
program. Even under the so-called pathway for biodiesel that is
briefly outlined in the proposed rule, there will not be enough
feedstock available to meet the RFS2 volumes for biomass-based
diesel. This outcome is not consistent with either sound
science or sound energy policies.
Lastly, U.S. agriculture has historically released
increased productivity yields. As technology improves, it is
reasonable to assume that these gains in efficiencies will
continue. As these efficiencies are realized both domestically
and around the globe, the impact of the land use change to
biofuels production will be further diminished and this must be
recognized in the EPA's greenhouse gas emissions calculations.
I'd like to thank you for having me today. That's it.
[The prepared statement of Mr. Noble is included in the
appendix.]
Chairwoman Dahlkemper. Thank you. I would like to now
introduce Mr. Wootton. Mr. Wootton is the president of Keystone
Biofuels in Shiresmantown, Pennsylvania. Mr. Wootton has worked
with the Governor of Pennsylvania and the State's Legislature
to pass several biodiesel bills in 2008. He has truly been a
leader in Pennsylvania's on-going support of renewable energy.
Keystone Biofuels is a manufacturer of biodiesel utilizing
soybean oil provided by Pennsylvania farmers. Welcome.
STATEMENT OF BEN WOOTTON
Mr. Wootton. Thank you. Chairwoman Dahlkemper, Ranking
Member Westmoreland, and Members of the Subcommittee, I thank
you for the opportunity to testify today. I'm here on behalf of
Keystone Biofuels, a small biodiesel production company located
in Pennsylvania. We are the longest-running biodiesel
production facility in the state and work extensively with
state and federal public officials informing and implementing
good public policy on biodiesel.
Biodiesel is a high-quality, low-carbon renewable diesel
replacement fuel that is readily accepted in the marketplace
today. I applaud you and the Committee in taking an interest in
the impacts of outstanding regulatory policy of small biofuel
producers and family farmers. Although there are several
outstanding regulatory issues that impact biodiesel, I'm going
to focus my attention today on the 2008 Farm Bill, Section
9005, which Congressman I think you were asking about earlier.
It's the bioenergy program for advanced biofuels. It's the old
OCC program.
This program provides support to, among others, biodiesel
producers, to help offset feedstock costs. Specifically the
program provides for $300 million in mandatory funding over a
five-year duration of the Farm Bill. Ethanol produced from corn
would not qualify for the program. It creates two classes of
producers for purposes of payments. Producers with a production
capacity smaller than 150 million gallons would be eligible for
90 percent of the money provided in the program. Producers with
a capacity of over 150 million gallons would qualify for the
remaining five percent.
The U.S. biodiesel industry is facing an economic crisis.
Plants are having difficulty accessing operating capital. In
addition, there's a reduced demand for biodiesel due to the
economic downturn and delayed implementation of the RFS2
biomass-based diesel schedule. Due to current market
conditions, less than one third of the industry's facilities
are currently producing fuel. Feedstock costs make up more than
80 percent of our production costs. Over the past year,
feedstock costs have remained volatile, reaching record highs
and making it difficult to economically produce the fuel.
A bioenergy program that provides payments on all gallons
of production will help all U.S. biodiesel producers displace
petroleum with clean-burning, domestically-produced biodiesel.
So what are the U.S. benefits from increased production?
Energy security. The U.S. biodiesel industry is providing both
new fuel and new refining capacity to the nation's energy
infrastructure. Nearly 700 million gallons of biodiesel were
produced in 2008 displacing almost 28 million barrels of
petroleum. It's also friendly for our environment. Biodiesel
reduces lifecycle carbon dioxide emissions by 78 percent. The
700 million gallons of biodiesel produced last year represents
over 11 billion pounds of carbon reduction. That's equivalent
of removing over 900,000 passenger vehicles from the nation's
roadways.
It also creates jobs in rural America. Production in
America's biodiesel plants in 2007 added over $4 billion to the
U.S. economy; increased household income by over $960 million;
and supported over 21,000 jobs.
The President has declared this week National Small
Business Week. He said and I quote, ``the entrepreneurial
spirit lies at the core of our nation's economy and identity.
If Americans with good ideas can work hard, put their plan to
the test, and succeed, the American economy will continue to
create jobs and lead the world in innovation and
productivity.''
The U.S. biodiesel industry is doing just that. Our
industry's ingenuity and hard work are critical to our nation's
prosperity. Small businesses are the lifeblood of cities and
towns across the country. Over the last decade small businesses
created 70 percent of all new jobs. Our industry, with the help
of the Committee, can contribute and lead the way to
prosperity, particularly in today's challenging economic
environment. The nation that leads the 21st century clean
energy is a nation that will lead the 21st century global
economy. America can and must be that nation.
The production use of biodiesel is consistent with an
energy policy that values the displacement of petroleum diesel
with low-carbon, renewable fuel. This is a necessary program to
continue the development of biodiesel nationwide.
We encourage a consistent program with the following:first,
a feedstock neutral program; and second, a program that is
measured on the gallon of biodiesel, rather than on feedstocks
or some other methodology.
In conclusion, I encourage your Committee to urge the USDA
to move expeditiously in implementing the bioenergy program and
provide payments to U.S. biodiesel producers in the Fiscal Year
2009, retroactive to October 1, 2008. Our single priority is to
ensure that the bioenergy payments are provided on all gallons
of biodiesel produced. Our challenge is that the policy was
passed last year and the biodiesel issue is still waiting for
USDA to implement the program. The $300 million provided by the
bioenergy program for advanced biofuels will help bring
stability to our industry so that biodiesel can continue to add
to the nation's fuel supply.
Thank you.
[The prepared statement of Mr. Wootton is included in the
appendix.]
Chairwoman Dahlkemper. Thank you, Mr. Wootton.
I'd like to now introduce Mr. Bafalis. Mr. Gregory Bafalis
is the president and CEO of Green Earth Fuels located in
Houston, Texas. He has more than 20 years of project
development experience in the energy sector. Green Earth Fuels
supplies energy companies with biodiesel fuel and bioproducts.
Welcome, Mr. Bafalis. Did I pronounce your name correctly?
STATEMENT OF GREGORY BAFALIS
Mr. Bafalis. You did. Thank you. I thank the Committee for
having me here today. Before I get started on my remarks, I
wanted to try to correct a misstatement that the Director from
the EPA said before. I believe she said it took 64 acres to
make one gallon of ethanol and 400 acres to make one gallon of
biodiesel. In fact, it's 400 gallons of ethanol from one acre
of corn and 64 gallons of biodiesel from one acre of soybean. I
hope that's not the same math they're using when they do the
indirect land use.
I submitted written testimony and I'm not going to go
through that as such. I'd actually like to focus more on some
of the issues that are facing us and focus on the dire straits
of this industry. We've done a lot of things right in my
company. We're located on the Houston ship channel in the heart
of the petroleum complex. We've purchased cheap feedstocks.
We've always made quality product. We've always delivered on
time, met all of our contracts. But despite everything that
we've done, we've even invested millions of dollars in cutting-
edge feedstocks to try and provide for the future, even with
all of that, we're in dire straits. And if we're in dire
straits, I can only imagine what the rest of the industry is.
In fact, I think if you looked at the production capabilities
of Houston, Texas, there's something in the neighborhood of 350
million gallons of producers there. And in fact, I think we're
the only one running right now and we're running on about a 25
percent capacity.
If this industry goes down, it's going to lose 29,000 jobs.
You've got billions of dollars that have been invested by
private equity firms, by banks, by individuals such as myself,
that it's just going to go away. And when you go to do the
second generation that same money is not going to be there
again. It will take years, maybe never, for it to come back.
There are really four reasons we got in this situation. The
first one everybody has been talking about for months is the
frozen capital markets. We depend on working capital to
survive, bank loans to survive. And of course, as everybody
knows those have pretty much dried up. There really is a lack
of market in the United States for biodiesel. The RFS was put
in place in the past two years or so. It's taken EPA almost two
and a half years now to gets its draft rule out. To be quite
frank, the major oil companies have told us we're not going to
buy until the RFS is out, until the rules are clear, and we
know exactly what the game looks like.
So we've been forced to sell into overseas markets,
predominantly Europe. The Europeans recently came out and put
protectionist measures in, so now that market is closed for us.
And now you have a U.S. industry with the majors waiting for
the RFS, with absolutely no markets for us outside the United
States and we are struggling to make ends meet on a month-to-
month basis.
Third, the sheer nature of our tax credits, year to year,
we don't know if they're going to be there next year. The
capital markets don't know if they're going to be there the
next year. Our investors don't know if they're going to be
there next year. Most importantly, our customers don't know if
we're going to be there next year. Going on a year-to-year
basis is just killing us because we are just hoping like we did
last year in October, we get that extension so we can go out
and we can contract into the next year.
And finally, I think as Mr. Noble has said, the indirect
land use is absolutely killing us. If that comes out, if that
comes out in the RFS, we will not have U.S. feedstocks. We will
not be able to produce biodiesel and we will certainly be out
of business.
I'll focus a little bit on the RFS for a second, because I
mentioned big oil. Big Oil is waiting for the rules. Quite
honestly, I can understand that. They're not going to go out
and buy a bunch of soybean-based biodiesel only to find out in
six months that gee, that doesn't count. You just bought 100
million gallons and it doesn't count. So they're waiting for
the rules. But the problem is that the rules take six months to
get out. We're going to be well into the fourth quarter. Big
Oil has also told us well, gee, if it doesn't happen until the
end of the year, then guess what? We're going to go to Court
and we're going to fight it because we don't have time to
implement it now.
Now if you push me out into 2010 before I can have an RFS
to sell under, I'm out of business. And if I'm out of business,
guess what Big Oil is going to say then? Well, there's no
producer, so I can't buy biodiesel. So this industry will
certainly be dead. So we need to get the RFS out now. We need
to get it out with indirect land use out of it. I lived in
Brazil for seven years and I did it in the '90s and they were
clearing the rainforest when I lived there and there was no
biodiesel industry in the United States. I can remember when
Sting was trying to save the rainforest and that was well
before we all existed, the folks here at this table.
And finally, we need to get a tax credit that is something
that we can count on, something that will last for more than
one year, more than six months, something that we know, just
like the renewable electric industry got in the most recent
stimulus package, we need something that we can count on for
the next five years, so we can go out and contract long term,
so we can go out and sell long term and so that the major oil
companies know that they can count on us and we're going to be
there for the future.
Thank you.
[The prepared statement of Mr. Bafalis is included in the
appendix.]
Chairwoman Dahlkemper. Thank you, Mr. Bafalis.
Mr. Gaesser, did I pronounce that correctly? Mr. Ray
Gaesser is an Executive Committee Member of the American
Soybean Association. He is a soybean producer from Corning,
Iowa. He has been a member of the Iowa Soybean Association
since the 1980s. The American Soybean Association develops and
implements policies to increase the profitability of its
members in the entire soybean industry. Thank you for joining
us today.
STATEMENT OF RAY GAESSER
Mr. Gaesser. First, I'd like to thank you all for allowing
us to speak today. My name is Ray Gaesser. I'm a farmer. My
family and I grow soybeans and corn in southwest Iowa. We've
been there for 31 years. We actually grew up in Indiana and
moved there 31 years ago. I've got a lot of experience in
Brazil, in South America, in particular. I've got a lot of
experience in the Iowa Legislature. Also, I work with our local
economic development and economic development is so important
locally and nationally and the biodiesel industry, the
renewable fuels industry has been such a benefit to rural
economic development. And I would hate to see any of the new
rules destroy that opportunity.
As I say, we've been farming for a long time there. I've
had some experience in Brazil. We've had agriculture students
come to our farm and stay with us. We understand the industry
down there. We know their families. I probably know as many
agronomists and farmers in Brazil as I do in the United States.
So it's very important that we understand when we make rules
about indirect land use that we have all the facts. And I have
a good friend who is a researcher and he says if you torture
the data long enough it will tell you anything you want and
that's what I'm afraid has happened here.
The assumption that EPA is using about the increase in land
use in Brazil from 2001 to 2004 is probably accurate, but it
was not because of biodiesel. It was because of currency
issues. It was because of tax incentives. It was because of
incentives for money to grow agriculture in the country. It had
nothing to do with renewable fuels. So I think we need to
understand that maybe they should use information that after
2004 when the majority of the renewable fuels were implemented
in the United States.
One of the other concerns that we have is the whole
feedstock issue with certifying the feedstock for biodiesel
producers in the United States. It is really difficult to
certify all the hundreds of thousands of growers who might
deliver soybeans to processors or to actually biodiesel plants.
It would be history of production of the United States is that
we've used up most of the available agricultural land,
virtually all of it has a cropping history and it would be
almost impossible to certify all the growers. And maybe we
should certify the growers who are growing soybeans or corn on
land that hasn't got a crop history, rather than requiring
hundreds of thousands of producers to certify. So it's really
difficult for the industry to certify everyone. It would be
much easier to take the very, very few that are not in
compliance and make them certified.
I don't know what my time--oh, there it is. Okay. And has
been stated earlier, the bioenergy program is so important to
our industry and so important to the viability of the biodiesel
industry, we really need to get that implemented in a timely
fashion and get it funded in a timely fashion so that's one of
the very important issues to ASA.
The whole issue about indirect land use seems to be, as it
was stated early in direct conflict with our energy policy. We
have two organizations that are conflicting. We have one that's
trying to increase our energy security and the other
organization it seems like they're doing everything they can to
be a detriment to renewable fuel. So that's a huge concern to
me also.
I'd just like to thank you for this opportunity to speak to
you on behalf of ASA and myself as a family farmer. Thank you.
[The prepared statement of Gaesser is included in the
appendix.]
Chairwoman Dahlkemper. Thank you for your testimony. The
bell tells us we have votes. We're going to try to get through
the next witnesses, and then we will break while we go over and
vote . There will be a series of three votes, and then we will
come back for the questioning . I'm going to now turn it over
to the Ranking Member, Mr. Westmoreland, for the next two
witnesses.
Mr. Westmoreland. Thank you, Madam Chair. Zippy Duvall has
been president of the Georgia Farm Bureau since December of
2006, a third generation Greene County dairyman, Zippy retired
from the dairy business in 2005. He now operates 150 breed cow
beef operation, produces and sells quality hay, and is a
poultry grower, producing about 480,000 broilers a year. A Farm
Bureau member since 1977, Mr. Duvall currently serves on the
Greene County Farm Bureau Board of Directors and has held
numerous leadership positions in the County Farm Bureau
including president and vice president. In 1982, he was named
Georgia Farm Bureau and the American Farm Bureau Young Farmer
of the Year. Zippy Duvall is the real deal. Zippy, welcome.
STATEMENT OF ZIPPY DUVALL
Mr. Duvall. Thank you, Congressman. I'm glad to be here.
Congresswoman, we have something in common. My mother comes
from Pennsylvania, Westover, Pennsylvania, but unfortunately, I
took on my daddy's speech patterns in Georgia and we don't
quite do things, talk as fast as most people do.
Chairwoman Dahlkemper. Well, that's great, you have
Pennsylvania roots.
Mr. Duvall. That's right. I'll try to get through it real
quickly because I know you've got to vote.
So I thank you for the opportunity to come to talk to you
about renewable fuels standards and the Congressman told you
where I come from. I am a true farmer, even though I am the
president of the Georgia Farm Bureau that represents 400,000
members across our state. The one thing he did not tell you was
that my farm has about 300 acres of forest land on it and
that's important to note when I go through my testimony.
Regarding renewable fuels standards, the farm sector in
Georgia strongly support the increased use of domestic
renewable fuel. We believe biofuels are a key component to
increase our nation's energy security. Many of us remember the
1970s and the energy problems we experienced at that time.
There were long lines at the gas stations and the gas pumps
couldn't even reveal the price. We had to double the price of
the gas during that time. Unfortunately, during that time
Americans vowed, fortunately, vowed to become more energy
independent, but unfortunately we lost our resolve and as soon
as the price of gasoline as you referred earlier, Madam
Chairman, we started going backwards. And the result today is
we're held over the same barrel of oil, held hostage again 40
years later.
Recent events, 35 years of history should have taught us
that America needs to be more self-reliant when it comes to our
energy needs. The renewable fuel standards is an important step
to recognizing the biofuels like ethanol, biodiesel, that they
burn cleanly, clean transportation fuels and they lessen our
dependency on foreign oil. And they also revitalize rural
America.
American farmers today provide food, fiber, feed, and fuel
for our country. We welcome the challenge and we believe that
American people will continue to be well served by farmers.
While Georgia farmers look forward to serving the needs of
our people, we do have concerns about the proposed regulations
offered by EPA. The RFS passed in the Energy Independence
Security Act of 2007 requires new biofuels to emit 20 to 60
percent fewer greenhouse gas emissions than gasoline to be
eligible for the RFS program. Our members have serious concerns
about the terms, indirect land-use change, and lifecycle carbon
emissions and how these concepts would be measured and
implemented.
We do not believe that there is a reliable way to measure
accurately and to predict the production of biofuels that
affect land use here and in other countries. For our farmers,
the market directs, dictates which crop that we plant and it
also decides where that crop will be grown. If there's
sufficient demand for a crop, farmers will produce it; and if
the market persists, greater efficiency follows.
When my father was a boy, velvet beans were an important
crop and 30 bushel corn was considered an average yield. Today,
30 bushel corn is considered a crop failure and I don't know
that there's anybody in Georgia that can remember seeing a
field of velvet beans any more.
Improved plant varieties, new technologies, and more
efficient agricultural practices have produced greater crop
yields with higher quality. My grandfather could have never
imagined today's farm productivity. Likewise, it is unrealistic
to think that anyone can predict how agriculture will evolve in
this future based on the single variable of biofuels
utilization. New and uncertain science to predict land use
change has no place in federal regulations.
Georgia produces more forestry products than any other
state in the Union. Seventy-two percent of our forests in our
state are privately owned. We believe that it is important that
the forest biomass be a source of renewable fuels.
The RFS in the energy bill did not include all forms of
forest biomass and we believe that is unfortunate. Under the
standard, the only forest biomass considered renewable is that
``actively managed tree plantations.'' My own farm would not
qualify under that definition. The reason for such a narrow
definition is unclear, but the result is that many family
forest owners will be precluded from active participation. If
the purpose of the standard is to increase the use of forest
biomass, the definition should be as broad as possible
encourage the use.
Farm Bureau supports changing the definition of renewable
biomass to include all forms of forest biomass. It is important
that legislation should be as inclusive as possible regarding
energy feedstocks and methods.
The State of Georgia uses about five billion gallons of
gasoline annually. Of that amount, only seven percent of it is
ethanol. We continue to support traditional corn-based ethanol.
We encourage the Federal Government to revisit the existing
limit on ethanol blending which is currently capped at 10
percent per gallon of gasoline. Moving to a 15 percent blend
would encourage more ethanol utilization.
Many of our farmers in south Georgia that are members of
our organization are part owners of the First United Ethanol
LLC in Mitchell County, Georgia. This facility now produces 100
million gallons of ethanol per year and is adding to the local
rural economy.
Chairwoman Dahlkemper. Just for the sake of time, we'll get
more of your testimony in our questioning, if we can move on.
Mr. Duvall. Thank you for your time.
[The prepared statement of Mr. Duvall is included in the
appendix.]
Mr. Westmoreland. Madam Chair, I'll now introduce Dr. Das.
Chairwoman Dahlkemper. I recognize the Ranking Member, Mr.
Westmoreland.
Mr. Westmoreland. Dr. K. C. Das is Associate Professor and
Coordinator of the Biorefinery and Carbon Cycling Program at
the University of Georgia. His current work and interest focus
on biomass conversion to energy and value-added products like
chemical feedstocks and bioproducts. Through his research he
has authored or co-authored 43 peer-review journal articles,
six book chapters and 95 conference papers and has participated
as principal or co-principal investigator in over 50 federal,
state, or industry-funded projects.
He teaches senior-level engineering process design and
environmental engineering courses at the University of Georgia.
Dr. Das, welcome to the Small Business Committee.
STATEMENT OF K. C. DAS
Mr. Das. Thank you, Congressman. Madam Chairman, Members of
the Committee, it's a pleasure for me to be here to testify.
In our research at the University of Georgia, I head the
Biorefining and Carbon Cycling Program. The primary goal of
this program is to develop technologies that reduce the carbon
footprint, reduce greenhouse emissions, produce biofuels
sustainably and create jobs in rural areas.
It's my opinion that as we transition from the current
fossil-based fuel economy to a more renewable energy economy,
we have an opportunity and probably even an obligation to
design a system of energy delivery that is sustainable and
minimizing the net greenhouse gas emissions is a critical part
of that.
I'd like to touch on four points. First, if the goal is to
minimize greenhouse gases and create jobs in rural areas and
income to farms, the first thing we should do is go after
residues, agricultural residues, forest residues. There are a
variety of industrial waste materials that are presently put in
landfills or are under-utilized. It's well established that the
greenhouse gas load of converting of waste into energy is very
low and there are lots of technologies that can utilize these
materials at the present moment.
It appears to me that this is not completely utilized.
The second point I'd like to make is that if you want a
sustainable biofuel future, we've got to diversify our options
of crops available, particularly those crops that are grown
with minimal inputs such as sorghum which is a drought-
resistant crop, can grow in marginal soils. Also a crop like
oilseed radish. It's a winter cover crop that is used around
the country, but nobody has ever looked at it as a biofuel crop
and it has potential. The University of Georgia recently
conducted some studies that are very promising.
The third thing I'd like to touch upon is if our goal is to
reduce carbon footprint and create jobs, we've got to be open
to a variety of other technologies than liquid transportation
fuels alone, for example, anaerobic digestion. This is an old
technology that's been around, but it's not presently very high
on the spectrum of ultimate fuels, primarily because the
product of anaerobic digestion is methane which is a gas and if
you look at the carbon footprint of that compressed natural gas
coming from anaerobic digestion it is very, very low. There are
people around the country, primarily in the private investment
that are exploiting that, but assistance from the government to
make that a far-reaching impact would be of far greater
assistance.
A related technology is the algae biofuels. Its cutting-
edge technology very recently has come up in the spectrum and
therefore it's a little behind corn, ethanol or lignocellulose
ethanol, therefore, when you compare them directly, algae
biofuels have disadvantages from a greenhouse gas angle. So
some alternative form of support for these cutting-edge
technologies that are just beginning to come into the spectrum
is useful.
The last thing I'd like to point out is today we are going
after biofuels because biofuels are carbon-neutral and that's
absolutely the thing to do, but the challenge in the future is
reducing the CO2 that's already in the atmosphere and one very
appropriate technology to do that is the use of biochar.
Biochar is a carbon-based byproduct of energy production. At
the University of Georgia, among other universities around the
world is leading the technology development and technology
transfer in this area. One of our Georgia companies, Range
Fuels, is also a company that's working with similar
technology.
The byproduct of biochar is used as a carbon sequestration
technology in soils. It has significant agronomic benefits. It
sequesters carbon for many years, in the thousands of years.
It's easy to quantify and will create local jobs. However, from
what I see, there's very little discussion at the national
level, at the federal agencies, or within the existing
legislature or outstanding legislation that discuss this and
I'd like to bring that to your attention.
Thank you very much.
[The prepared statement of Dr. Das is included in the
appendix.]
Chairwoman Dahlkemper. Thank you, Dr. Das. We're now going
to recess for approximately 30 minutes while we go vote. We
will reconvene at approximately 12:10. The Committee now stands
in recess.
[Off the record.]
Chairwoman Dahlkemper. We now reconvene the Small Business
hearing.
Thank you for your patience. It took us a little longer
than we thought, but we're glad that you stayed and have the
opportunity to ask you some questions.
I'm going to open this first question up to the panel. I'm
also on the Agriculture Committee, and these issues tie
together with both of my Committees. Legislation has been
introduced in the House and the Senate by Colin Peterson, the
chairman of the Ag. Committee that would eliminate the EPA's
ability to take into account international indirect land use.
As we know indirect land use has been used to calculate land
conversion, within the RFS2 proposed rule. If we were
successful would this change adequately account for the
environmental impacts of biodiesel production?
Would anyone like to address that question?
Mr. Gaesser. Could you repeat that one more time?
Chairwoman Dahlkemper. Colin Peterson has introduced
legislation that would eliminate the EPA's ability to take into
account international indirect land use and I'm just wondering
if that change happens, would that change adequately account
for the environmental impact of biodiesel production?
Mr. Gaesser. I think it would probably be a good start at
least. I guess our concern is that if we open up the law or the
rules, what other changes might happen that would be
detrimental to the biofuels industry.
We think with the right definition of indirect land use
internationally, there's probably not a problem with soy
biodiesel, but it would be a help as long as we don't, when we
open up the bill or open up the rules that we don't make other
changes that are detrimental.
Chairwoman Dahlkemper. Do you have any thoughts on what
that definition should be?
Mr. Gaesser. I think it's a--if they're realistic about
what really happened in the industry in South America,
particularly, since the biodiesel has been expanding in the
United States, it they use those, that information, it would be
a whole different story about indirect land use. And another
thing, how do you extrapolate into 2022 what we're going to
plant or what they're going to plant? Economics make the
decision for us to a big point. I think a lot of the
methodology is flawed and there would have to be some changes
in the whole method of looking at indirect land use.
Chairwoman Dahlkemper. Would anyone else like to address
that question?
Mr. Bafalis. If you go back to what the Director said, I
think she said 70 to 80 percent of the impacts come from the
indirect land use internationally and the greatest uncertainty
they have around the science is the international element of
it.
I'm not sure. I don't believe the science is there yet. It
may be one year away. It may be five years away. I think that
looking at the direct impacts that we can quantity now is the
right way to do it right now. And then when the time comes and
the science is right and we can make that leap of faith that it
can plant one acres here and it affects one acre there which
I'm not sure I can make that leap of faith, that maybe it's
two, three, four, five years out, but I just don't think the
science is there. So yes, I think that change does address the
impacts of biofuels right now.
Chairwoman Dahlkemper. Thank you. Mr. Noble, if the RFS2
becomes final as currently drafted, what impact do you think it
would have on the labor market and new green jobs?
Mr. Noble. Well, since now it would pretty much ruin the
biodiesel industry. I think someone has indicated how many jobs
were in the biodiesel industry.
Chairwoman Dahlkemper. Would that basically close down your
plant?
Mr. Noble. Yes, because even though we could run on yellow
fats and animal greases, the industry would be done and
therefore nobody would be interested in buying it anyway, so we
would be done.
Chairwoman Dahlkemper. Of course this industry has
generated state and federal tax revenues. What can we expect,
do you think, that the impact would be then on the U.S.
Treasury and State budgets?
Does anyone have an answer?
Mr. Wootton. It would be significant. The testimony I gave
earlier, we're talking about an economy of $4 billion for
biodiesel and you'd be limiting the number one feedstock that
we use to make that fuel at a time where we need jobs. What I
got out of this morning's first hearing was, it was our best
guess efforts to this process. I think trying to apply that
thinking to something that's so good for this country, creating
jobs, creating energy, shovel-ready energy independence, I
think that's the wrong approach to be using best guess efforts
on eliminating something so good.
Chairwoman Dahlkemper. Mr. Gaesser, do you want to comment
on that?
Mr. Gaesser. Yes, the information that ASA has would be
$866 million in tax revenue to the Federal Government.
Chairwoman Dahlkemper. $800--
Mr. Gaesser. $866 million.
Chairwoman Dahlkemper. To the U.S. Treasury?
Mr. Gaesser. Yes.
Chairwoman Dahlkemper. Thank you. Mr. Bafalis, you indicate
that you expect small producers will fail this year without
help. How long do you believe they can survive without a
renewable fuel standard?
Mr. Bafalis. I think quite a few have probably gone under.
I know in the Houston area, we're probably the only one of five
running right now. It really depends on how much money they
have, but basically we're all burning cash. We're just staying
there spending money and not doing very much. So if this goes
beyond or well into the fourth quarter, I think most of the
industry will end up failing.
Chairwoman Dahlkemper. Would an emergency RFS issued by EPA
for biodiesel help you survive at this point?
Mr. Bafalis. Immensely. That would get the customers back.
That would get major oil to start buying the product and we'd
all be back in business.
Chairwoman Dahlkemper. Thank you. I'll now recognize Mr.
Westmoreland, the Ranking Member.
Mr. Westmoreland. Thank you, Madam Chair. And I'll open
this up to any of you. Were any of you ever contacted in your
professional positions as to what effect any of these rule
changes or any of this legislation that's been passed here
would affect your business or your ability to do business?
Mr. Bafalis. Directly, no.
Mr. Gaesser. I just talked to Tom and ASA had no one from
EPA contact them. You would think they would.
Mr. Westmoreland. You would.
Mr. Duvall. Congressman, I can't speak for American Farm
Bureau, but Georgia Farm Bureau has not been contacted.
Mr. Westmoreland. Any from the educational?
Mr. Duvall. Not that I know of.
Mr. Westmoreland. Academic, okay. That's one of the
problems that we have up here. We--and I guess I'll include
myself in on this, but a lot of times people up here think they
know more about your business than you know and especially that
goes for the elected and the not elected sometimes are even
worse, as far as writing some of these rules and regulations.
Mr. Bafalis, you mentioned the--I believe it was you that
mentioned the grants, the USDA, about the ones that produced
151 gallons or more or was it you--
Mr. Wootton. It was me.
Mr. Westmoreland. Mr. Wootton.
Mr. Wootton. Yes.
Mr. Westmoreland. Okay. You mentioned that. Is that going
to be, how many gallons do you produce or do you all produce
that--
Mr. Wootton. We have a capacity of 20 million gallons a
year, but we're only producing about 2, so the 150 million
gallon benchmark for the 95 percent of the funds available is
going to include most of the industry, maybe a handful of
producers that are over that capacity.
Mr. Westmoreland. So that would probably include 99 percent
of them?
Mr. Wootton. I would say.
Mr. Westmoreland. Since there are very few that probably
produce more than that.
Mr. Wootton. Yes.
Mr. Westmoreland. And let me ask Dr. Das a question. You
know all the money that we're spending that goes along with
green energy or whatever, what percentage of that is going into
studying it, you know, looking at the consequences of it and
how it's paying off? How much of that is going into that part
of the science, rather than just giving it to folks that are
kind of leading the charge on this?
Mr. Das. Congressman, I don't know the exact numbers, but I
keep track of a lot of the funding opportunities that come out
from the USDA, DOE. Most of those are in either the development
of technology or conversion aspects and as far as I remember
there's not any that actually looks at the impacts of
technology on the wider economy or the environment that is
directly available.
Mr. Westmoreland. And how about the research and
development of these different types of things. You mentioned
the biochar. How much money out of this, let's just use the
stimulus package.
Mr. Das. Yes.
Mr. Westmoreland. The billions of dollars that we had
there, how much of that money went into research and
development on some of these biofuels?
Mr. Das. As far as I know there's no money in there for
biochar and it is listed, it is authorized under the Farm Bill,
but it has not been picked up by the federal agencies and
supported.
Mr. Westmoreland. Thank you. Mr. Duvall, you were talking
about the forest part of it, the managed forest, I guess, as
far as the biomass.
Mr. Duvall. Right.
Mr. Westmoreland. Can you explain how this rule is kind of
working against us on that?
Mr. Duvall. In Georgia, according to the Georgia Forestry
Commission, we have about 28 million acres of forest land with
biomass on it. And under the definition that's in this act,
only about 7 million of those 25 million would be classified in
that range. A lot of the small family farms are just not going
to be able to fit under that definition because they're not a
tree plantation.
Mr. Westmoreland. And the word there was managed.
Mr. Duvall. Right, a managed tree plantation.
Mr. Westmoreland. And why would they include that language,
to so narrowly focus on it? Do you have any reason?
Mr. Duvall. You know, I can speculate what their intent
was. It maybe go back to how land is being used and what the
potential of the trees that might be cut if they let all of it
be accessible, but in Georgia, we're going to grow the biomass.
If it's cut, it's going to be replanted, and we're going to
grow jobs. We're going to grow jobs with trees. That's just
what we do in Georgia, because that land is what it does best.
Mr. Westmoreland. And Dr. Das, you're a professional in
this, but some of those trees that we have and that may be on
some of these farms that fall and are rotting, don't they put
off an emission that's bad for the atmosphere?
Mr. Das. Absolutely. Most trees generally have a lifecycle
of about 30 years and all that carbon is simply going back into
the atmosphere.
Mr. Westmoreland. And so all of these trees I see where
it's got the beetle infestation and dying and stuff, if they're
on somebody's private land, it's not on one that's managed,
that doesn't count, right?
Mr. Das. Yes, that's correct. Ideally, that good biomass
that could go very well into the process of biofuel production.
Mr. Westmoreland. Thank you.
Chairwoman Dahlkemper. Following up on that, what would you
say would be, Mr. Duvall, the potential income to farmers, if
just half of the private forest land were eligible?
Mr. Duvall. I'd be scared to really say that, but we could
do some more research and try to get that to you, Madam
Chairwoman. But it would be significant. I assure you.
Chairwoman Dahlkemper. Also, I guess, Mr. Gaesser, what
would farmers do in terms of replacing lost demand for soybeans
if the impact is what we think it could be for soybean demand?
Mr. Gaesser. There's been a really great benefit from the
farmers' perspective when we have--since the biodiesel industry
has been expanded because it's increased our market. It's given
us an opportunity to market excess soybean oil in the United
States to our biodiesel producers. And we have some studies
that indicate that last summer as much as $2 a bushel of the
price of soybeans was equated to biodiesel. Currently it's less
than that, but it's still a huge benefit to family farmers,
soybean producers around the country.
Chairwoman Dahlkemper. And could they go into another
feedstock?
Mr. Gaesser. We would be back to an excess supply of
soybean oil and it would have to be exported or it would just
set in storage and that's just a detriment to the price of
soybeans. It's one component that we always have. So when the
value of soybean oil is low, it hurts the value of our soybeans
that we sell to the processor.
Chairwoman Dahlkemper. But can they convert to another
feedstock or some other--
Mr. Gaesser. The biodiesel industry?
Chairwoman Dahlkemper. Or for some other use? That's what
I'm asking, I guess.
Mr. Gaesser. There's always the possibility, but it would
probably require exports.
Chairwoman Dahlkemper. Because one of the problems I
understand now is the price of soybeans is so high and the
price of gasoline is so low. T economics just aren't there.
Mr. Gaesser. We're all in a Catch-22 on that. It's good for
me.
Chairwoman Dahlkemper. It's good for you.
Mr. Gaesser. But it's not so good for biodiesel and that's
the reason we need the bioenergy program to help through this
shock that we have and to help through the disparity of values,
I think.
Chairwoman Dahlkemper. Part of the thing is that it's such
a young industry and we're still trying to figure out what the
balance of it is.
Mr. Gaesser. That's the problem.
Chairwoman Dahlkemper. I'm going to ask one final question
and I'll just ask for each of you to give me a quick answer. If
there's one thing you would like to see Congress do right now
to help this industry, save it, help it to grow, move forward,
what would that one thing do?
We'll start with Mr. Noble.
Mr. Noble. Well, to simplify it all, I would just look for
a two percent mandate across the board, federally.
Chairwoman Dahlkemper. Thank you.
Mr. Wootton. I agree with that. The RFS2 kind of does that
in the sense. Pennsylvania has implemented a B2.
Chairwoman Dahlkemper. Two percent. Are there four states
right now? Pennsylvania is the fourth one.
Mr. Wootton. There's three right now.
Chairwoman Dahlkemper. Who are the other states?
Pennsylvania just passed.
Mr. Wootton. Pennsylvania, Minnesota, and Washington.
Chairwoman Dahlkemper. Massachusetts, okay. So you would
agree with that, Mr. Wootton?
Mr. Wootton. Yes.
Mr. Bafalis. Of course, I'd like a mandate, but what you
could do now is to get the RSW out without the indirect land
use. That would get the market opened up.
Mr. Gaesser. I would have to agree with the indirect land
use issue, but also the extension of the tax credit is really
important too.
Mr. Duvall. Expansion of the definition of forest biomass
would be most beneficial to our state.
Chairwoman Dahlkemper. Dr. Das?
Mr. Das. I would agree with that and that we diversify the
options of biodiesel crops.
Chairwoman Dahlkemper. Thank you. I yield to Mr.
Westmoreland.
Mr. Westmoreland. Thank you, and just a couple of
questions.
Mr. Duvall, could you find out for us and submit it to the
Committee for record if the American Farm Bureau was ever
contacted about any of these rules that have been implemented.
Mr. Duvall. We plan to. And I would say and I sat on the
Board of Directors, American Farm Bureau, and I said they would
love to be able to debate the issues around that with EPA.
Mr. Westmoreland. And we may do that. We'll ask the
chairlady to look into that.
Mr. Bafalis, you made a point that I never really had
thought about until you made it, in the fact that by pushing
back this mandate or whatever it is costing you business and
people not wanting to do that.
Have you talked to anybody, has your industry made that
known about this pushback and what it's--that they're kind of
destroying the people that's trying to promote what we're
trying to get going here?
Mr. Bafalis. I don't know if I've talked to our association
about it, but I think all of us know that the customers are
waiting. Just by delaying it at all.
Mr. Westmoreland. That's a big deal.
Mr. Bafalis. It's huge.
Mr. Westmoreland. That's a big deal and I would hope that
you all have an association that you've gotten together with
that you could let them know what kind of impact that that's
having.
The other thing I wanted to ask all of you, as far as the
outlet for these biofuels, I know that you know if I go to the
gas station sometimes on the pump it says this could contain up
to 10 percent ethanol or whatever it is. What percentage could
you go to in some of these products to--what would be the max?
Mr. Wootton. You could actually go to 100 percent. The
vehicle I drove in here today runs on 100 biodiesel.
Mr. Westmoreland. So it runs on 100 percent biodiesel.
Mr. Wootton. You can't without modifying your vehicle. The
challenge with 100 percent in cold months is it will gel at 32
degrees, so if you blend it down to a B2, B5, B10, B20 that
we're talking about in public policy, you don't have a big
adjustment on when the product starts to freeze.
In reality, there's not enough feedstocks to get beyond a
B20. Even a B10 and some people would argue. So what we're
talking about is getting this product out there at small levels
at B2, B5 blends, no modification to your vehicles, no
modifications to your home heating system, no modification to
your transportation system.
Mr. Westmoreland. At what point do you have to have
modifications, I guess?
Mr. Wootton. You don't really.
Mr. Westmoreland. You don't? You burn 100 percent?
Mr. Wootton. I can burn it, as opposed to other products
you have challenges with it. But in reality, you can't go,
there's not a feedstock available whether you leave soybean in
or not to get to these levels, yet. But as research continues,
and we improve the yield of content of the bean or we find
success in algae or camelina, trotrophal, all of these products
are coming out. As you said, this is a new industry. We've got
to do everything now to keep it going to get to these advances,
as opposed to trying to do things to put barriers up and let it
go away.
Mr. Westmoreland. I don't have any further questions. I
yield back the balance of my time.
Chairwoman Dahlkemper. I thank the panel for coming today
and for your testimony. It's certainly a very important
industry, in our country going forward. I ask unanimous consent
that Members will have five days to submit statements and
supporting materials for the record. Without objection, so
ordered. Thank you again to the panel. This hearing is now
adjourned.
[Whereupon at 1:05 p.m., the hearing was concluded.]
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