[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
HEARING TO REVIEW THE FUTURE OF NEXT GENERATION BIOFUELS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON CONSERVATION, CREDIT,
ENERGY, AND RESEARCH
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
OCTOBER 29, 2009
__________
Serial No. 111-35
Printed for the use of the Committee on Agriculture
agriculture.house.gov
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53-867 WASHINGTON : 2009
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COMMITTEE ON AGRICULTURE
COLLIN C. PETERSON, Minnesota, Chairman
TIM HOLDEN, Pennsylvania, FRANK D. LUCAS, Oklahoma, Ranking
Vice Chairman Minority Member
MIKE McINTYRE, North Carolina BOB GOODLATTE, Virginia
LEONARD L. BOSWELL, Iowa JERRY MORAN, Kansas
JOE BACA, California TIMOTHY V. JOHNSON, Illinois
DENNIS A. CARDOZA, California SAM GRAVES, Missouri
DAVID SCOTT, Georgia MIKE ROGERS, Alabama
JIM MARSHALL, Georgia STEVE KING, Iowa
STEPHANIE HERSETH SANDLIN, South RANDY NEUGEBAUER, Texas
Dakota K. MICHAEL CONAWAY, Texas
HENRY CUELLAR, Texas JEFF FORTENBERRY, Nebraska
JIM COSTA, California JEAN SCHMIDT, Ohio
BRAD ELLSWORTH, Indiana ADRIAN SMITH, Nebraska
TIMOTHY J. WALZ, Minnesota ROBERT E. LATTA, Ohio
STEVE KAGEN, Wisconsin DAVID P. ROE, Tennessee
KURT SCHRADER, Oregon BLAINE LUETKEMEYER, Missouri
DEBORAH L. HALVORSON, Illinois GLENN THOMPSON, Pennsylvania
KATHLEEN A. DAHLKEMPER, BILL CASSIDY, Louisiana
Pennsylvania CYNTHIA M. LUMMIS, Wyoming
ERIC J.J. MASSA, New York
BOBBY BRIGHT, Alabama
BETSY MARKEY, Colorado
FRANK KRATOVIL, Jr., Maryland
MARK H. SCHAUER, Michigan
LARRY KISSELL, North Carolina
JOHN A. BOCCIERI, Ohio
SCOTT MURPHY, New York
EARL POMEROY, North Dakota
TRAVIS W. CHILDERS, Mississippi
WALT MINNICK, Idaho
______
Professional Staff
Robert L. Larew, Chief of Staff Nicole Scott, Minority Staff
Andrew W. Baker, Chief Counsel Director
April Slayton, Communications
Director
(ii)
?
Subcommittee on Conservation, Credit, Energy, and Research
TIM HOLDEN, Pennsylvania, Chairman
STEPHANIE HERSETH SANDLIN, South BOB GOODLATTE, Virginia, Ranking
Dakota Minority Member
DEBORAH L. HALVORSON, Illinois JERRY MORAN, Kansas
KATHLEEN A. DAHLKEMPER, SAM GRAVES, Missouri
Pennsylvania MIKE ROGERS, Alabama
BETSY MARKEY, Colorado STEVE KING, Iowa
MARK H. SCHAUER, Michigan RANDY NEUGEBAUER, Texas
LARRY KISSELL, North Carolina JEAN SCHMIDT, Ohio
JOHN A. BOCCIERI, Ohio ADRIAN SMITH, Nebraska
MIKE McINTYRE, North Carolina ROBERT E. LATTA, Ohio
JIM COSTA, California BLAINE LUETKEMEYER, Missouri
BRAD ELLSWORTH, Indiana GLENN THOMPSON, Pennsylvania
TIMOTHY J. WALZ, Minnesota BILL CASSIDY, Louisiana
ERIC J.J. MASSA, New York
BOBBY BRIGHT, Alabama
FRANK KRATOVIL, Jr., Maryland
SCOTT MURPHY, New York
WALT MINNICK, Idaho
EARL POMEROY, North Dakota
Nona Darrell, Subcommittee Staff Director
(iii)
C O N T E N T S
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Page
Goodlatte, Hon. Bob, a Representative in Congress from Virginia,
opening statement.............................................. 2
Holden, Hon. Tim, a Representative in Congress from Pennsylvania,
opening statement.............................................. 1
Prepared statement........................................... 2
Latta, Hon. Robert E., a Representative in Congress from Ohio,
prepared statement............................................. 4
Peterson, Hon. Collin C., a Representative in Congress from
Minnesota, prepared statement.................................. 4
Smith, Hon. Adrian, a Representative in Congress from Nebraska,
prepared statement............................................. 5
Witnesses
Tonsager, Hon. Dallas P., Under Secretary for Rural Development,
U.S. Department of Agriculture, Washington, D.C.; accompanied
by Todd Atkinson, Senior Advisor, Energy and Environment, Farm
Services Agency, U.S. Department of Agriculture................ 5
Prepared statement........................................... 7
Shah, M.D., Hon. Rajiv, Under Secretary of Research, Education,
and Economics, U.S. Department of Agriculture, Washington, D.C. 10
Prepared statement........................................... 12
Rosenthal, Mary, Executive Director, Algal Biomass Organization,
Preston, MN.................................................... 34
Prepared statement........................................... 35
Ellerbusch, Susan, President, BP Biofuels North America LLC,
Warrenville, IL................................................ 36
Prepared statement........................................... 38
Roe, William J., President and CEO, Coskata, Inc., Warrenville,
IL............................................................. 43
Prepared statement........................................... 45
Jamerson, Bruce A., Chairman, Board of Directors, Mascoma
Corporation, Lebanon, NH....................................... 50
Prepared statement........................................... 51
Shealy, L. Craig, President, CEO, and Co-Founder, Osage Bio
Energy, LLC, Glen Allen, VA.................................... 54
Prepared statement........................................... 56
Submitted Material
Gray, Ph.D., Kevin Gray, Chief Technology Officer, Qteros, Inc.,
submitted statement............................................ 71
Gutterson, Neal, CEO; and Ikonen, Greg, General Counsel, Mendel
Biotechnology, Inc., submitted statement....................... 72
HEARING TO REVIEW THE FUTURE OF NEXT GENERATION BIOFUELS
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THURSDAY, OCTOBER 29, 2009
House of Representatives,
Subcommittee on Conservation, Credit, Energy, and
Research,
Committee on Agriculture,
Washington, D.C.
The Subcommittee met, pursuant to call, at 10:05 a.m., in
Room 1300 of the Longworth Building, Hon. Tim Holden [Chairman
of the Subcommittee] presiding.
Members present: Representatives Holden, Herseth Sandlin,
Halvorson, Dahlkemper, Markey, Schauer, Kissell, Boccieri,
McIntyre, Costa, Murphy, Peterson (ex officio), Goodlatte,
Moran, Schmidt, Smith, Latta, Luetkemeyer, Thompson, Cassidy,
and Minnick.
Staff present: Nona Darrell, Craig Jagger, John Konya,
Robert L. Larew, James Ryder, Anne Simmons, April Slayton,
Rebekah Solem, Patricia Barr, Josh Maxwell, Jamie Mitchell, and
Sangina Wright.
OPENING STATEMENT OF HON. TIM HOLDEN, A REPRESENTATIVE IN
CONGRESS FROM PENNSYLVANIA
The Chairman. This hearing of the Subcommittee on
Conservation, Credit, Energy, and Research to review the future
of the next generation biofuels will come to order. I would
like to welcome our witnesses and guests at today's hearing to
break our nation's dependence on foreign oil.
It is important to develop a diverse portfolio of energy
alternatives including renewable, homegrown biofuels. Today we
hope to hear about these energy programs and initiatives from
both the Administration as well as industry representatives. In
order to meet our commitment, it will take a public and private
partnership. Congress has taken many positive steps to ensure a
viable biofuels industry. Over the past few decades we have
also seen an expanding list of Federal, state and local
incentives, regulations and programs that have helped encourage
renewable energy production and use.
I look forward to hearing about these initiatives from the
Under Secretaries representing USDA this morning. The
distinguished panel before us today also represents a broad
cross-section of private companies on the frontier of next
generation biofuels. While we have four companies represented
on today's panel, we could have easily had 400, each with
unique and exciting breakthrough technologies that are being
advanced in the next generation of biofuel development. I have
had the opportunity to visit with and learn from many of these
companies and look forward to continuing that work to highlight
their good efforts in this field.
Today we hope to gain an industry perspective on current
challenges and future opportunities in the renewable biofuels
market, as well as the current state of public and private
financing to make certain projects are online and production
goals remain on track. While the market is rapidly growing and
changing, significant challenges remain. In addition to a
global economic downturn, the restrictive definition of
renewable biomass and the required consideration of emissions
related to advanced biofuels from indirect land use contained
in the renewable fuel standard of the Energy Independence and
Security Act of 2007 are problematic. I think we can do more to
increase our use of renewable agriculture fuels and become
energy independent, and I look forward to hearing from the
witnesses and guaranteeing agriculture's continued role in
producing renewable fuels and energy.
[The prepared statement of Mr. Holden follows:]
Prepared Statement of Hon. Tim Holden, a Representative in Congress
from Pennsylvania
I would like to welcome our witnesses and guests to today's
hearing. To break our nation's dependence on foreign oil, it is
important to develop a diverse portfolio of energy alternatives
including renewable, home-grown biofuels. Today, we hope to hear about
these energy programs and initiatives from both the Administration as
well as industry representatives. In order to meet our commitment, it
will take a public and private partnership.
Congress has taken many positive steps to ensure a viable biofuels
industry. Over the past few decades, we've also seen an expanding list
of Federal, state, and local incentives, regulations, and programs that
have helped encourage renewable energy production and use. I look
forward to hearing about these initiatives from the Under Secretaries
representing USDA.
The distinguished panel before us today also represents a broad
cross section of private companies on the frontier of next generation
biofuels. While we have four companies represented on today's panel, we
could have easily had 400, each with unique and exciting breakthrough
technologies that are being advanced in the next generation of biofuel
development. I have had the opportunity to visit with and learn from
many of these companies and look forward to continuing that work to
highlight their good efforts in the field.
Today, we hope to gain an industry perspective on current
challenges and future opportunities in the renewable biofuels market,
as well as the current state of public and private financing to make
certain projects are online and production goals remain on track.
While the market is rapidly growing and changing, significant
challenges remain. In addition to a global economic downturn, the
restrictive definition of renewable biomass and the required
consideration of emissions related to advanced biofuels from indirect
land use contained in the Renewable Fuel Standard of the Energy
Independence and Security Act of 2007 are problematic.
I think we can do more to increase our use of renewable
agricultural fuels and become energy independent. I look forward to
hearing from the witnesses and guaranteeing agriculture's continued
role in producing renewable fuels and energy.
The Chairman. Now, I recognize the Ranking Member of the
Subcommittee, the gentleman from Virginia, Mr. Goodlatte.
OPENING STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN
CONGRESS FROM VIRGINIA
Mr. Goodlatte. Well, thank you, Mr. Chairman, and I would
like to thank you for holding today's hearing.
It is important that we review the future of next
generation biofuels. Over the past couple of years, this
Committee has thoroughly reviewed energy issues affecting rural
America. Much of that discussion has been about the growth of
renewable fuels and its opportunities and consequences for
agriculture.
The Federal Government has played a big part in the early
development of renewable fuels by creating an expanded
Renewable Fuels Standard along with tax credits for ethanol,
biodiesel and now advanced biofuels. This Committee worked to
create a new energy title in the 2008 Farm Bill with the intent
of helping the biofuels industry move towards the
commercialization of advanced biofuels. However, the expanded
RFS creates an unrealistic mandate for conventional corn
ethanol by prohibiting the use of biomass from new crop acres.
This restriction will make it difficult, if not impossible, for
producers to meet the food and fiber demands of our consumers
while also meeting the mandate set in the RFS.
We also face a major problem in the transition from grain-
based fuels to cellulosic biofuels if we restrict the
cellulosic feedstocks from forests and agricultural lands that
can be used to meet the RFS. To meet the needs of our energy
consumption and to open more markets for our agricultural
products, it is essential that we move away from feed-based
ethanol and develop commercially viable advanced biofuels. This
technology has enormous potential to create renewable fuels
across the nation, but these goals can only be accomplished if
we develop a biofuels policy that works. That is why I
cosponsored legislation with Chairman Peterson that removes
indirect land use from the RFS lifecycle analysis and creates a
new biomass definition, which expands the amount of eligible
feedstocks that can be used to meet the RFS mandate.
We must continue to pave the way for second generation
biofuels to create energy diversity and not limit our homegrown
feedstocks. The use of forest biomass for biofuels creates
markets for byproducts of forest improvement products. Almost
\2/3\ of the Commonwealth of Virginia is forested as is much of
the southeastern U.S. Trees are an abundant resource and are
available for conversion into both paper and biofuels year-
round. Let me also add that like forestry biomass, Virginia's
many agricultural commodities and animal waste products also
have the potential to be essential and beneficial resources of
a renewable fuel.
Additionally, I am also looking forward to the testimony
from the witnesses about algae biomass. Research in this area
is taking place in Virginia and, specifically, in my district
at James Madison University. I have also had the opportunity to
tour Solazyme, Incorporated in California, a leader in algal
biotechnology. I believe that algal biomass has the potential
to be a bridge technology between agriculture, energy and
biotechnology, and I look forward to hearing more about the
commercialization of this technology.
I also look forward to listening to how the USDA is working
to fund the research and production of advanced biofuels. I am
interested in learning more about how the private sector is
investing dollars in the renewable energy sector. Today's
hearing will help guide us in how we should shape future
renewable energy programs.
Again, I thank you, Mr. Chairman, for holding this hearing
and I look forward to hearing from today's witnesses.
The Chairman. The chair thanks the gentleman and would ask
all other Members of the Subcommittee to submit their opening
statements for the record.
[The prepared statements of Messers. Peterson, Latta, and
Smith follow:]
Prepared Statement of Hon. Collin C. Peterson, a Representative in
Congress from Minnesota
Thank you, Chairman Holden for holding this hearing today. Advances
in the biofuels industry are transforming the way we think about energy
production in the United States and around the world. The next
generation of renewable fuels will be built on the success of corn-
based ethanol and biodiesel, which means that we must continue to
support the work of today's biofuels producers in order to give new
technologies time for development and implementation. While roadblocks
remain and critics still fail to recognize the improvements and
advances the industry has already made, the promise of next generation
biofuels is exciting, and it is my intention to do everything I can to
see it succeed.
Government policies can either help or hinder advances in the
biofuels industry. Right now, there are proposals out there and
programs in place that do both. We created financing programs at USDA
and the Department of Energy. However, not all of the funding that
should be available to support the industry is getting out because of
delays in rulemaking and regulations in place that put biofuels
facilities at a disadvantage for some credit programs. The credit
situation also changed after we wrote the farm bill programs, so access
may be further limited, and I look forward to working with USDA to fix
that. I am interested to hear from some of the companies here today
about the challenges and opportunities they have experienced when
trying to access the resources they need, both from government and
private sources.
Another area where government policy could hinder the industry is
in the form of ill-advised restrictions on biofuels based on
international indirect land use calculations and restrictive
definitions of biomass. We have discussed these issues in previous
hearings, and I included language in the House-passed climate change
bill to prevent such restrictions from stifling this growing industry.
We can't expect the next generation of biofuels to materialize if we
don't allow the industry to succeed in the first place.
Despite some roadblocks and challenges, there is some exciting
research being done that can turn the promise of next generation
biofuels into reality. Working together, government, academic and
private research have made great strides in this area, and today we'll
hear more about what this means for the future of the industry.
Thank you to our witnesses for joining us today, and I look forward
to the testimony.
______
Prepared Statement of Hon. Robert E. Latta, a Representative in
Congress from Ohio
Good morning, Chairman Holden and Ranking Member Goodlatte.
I would like to welcome our two distinguished panels of witnesses
from the private sector and the USDA to discuss America's future on
next generation biofuels. A simple premise in this day and age is that
we cannot predict with any certainty what energy prices will be, what
the supply and demand will be, or what our economy will look like in
the future. Energy is plays a central role in our economy and
alternative energy such as biofuels will directly impact the
availability of jobs, our incomes and the quality of our lives for many
years to come.
These sources of alternative energy are an important step towards
energy independence. If we do not use these resources and address these
issues now, the rest of the world will pass us by. The Fifth
Congressional District in Ohio is ahead of the curve in alternative
energy sources as it is home to solar panel manufacturing, wind
turbines, ethanol, geothermal, and biodiesel. There is also a process
for coal gasification and development of a hydrogen engine is also
occurring in the Fifth Congressional District.
We are all aware that one source of energy is not one answer to our
energy challenges. Our country needs not only biofuels, but also wind,
solar, hydro in addition to nuclear, clean coal technology and more
domestic oil and natural gas production. If we are going to achieve
energy independence, we must use all available sources in a manner that
is economically viable and environmentally sound.
I hope that today's hearing will help start moving our future use
of biofuels and other sources of alternative energy in the right
direction towards bringing jobs back, and bringing more alternative
sources of energy to America and further developing the ones already in
existence. The panelists who have been invited to testify have varied
backgrounds will speak about various aspects.
Northern Ohio has a future in this country to be a leader in
alternative energies such as biofuels. I look forward to hearing from
our witnesses and thank you for your insight and testimony.
Thank you and I look forward to working with my colleagues on the
House Committee on Agriculture on this very important issue.
______
Prepared Statement of Hon. Adrian Smith, a Representative in Congress
from Nebraska
Thank you, Mr. Chairman:
In 2008, I supported a farm bill which promoted the critical,
timely development of our nation's biofuels industry and confirmed
Congress is serious about decreasing our dependence on foreign oil.
I have long advocated an all-of-the-above approach for America's
energy policy. Advancing our nation's biofuels industry will have
significant environmental benefits, promote energy independence, create
jobs, and stimulate local economies across the nation at a time when
our country needs it most.
I appreciate the Subcommittee holding this hearing to review issues
facing the advanced biofuels industry. I look forward to hearing the
observations and recommendations of our witnesses.
Thank you. I yield back.
The Chairman. We now welcome our first panel, Mr. Dallas
Tonsager, Under Secretary for Rural Development in the United
States Department of Agriculture, and Dr. Shah, Under Secretary
for Research, Education, and Economics, U.S. Department of
Agriculture. We also have Mr. Atkinson from FSA who is here
with us today. We did not ask Mr. Atkinson to testify because
the majority of jurisdiction will be with Rural Development but
some Members of the panel might have a question or two for you,
Mr. Atkinson.
Mr. Tonsager, you may begin when you are ready
STATEMENT OF HON. DALLAS P. TONSAGER, UNDER
SECRETARY FOR RURAL DEVELOPMENT, U.S. DEPARTMENT OF
AGRICULTURE, WASHINGTON, D.C.; ACCOMPANIED BY TODD ATKINSON,
SENIOR ADVISOR, ENERGY AND
ENVIRONMENT, FARM SERVICES AGENCY, U.S.
DEPARTMENT OF AGRICULTURE
Mr. Tonsager. Thank you, Mr. Chairman, and Members of the
Subcommittee. I appreciate this opportunity to talk about
second and third generation biofuels.
Accelerating the deployment of advanced biofuels is a high-
priority for President Obama and for USDA. I know that this
Subcommittee, and the Congress as a whole, share that
commitment. You gave us a clear mandate in the 2008 Farm Bill
and we look forward to working with you to get the job done.
I am privileged today to be testifying with Dr. Rajiv Shah,
Agriculture Under Secretary for Research, Education, and
Economics. Dr. Shah will describe REE's cutting edge research
in both basic and applied science related to advanced biofuels.
There is exciting work going on as well elsewhere in the
government, in the private sector, in the universities and
abroad. The potential of advanced biofuels is widely
recognized. The question that we all have, of course, is how
rapidly can this potential be unlocked? Over the past decade,
the United States became the world leader in biofuels,
principally in corn ethanol. All of us recognize, however, that
we have a remarkable opportunity today to diversify the
feedstock base and add second and third generation biofuels to
the nation's fuel mix. I am confident that this will happen.
This is essentially a story of converging cost curves.
Since the beginning of this decade, we have witnessed the price
of oil march from around $20 a barrel to nearly $150 a barrel
18 months ago and down to $78 a barrel yesterday. I do not know
what the price of oil will be 5 or 10 years down the road, but
I do know the recession is ending. Global energy and demand
will continue to rise; environmental constraints will continue
to intensify, and for all these reasons the need to
commercialize advanced biofuels will continue to mount.
Our task is to help accelerate that transition. On May 5,
2009, the President's directive on biofuels and economic
development mandated implementation of most of our new,
renewable energy farm bill programs within 30 days. We met that
target. In the Biorefinery Assistance Program, we have
completed two application rounds, two awards have been
announced and two more applications from initial rounds remain
under consideration. As potential applicants gain familiarity
with this program and as the national economy continues to
recover, we anticipate continued growth and interest in
applications in this program.
The Repowering Assistance Program is also on track. The
farm bill made available $35 million in mandatory funding to
remain available until expended. Of this total, $20 million was
allocated for the initial funding round which was advertised in
June of 2009, with the application window closing on November
1. As of October 28, one application has been received. We
anticipate that a proposal and final rule be published in late
2010, with the remaining funds to be available at that time.
The Bioenergy Program for Advanced Biofuels provides
payments for eligible agricultural producers to expand
production of advanced biofuels. Funds are distributed for the
previous year's production. We received 180 applications for
Fiscal Year 2009 production, and of these 160 were deemed
eligible. Thiry million dollars was allocated to Fiscal Year
2009, and production will be paid as a one-time payment during
the first quarter of Fiscal Year 2010.
While not targeted specifically to advanced biofuels, the
Rural Energy for America Program is also available as a
potential source of support. From Fiscal Year 2001 through
2008, Rural Development invested over $195 million in 96
ethanol and biodiesel projects. Twenty-seven of these projects
were funded through the Section 9006 Program. Biofuels are
already an area of concentration and expertise and the
transition to advanced biofuels is a logical evolution of the
existing program.
Finally, as advanced biofuel technologies develop, we
anticipate that many will become eligible for more conventional
forms of financing including the Business and Industry Loan
Guarantee Program. In the long run, our expectation is that
successful technologies will graduate to full private
financing. We will have succeeded fully when our assistance is
no longer needed.
In the short run, we still face an economic recession
compounded by an unprecedented credit crisis. These factors
have affected capital investment in all sectors including
investment in new and emerging technologies, but these factors
are inherently temporary. In the long run, all of us understand
that advanced biofuels are a critical priority. The President
and USDA are fully committed to the goal and we look forward to
working with you to keep this vital initiative on track.
Thank you.
[The prepared statement of Mr. Tonsager follows:]
Prepared Statement of Hon. Dallas P. Tonsager, Under Secretary for
Rural Development, U.S. Department of Agriculture, Washington, D.C.
Mr. Chairman and Members of the Subcommittee, thank you for this
opportunity to appear before you to discuss the future of second and
third generation biofuels.
President Obama and the Department believe that the research and
commercialization of second and third generation has enormous potential
to reduce our dependence on fossil fuels. The Department is anxious to
work with other Federal agencies as well as the private sector the make
this potential a reality.
I know that this Subcommittee, and a bipartisan majority in the
Congress as a whole, share that commitment, as reflected in the Food,
Conservation, and Energy Act of 2008 [2008 Farm Bill]. I therefore want
to begin by commending your vision and leadership in this effort, and
by acknowledging the critical contributions made by our partners
elsewhere in government and in the private sector as well.
Today I will be discussing USDA Rural Developments advanced
biofuels programs but I would be remiss if I failed to note that we are
one part of much broader departmental and Federal effort. Secretary
Vilsack has articulated a strategic vision for rural America that
emphasizes a safe, abundant, and secure food supply; rural communities
that are vibrant, self-sustaining, and repopulating; an emphasis on
local and regional food networks; a commitment to economic opportunity
and wealth creation in rural America; and a recognition of the
importance of our nation's farms and forests in the global battle
against greenhouse gas emissions. The transition to second and third
generation biofuels is a key part of that strategy.
Advanced biofuels hold the potential to transform America's fuel
supply, enhance our national security and energy security, reduce our
carbon footprint, and foster economic growth in rural America. This is
an enormous opportunity, and it will require the best efforts of many
parties in many sectors--the Federal Government, national and
university labs, state and local governments, and the private sector--
to ensure that these multiple potentials are realized.
USDA is a leader in this area, on several fronts. I am privileged
today to be testifying with Dr. Rajiv Shah, Agriculture Under Secretary
for Research, Education, and Economics (REE). Dr. Shah will describe
described REE's cutting edge research in both basic and applied science
related to advanced biofuels.
At USDA Rural Development, in addition to our other economic
development activities, we begin with the challenge of helping emerging
renewable energy technologies become commercially viable. Once
commercial feasibility is demonstrated, we support the build out of the
advanced biofuels industries in rural communities. We work to ensure
that agriculture producers, rural entrepreneurs, rural businesses, and
rural communities share fully in the economic rewards of rural
renewable energy.
America's--and the world's--energy systems are changing. This will
be a long process requiring vision, determination, and leadership--but
it is within our reach to give our children and grandchildren a
cleaner, domestically produced, environmentally sustainable, and secure
energy system. The Obama Administration is committed to that goal. We
are laying the foundation now, and advanced biofuels are among the most
important near-term deliverables in this long-term transformation.
Congress initially recognized this potential by providing, in the
Farm Security and Rural Investment Act of 2002 [2002 Farm Bill] a
first-ever energy title, which charged USDA with supporting the
development of renewable energy in rural America. The 2008 Farm Bill
built on that foundation and significantly expanded our authorities.
From Fiscal Year 2001 through Fiscal Year 2008, USDA Rural
Development funded 2,489 grants and loans totaling over $860 million
for renewable energy and energy efficiency projects. More than 100 of
these projects and over $200 million of the funding were investments in
biofuels. We are still validating the 2009 figures, which will--in a
single year--add over 1,500 projects and more than $100 million in
aggregate investment to the tally. No fewer than ten separate Rural
Development programs contributed to these totals. Technologies funded
ranged from biofuels and other biomass to wind, solar, geothermal,
hydro, ocean, digesters, and landfill gas recovery systems.
This is already paying dividends. Since the beginning of this
decade, the United States has become a leader in biofuels, wind energy,
geothermal, solar thermal, solar photovoltaics and biomass.
Our topic today is advanced biofuels. A wide range of technologies
are in play. These are at various stages of development. Some are
maturing now and, [as Dr. Shah will discuss], we anticipate a
continuous stream of innovation for the foreseeable future. Our task at
USDA Rural Development is to identify viable technologies as they
emerge from the labs and accelerate their deployment across the private
sector.
In the 2008 Farm Bill, the Congress provided a powerful suite of
programs to support this effort. On May 5, 2009, the President's
Directive on Biofuels and Economic Development required USDA to
implement many of our new renewable energy farm bill programs within 30
days. We met that target and are beginning to show results. I would
like to give you a snapshot of where we stand today:
Section 9003: Biorefinery Assistance Program.
The Biorefinery Assistance Program (Section 9003) is targeted
directly to the commercialization of second and third generation
feedstocks. It provides loan guarantees for the development,
construction and retrofitting of viable commercial-scale biorefineries
producing advanced biofuels, and authorizes grants, subject to annual
appropriations, to help pay for the development and construction costs
of demonstration-scale biorefineries producing advanced biofuels.
Two application rounds have been completed to date. Two awards have
been announced for a total of $105 million and two more applications
from the initial rounds remain under consideration.
For Fiscal Year 2010, the farm bill provided $245 million in
mandatory budget authority an estimated (approximately $691.6 million
in loan guarantees). As potential applicants gain familiarity with this
program and as the national economy continues to recover, we anticipate
continued growth in interest and applications in this program.
Section 9004: Repowering Assistance.
The Repowering Assistance Program (Section 9004) provides payments
for biorefineries (that were in existence at the time the 2008 Farm
Bill was passed) to replace fossil fuels used to produce heat or power
to operate the biorefineries with renewable biomass. The farm bill made
available $35 million in mandatory funding to remain available until
expended. Of this total, $20 million was allocated for the initial
funding round, which was advertised in June 2009 with the application
window closing November 1, 2009. As of October 20, one Section 9004
application had been received. We anticipate that a proposed and final
rule will be published in late 2010 with the remaining funds to be made
available at that time.
Section 9005: Bioenergy Program for Advanced Biofuels.
The Bioenergy Program for Advanced Biofuels (Section 9005) provides
payments for eligible agricultural producers to expand production of
advanced biofuels. The farm bill made available $55 million in
mandatory funding for FY 2009, of which $30 million was allocated.
Of the 180 applications that were received for Fiscal Year 2009
production, 160 applications were deemed eligible. The contract period
was from October 1, 2008 through September 30, 2009. We anticipate that
the $30 million available to support Fiscal Year 2009 production will
be paid as a one-time payment to eligible producers during the first
quarter of Fiscal Year 2010. The remaining $25 million in unexpended FY
2009 funding plus the $55 million in mandatory funding for Fiscal Year
2010 will be available for payment in the first quarter of Fiscal Year
2011 once the public has commented on a proposed rule and a Final Rule
has been issued.
Section 9007: Rural Energy for America Program.
The Rural Energy for America Program (Section 9007) expands and
renames the program formerly called the Renewable Energy Systems and
Energy Efficiency Improvements Program (Section 9006). This program has
provided grants and loan guarantees for energy efficiency and renewable
energy projects ranging from biofuels to wind, solar, geothermal,
methane gas recovery, and other biomass projects. Under the 2008 Farm
Bill, hydroelectric and ocean source technologies were added as
eligible purposes.
For Fiscal Year 2010, the farm bill provided $60 million in
mandatory budget authority. The Fiscal Year 2010 agriculture
appropriation, Public Law 111-80 provides an additional $39, million in
discretionary budget authority.
While not targeted specifically to advanced biofuels, the Section
9007 Program is a potential source of support once advanced biofuels
technologies mature. To be eligible, a project must be commercially
viable. From Fiscal Year 2001 through 2008, Rural Development invested
over $195 million in 96 ethanol and biodiesel projects. Twenty-seven of
these projects were funded through the Section 9007 program.
Other Rural Business Programs.
Looking ahead, as advanced biofuels technologies develop, we
anticipate that many will become eligible for more conventional forms
of financing once they become commercially viable, including USDA Rural
Development's flagship business development program, the Business and
Industry Loan Guarantee Program (B&I). In the long run, our expectation
is that successful technologies will graduate to full private
financing. We will have fully succeeded when our assistance is no
longer needed.
In the short run, we still face an economic recession compounded by
an unprecedented credit crisis. These factors have affected capital
investment in all sectors, including investment in new and emerging
technologies.
At the same time, commodities prices have been unstable. The
conventional ethanol industry has been impacted over the past year,
first by a spike upwards in feedstock prices and then by a recession-
induced collapse of oil prices. Stability and profitability is
returning to that industry, but we are still working our way through a
difficult period.
Finally, there is a degree of policy uncertainty that is affecting
current investment decisions. The President is committed to vigorous
and effective action to reduce the nation's carbon footprint. The time
is now for the United States to lead in the effort to reduce greenhouse
gas emissions. Enactment of the President's climate change initiative
is important for many reasons. Acceleration of the deployment of
advanced biofuels is one of them.
In closing, it is important to note that these challenges and
uncertainties are inherently temporary. In the long run, all of us
understand that we will continue to face the national security
imperative of diversifying away from oil. We will continue to face the
environmental imperative of reducing greenhouse emissions. And as the
global economy rebounds, we will potentially face the supply
constraints that pushed the price of oil from less than $20 a barrel a
decade ago to nearly $150 a barrel just over a year ago.
We will continue to live in global economy, which will place ever-
increasing pressure on commodities prices and legacy business
structures. The need to diversify our energy choices and explore new
technologies is clear, and advanced biofuels will play a strategic role
in ensuring our competitiveness and prosperity in the years to come.
For all these reasons, we are investing now in new technologies
that will pay dividends for decades to come. There are always
uncertainties. There will always be surprises. Neither markets nor
technologies are static. But we are clearly reaching the point at which
biofuels will soon be cost competitive with conventional oil, and the
trend lines are clear.
This is an area where the United States is already a world leader.
We are operating from a position of strength. The Congress clearly
defined the objective in the 2008 Farm Bill, and the Obama
Administration is fully committed to the goal. The present difficulties
notwithstanding, I am optimistic about the future, and I look forward
to working with you to keep this vital initiative on track. Thank you.
The Chairman. Thank you, Mr. Tonsager.
Dr. Shah.
STATEMENT OF HON. RAJIV SHAH, M.D., UNDER SECRETARY OF
RESEARCH, EDUCATION, AND ECONOMICS, U.S.
DEPARTMENT OF AGRICULTURE, WASHINGTON, D.C.
Dr. Shah. Chairman Holden, Ranking Member Goodlatte and
distinguished Members of the Committee, I appreciate the
opportunity to discuss the future of second and third
generation biofuels with you.
I am pleased also to share this panel with my colleague,
USDA Under Secretary for Rural Development Dallas Tonsager. I
appreciate his remarks and I believe we are building a strong
partnership in this area.
Mr. Chairman, Congress has laid out a significant challenge
in producing 36 billion gallons of biofuel by 2022. This is a
substantial goal but one that we can meet or beat. However, I
believe to achieve this goal we will need to dramatically
expand our focus on second and third generation fuels, and
dramatically expand our research portfolios in these areas. In
particular, we will need to focus on third generation fuels.
These are fuels that can directly substitute for gasoline, jet
fuel and diesel and take advantage of America's tremendous
existing fuel infrastructure.
Today more than 9 billion gallons of biofuel are produced
annually by first generation technologies that turn corn grain
starch into ethanol. This is a compliment to American farmers
in the ethanol industry. Ethanol has rapidly grown from meeting
one percent of U.S. gasoline supply in 2000 to seven percent in
2008. A number of factors contributed to this outcome. American
farmers knew how to efficiently produce corn and technology for
producing corn ethanol already was available. Also, increased
corn acreage supported greater ethanol output.
The forward-looking legislation that Congress passed in the
Energy Independence and Security Act of 2007, stipulated that
only 15 billion gallons of the 36 billion can be provided by
ethanol produced from grain. This means that 21 billion gallons
of biofuel will need to come from sources other than grain.
Second generation technologies could turn crop residue and
dedicated energy crops such as perennial grasses or woody
biomass into ethanol. And third generation technologies would
turn a variety of feedstocks directly into advanced fuels that
can directly substitute for existing fuels.
To meet these targets, we will have to accelerate our
efforts to create and deploy these technologies. Our research
portfolio has funded thousands of worthy projects, but there
has been less effective integration of these efforts across
government agencies, and there has not been sufficient focus of
partnering public and private resources to develop economically
viable biofuel supply chains. For example, we are not doing
enough to create high-performing, dedicated feedstocks that are
regionally advantaged in order to maximize yields and minimize
the cost of biomass transport, as well as provide farmers
opportunities to capture more of the value chain and hence earn
greater profits. In addition, market incentives may be
necessary to encourage innovation in business models for second
and third generation fuels.
Our current research programs are important, but are not
sufficiently focused on the key gaps in the supply chain for
second and third generation fuels. We are in an active process
of reviewing our research portfolio and making significant
changes. In this spirit, I am committing significant resources
from both our intramural and extramural research assets to
those areas where science can make significant contributions,
and where USDA has important core competencies primarily in the
areas of dedicated feedstocks and conversion byproducts. In
fact, the amounts of biomass and other dedicated energy crops
that are needed to produce second and third generation biofuels
amount to the creation of an entirely agriculture commodity
sector, and we are not doing nearly enough to bring this along.
Our research priorities will accelerate in perennial grasses,
sorghum, woody biomass, energy cane and oil sea crops including
algae.
As markets for some U.S. commodities decline, farmers and
foresters are seeking new opportunities for wealth. Dedicated
energy feedstocks are amongst the most promising. There are
many agronomic, geographic, economic and environmental
uncertainties that need to be addressed to promote each of
these new energy crops. We intend to focus on and address these
uncertainties. Our Agricultural Research Service scientists in
the private sector have made significant yield improvements in
a number of crops, most notably corn and soybeans. This
knowledge along with important recent discoveries in genomics
can be leveraged for energy crops.
As land use patterns respond to increasing use of farm and
forestland for biofuel feedstock production, ancillary actions
may also be necessary to avoid serious impacts on food, feed
and fiber prices and environmental quality. The Agricultural
Research Service, the Economic Research Service and our
university partners supported through the National Institute of
Food and Agriculture are conducting research and developing
decision tools that will help design the most economic ways to
produce and harvest biofuel feedstocks while protecting natural
resources. Recent research has produced guidelines for
harvesting crop residue so that we protect against soil and
water erosion, and ensure soil carbon levels are maintained at
high enough levels to ensure that genetically improved
varieties can reach their productive potential. In addition,
new kinds of contracts between energy crop producers and
conversion facility operators will be needed to provide markets
for feedstocks to encourage the investment for building
biorefineries, and to ensure that uninterrupted supplies of
feedstock are available.
As more and more of our fuel supply comes from biofuels, we
will need to continually improve the production practices in
order to produce more on the same amount of land, and enhance
the production of high-value co-products in feedstocks that are
then recovered as part of the biofuel production process. Along
with my colleagues at USDA, we have begun dialogues with our
counterparts at the Department of Energy about ways in which we
can better coordinate our programs and our research grants.
Already, NIFA and DOE's Office of Biomass Programs have worked
together to award up to $25 million in biomass research and
development initiative grants. We also together award $6.3
million in genomics-enabled research for biofuels.
I appreciate the opportunity to testify before this
Subcommittee today and I look forward to working with you, Mr.
Chairman, Ranking Member and all the Members of this
Subcommittee as we continue to work hard to meet the goals that
you have set and we appreciate your support.
Thank you.
[The prepared statement of Dr. Shah follows:]
Prepared Statement of Hon. Rajiv Shah, M.D., Under Secretary of
Research, Education, and Economics, U.S. Department of Agriculture,
Washington, D.C.
Chairman Holden, Ranking Member Goodlatte, and distinguished
Members of the Subcommittee, I am Rajiv Shah, Under Secretary for
Research, Education, and Economics. I oversee four agencies: the
Agricultural Research Service; the Economic Research Service; the
National Agricultural Statistics Service; and the National Institute of
Food and Agriculture (NIFA). I appreciate the opportunity to discuss
the future of second- and third-generation biofuels with you.
I appreciate the opportunity to share this panel with my colleague,
USDA Under Secretary for Rural Development, Dallas Tonsager. He has
taken a leadership role in helping to ensure that people throughout
rural America can build this new capability to produce and deliver
biofuels to the market. He will share with the Committee the various
mechanisms the Department has to support bioenergy commercialization so
I will not repeat them, except to say that our work with Under
Secretary Tonsager is fully complementary and fully aligned with the
same goals of U.S. energy security.
Without their work in commercializing biofuels and developing
markets to realize rural wealth, our research on biofeedstock
development and cultivation won't ensure the energy security biofuels
can bring. Promising developments in the laboratory or inventions by a
farmer or an aspiring entrepreneur will simply never see the light of
day. Innovation and our ability to meet the food, fuel and fiber needs
of the country will come from all sorts of places and we need to
incubate those technology breakthroughs as well.
Mr. Chairman, Congress has laid out a significant challenge to
produce 36 billion gallons of biofuels by 2022 to power our cars,
trucks, jets, ships and tractors. This is a substantial goal, but one
that the United States, with the help of American agriculture, can meet
or beat. However, I believe to achieve this goal the Federal Government
needs to expand our focus on drop-in or third generation fuels. These
are biofuels that can directly substitute for gasoline, jet fuel, and
diesel.
Today more than 9 billion gallons of biofuels are produced annually
by first-generation biofuel technologies that turn corn grain starch
into ethanol. This is a significant accomplishment and a compliment to
American farmers and the ethanol industry--ethanol biofuel has rapidly
grown from meeting 1% of the U.S. gasoline supply in 2000, to 7% in
2008.
A number of factors contributed to this outcome. American farmers
knew how to efficiently produce corn, the technology for producing corn
starch-based ethanol already was available, and--very importantly--
increased corn acreage supported greater ethanol output. Also, ethanol
quickly solved an environmental problem by being a suitable replacement
for a gasoline additive called methyl tertiary butyl ether (MTBE) that
created water quality concerns and was taken off the market. All of
these factors combined helped to establish corn grain ethanol in the
market.
The forward-looking legislation that Congress passed in the Energy
Independence and Security Act of 2007 (EISA) stipulated that only 15
billion gallons of the 36 billion can be provided by ethanol produced
from grain, or what is called first-generation biofuel. This means that
21 billion gallons of biofuels will need to come from sources other
than corn grain. Second-generation biofuel technologies that turn crop
residue such as corn stover or dedicated energy crops such as
switchgrass into ethanol, and third-generation biofuel technologies
that turn these feedstocks into advanced biofuels--synthetic
substitutes for gasoline, jet fuel, and diesel--will have to come
rapidly into commercial use.
If we are to reach our target of 36 billion gallons of biofuels by
2022, we will need to change the way we do business. The U.S. has
funded thousands of worthy projects, but there has been little
effective integration of these efforts across government research
agencies, and there has not been a focus of partnering with public and
private resources to develop biofuel supply chains capable for
achieving Congress's goals. Significant parts of the supply chain have
been ignored or have received too little attention such as sustainable
feedstock production systems, solutions to lower the cost of biomass
transport, and efforts to enhance compatibility with America's existing
fuel distribution and utilization systems.
To accomplish the Congressional Mandate we need to accelerate the
establishment of a sustainable commercial biofuels industry. This will
require that we create an overall strategy that builds on the core
competencies of all contributors, and integrates all Federal-funded
project activities across all supply chain elements.
We need this now more than ever, so that we can unleash the
creativity and skills of people in government, in college laboratories,
in the garages of aspiring entrepreneurs, and in the R&D facilities of
the private sector.
When last I came before this Committee in September, I pledged that
I would use my role as Chief Scientist of USDA to sharpen our focus and
leverage our expertise and our resources where they would make the most
difference. In this spirit, I am allocating significant resources from
both our intramural and extramural research assets where scientific
breakthroughs can make significant contributions to the emerging
biofuels industry, and where our core competencies can have the most
impact.
For example, the use of biomass and other dedicated energy crops to
produce second- and third-generation biofuels could potentially create
an entirely new agricultural commodity sector. There are many economic
and environmental uncertainties to be expected as this potential sector
emerges. We intend to focus on feedstock development for a range of
first-, second-, and third-generation bioenergy crops. We will continue
to work in corn--where our Agricultural Research Service scientists
have made important recent discoveries in genomics. And we will build a
robust research portfolio in perennial grasses (like switchgrass and
miscanthus), energy cane, sorghum, and other potential dedicated
feedstocks. The Federal Government must also invest in technologies
that improve the economics for producers and consumers alike, and lead
to greater wealth creation in rural communities.
As land use patterns respond to increasing use of farm and
forestland for biofuel feedstock production, ancillary actions may be
necessary to avoid serious impacts on food, feed, and fiber prices, and
environmental quality.
The Agricultural Research Service, the Economic Research Service,
and our university partners supported through the National Institute of
Food and Agriculture (NIFA), along with other Federal and state
departments and agencies, are conducting research and developing
decision tools that will help design the most economical ways to
produce and harvest biofuel feedstocks, while protecting natural
resources. Recent research has produced guidelines for harvesting corn
stover residues so that not only is the soil protected from water
erosion, but also to ensure soil carbon levels are maintained at high
enough levels to ensure genetically improved varieties can reach their
productive potential.
As more and more of our fuel supply comes from biofuels, we will
need to continually improve the genetics of the feedstocks grown and
the production practices we use to not only produce more on the same
amount of land, but to enhance the production of high-value co-products
in feedstocks that are then recovered as part of the biofuel production
process.
Along with my colleagues at USDA we have begun dialogues with our
counterparts at the Department of Energy and other Federal Departments
about ways in which we can better coordinate our programs and our
grants to realize the full potential of biofuels. For example, NIFA and
DOE's Office of Biomass Programs have worked together to award up to
$25 million in Biomass Research and Development Initiative competitive
grants to support the development of feedstocks, biofuels, and biobased
products.
Also, to ensure continued genetic improvement of bioenergy crops,
NIFA and DOE Office of Science have partnered to fund seven projects
totaling $6.3 million for fundamental science to accelerate plant
breeding programs by characterizing the genes, proteins, and molecular
interactions that influence biomass production.
I appreciate the opportunity to testify before this Subcommittee
today, and I look forward to working with you, Mr. Chairman, Ranking
Member, and all the Members of this Subcommittee as we in Agriculture
Research, Education, and Economics continue to work hard and make our
contributions to help meet the goal of 36 billion gallons of biofuels
in 2022. And we appreciate the support you have given us to accomplish
that. This concludes my statement.
The Chairman. Thank you, Dr. Shah.
Mr. Tonsager, during the last farm bill, Chairman Peterson,
Mr. Goodlatte, myself and Mr. Lucas, and Members of the
Committee worked hard to make sure that the Loan Guarantee
Program was administered by USDA because quite frankly, we knew
of the nightmare that was going on in DOE. We didn't want this
loan guarantee program to suffer the same bureaucratic
nightmare. But, we are hearing complaints about the
implementation of the loan guarantee program. So is there
anything that we can further do to help you and how much money
has been obligated? How many Loan Guarantee applications have
you processed and how many are in the pipeline?
Mr. Tonsager. There are some aspects I would like you to
consider. I have had some time in the credit world having been
on the board of the Farm Credit Administration. The current
credit circumstances nationally are very challenging. We, of
course, have a corn-based ethanol industry that I am pleased to
say is starting to turn around and looking better. I think we
have seen some fundamental shifts that have occurred in this
area. There are significant amounts of credit extended to the
corn-based industry that helped take it off the ground. Risk
was taken at the time.
At this point, as we develop the cellulosic and biofuels
industry, as we look at how we take risk and how much it is a
challenge. How do we persuade this credit industry that is
looking at how they have gotten through the ethanol industry,
and the ups and downs we have gone through this past year, to
look at these new technologies and gauge the amount of risk
that we are willing to ask these lenders to take, as opposed to
the risk we are willing to take with them. And quite frankly,
at this moment very few credit providers, even with loan
guarantees, are willing to take much risk at all. I think we
may need to review this and seek some additional broadening of
our ability to take risk if we are going to get some of these
projects off the ground. We may be coming back to you to
explore some of those individual calculations that we look at
such as the percentage of risk we take and so forth.
I would suggest that, as is recognized in the Biorefinery
Assistance Program, there is a recognition of the need for
taking greater risk, and for a greater budget authority made
available to support that risk-taking. But at this point it is
very difficult to find creditors who are willing to step up
even with our loan guarantee programs to take substantial risk.
The Chairman. Has there only been one loan guarantee
granted? Is that the one in Georgia?
Mr. Tonsager. We have issued two conditional commitments
for loan guarantees. One was for $80 million and another for
$25 million, where we have issued conditional commitments and
said we will make this guarantee if you meet our conditions.
The Chairman. And one is in Georgia and where is the other
one at?
Mr. Tonsager. In Minnesota.
The Chairman. In Minnesota.
Dr. Shah, you talked about your relationship with DOE
regarding research. Can you expand on that a little bit? How
closely are you working together with them?
Dr. Shah. Thank you. We certainly can. I would start by
noting that the GAO had a study on this topic in R&D Biomass
and noted that DOE spent in 2008, $460+ million compared to
USDA's approximately $40 million. And while I think that
underestimates our current investments, for a number of
technical reasons we felt early on it was important to partner
with DOE to make sure that we were, together, setting the right
biomass and bio-feedstock priorities, driving our investment
into those areas where we have real core competencies and
frankly, steering some of their investments into those same
areas with us. So we have had an ongoing dialogue with the
Department of Energy both the Office of Science and the office
that oversees biofuel, biomass. We have come to some
preliminary conclusions that we should each focus on some of
our core competencies, so if they accelerate their investments
and conversion, we would accelerate our investments and be more
focused on feedstock.
We would like to work in closer concert to make sure that
we are doing that hand-in-hand, especially in the second and
third generation and dedicated feedstock business model, so
that the conversion technologies that are created are
specifically adapted to the types of crops, including the ones
that I mentioned, that we are accelerating our development of.
Working together we can try to bring in, in the next 5 to 7
years some very meaningful and cost-efficient models that
integrate both bio-feedstock production, conversion and
actually testing of business models that would deal with issues
like the transport costs of the biomass.
The Chairman. And finally for both of you, we hear the
Administration talk an awful lot about alternative energy. I am
a little more partial to coal then they are but we hear them
talk about wind and solar. I am just curious, how much of a
seat at the table does agriculture have when you are talking to
people in the Administration to get a commitment, a real
commitment from them?
Dr. Shah. I think we have a significant seat at the table.
Secretary Vilsack and Secretary Chu and EPA Administrator
Jackson are the Co-Chairs of the Biofuel Task Force at the
Cabinet-level. Through that task force the Department of
Agriculture has had the opportunity to work very closely with
the Department of Energy on thinking through the broad
strategic approach. And I also believe that the very specific
focus on the quantitative targets in biofuels has created a lot
of space for us to work with them in a more expansive way about
how we would achieve that.
Mr. Tonsager. I would agree. I think Secretary Vilsack has
been an extremely strong advocate both internally and in the
Administration. I will be co-chairing the Biomass Research
Development Board along with a representative from the
Department of Energy, and Dr. Shah will be my partner in that
as we get that effort refocused and moving forward again.
The Chairman. Thank you.
Mr. Goodlatte.
Mr. Goodlatte. Well, thank you, Mr. Chairman.
Gentlemen, welcome to you all. I have had the opportunity
to meet with Dr. Shah recently, and he has also testified
before the Committee earlier. I am very excited about his
interest in research, particularly in this field that we are
talking about today. He also brings a unique background with
his previous work for the Bill and Melinda Gates Foundation and
we are very appreciative of his efforts now on behalf of
research in the Department of Agriculture. And thanks to
Congresswoman Herseth Sandlin, I have had the opportunity to
know Mr. Tonsager for a number of years, and you are now
responsible for an organization that I am very fond of. You
have done great work in Virginia, particularly in the rural
areas and small towns in my Congressional district in helping
with economic development, so thank you for undertaking that
task, as well.
I want to start out by asking you why only two awards have
been made under the Biorefinery Assistance Program. Is there a
lack of interest in the program or just a lack of financing due
to the current credit environment?
Mr. Tonsager. I think there are several challenges that we
are faced with and one is very much the current credit
environment. We had great energy and motivation in the creation
of the corn-based ethanol industry. There was a real tie-in
with the producers who managed it. From my perspective the Farm
Credit System at that point, and certainly other lenders in
rural America as well, had great emphasis, a great driving
desire to build the industry. It was built. It was successful
for awhile. It has been through a huge up and a huge down so
those same credit providers who carry these skill sets are
reluctant to really step forward at this point.
Additionally, the proposals we are seeing are highly
capital-intensive. The corn-based ethanol industry was built to
a large degree for about $2 to $2.50 per gallon on construct
cost. We are seeing proposals that are several multiples of
that for the capital investment necessary to do cellulosic
plants. And so, of course, you are taking larger, greater risk
on larger projects. So, we have to be measured and we are
looking for business plans that can be highly successful.
We don't want to come out of the chute and not have a
success, so we very aggressively want to take risk. We want to
assert ourselves. We are looking for the opportunities because
we want to get this industry off the ground, but we have to
look carefully at the projects that are proposed. We have to
think strategically to make sure, as we go forward, that we
have some confidence that they can be successful.
Mr. Goodlatte. Is there anything more that your agency or
the Congress needs to do to make this program successful?
Mr. Tonsager. I think we are going to be aggressively
looking for ways to have that dialogue. Well, we know we can
have that dialogue, but we are aggressively looking for ways to
make that work. I think the experience of building the ethanol
industry originally was producers at that time stepped up, got
together with farm cooperatives and formed other business
associations. There was wide investment by many individuals
into the ventures. The risks that were taken by lenders were
widely distributed through the economy, and we have to look for
ways to make that same kind of environment occur now.
Obviously, we will have large companies that want to do
projects and we will support that. I think all of us would
really like to see, if we are successful, the success
distributed widely through our rural economy with other people
that can participate. I am advocating that we want to build
this industry. We want to look for ways to spread the
opportunity for people to be part of that industry, and to do
that we have to develop mechanisms where risk-taking can be
answered.
Mr. Goodlatte. Let me ask you about the two projects that
have been funded. Are they demonstration projects or
commercialized projects?
Mr. Tonsager. They are demonstrations with a focus of
moving to commercialization. We have grants from the Department
of Energy involved with them in some cases, and we have some
risk-taking on the part of USDA in one case or both cases. So
the question becomes how far do you go? At what point do you
take 100 percent of the risk of creation of the project? Do you
have an expectation that the investors in this take some
portion of the risk?
Mr. Goodlatte. Are they commercialized projects or
demonstration projects?
Mr. Tonsager. The goal of one is to demonstrate and then
commercialize. They have to go to a commercially-viable scale,
when we look at them, they have to become commercially viable
as part of the process.
Mr. Goodlatte. And let me ask you about the 20 applications
that you indicated were ineligible. Now, is there a common
criteria that these applicants fail to meet?
Mr. Tonsager. Two things occured: one is that several of
them did not meet the technical requirements that we put on
them to look at. Seven of them did not actually have a lender
in place. They made an application and part of the process is
our applicant is usually the lender. In this case, they put
forward applications without lenders.
Mr. Goodlatte. Thank you very much, Mr. Chairman.
The Chairman. The chair recognizes the Chairman of the full
Committee, Mr. Peterson.
Mr. Peterson. Thank you, gentleman, and I thank the
Chairman and Ranking Member for their leadership in calling
this hearing.
Dr. Shah, I don't want to pick on you but you were accurate
when you said that there was an increase in corn acres. But, I
want to put this in perspective, because virtually there wasn't
and this is a myth that has been put out there by some people,
I think.
You go back to 1977, and we had the 84.3 million planted
acres and in 2009, it was 86.4 so we are virtually using the
same corn acres that we did way back in 1977. The big
difference is we had a 100 bushel average or actually 90.8 in
1977, 101 bushels in 1978, and today we are up to 164 bushels.
Now, anybody that knows anything about what is going on
understands that we are going to have a significant increase in
yields here in the next number of years, a few years. So we are
not going to increase acres.
The way we are going to provide these feedstocks in corn
ethanol, and a lot of these guys are going to be going into
cellulosic, is by this increased yield. So all of this
foolishness about international land use and what is going on
in Brazil and all this other negative stuff that is being put
out by different interest groups that have different agendas,
God only knows, there might be 20 different agendas going on
here that are after us for different reasons. I mean it is no
damn wonder that nobody is investing. I wouldn't put money in
with all of this stuff that is going on, and I think that is a
lot of what is happening here. People that want cellulosic
ethanol have to get real about this and realize that we are the
people that went in corn ethanol. That created the opportunity
for us to even do this, and a lot of these plants are going to
be the first ones that do cellulosic on a commercial scale.
We are converting our plants to use biomass for energy and
so forth, and that word is not getting out to the public. All
they hear about is how terrible it is, how we are going to
starve everybody, and all this other baloney that is out there.
So, I just think that there are some positive signs that are
happening here all of a sudden and hopefully we will be able to
turn this around.
It doesn't help that we are having such a struggle to try
to get the blame all up and all these other things, so I
wouldn't blame you folks for what the problem is. I think you
are doing what you can do, but I am glad to hear that you are
not going to go out and make investments in projects that have
too much risk. I think there are a lot of snake oil salesmen
out there. There is a lot of due diligence that you guys need
to do to make sure we are doing the right kind of projects and
eventually we are going to get there. But for people that are
listening that have been on the other side of this, I think
that if you want to get to the next generation, you are doing
us all a disservice by ginning up all of these bogus arguments
that we have been hearing. I guess that is not a question, I am
just getting it off of my chest.
The Chairman. I thank the Chairman, and recognize the
gentleman from Nebraska, Mr. Smith.
Mr. Smith. Thank you, Mr. Chairman, and I thank you today,
the Chairman of the full Committee for elaborating on some
concerns that I would share, as well.
But to another more specific topic though, Dr. Shah, you
mentioned in your remarks that there are some infrastructure
setbacks relating to biomass transport, and certainly I share
that concern. I shared that concern actually during the farm
bill debate in Committee, and I was grateful that the Committee
accepted an amendment that I offered relating to R&D for the
byproducts of the biofuel industry. Can you elaborate, perhaps,
on the steps that the USDA is taking in terms of improving
industry-wide infrastructure and the cooperation along the way?
Dr. Shah. Well, thank you for that. I think as we look
industry-wide we take a supply chain analysis to either first,
or second and third generation systems, we look at feedstock,
at conversion, at byproducts, and at transportation and
logistics, of course, and it is part of every step of that
process. So what the Economic Research Services is trying to do
is creating a business model to understand what do the
economics of these different systems look like? Where are the
biggest and the highest cost points with respect to transport
and logistics, and then how would that potentially guide our
research investments, whether you might make accelerated
investments in pretreatment or farm-based treatment of biomass
to reduce the cost of transport, or whether you would promote
business models that are more geographically focused so that
you actually have less physical transport to deal with. And
then you are working on conversion technologies that can
operate at different levels of scale, particularly lower levels
of scale so that you don't have to deal with the high cost of
transporting biomass through large distances.
As we do this work, there are two things I would just add,
one is you mentioned partnerships and we are working very
closely with the private sector to identify how we can pursue
research in these areas in a more effective way. And I am glad
that you have a number of private sector firms speaking with
you today since we have been working with many of those same
firms to make that joint identification.
What we tend to be hearing is that people are asking us to
work especially aggressively on the feedstock and the byproduct
side but especially in the feedstocks. If we are going to have
viable second and third generation systems, we actually need
viable crops. We need more adapted varieties of the various
feedstocks that I mentioned, and currently we are not doing
nearly enough in that area. Even in the $25 million 9008
Program that I mentioned, a very small percentage of that, only
about $5 million of that is going directly to feedstock
improvement. So, we are trying to reassess how we can focus
more aggressively on feedstocks to help bring the risks down
for some of these projects and to do that in a way that is
consistent with the transport and logistics concerns.
Mr. Smith. Thank you very much. I appreciate that. Now, I
do want to add emphasis, or maybe repeat what the Chairman of
the full Committee mentioned in terms of indirect land use. I
don't think we should defer our regulatory say to other
countries, and I am grateful that USDA is on top of things
relating to that. Perhaps we can convince some other agencies,
as well.
Thank you.
The Chairman. The chair thanks the gentleman and recognizes
the gentlewoman from South Dakota.
Ms. Herseth Sandlin. Thank you, Mr. Chairman, and I would
first like to associate myself fully with the comments of the
full Committee Chairman, Mr. Peterson. I want to thank all of
you for being here today.
Dr. Shah, if I could start with you, I want to thank you
and your staff for recently meeting with the leadership of the
Sun Grant Initiative with whom I have worked for a number of
years now. As you know, the Sun Grant Initiative was
reauthorized with the help of both Mr. Peterson and Mr.
Goodlatte in the 2008 Farm Bill. I raised the work that the Sun
Grant Initiative was doing with Secretary Vilsack when he was
recently in South Dakota earlier this month, and as you also
know, the program received $2.25 million in Fiscal Year 2010
Agriculture Appropriations. They are conducting important
research that holds tremendous potential to improve the
domestic supply of renewable energy. Much of that research, of
course, is focused on feedstocks. They are a competitive grant
program and I was wondering how you see the Sun Grant
Initiative fitting in with the research priorities at USDA in
light of the coordination that you are doing with DOE and your
agency, specifically focusing on feedstock research?
Dr. Shah. Well, I would make a few points. The first is
thank you for those comments. I had the chance to meet with
them myself and my staff has also met with them specifically. I
also hope in the very near future to get out to South Dakota
and to visit, and I potentially have a host here to my right
who may enable that and so I look forward to that.
Our goal is to dramatically expand the investment in
feedstocks and a broad range of feedstocks, and to use
competitive vehicles for doing that. And so what we hope to do
is use the AFRI-window of the National Institute of Food and
Agriculture, and we are fortunate to have Dr. Robert Beachy
leading this as the Director of NIFA, the National Institute.
Through that we would have broad competitive opportunities for
a broad range of market participants to significantly expand
their work in feedstocks. But we want to implement that in a
way that is very regional in its focus so that we know that we
are targeting regions with crops that are most interesting to
and most effective, potentially, in future second and third
generation systems. I think many of the partners of that effort
would be able to compete and would be able to be a part of that
initiative.
We are also looking very carefully and more specifically at
the Sun Grant Initiative as it is currently structured. And
while I don't have a direct answer to it yet, we will probably
get there in the next month or two in terms of knowing how we
will take that forward.
Ms. Herseth Sandlin. Thank you, Dr. Shah.
Mr. Tonsager, it is great to have a fellow South Dakotan
and good friend as the head of Rural Development. And I thank
you for the work that you have already done in the timely
implementation of the new energy programs and the farm bill,
2008 Farm Bill as well as the significant investments that you
are making in renewable energy and the energy efficiency
programs throughout rural communities.
If I could focus on the blend wall issue that Mr. Peterson
referenced. Can you confirm for me, I know that Secretary
Vilsack is optimistic that we will have a favorable decision
and it will be by December 1. Can you confirm for me the role
of USDA in that decision to move from E10 to E15, and that that
decision is on, and continues to be on, a time-frame of
December 1?
Mr. Tonsager. I am unsure of the decision time-frame.
Secretary Vilsack has been personally engaged with advocating
for that change and, of course, those of us who want to see a
progression of the ethanol industry hope that that can happen.
We are looking forward to it. I see the role of my agency in
these matters as to constantly trying to assert ourselves in
whatever situation evolves. Science has served agriculture
extremely well. Science has served the cause of ethanol and the
development of ethanol. So whatever decisions come, you can be
assured in our agency that we are going to be continuing to
move forward aggressively on all fronts related to biofuels
production.
Ms. Herseth Sandlin. Thank you, and then finally the issue
of indirect land use that both Mr. Peterson and Mr. Smith
mentioned. Could you elaborate either one of you, on the role
that you USDA had in the peer review process, and whether or
not USDA is involved with the EPA as they are moving forward
with the RFS2 rulemaking, in light of the concerns raised about
this issue?
Dr. Shah. I do know I am not able to answer the specific
question about the specific nature of the involvement, but we
have been involved both through our Economic Research Service
and I believe the Office of the Chief Economist and other
aspects of USDA in working with them on the issue and the
rulemaking overall. As you know, the core issue and some of
them are around how they define baselines and other aspects of
that. I would just say that I will take this opportunity to
agree largely with the Chairman's comments about the potential
for yield and the potential for more micro-agronomic
improvements that are not often factored into the generic
discussion. And so we are trying to help offer that technical
guidance and expertise that there are different types of
production systems. When you look at this with a more careful
analysis of the baseline, and a more careful analysis of the
specific production systems and specific areas, you sometimes
come to very different conclusions.
Mr. Tonsager. And if I could, the Chief Economist at USDA
has been leading the charge in that relationship.
Ms. Herseth Sandlin. Mr. Chairman, thank you. I think it is
important that USDA's technical expertise and knowledge be
highlighted in this process. As we have seen from earlier
testimony from officials at EPA, their understanding of
agriculture and familiarity with what has been happening and
the technological advancements heightens the concerns that we
all have. It is good to hear that our folks who are at USDA
have been aggressive in being involved in that process. Thank
you.
The Chairman. The chair thanks the gentlewoman and
recognizes the gentleman from Louisiana.
Mr. Cassidy. Thank you, Mr. Chairman.
A couple questions, the Biomass Crop Assistance Program,
the question is, is it going to be adequately funded and do we
have a sense of when the funding will come and how much the
funding will be for that?
Mr. Tonsager. Which program? I am sorry.
Mr. Cassidy. The Biomass Crop Assistance Program.
Mr. Tonsager. I have not considered the adequacy of the
funding. We have done the first round of financing and thus
far, I would say we seem to be in pretty good shape.
Mr. Cassidy. How much? I am sorry. How much total has so
far been allocated?
Mr. Tonsager. I am sorry. Here, go ahead.
Mr. Atkinson. So far, the allocation has been--first
apportionment from OMB has been $25 million and we now have
another apportionment request of $500 million that is pending.
Mr. Cassidy. Now, the $500 million, any idea about the
prospects for that being afforded at that level?
Mr. Atkinson. We are very hopeful.
Mr. Cassidy. Because $25, well that is--I am very hopeful
for a nice Christmas but I am not quite sure it is going to
happen. In all seriousness, you are hopeful. Does that mean
optimistic?
Mr. Atkinson. Optimistic.
Mr. Cassidy. Okay, thank you. The other thing I am not
quite sure, as I am reading about the Collection Harvest
Storage Transportation Program, are title I crops eligible for
this?
Mr. Atkinson. No.
Mr. Cassidy. Now, it seems a little counterintuitive
because it seems as if you are already aggregating the material
from rice, for example, or from sugarcane, it seems like it is
a natural place instead of asking the cane farmer to burn it
that you would extend this assistance to them. In a sense it is
meeting two priorities. Does that make sense?
Mr. Atkinson. It does make sense. Residues would be an
eligible material.
Mr. Cassidy. It would be eligible?
Mr. Atkinson. The residues would be.
Mr. Cassidy. So the rice grain itself would not be but the
stalk would be?
Mr. Atkinson. That is correct.
Mr. Cassidy. Got you. Now, energy cane, if that ever comes
about, that I presume would be entirely eligible?
Mr. Atkinson. It would be.
Mr. Cassidy. Okay, thank you.
I yield back.
The Chairman. The chair thanks the gentleman and recognizes
the gentleman from North Carolina.
Mr. Kissell. Well, thank you, Mr. Chairman.
And, Mr. Tonsager, it is good to have you here and see you
again and, Dr. Shah, we appreciate you coming also.
Mr. Tonsager, beyond the credit issues and we have talked
about this a little bit back and forth, what are the biggest
challenges that we face in seeing the second and third
generations of biomass energy being accepted?
Mr. Tonsager. I think the technical challenges are probably
the largest challenges at this point, because the bottom line
is the economics of it. We have to be able to produce an energy
product that is sellable, that is available readily. To do
that, to make the economics work, we really have to overcome
some of the challenges associated with breaking material down
and making it in an effective, efficient way. So I would have
to ask Raj if he would care to comment on that but to me,
overcoming those technical challenges will lead us to greater
confidence in our ability to produce an energy product that we
can make some money out of.
Mr. Kissell. Well, that was going to be my next question
so, Dr. Shah, you talked about how we need to get to the third
generation of biomass energy and the numbers I have picked up
now, ethanol is like seven percent of our fuel energy at 9
billion gallons a year. In looking towards this third
generation, I guess the basic question is: when will this be
happening or what will it be? What do we need to do to get
there?
Dr. Shah. Well, thank you for the question. I think the
answer to when would this be happening is highly dependent on
our ability to invest in and develop together, with the private
sector, the right technological breakthroughs to bring the cost
down at different points of the value chain which I will
mention. But we are optimistic that in a 5 to 7 year time
horizon, you will see significant improvements in the economics
of second-generation and perhaps a few years after that,
significant improvements in the economics of third-generation
systems.
On the question of what are the key barriers, I would agree
with Dallas' comment that certainly that conversion technology
and the amount of the initial capital cost related to those
conversion systems is quite high. As we make progress against
enzymatic pathways and others to improve the efficiency of that
conversion process, we can bring that cost down, both for very
large scale systems and for smaller scale conversion
facilities. So that is an important barrier, as you think about
it, but that is an important short-term barrier. If you think
about the long-term system, probably \1/2\ to \2/3\ of the
total cost of production will be based on the feedstock.
So our ability to generate large volumes of appropriate
feedstocks in an environmentally sound way and economically
viable way will be critical to standing up this industry over a
10, 20, 30 year period and meeting the big targets that have
been set out there. To do that, we probably need to leverage
all of the science we can on the genomic side. We need to
invest in significant adaptive research to test and develop new
dedicated feedstocks in a broad range of agro-ecologies, and we
need to work with the private sector so we can develop
feedstocks that fit into their supply chains.
They can provide the types of unique contracting back to
farmers and producers so that people have the economic strength
to convert or to engage in these new production opportunities
and these new opportunities to gain wealth. So, we have quite a
lot to do on the feedstock side as well, and that is an area
where we have a long and proud tradition--as the Chairman of
the full Committee mentioned--in helping to support a system
that has very significant yield improvements and production
improvements year on year. But we are not there yet in the
dedicated feedstocks that would be required for this and that
would be a big area of focus for our research portfolio.
Mr. Kissell. One last question, Dr. Shah, if we are at
seven percent now and I know that this is a tough number to
give exactly but if we are at seven percent now, where do you
think percentage-wise of our total fuel demands that we could
get to some 15 years down the road if we do engage in the type
of activities both within government and private industry that
you were talking about?
Dr. Shah. Well, I am thrilled that you asked that question
because I think that answer is highly conditioned on our
ability to make third-generation systems work. And the reason I
say that is the likelihood that we can invest and create--in
the hundreds of billions of dollars--to create an entire
domestic infrastructure for transport fields around ethanol
compared to the economic opportunity to leverage the existing
infrastructure for advanced fuels. This gives a high degree of
confidence that third-generation systems could in fact break
through and become very high percentages of total aggregate
fuel. I don't actually have the numbers but we can actually
model that out, and I can get back to you in a letter that has
the answer to that.
Mr. Kissell. I would appreciate that and thank you.
Thank you, Mr. Chairman.
The Chairman. The chair thanks the gentleman and recognizes
the gentleman from Pennsylvania.
Mr. Thompson. Well, good morning.
Let us start out with Mr. Tonsager. You made it clear that
biofuels will play an important role in diversifying and
expanding our domestic energy supplies. I am a strong advocate
of converting wood waste into woody biomass, and in my district
timber harvesting generates a significant number of jobs and
helps create that woody biomass. It needs to be pointed out
that the increased timber harvesting is a key component to
proper forest management and probably a properly managed forest
becomes a stronger carbon sink. Now, specifically what role
will timber harvesting play in the Administration's plans to
utilize more biofuels?
Mr. Tonsager. I think we must look at every potential
biofuel, and certainly woody biomass makes a lot of sense. From
my perspective what I would like to see occurring is for us to
engage from the economic side, to constantly press forward with
feasibility studies, business plans, and focus specifically on
particular projects. As the technologies evolve that allow us
to break down woody biomass or other biomass products, we need
to be looking at the best opportunities for making that
economically successful.
So from my side of it what I would love to see happen is
groups form or companies form up that are queuing up, looking
constantly at the components of a particular project site and
looking for the economic opportunities associated with that so
we fund and give confidence to people who invest in those
areas. So I want to look at all forms, and I want to look at
them as widely as possible, going forward, and seeking that
economic opportunity. Sometimes you really hit the right chord
in the right spot and you might have the technology that really
works, and so we would love to be working with the people in
Pennsylvania and other places to evolve a plan towards project
development.
Mr. Thompson. Well, that would be great. I know that in
Pennsylvania, as well as across the nation, where these forests
are and specifically national forests, there is a lot of
economic need. I know in terms of harvest in the Allegheny
National Forest there is a need, it is down from 95 million
board feed a year. I think we are down to about 20, so the
production utilization there is just a lot of potential there
from all my sides.
Now, relating to that, are you familiar with the
alternative mixture tax credit?
Mr. Tonsager. I am sorry, I am not.
Mr. Thompson. Okay, it is paper mills and companies that
have been able to claim this credit for utilizing what is
called black liquor. It is a byproduct of the pulping process
as a form of onsite energy. However, the credit for this is set
to expire this year and some in Washington have been hesitant
to reauthorize it. I think presumably because paper companies
can claim this credit, and I would like to and if you don't
know, if this is something if you could get back to me. Is the
Administration supportive of reauthorizing the mixture credit
as it exists?
Mr. Tonsager. Okay, we will.
Mr. Thompson. I appreciate that.
Dr. Shah, you have stated that we must improve upon the
genetics of the feedstocks grown and the production practices
we use to not only produce more but to enhance production. Is
the Administration intending to encourage this kind of
innovation solely through grants, or are there any new methods
of encouragement being considered?
Dr. Shah. Thank you for that question and if I might just
add to Dallas' answer to the prior one that we have done some
estimates around how different sources of biomass could
contribute to the broader targets. We believe you can get about
9.1 billion gallons out of woody biomass if we make the right
technology investments, and so we are moving forward against
that strategic framework which is a pretty significant amount
of fuel from that.
Mr. Thompson. Very good.
Dr. Shah. And on the grants question, that is a great
question. We do a lot of distributed grant-making as it
currently stands, and I think the two opportunities we have
are: number one, to engage in a more strategic consortia-based
programmatic approach so that if we are trying to introduce and
develop, say dedicated feedstocks like energy cane, we might
invite some private sector firms in. We might work with a
number of different potential representatives of different
agro-ecologies and geographies and universities, and say,
``Okay, what is the best way to expand on germplasm
collections,'' test and develop new varieties in a number of
different contexts and leverage some of the great innovation
that is happening right now in the private sector. So that is
one approach where we would like to go beyond the traditional
grant tool and build these kind of public-private consortia. A
second thing that we would like to think about is how can you
use large-scale financial incentives from long-term buyers of
advanced biofuels to create a huge amount of market pull so
that the private sector will simply do more. We have had
conversations with major airlines, with the Air Force and with
others. This is a model that has been used in other industries
of course, but if you could get a guaranteed purchase contract
for very large amounts of advanced biofuel that would, and it
had a lot of credibility as to your point, that would stimulate
a significant amount of private investment and it wouldn't cost
us in the public sector nearly as much. So we are actively
looking at can we put those kinds of financial market
incentives in place to create this whole new sector.
Mr. Thompson. Okay, very good.
Thank you, Mr. Chairman.
The Chairman. The chair thanks the gentleman and recognizes
the gentleman from New York, Mr. Murphy. The gentleman passes.
I will recognize the gentleman from Colorado. He is not here
either, okay, the gentlewoman from Illinois.
Mrs. Halvorson. Thank you, Mr. Chairman.
Mr. Atkinson, if we are going to and thanks to the panel.
It is great to see all of you.
If we are going to hit our target of 36 billion gallons of
biofuels by 2022, we have to meet that. How are we going to? We
need to change the way we do business. Does that mean we are
going to have to change some of our Federal policies? If so,
which ones and how would you go about doing that?
Mr. Atkinson. I don't believe we would need to change any
Federal policies in any sort of a radical sense. The biggest
challenge, I believe, in the early years of the renewable fuel
standard is meeting the production targets for advanced
biofuels. We know right now, and those of us involved in this
issue, we hear quite often that the technology is just 1 year
away or it is just around the corner. We might want to take a
look at policies that can help push that forward a little bit
further so that we actually have the construction and movement
forward on commercialized advanced biofuel facilities.
Mrs. Halvorson. So you think we will be okay? We will meet
36 billion gallons of biofuels by 2022?
Mr. Atkinson. By 2022, yes, I think we absolutely have the
technology to move forward on that and to meet that goal.
Mrs. Halvorson. Dr. Shah.
Dr. Shah. If I might just expand on that, I am optimistic
that we can get there. I don't believe we are currently on the
appropriate technology and systems pathway to get there.
Mrs. Halvorson. And what would you do to change that?
Dr. Shah. I think the two biggest gaps for us are focusing
public incentives and research investments in those areas where
we can bring to bear a significant second and third-generation
biofuel system. For us that means feedstock conversion and
byproducts. We need the Department of Energy to do a lot more
in a more effective and focused way on conversion, and we need
to do a lot more in a more focused and effective way on
feedstock and byproducts. I also think we need to think about
some of the investment, some of the financial incentives we
were just talking about to create the kind of large scale
market incentive for commercialization. Secretary Vilsack has
asked us to, on behalf of the President's task force on which
he is a part, think more expansively about what kind of policy
framework and what kind of program implementation framework
would get us to those targets. So I would agree with the fact
that I am very optimistic we can get there and respect our
Secretary's leadership in bringing us all together to say what
needs to happen in order to hit that target, and we are
actively working on that.
Mrs. Halvorson. So it is in your notes to take back that
you are going to do something about that.
Dr. Shah. We are, yes.
Mrs. Halvorson. The reason I bring this up is I don't want
you in the year 2020 to come back and say well we are nowhere
near our goal. We have to do something now. That is not the
time to start worrying about it.
Dr. Shah. I agree and Secretary Vilsack has made that quite
clear to all of us and we are working together to help support
that.
Mrs. Halvorson. Some people may not think they will be
around in 2020. I plan on being here and I don't want to come
back and say I didn't talk about it in 2009.
Dr. Shah. Wonderful.
Mrs. Halvorson. Okay and one other question for Mr.
Tonsager, the President's energy bill you said it was very
important to offer the acceleration of the advanced biofuels.
What kind of concerns do you have if it doesn't go anywhere?
How difficult would it be to advance your ideas and the
biofuels industry if we don't get an energy bill passed or a
climate change bill passed?
Mr. Tonsager. I tend to look at it from a financial
perspective, of course, and for those engaged in development of
these kinds of ventures, they are going to look for clearness,
for definition, for consistency. So as much as wanting to know
what the answer is, they want an answer. So, laying the
pathway, knowing what the pathway is, bringing stability to one
component of what we have to deal with is very important.
Mrs. Halvorson. And the people in my district, and being in
Illinois I have quite a few located and headquartered there,
the people tell me they want certainty. They just want to know
one way or another, and we owe it to them. One way or another,
we must bring certainty to this market. So I think that we need
to all work together to bring that certainty, so I look forward
to working with you to get that done.
Thank you, Mr. Chairman, I yield back.
The Chairman. The chair thanks the gentlewoman and
recognizes the gentleman from Kansas.
Mr. Moran. Mr. Chairman, thank you. Thank you to you and
Mr. Goodlatte for hosting this hearing and for our witnesses on
this panel and the next for being with us today.
Dr. Shah and I had a conversation, largely on my part at
the last hearing, and it is Mr. Tonsager that I really did need
to address my question. Section 9005 of the farm bill,
Bioenergy Program for Advanced Biofuels, section A, says the
definition of an eligible producer: ``In this section, the term
eligible producer means a producer of advanced fuels.'' And
yet, USDA in June published a notice of contract proposal for
payments to eligible advanced biofuel producers that said that
any recipient corporation must be at least 51 percent owned by
persons who are citizens or nationals of the United States.
Nowhere in the farm bill is that requirement outlined. USDA's
rule disqualifies a legitimate biofuels producer located in the
United States, and in this case in Kansas.
While I am not necessarily here to advocate for a
particular company, Abengoa is operating an ethanol plant in
our state and it qualifies for advanced biofuels because it
uses grain sorghum to produce that ethanol, but because of your
definition they would be ineligible. Perhaps even more
importantly, Abengoa is soon expected to be the first producer
of cellulosic ethanol in the United States. The plant is being
constructed, and, yet, under your definition they would not be
eligible as an advanced biofuels producer. In my way of
thinking, this is Kansas jobs, Kansas grain, Kansas ethanol. My
question is the same one that I asked Dr. Shah at the last
hearing, USDA have a theory for which they reached this
conclusion, this definition? What can we do to get it changed
so that Kansas crops, Kansas jobs and the Kansas economy is not
harmed by this regulation, this definition?
Mr. Tonsager. Sure. While we are reflecting on this, I note
that this has come up in recent times, I was a state director
in the 1990s. It was kind of the standard for most of our
programs at that time to have the 51 percent ownership by U.S.
citizens. And the question comes up is, ``Okay, are we going to
throw the definition out entirely? Or drop it to 49, or drop it
to 25, or just drop it all together as a requirement?'' I think
it is important that we find out from the public their view on
this subject. So as we go about rulemaking during this coming
year we will be requesting input from the public regarding
their views on this subject. We will be working towards a final
rule on the program. In our notification we will be requesting
the public to offer us comments about whether they think that
is an important factor anymore or not.
Mr. Moran. Mr. Tonsager, as I understand your answer, it is
that is the way we have done it in the past. That is our plan
at the moment for the future, but we are reassessing or we are
taking input to see whether we should reassess?
Mr. Tonsager. We are going to take input. We will be
looking at the responses from the public very closely on the
matter. Again, I think it is a question of what is the right
point, or is there one at all anymore? I think it is useful for
all of us to explore that question and understand how the
public might view it.
Mr. Moran. Well, it does seem to me that in this case it is
a subsidiary that is in Kansas and is owned 100 percent by a
Spanish company, but the benefits accrue to people of the
United States.
Mr. Tonsager. Sure.
Mr. Moran. In large part, almost exclusively it is. They
are the ones who are developing the technology, the new
science. We are the beneficiaries of that and, particularly, as
a Kansan, tremendous opportunities. We, USDA was there when we
announced the arrival of Abengoa. You were there when we broke
ground. This is a great development for agriculture and for the
biofuels industry and it is something we ought to be
applauding, in my opinion, as compared to hindering. Is there
specific statutory authority to write the rule the way you
wrote it?
Mr. Tonsager. No, it is not. It was regulatory.
Mr. Moran. And it is, I guess, then possible that this
decision will be determined as you write the rules for this
program?
Mr. Tonsager. Yes, we are publishing it as it is or we will
be. We are developing that, of course, at this point, but we
will be seeking public comment and will consider comments and
look for the perspectives from the public on that matter.
Mr. Moran. Thank you very much. Thank you for Dr. Shah
letting me have this conversation with him a month or so ago.
Dr. Shah. Thank you.
Mr. Moran. And, Mr. Tonsager, you are a very important
person to me. What happens at Rural Development at USDA matters
a lot in Kansas. We have had a great working relationship with
your predecessor and previous Administrations as well, and we
welcome you to your job and look forward to developing that
close working relationship with you. We appreciate your
commitment to rural America.
Mr. Tonsager. And I am very happy. I appreciate that very
much and very much look forward to it as well, sir.
Mr. Moran. Thank you, sir.
Thank you, Mr. Chairman.
The Chairman. The chair thanks the gentleman and recognizes
the gentleman from California.
Mr. Costa. Thank you very much, Mr. Chairman, for this
hearing. It is timely as we look at trying to reset a
comprehensive energy policy in this country, and the role that
biofuels will play in the second and third generation.
I want to touch on some of the areas that some of the
Members spoke on earlier, but what I don't think we have
covered here yet, at least since I have been here, is the role
that methane digesters play as a part of this overall effort on
renewable fuels where agriculture has potential. We have had a
number of pilot projects that you may be aware of in
California. The dairy industry is a significant part of our ag
economy and some 1,600 dairies, many of them large dairies have
the capability of producing significant fuel for their use and
to sell. You may be aware that in California, and maybe in
other parts of the country, we have run into a host of barriers
that put strict limits on emissions without taking into account
the benefit of these digesters. Is there some way to get a
positive net reduction of what is considered the GHGs in the
mix as we move to the next generation of fuel, so that we don't
have to repeat the situation of digesters being turned off
because of local NOX issues, especially when you
have air basins where you have nonattainment and there are
sanctions by either the Federal EPA or by state laws?
Dr. Shah. I don't have a very specific answer to the
digesters question specifically, but I can look into that and
send some thoughts via letter as follow up. I do believe that
as we talk about second and third generation fuel systems and,
especially, dedicated feedstocks and tools that will enable the
use of those feedstocks to be more efficient.
Mr. Costa. Has USDA looked at what the potential is of
these digesters?
Mr. Tonsager. Yes, I was fortunate to be in Sacramento some
months ago and spoke to the biomethane conference that occurred
there. I am very familiar with the issues associated with it.
Mr. Costa. What do you believe is the potential?
Mr. Tonsager. Yes, absolutely.
Mr. Costa. No, I said what do you believe? I mean do you
have a comparative? Do you have a scale of the potential?
Mr. Tonsager. Of what? I couldn't quantify it right off the
bat. My sense is some of the challenges are not challenges but
opportunities. Much of it is evolving with rural electric
generation as to how we can get that generation from those
facilities onto the grid. I think that is an opportunity that
we have to work at to make sure that works. I don't have a
sense of the scale. I would suggest that there is probably
concentration.
Mr. Costa. Well, let me go because of my time and you can
get back to me on the sense of the scale.
Mr. Tonsager. Sure, okay.
Mr. Costa. Do you think they are comparable, incentives and
programs available to livestock farmers to participate in the
next generation of biofuels?
Mr. Tonsager. Yes, there are opportunities within our
programs.
Mr. Costa. Yes, can you enumerate those?
Mr. Tonsager. Well, we have a particular program, the REAP
Program, the Rural Energy for America Program that is being
used today to finance biomethane digesters.
Mr. Costa. Can you give us a snapshot in terms of the
biofuel development on projects that have received funding to
the loan guarantee program so far?
Mr. Tonsager. I can provide you that. I don't have it.
Mr. Costa. Please do for the Subcommittee. What are the
differences between your program under USDA and the Department
of Energy under your loan guarantee programs?
Mr. Tonsager. That is unclear to me, the DOE programs and
how they are functioning. I don't think they have moved forward
yet.
Mr. Costa. But isn't there a collaboration supposed to be
taking place with Carol Browner between USDA and the Department
of Energy and the other appropriate agencies on this whole
comprehensive energy effort?
Mr. Tonsager. Yes, my staff does meet with the DOE and
there has been dialogue about the structure of our programs
with them, but to this point I don't know that they have
established a framework for their program.
Mr. Costa. Well, I would like to have some light shed for
the Members of the Subcommittee on applications that are coming
in from one sector to another, and how well you guys are
working in this collaborative effort.
Mr. Tonsager. Okay.
Mr. Costa. I keep hearing about it but I don't see any
examples of it.
Mr. Tonsager. Okay, I will have to forward that to you.
Mr. Costa. I hear this thing that you guys are having
meetings and that is wonderful that you are having meetings,
but we have, in my sense, way too damn many meetings in this
town. I would like to see some work product come out of some of
these meetings.
Mr. Tonsager. Okay.
Mr. Costa. You know, takeaways, you know what I mean?
Mr. Tonsager. Yes.
Mr. Costa. And I would like to know what those takeaways
are.
My time has expired but I have a couple more questions.
The Chairman. The votes have been called so if the
gentleman doesn't mind, we will proceed with the gentleman from
Missouri.
Mr. Costa. All right, thank you, Mr. Chairman.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
I have four biodiesel plants in my district, biofuels
plants, two ethanol, two biodiesel so this is an extremely
important issue to me and my constituents. Mr. Tonsager, you
have mentioned in your testimony that you are working very
closely with a lot of government agencies. How is your
relationship with EPA and what are you guys doing with those
folks to minimize the impact of their rulemaking on what we
want to do with biofuels?
Mr. Tonsager. The conversations thus far have occurred
between the Secretary's office and the Chief Economist's office
with EPA and other parties. I have not personally been engaged
in the dialogues with them.
Mr. Luetkemeyer. What is their view of biofuels in your
judgment? Are they going to be somebody that you can work with?
Are they going to try and throw roadblocks up to some of the
expansion of your programs and some of the research that is
going on? Are they going to push for it? Where are we at?
Mr. Tonsager. You know, the EPA is of course in the process
of reviewing their position regarding the blend wall and the
combination of percentages. The position I have taken from our
agency is that we will aggressively pursue the development of
these energy sources whatever the rules are. I have not
personally had a dialogue related to the EPA or advocated with
them. The Secretary's office and the Chief Economist have had
that relationship.
Mr. Luetkemeyer. Well, I think it is important that we work
with those folks because I know that every time they are before
our Committee we can't get an answer out of them. I don't know
maybe you can, but I know it is disappointing for us to see
them come, at least it is for me personally, from the
standpoint that every time I ask them a question I never get an
answer. So hopefully you can work with those folks to make sure
that they don't impact in a negative way the ability of our
farmers to produce the corn, the beans, whatever the product is
to be able to be able to utilize these things because this is
an important industry. It is something that is going to help
down the road and have an incredible impact on our fuel
consumption as well as energy usage.
Mr. Tonsager. Yes.
Mr. Luetkemeyer. Dr. Shah, in your testimony you indicate
research that should invest in technologies, improve economics
for producers and consumers alike. In my district, I have the
University of Missouri which is one of the leading agriculture
research institutions in the country, as well as Monsanto who
just sits outside my district which of course does a tremendous
amount of research. What is the percentage that we have with
regards to a government-funded research versus private sector
research?
Dr. Shah. Just can I ask for clarification, is that overall
or with respect to second and third generation biofuels?
Mr. Luetkemeyer. Well, let us take the biofuels industry as
a whole.
Dr. Shah. All right, well, certainly if you look at first
generation fuels, the great preponderance of productivity
research on corn and soybeans goes in from the private sector
and from firms that you mentioned that are located in your
district. So one of our goals has been how can we reorganize
our research portfolio in a way that leverages the technologies
they are developing and is complementary to that, but not
trying to replicate or duplicate what they are already doing.
They invest in, like Monsanto alone invested around $980
million a year of R&D, and most of that is focused on a few
prompts and a few traits. They are able to leverage a germplasm
collection and a system for breeding that uses advanced
molecular genetics that has germplasm from all over the world
very easily available to their scientists.
Mr. Luetkemeyer. Right, right.
Dr. Shah. We are trying to emulate that in crop categories
that are not corn and soybean so that we can build up the
potential for second and third generation fuels where there is
still a lot of innovation happening in the private sector, but
not nearly at that scale. We believe we can work with the
private sector and play a far more significant role to bring to
bear some of these dedicated feedstocks.
Mr. Luetkemeyer. What percentage of your support though is
for university-type research versus private sector research?
Dr. Shah. Well, it would depend on which program we
reference. For example, in the 9008 Program we had 190 full
proposals and we will be making ten awards from that and that
is with DOE but at around $25 million. Most of that will be
targeted to universities and public research institutions,
there are some awards in there for the private sector, I
believe it is less than 40 percent. I could be more specific
and note that.
Mr. Luetkemeyer. That is fine. Thank you.
Thank you, Mr. Chairman.
The Chairman. The chair thanks the gentleman. There are
less than 10 minutes remaining for three votes but we have time
to recognize the gentleman from Ohio.
Mr. Boccieri. Thank you, Mr. Chairman. I will be very, very
brief.
Very quickly I just wanted to pound on my chest for the
16th Congressional District in Ohio. Ohio State Agricultural
Research and Development Center is doing much research on this
on these topics that we are discussing here today and we
appreciate the support from the Department. Real quickly and
the Air Force as well, Dr. Shah, had mentioned that the Air
Force is beginning to test this. Wright-Patterson Air Force
Base is already beginning to test the use of biofuels and
blended fuels, et cetera, on aircraft, flying aircraft. I would
like to highlight you to that research that we are doing in
Ohio. It is my opinion that farmers have yet remained very
skeptical about the investments in the alternative energies,
and judging from their tepid response on the energy bill that
passed the House, I want to know what measures you are taking
at Agriculture and Department of Energy to do this outreach, if
you could quickly respond.
Mr. Tonsager. We do have a plan that we are evolving on the
process of outreaching to producers on the projects involved.
We have been talking as we speak around the country and
aggressively advocating for biofuels. We understand that there
is a mixed view in some cases regarding biofuels. I think what
needs to be done is to focus on the needs of particular areas
and the economies of particular areas and the availability of
resources because the bottom line is, people are going to look
for economic opportunity. So, as we identify those economic
opportunities, we will advocate in the areas where it might be
possible to put together projects.
Mr. Boccieri. Thank you it is my opinion that the only
thing that is preventing our country from producing robust
alternative fuels and alternative energy is the energy that we
invest in it. I believe that with these type of grants that you
are awarding and the research that we are doing we can make a
difference.
Last question real quickly, tell me if you are getting
resistance or help working intra-agency between the Department
of Energy and Agriculture. Are you working in tandem, hand-to-
hand to bring this because I have heard different stories and I
want to hear it from you.
Dr. Shah. You know, up to this point there have been a
large number of committees and meetings and organizing groups
that do that at different levels. This Administration has been
committed to a stronger partnership at the Cabinet level and so
it is Secretary Vilsack and Secretary Chu and Administrator
Jackson all co-chairing this biofuel task force. We are finding
that it is far more productive to have conversations. We are
having real discussions about how to bring each agency's and
each organization's core competencies to the program, and we
are having real conversations about how to reduce the
duplication that sometimes exist across those agencies.
Everybody is very focused on the very specific quantitative
goals established by Congress for 36 billion gallons and even
larger ones farther out established by the President during the
campaign, so I think it is improving significantly.
Mr. Boccieri. It is my opinion that this will not work
without a vibrant and good partnership that is fostered between
the two agencies, so I hope that to that end that you will work
together.
Thank you, Mr. Chairman, I yield back.
The Chairman. The chair thanks the gentleman and recognizes
the gentleman from Idaho.
Mr. Minnick. My state has substantial resources in both
traditional agriculture and forest products for biofuels of
almost all types. As I talk to the producers and potential
producers, the problem is not that the technology doesn't
exist, or can't be developed with reasonable surety, or that
they can't find funding. The main problem is that most of these
technologies are very economic when the price of gasoline is $5
but if it falls to $3 or $2, they are out of luck and bankrupt.
If we are really serious about jump-starting some of these
technologies, it seems to me that we need a guaranteed program
that would be limited in time, that would be keyed to the price
of alternative fuels for the period of time necessary to
recover the capital invested in these capital-intensive
projects. Do you have underway or do you contemplate a program
that would provide, essentially, a price protection against
alternative fuels for these producers who make a capital
investment for the period of time required to recoup that
investment in the event that prices decline and leave these
fuels temporarily noncompetitive?
Mr. Tonsager. I agree completely with you on the idea of
the instability creating problems for us. I think the
significant movements in the all, in several market areas have
created some of the great uncertainty we are faced with
investment at that time. I am more than happy to explore
options that you might want to talk about that might alleviate
the stress of starting up a project. I think we have to look
for every opportunity. I have not contemplated that particular
kind of an approach yet, but I do spend a lot of time thinking
about how we try to create certainty, stability and
circumstances where investors and creditors would be willing to
step up and take risks.
Mr. Minnick. I would like to urge you to contemplate that
kind of program.
Mr. Tonsager. Okay.
Mr. Minnick. Because without it we can do a lot of talking
and have a lot of committee meetings, but we are not going to
attract the significant private capital required to
commercialize that scale these kinds of projects needed to meet
the ambitious goals that you speak about and spoke about
earlier. I would be happy to work with you on that effort.
Thank you very much.
Mr. Tonsager. Thank you.
The Chairman. The chair thanks the gentleman. The chair
thanks the witnesses for their testimony today, and the
Subcommittee will be in recess until the three votes are cast
and then we will have panel two. Thank you.
[Recess.]
The Chairman. The Subcommittee will come back to order.
We would now like to welcome our second panel. Ms. Mary
Rosenthal, Executive Director of Algal Biomass Association,
Preston, Minnesota; Ms. Susan Ellerbusch, President, BP
Biofuels North America, Warrenville, Illinois; Mr. William J.
Roe, President and CEO of Coskata, Incorporated, Warrenville,
Illinois; Mr. Bruce Jamerson, Chairman of the Board of
Directors of Mascoma Corporation, Lebanon, New Hampshire; and
Mr. Craig Shealy, President and CEO of Osage Bio Energy, Glen
Allen, Virginia.
Ms. Rosenthal, you may begin when you are ready.
STATEMENT OF MARY ROSENTHAL, EXECUTIVE DIRECTOR, ALGAL BIOMASS
ORGANIZATION, PRESTON, MN
Ms. Rosenthal. Good morning and thank you for allowing us
the privilege to testify here in front of this Subcommittee on
Conservation, Credit, Energy, and Research.
My name is Mary Rosenthal. I am the Executive Director of
the Algal Biomass Organization.
The Algal Biomass Organization represents stakeholders
involved in the use of algae biomass for the production of next
generation biofuels. The ABO, as an industry trade association,
is focused on facilitating the commercialization and market
development of algal biomass to produce fuels that have
significantly reduced carbon emissions compared with petroleum-
based fuels while beneficially reusing carbon dioxide from
industrial and atmospheric sources. Algae are a sustainable,
renewable feedstock that will help America become energy
independent and make our nation significantly reduce its carbon
footprint.
Third generation algae-based fuels are different from first
and second generation fuels. Unlike first and second generation
biofuels algae-based fuels are easily refined into hydrocarbons
including gas, diesel and jet fuel and thus serves as a direct
fossil fuel replacement. Algae-based fuels are also compatible
with existing oil and pipeline infrastructure and engines.
Additionally, algae-based fuels are competitive with other
biofuels which can be blended with algae-based hydrocarbon
fuels making algae-based fuels a compatible, not competitive,
technology.
Right now, algae-based fuels are being successfully
produced and tested today. Production timelines for the
industry range from the near, 1 to 2 years, to the midterm, 5
to 8 years proving that algae-based fuels industry is ready to
commercialize. So the question is why algae and why now? Algae
holds tremendous potential to play a key role in the
development of a new energy economy, one driven by
environmentally and economically sustainable fuel and power
generation. Any commercially viable energy feedstock must be
able to scale to meet national and to global energy needs.
Algae are one of the nation's most photosynthetic organisms
meaning that algae do not waste time doing anything but
producing oil and growing. A single crop of algae can mature in
as little as 7 days making algae one of the fastest growing and
most scalable energy feedstocks available.
Algae are enormous consumers of CO2,
consequently algae require abundant atmospheric industrial
source CO2 in order to scale to significant levels.
Algae beneficially reuses CO2 by turning it into
fuels and other important commodities thus strengthening our
green economy while increasing America's energy security. Algae
can be grown on non-arable desert land using non-potable water
or brackish water, consequently, algae preserves precious
agricultural resources while providing exciting new
opportunities for rural development.
Algae fuels range from ethanol to biodiesel to drop-in
transportation fuel such as jet, diesel and gasoline, and thus
can help the rest of the biofuel community meet our renewable
fuel mandates. Significant process has been made to the
commercialization of algae among companies, scientists and
broader interests. Interest in algae as a resource continues to
grow, and technological advances in the production of algae
biomass combined with hundreds of millions of dollars invested
just this year in research and production, and brought the
industry much closer to commercialization and cost efficient
production.
Unfortunately, there many of the Federal Government's
existing policies that exempt algae from benefits similar to
those enjoyed by other biofuels. These include financial
parity. Algae should receive the same tax incentives, subsidies
and other benefits that other renewable fuels, particularly
cellulosic biofuels receive. RFS parity, algae is currently
excluded from the majority of the renewable fuel standard due
to the 16 VAT gallon carve out for cellulosic biofuels. This
carve out should be changed. Finally, beneficial CO2
reuse recognition: Algae's unique ability to turn
CO2 into renewable fuels will allow the organism to
play a significant role in abating carbon emitted by industrial
sources. Consequently, algae's beneficial reuse of
CO2 should be acknowledged and counted for in carbon
capture and sequestration legislation. Algae fuels will play a
significant near-term role in helping our nation meet its goals
in transitioning to sustainable renewable fuels, improving our
green economy and increasing our nation's energy independence.
[The prepared statement of Ms. Rosenthal follows:]
Prepared Statement of Mary Rosenthal, Executive Director, Algal Biomass
Organization, Preston, MN
The Algal Biomass Organization represents stakeholders involved in
the use of algal biomass for the production of next generation
biofuels. The Algal Biomass Organization, as an industry trade
association, is focused on facilitating the commercialization and
market development of algal biomass, to produce fuels that have
significantly reduced carbon emissions, compared with petroleum-based
fuels, while beneficially reusing carbon dioxide from industrial and
atmospheric sources. Algae are a sustainable, renewable feedstock that
will help America become energy independent, and help our nation
significantly reduce its carbon footprint.
``Third generation'' algae-based fuels are different from first and
second-generation fuels. Unlike first and second-generation biofuels,
algae-based fuels are easily refined into hydrocarbons--including gas,
diesel and jet fuel--and thus serve as a direct fossil fuel
replacement. Algae-based fuels are also compatible with existing oil
and pipeline infrastructure and engines. Additionally, algae-based
fuels are not competitive with other biofuels, which can be blended
with algae-based hydrocarbon fuels, making algae-based fuel a
compatible, not competitive, technology.
Algae-based fuels are being successfully produced and tested today.
Production timelines for the industry range from near- (1-2 years) to
mid-term (5-8 years), proving that the algae-based fuel industry is
ready to commercialize.
Why algae and why now?
Algae hold tremendous potential to play a key role in the
development of a new energy economy--one driven by environmentally and
economically sustainable fuel and power generation.
Any commercially viable energy feedstock must be able to
scale to meet national--and eventually global--energy needs.
Algae are one of nature's most efficient photosynthetic
organisms, meaning that algae do not waste time doing anything
but producing oil and growing. A single crop of algae can
mature in as little as 7 days, making algae one of the fastest
growing and most scalable energy feedstocks available.
Algae are enormous consumers of CO2.
Consequently, algae require abundant atmospheric and
industrial-source CO2 in order to scale to
significant levels. Algae beneficially reuse CO2 by
turning it into fuels and other important commodities, thus
strengthening our green economy while increasing America's
energy security.
Algae can be grown on non-arable desert land, using non-
potable salt or brackish water. Consequently, algae conserve
precious agricultural resources, while providing exciting new
opportunities for rural development. Algae can be grown using
non-food energy sources such as cellulosic material and waste
chemicals. These methods of cultivating algae can provide a new
agricultural crop without large scale change in land use or
imposing unsustainable demands on potable water supplies.
Algae-based fuels range from ethanol to biodiesel to drop-in
transportation fuel, such as jet, diesel and gasoline, and can
thus help the rest of the biofuel community meet our nation's
renewable biofuel mandates. Some companies in the industry have
produced and tested these drop-in fuels already.
Significant progress has been made toward the commercialization of
algae-based renewable fuels and their resultant co-products. Among
companies, scientists, and the broader public, interest in algae as a
resource for renewable energy continues to grow--and technological
advances in the production of algal biomass combined with hundreds of
millions of dollars invested this year in research and production have
brought the industry much closer to commercialization and cost-
efficient production of algal biomass.
Unfortunately, many of the federal government's existing policies
exempt algae from receiving benefits similar to those enjoyed by other
biofuels. Such oversight can be easily remedied if the government takes
the following actions:
1. Financial parity--Algae should receive the same tax incentives,
subsidies and other financial benefits that other renewable
fuels, particularly cellulosic biofuels, receive.
2. RFS parity--Algae is currently excluded from the majority of the
Renewable Fuel Standard, due to a 16 billion gallon carve out
for cellulosic biofuels. The carve out should be changed so
that it is technology neutral, thus allowing algae-based and
other environmentally sustainable fuels to contribute to our
nation's efforts to become energy independent.
3. Beneficial CO2 reuse recognition--Algae's unique
ability to turn CO2 into renewable fuels will allow
the organism to play a significant role in abating carbon
emitted by industrial sources. Consequently, algae's beneficial
reuse of CO2 should be acknowledged and accounted
for in carbon capture and sequestration legislation.
Algae-based fuels will play a significant, near-term role in
helping our nation meet its goals of transitioning to sustainable
renewable fuels, improving our green economy, and increasing our
nation's energy independence.
The Chairman. Thank you.
Ms. Ellerbusch.
STATEMENT OF SUSAN ELLERBUSCH, PRESIDENT, BP BIOFUELS NORTH
AMERICA LLC, WARRENVILLE, IL
Ms. Ellerbusch. Good afternoon.
My name is Susan Ellerbusch and I am the President of BP
Biofuels North America. I am one of 29,000 employees of BP
working in the United States. I want to thank the Chairman,
Ranking Member and all other Members of this Subcommittee for
the opportunity to present BP's views on the opportunities and
challenges facing us in the advanced biofuels industry.
BP believes there must be an all of the above energy
strategy in the U.S. This strategy will allow us, as a country,
to explore for and develop a diverse array of new domestic
energy sources that are secure and reliable. BP is committed to
its alternative businesses and holds them as an integral part
of our BP group. Our alternative energy business is on track to
deliver $8 billion in investments over 10 years. In the
biofuels business alone, BP has committed more than $1.5
billion on research, development and production. BP believes
that advanced biofuels will play a material role in the U.S.
energy future. BP will not only purchase biofuels but we will
produce them in the U.S. BP has made a strategic choice to
pursue advanced biofuels because it appreciates the opportunity
to invest in a new and high-growth industry. We also recognize
our ability to leverage our capabilities and insights into the
energy markets logistics, projects, and operational management.
BP does have a focused biofuel strategy. First, we intend
to produce cellulosic biofuels in the U.S. from dedicated
energy crops. Second, we have established an Advanced Biofuel
Molecule Program and last, we have begun production of ethanol
in Brazil using sugarcane as a feedstock.
The U.S. business model is built on several key strategic
beliefs. First, that a new value chain within the U.S. must be
created to enable the growth of advanced biofuels and second,
that advanced biofuels will be cost and performance competitive
with incumbent products by 2022. Last, that transitional
incentives and support structures need to be in place to allow
this industry to develop.
In developing a U.S. cellulosic business BP has made two
critical choices. First, we have chosen to utilize dedicated
energy crops, and second, we have chosen to deploy a
biochemical conversion process for our production. Both choices
are difficult routes in the short term but are likely to be
optimal paths in the long run.
To date, BP has invested $90 million in a technology
partnership with Verenium Corporation, a leading advanced
biofuels player. This partnership is advancing Verenium's
original cellulosic technology and supports advancements of
Verenium's 1.4 million gallon a year proof of concept
demonstration facility that is currently up and running in
Jennings, Louisiana. Also, with Verenium, BP has built the
first, is planning to build the first U.S. commercial scale
cellulosic facility in Highlands County, Florida. This joint
venture which we have named Vercipia Biofuels combines BP's
project design and engineering expertise with Verenium's
biotechnology expertise. We intend to complete construction of
a 36 million gallon a year facility by 2012. This plan also
includes adding additional capacity. The joint venture will
look at a second possible site in the U.S. Gulf Coast and going
forward, BP hopes to progress other cellulosic facilities of
this nature in the U.S.
In the area of advanced molecules, BP has focused on
biobutanol. Biobutanol is an advanced molecule that can be
produced from the same feedstocks as ethanol through modest
retrofits to existing facilities. This advanced molecule offers
benefits such as higher energy content and the ability to blend
at higher rates, while still using an industry's existing
distribution infrastructure. We have created a joint venture
with DuPont called Butamax for the development and
commercialization of this better biofuel molecule. We are
currently building a demonstration facility for the technology
in the UK, and hope to be able to commercially deploy the
technology here in the U.S. in the 2012 to 2013 time-frame.
However, our path of development in advanced biofuels is
not an easy one. There are a number of critical supply side
challenges facing the advanced biofuels industry that were not
necessarily present for the current generation of biofuels.
First, a value chain for cellulosic biofuel feedstock supply
must be developed. The value chain for dedicated energy crops,
forest waste, and agricultural residue is simply not ready for
scale and to meet the requirements by the government mandates.
Second, there remains technology challenges related to the
scale and cost competitiveness of the technologies available
today. These conversion technologies have not been proven at
commercial scale. Last, we lack the access to financing in the
present industry due to the current situation in the financing
industry. The current financial crises have prevented venture
capitalists and bankers from investing in many worthwhile
investments. On the demand side it is worth noting that there
does exist a significant challenge to the blend wall that is
the markets ability to absorb these ever-increasing volumes of
biofuels. BP believes that a combination of time, technology
development, and policy support and infrastructure investment
will solve this problem. We believe that advanced molecules
like biobutanol can lessen the effect of the blend wall in the
marketplace.
However, while these challenges are significant, they are
not insurmountable. A stable industry with multiple
technologies and multiple forms of partnership will best enable
stability in the long run. Government support structures: The
industry and investors must see a secure market. Transitional
support mechanisms managed well by critical government agencies
such as the USDA and DOE will also ensure continued development
in the industry.
In closing, BP appreciates the pursuit of solutions to
energy security, economic and environmental challenges faced by
the U.S. BP wants to be part of the solution. Biofuels done
well can play a key role in delivering these major policy
goals. Thank you.
[The prepared statement of Ms. Ellerbusch follows:]
Prepared Statement of Susan Ellerbusch, President, BP Biofuels North
America LLC, Warrenville, IL
My name is Susan Ellerbusch, and I am the President of BP Biofuels
North America LLC.
BP appreciates the opportunity to appear before this Committee and
present our views on the opportunities and challenges in the advanced
biofuels industry. The needs of our country require that we explore for
and develop a diverse set of new domestic sources of energy that are
secure and reliable in good times and in tough times. We believe
advanced biofuels will play a material role in the U.S. energy future.
BP Overview
I am one of the 29,000 employees at BP working in the United
States. We are not only the largest oil and gas producer in the United
States, but also the company that invests in the most diverse energy
portfolio in the industry. Over the last 5 years, we have invested
approximately $35 billion in the U.S. to increase existing energy
sources, extend energy supplies and develop new low-carbon
technologies.
BP's investments stretch from the Gulf of Mexico to the North Slope
of Alaska and from the East Coast to the Midwest and the West Coast.
Our 11,700 service stations--most of them locally owned and operated--
are a familiar part of the American landscape.
BP is 100 years old this year--a history that began with striking
oil in the Persian desert after 6 years of toil and has continued
through wars, oil shocks, globalization and growing environmental
awareness. The company's major spending programs touch every major
segment of the energy industry, from exploration and production of oil
and natural gas through refining and distribution of fuel products, as
well as renewables. Persistence and innovation have been two of the
company's hallmarks, along with an ability to anticipate and adapt to
external trends, whether political, social, economic or environmental.
BP Alternative Energy
We've recognized the changing nature of the world's energy needs.
As an energy supplier we are faced with the need to meet consumers'
growing consumption demands and at the same time ensure secure sources
of energy that offer solutions to climate change.
So it is not surprising that BP has been an early mover in the low-
carbon world, setting up a solar business over 30 years ago and leading
the oil and gas industry in acknowledging the risks of climate change
and urging precautionary action.
Today, BP's alternative energy businesses are integral to the BP
Group. Our alternative energy businesses aim to be commercially, as
well as environmentally, sustainable. Launched in 2005, BP Alternative
Energy is on track to achieve its objective to invest $8 billion over
10 years on renewable and alternative energy. In the biofuels space
alone, BP has committed more than $1.5 billion to biofuels research,
development, and production in response to increasing energy demand and
the need to reduce overall greenhouse gas emissions from transport
fuels.
BP is focusing its alternative energy investments on areas where it
believes it can create the greatest competitive advantage. It has
chosen to focus on the technologies of wind and solar power, biofuels
and carbon capture and storage.
Biofuels
BP has relished the opportunity to invest in a new high growth
industry. In biofuels, there are many potential options for feedstocks,
molecules and processes. BP is prioritizing what it identifies as the
strongest biofuels options for increasing energy security, reducing
greenhouse gas emissions and supporting sustainable agriculture.
In the longer term, through developments in feedstock and process
conversion technologies, we believe biofuels offer the potential to
comprise a material share of the transport fuels market in key regions.
For example, the U.S. Department of Energy has forecast that biofuels
could serve 20-30% of the U.S. transportation market by 2020.
Additionally, the International Energy Agency has estimated that
biofuels could form up to 30% of the global road transportation market
by 2050, in work done in cooperation with the World Business Council
project on Sustainable Mobility.
Importantly, biofuels offer the potential to deliver lower overall
greenhouse gas (GHG) emissions compared with conventional fuels.
Biofuels reduce GHG emissions entering the atmosphere on a total well-
to-wheels or crop-to-car basis. That is, the carbon dioxide
(CO2) emitted when the biofuel is burnt in the vehicle is
offset by the CO2 absorbed during the growing of the crop.
Future technology developments in the area of advanced biofuels offer
the potential for biofuels to deliver GHG emission savings on a well-
to-wheels basis of up to 90% versus conventional fuels. This can
potentially be achieved through a combination of using less energy-
intensive crops, or waste materials, and highly efficient/high yielding
conversion processes.
BP Biofuels
BP has made a strategic choice to participate in biofuels. BP has
identified biofuels, in particular advanced biofuels, as one of the
most compelling options to reduce GHG emissions and address energy
security and supply diversification needs. As one of the largest
transportation fuel providers in the U.S., BP has long been one of the
most significant blenders and marketers of biofuels in the nation. For
example, last year BP blended over 1 billion gallons of ethanol with
gasoline. In addition, biofuels are complementary to vehicle
technologies which increase fuel economy, leading to a more sustainable
transport fleet.
We believe BP is a natural leader in this space. BP has a long
history of addressing the issue of increasing CO2 emissions,
offering increasingly cleaner fuels to customers and identifying new
growth opportunities to develop our business. Biofuels serve markets we
are familiar with and have incumbent positions in, and applications in
which we have extensive expertise. It leverages our capabilities and
insights into energy markets and logistics and project and operational
management.
In 2006, BP decided to move beyond blending biofuels to also
develop and manufacture our own biofuels. We formed a separate business
within BP charged to develop this business opportunity. At the heart of
our business is a desire to continually advance our ability to produce
biofuels and advanced biofuels in a sustainable manner.
BP's Biofuels business has a focused strategy. We have three
primary programs. First, we intend to produce cellulosic biofuels from
dedicated energy crops in the U.S. Second, we are developing an
advanced biofuels molecule called biobutanol that can be deployed in
existing and new ethanol production units. Lastly, we are producing
biofuels in Brazil using sugarcane as a feedstock.
Our U.S. business model is built on five strategic beliefs:
(1) We must create a new value chain within the U.S. to enable the
growth of advanced biofuels. New partnerships are required to
bring capabilities from agriculture, biotechnology,
engineering, manufacturing and fuel distribution together in a
unique way.
(2) There are multiple approaches to producing advanced biofuels,
but we believe the fermentation of sugars from a variety of
sources is one of the winning technology platforms for
delivering this industry at scale.
(3) Technology development will make biofuels cost competitive and
performance competitive with incumbent products by 2022.
(4) Transitional incentives and support structures need to be in
place to bridge this nascent industry as the value chain forms
and technology cost improvements are realized.
(5) Regulation, technology and good operating practice will enable
a sustainable industry to form.
Our focus in the U.S. was catalyzed by the Energy Independence and
Security Act of 2007. Through EISA, Congress created significant
opportunities to develop and grow the contribution of biofuels to the
U.S. transportation fuels market. EISA also served to move the industry
beyond the good start the U.S. has had with corn ethanol. New support
for the next generation of biofuels such as cellulosics and advanced
molecules such as biobutanol created the opportunity for the
development of a differentiated biofuels industry sooner than anyone
had previously envisioned.
Our commitment to a public-private partnership in the area of
advanced biofuels is very real. BP is investing $500 million over 10
years in the Energy Biosciences Institute (EBI). The EBI brings BP
together with experts from the University of California at Berkeley,
The University of Illinois at Urbana Champaign and the Lawrence
Berkeley Labs. We have created an institute at which biotechnologists
are able to investigate many possible applications of biotechnology to
energy, including advanced fuels. The EBI's work also includes research
into the social and economic impacts of biofuels.
BP Biofuels Programs
BP intends to produce cellulosic biofuels in the United States. Our
cellulosic biofuels program is focused on two key technology pathways.
First, we intend to utilize dedicated energy crops, such as high-
yielding perennial grasses, as feedstocks. Second, we intend to utilize
a biochemical conversion process to produce the biofuel from the
feedstocks.
BP has created a joint venture company called Vercipia Biofuels
with Verenium Corporation to build the first commercial scale
cellulosic biofuels facility in the U.S. To date, BP and Verenium have
made a total commitment of $45 million to the venture. The joint
venture company is led and supported by a team comprised of employees
from both BP and Verenium.
The formation of the Vercipia Biofuels joint venture builds on the
$90 million investment made by BP in 2008, which allowed the two
companies to further advance Verenium's original cellulosic technology
and ensure delivery of Verenium's 1.4 m gallon/year proof-of-concept
demonstration facility in Jennings, Louisiana.
BP and Verenium's proprietary technology enables conversion of
nearly all the sugars found in cellulosic biomass, including both 5-
carbon and 6-carbon sugars into ethanol. This technology is a reality
today. Our focus, going forward, is to enhance and improve the
efficiency of the technology so that it can be deployed at pace and
scale.
Vercipia Biofuels is progressing the design and engineering
required to develop one of the first commercial scale cellulosic
ethanol facilities in the U.S., located in Highlands County, Florida.
The estimated construction cost for this 36 million gallon per year
facility is between $250 and $300 million. The Vercipia Biofuels joint
venture plans to break ground on the facility in 2010 and be fully
operational in 2012. With plans to add additional capacity, the joint
venture company intends to develop a second site in the Gulf Coast
region.
The ethanol produced in our first facility in Florida will be
developed with energy grass feedstocks such as energy cane. We believe
energy grasses will be an essential part of the future U.S. feedstock
mix, given their high yield, yield improvement potential and reduced
pressure on land resources. Going forward BP intends to progress other
cellulosic facilities in the U.S. and broaden our energy grass
feedstock portfolio. BP's intent is to continue to scale up the
production capacity of future units as we move toward a cost structure
that can compete with traditional transport fuel sources.
In the area of advanced molecules, BP is focusing on biobutanol.
Biobutanol is an advanced biofuel molecule that builds on the benefits
of the ethanol molecule and adds additional strengths. These additional
strengths include:
It can be produced from the same feedstocks as ethanol
through modest upgrades of existing facilities.
It is less susceptible to separation in the presence of
water than ethanol/gasoline blends, and therefore can use the
industry's existing distribution infrastructure without
requiring modifications.
A 16% blend can be used in all existing vehicles and
infrastructure, offering consumers better fuel economy than E10
and double the GHG benefit as E10 making it an efficient
enabler of the renewable fuels objectives set out by Congress
in the EISA.
BP believes biobutanol will help to accelerate the adoption of
biofuels and assist in overcoming the blend wall, so that the U.S. can
meet targets for reducing greenhouse gas emissions from transport more
quickly. We have created a joint venture with DuPont called Butamax for
the development and commercialization of this fuel molecule. We are
currently building a demonstration facility in the UK and hope to be
able to commercially deploy our technology in the U.S. during the 2012
to 2013 time-frame.
Outside of the U.S., BP has focused its current investments in
biofuels production on Brazilian ethanol made from sugarcane. Brazilian
sugarcane ethanol has a wells-to-wheels GHG footprint that is at least
50% less than conventional gasoline. BP has made the largest investment
to date by an international oil company in the Brazilian ethanol
production industry by taking a 50% stake in the Tropical BioEnergia
joint venture, which already has one refinery producing ethanol.
Advanced Biofuels Industry Challenges
BP is a strong supporter of advanced biofuels. However, we do
recognize there are challenges to advancing the biofuels industry in
the U.S. Biofuels is about bringing together our two most important
value chains--agriculture and energy. We do not take this challenge
lightly.
Our nation's initial focus in the biofuels industry was on making
ethanol and biodiesel from existing agricultural commodities using
existing, well established and proven manufacturing technology.
Financing for this first wave of the industry came from the
agricultural community and later from a large infusion of financial
capital from private investors and the banking sector. The ethanol and
biodiesel markets formation benefited from readily available
feedstocks, off-the-shelf technology and a vibrant investment climate.
With limited barriers to entry the first generation industry rapidly
expanded to meet and exceed the targets set out by Congress.
With the rapid development and success of the corn ethanol
biofuels, the biofuels industry began focusing on ways to produce more
sustainable biofuels with strong environmental thresholds. However, the
development and deployment of an advanced biofuels industry would not
have been as quick were it not for passage of the EISA in 2007.
To properly evaluate policy options for the advanced biofuels
industry, one must consider several critical differences between
current generation biofuels and advanced biofuels. First, advanced
biofuels are the largest portion of fuels in the 2007 EISA. Advanced
biofuels in general, and cellulosic biofuels specifically, do not have
existing or well developed feedstock supply value-chains. Whether the
feedstock is high yield energy grasses or various waste products from
forestry or agriculture, these value chains need development. This
market development will take time and will include participation from
land owners, farmers, seed companies, agricultural and forestry
equipment OEMs, agricultural banking sectors and insurers, and
transportation companies. We need to continue to nurture and stimulate
the development of this value chain.
Second, the technology for conversion of the feedstocks to biofuels
is still being developed. Yes, we can produce advanced biofuels today,
but they are not cost competitive with current biofuels. Many
technologies are not yet readily available to the market. Most of the
companies in this space are technology startups. Generally speaking,
the companies are good at developing technology, but lack the
capabilities to scale the technology into major capital projects. As
unit capacities increase over time, these projects could cost upwards
of $500 million each. This industry will therefore be enabled by
partnerships that bring together small technology companies and large
processing companies--such as BP--who have the project management,
engineering, and operational skills to bring to scale the technology.
Third, private investors and the banking sector are in a very
different state than during the surge of funding for biofuels in 2006
and 2007. Venture capitalist funding supports the development of start-
up technology companies and much of that investment is limited until
they see proof-of-concept in the industry. The banking sector's support
is required for investments in the scale-up of commercial facilities.
Given the recent recession and the banking sector's financial
difficulties, lending has become scarce in the biofuels space. New
investments in advanced biofuels are having difficulties gaining
financing even with current government support structures due to the
evolving technology state of the industry.
Even if the recession and banking sector challenges had not
occurred, the business risk for advanced biofuels is not the same as it
was corn for ethanol. The banking sector does not yet view the advanced
biofuels value chains as proven and reliable or new conversion
technologies as low risk investments. Even though government
initiatives such as the Renewable Fuels Standard, tax credits, USDA and
DOE grants and loan guarantee programs are in place to stimulate and
mitigate the risk of investments, the banking industry still does not
see them as low enough risk at this point in the national economic
recovery. Thus capital markets are frozen for major advanced biofuels
capital projects.
The confluence of these factors has led to slower progress for
advanced biofuels in the U.S. than otherwise expected. However daunting
these challenges may seem, they are not insurmountable.
Advanced Biofuels Industry Solutions
To achieve the national goals on energy security, progress on GHG
emissions, and further rural development, BP supports a robust biofuels
industry where many players will bring forward a variety of technology
and commercial solutions. Partnerships between different types of
companies--large and small, technology and manufacturing, agricultural
and energy, financial and operational--through extended value chains--
will be needed to make this industry work.
Specifically, we need the stability of a long-term governmental
support structure to de-risk the investment in advanced biofuels.
Congressional support that is short, has uncertain time-frames or is
continually evolving creates uncertainly which translates into
financial risk. Stability and certainty in the existing EISA programs
are vital to mitigating the risk associated with investing billions of
dollars in evolving technology. Investors and developers must see a
secure market. A stable framework to support the evolving industry will
go a long way to accelerating the industry toward achieving national
energy and environmental goals.
The framework in BP's view must continue to include a set of
transitional support mechanisms that bridges today's nascent industry
and allows companies such as BP, our partners Verenium and DuPont and
other leading players in the industry the time and space to deliver at
scale a cost efficient, sustainable solution for U.S. transport energy
needs. Transitional support mechanisms such as the cellulosic biofuels
production tax credit and the biomass crop assistance program are very
important as we make initial investments in technology that is yet to
be competitive with traditional fuel sources.
We believe the USDA and the DOE must continue to play a pivotal
role in developing the advanced biofuels industry. We look to the
USDA's leadership in helping to support feedstock development and the
formation of the upstream portion of the value chain. We look to the
DOE's leadership in helping to support the downstream conversion
technology portion of the value chain. Importantly, the DOE will need
play a key role in the initial funding of advanced biofuels, as the
initial commercial-scale facilities will be more expensive to build
than current generation biorefineries. The USDA and DOE along with
other policymakers must recognize the developmental nature of the
advanced biofuels industry and help to manage the risks that companies
such as BP and the other early leaders in this field are facing as we
attempt to create this new industry. In this effort, the government can
and will play a critical role.
Assuming supply side dynamics are addressed, there remain demand
side barriers to be resolved. The most pressing issue is solving the
so-called blend wall issue--the market's inability to absorb additional
biofuel volumes. The blend wall results from well intentioned but
disconnected energy policy and legal frameworks. BP believes that a
combination of time, technology development, and policy support and
infrastructure investment will solve this problem. We believe advanced
molecules such as biobutanol can assist in lessening the effects of the
blend wall in the marketplace. But, as fuel suppliers and policymakers,
we need to be sensitive to these dynamics to ensure that consumer
expectations continue to be met.
Closing Comments
I want to thank the Committee for giving me the opportunity to
share our thoughts on the issues and challenges facing the advanced
biofuels industry. BP appreciates the energy security, economic, and
environmental challenges faced by the U.S., and wants to be a part of
the solution.
I am convinced that the biofuels industry has the potential to make
a positive contribution to energy security, climate change mitigation
and rural development. Biofuels today play a key role in delivering
sustainable transport fuels to U.S. motorists and will continue to do
so well into the future.
BP is committed to working with Congress and others to address the
energy and environmental needs of this nation through comprehensive
energy policy solutions. BP believes we must have an all the above
strategy to meet the growing demand for energy around the world and
biofuels is a key component to that strategy.
The Chairman. Thank you.
Mr. Roe.
STATEMENT OF WILLIAM J. ROE, PRESIDENT AND CEO, COSKATA, INC.,
WARRENVILLE, IL
Mr. Roe. Thank you, Mr. Chairman.
My name is Bill Roe and I am the President and CEO of
Coskata, an Illinois-based company that has developed and is
commercializing a process to produce lower cost fuel-grade
ethanol from a wide variety of non-food raw materials. I thank
the Subcommittee for the opportunity to speak with you today
about the future of biofuels in this country. My comments and
recommendations here are being delivered on behalf of my
company.
In my opinion, there are three fundamental questions that
any developer and producer of next generation biofuels must be
able to answer affirmatively. First, can the alternative fuel
compete with gasoline without need for long term government
initiatives and subsidies? Two, can the technology scale
commercially and create sustainable jobs in the process? And
three, does the alternative fuel have a lifecycle environmental
footprint that is significantly better than that of petroleum-
based fuels? Now, there is fact and there is fiction in terms
of how some would answer these fundamental questions, and if
there is one thing that I would like to be able to convey today
it is that there are companies that can answer these questions
affirmatively. We all need to be able to discern some of the
positive realities from the often incorrect critical rhetoric
that surrounds the subject of biofuels.
So a little bit of industry landscape, first let me suggest
that the biofuel industry is best thought of as one in
transition. First generation of biofuels in the U.S. has
consisted principally of ethanol produced from corn and
biodiesel derived substantially from materials like soybeans. A
really remarkable job was done, particularly over the past few
years, in getting somewhere between 10 and 12 billion gallons
of production capacity in place. That said, there are
restrictions and limitations, some real, some imaginary that
are impeding the further expansion of first generation
capacity. The current RFS caps conventional biofuels at 15
billion gallons per year, which is just slightly over the
current U.S. capacity. So the key to the future of biofuels is
going to be the feedstock flexibility of emerging technologies
and the availability of alternative feedstocks.
There are a host of cellulosic and other advanced biofuel
technologies that have emerged over the last 2 to 3 years, and
I describe and categorize them for you in my written testimony.
Several are showing early commercialization potential and
others appear technically sound but will be slower to scale. My
company, Coskata, is commercializing a process to produce low
cost ethanol with a feedstock flexible process that can use as
the raw material woody biomass, agricultural waste, waste wood
and construction and storm debris, purpose-grown energy crops,
and even municipal solid waste and old tires. The efficiency of
the process and the low cost of some of the feedstocks allow us
to produce fuel-grade ethanol that can compete with gasoline at
today's oil prices even without subsidies.
Furthermore, the greenhouse gas footprint of our process
was calculated by Argonne National Laboratories and was found
to be up to 96 percent lower in lifecycle greenhouse gas
emissions than the well-to-wheel analysis of that of gasoline.
And to shatter the myth that biofuels consume more energy in
their production then they generate, Argonne also calculated
that the Coskata bioethanol process produces up to 7.7 times as
much fuel energy as it consumes. The technology is in place. We
are proving the process at significant scale in our
demonstration facility in the Commonwealth of Pennsylvania, and
we have designed the first full-scale plant which we hope to
finance and begin constructing in the next months. We are not
alone here. There are a number of other companies in a similar
position to commercialize promising new production processes.
So what can you do to help? Everything that I have heard
this morning suggests that you are really on a lot of these
points. First of all, ensure that we have a consistent and
inclusive biomass definition. The Energy Policy Act of 2005,
ACES of 2007 and the farm bill in 2008 all have different and
conflicting definitions. Number two, help address the blend
wall issue. Congress mandated the use of 36 billion gallons of
renewable fuel by 2022 which can't be realized until the EPA
lifts the arbitrary blending limit of ten percent in gasoline.
We urge you to use your influence with the EPA. Third, adopt
carbon legislation that expressly recognizes biofuels as a
solution to reduce greenhouse gas emissions and to specifically
recognize biomass-based fuels as carbon offsets. Four,
establish a green bank. We commend Congress for including the
Clean Energy Deployment Administration in the ACES bill but
believe this Administration should be independent and not under
the authority of the DOE as suggested in the Senate version.
Five, extend the cellulosic producer tax credit, this expires
in January of 2012 and consequently would provide little or no
impact to even the earliest industry movers. Six, create
flexibility and modernization of tax credits allowing the
option to take them as an up-front credit or grant, as was done
with the solar and wind tax credits, this would help the
industry to use these to finance projects. And last but not
least, more needs to be done to develop and promote the
production of renewable feedstocks.
So in summary, the biofuel industry is at a tipping point
with a number of companies on the verge of commercializing
alternative fuel platforms that are going to reduce our
dependence of foreign oil, create jobs here that can't be
exported and dramatically improve the environmental
sustainability of liquid transportation fuels, and your help in
creating consistent and enduring policies to facilitate this is
needed and appreciated. Thanks for allowing me the time.
[The prepared statement of Mr. Roe follows:]
Prepared Statement of William J. Roe, President and CEO, Coskata, Inc.,
Warrenville, IL
Mr. Chairman and Members of the Subcommittee, thank you for the
opportunity to appear today to testify about the future of biofuels. My
name is Bill Roe and I'm the President and CEO of Illinois based
Coskata, Inc. and my comments and recommendations are being delivered
on behalf of my entire company. If there is one thing I would like to
be sure to convey today, it is that there are technologies to allow
non-grain based biofuels to be produced that will compete with
gasoline. The United States has been working on non-grain based
biofuels for more than 20 years, and we believe that a scalable and
sustainable ethanol solution is now available.
I. About Coskata and its technology
Coskata is a biology-based renewable energy company, whose
technology enables the low-cost production of ethanol from a variety of
input material, including wood biomass, agricultural and municipal
wastes, new energy crops, and other carbonaceous material.
We employ a simple, three-step process that can convert these
feedstocks into ethanol in an extremely energy and cost efficient way,
while addressing many of the constraints of current renewable energy
options, including environmental, transportation and land use concerns.
The first step is gasification: The feedstock is thermally
broken down to form synthesis gas (syngas), a mixture of carbon
monoxide, hydrogen and carbon dioxide molecules.
The second step is fermentation: The syngas is sent to a
proprietary bioreactor where patented microorganisms consume
the gas as food and produce ethanol.
The third step is separation: Using conventional
distillation and dehydration technology, the ethanol is
separated from the water, resulting in fuel-grade ethanol.
Our technology gives us many advantages over conventional gasoline.
In addition to being able to reduce greenhouse gases by up to 96% over
conventional gasoline, Coskata's process is among the industry's most
efficient ethanol conversion technologies. We can produce approximately
100 gallons of ethanol per dry ton of biomass material. In addition, we
believe our ethanol will be able to compete directly with gasoline
without long-term government subsidies. Our feedstock flexibility is a
key to sustainability, in that the Coskata process is capable of
utilizing all of the feedstocks named in the Department of Energy's
``Billion Ton Study''.
We are currently demonstrating this technology on a significant
scale at our demonstration facility, located in Pennsylvania. The
facility represents the successful scale-up of our technology and
allows Coskata to start building and licensing commercial facilities.
This is a major accomplishment for our company, and was a critical step
that was necessary before bringing the process to full commercial
scale.
II. Biofuel Industry Landscape
The biofuel industry in late 2009 is best thought of as an industry
in transition. The first generation of U.S.-manufactured biofuels that
have been derived from corn, sugar cane, soybean oil, etc., have been
defined both in terms of present and potential future impact. Further
expansion of ethanol produced from corn or biodiesel produced from
soybeans is unlikely to be substantial, the limitations primarily
stemming from the availability and cost of the actual feedstock
materials. However, next-generation technologies are being developed
and commercialized, using a much wider variety of input materials that
will be available at a lower cost than materials grown primarily for
food.
In 2007, a mandate was created by Congress in the form of the
Energy Independence and Security Act, which defines the requirements
for the production of 36 billion gallons of renewable fuel by 2022.
That 36 billion gallon requirement breaks down to:
15 billion gallons of ``conventional'' renewable biofuel.
16 billion gallons of cellulosic biofuel.
5 billion gallons of other ``advanced'' biofuel.
At this juncture in late 2009, there is an estimated capacity to
produce ``conventional'' renewable biofuel (for the most part ethanol
derived from corn) in the range of 12 billion gallons, not all of which
is operating. At this same point in time, there is essentially no
material production capacity on line for either cellulosic biofuel or
other advanced biofuels. That said, since the EISA mandate came into
being, there has been tremendous activity in both the private and
public sectors to develop the technology platforms necessary to meet
the requirements, and some of the more promising are now beginning to
scale to commercial levels.
The technologies that are emerging include, but are not limited to,
the following:
Cellulosic biofuel technologies
Ethanol from enzymatic hydrolysis of cellulose + fermentation
Ethanol from acid hydrolysis of cellulose + fermentation
Ethanol from biomass gasification + catalytic conversion of
syngas
Ethanol from gasification + biological conversion of syngas
Butanol from enzymatic hydrolysis of cellulose + fermentation
Synthetic diesel from gasification + catalytic conversion of syngas
Synthetic crude oil from biomass catalytic cracking or pyrolysis
Hydrocarbon fuels from bio-fermentation of sugars
Other advanced biofuel technologies
Synthetic hydrocarbons or alcohols from algae
Hydrocarbon fuels from conversion of animal waste or by-products
Hydrocarbon fuels from food waste including recycled oils/greases
Ethanol from fermentation of sugars from non-corn feedstocks
In our opinion, many of these emerging technologies are showing
promise, and some will commercialize faster than others. None, however,
will scale quickly enough to enable the industry to meet the current
requirements of the RFS in the early years. There are several companies
with technologies that are sufficiently advanced that are going to
commercial scale now, and can have a significant impact on meeting the
requirements for cellulosic and other advanced biofuels in the 2016-
2017 time-frame.
The commercialization of ``next-generation'' biofuels was expected
to be faster, and there are several factors that have slowed progress.
First, the incubation and maturation of some of the technology
platforms has taken longer than many anticipated. Second, the collapse
of the credit markets all but stopped the advancement of early
commercial projects. While the DOE and USDA have sponsored grant and
loan guarantee programs to assist companies in the alternative energy
space to finance their endeavors, very few awards have gone to biofuel
companies, and the few that did have not yet been acted upon. And
third, the commercialization rate of new biofuel technologies has been
hampered in some measure by the lack of consistent government policy.
For example, the current blending limit established by the EPA for
ethanol in gasoline for use in conventional automobiles is ten percent,
which has created the so-called ``blend wall,'' and is inconsistent
with the mandate established in the current Renewable Fuel Standard.
Biofuel developers have been therefore unable to plan future projects
in the absence of a more consistent and long-range policy from the
government.
While there have been challenges, we believe that despite those
challenges the U.S. is at the cusp of being able to move forward
rapidly in the near term. It has been our belief that any developer of
new alternative transportation fuels has to be able to answer three
fundamental questions affirmatively:
1. Can the process compete with gasoline economically, without the
aid of long-term government incentives and subsidies?
2. Can the technology commercially scale in a sustainable manner?
3. Does the production and use of the alternative fuel have a
significant positive environmental impact over the entire
lifecycle of the fuel?
III. Building a Sustainable Biofuels Industry
There are technologies that are scalable today that allow
affirmative answers to the above questions. And there are companies
that are capable of scaling new technologies that will:
Compete with oil and allow the U.S. to reduce our dependence
on foreign oil
Scale effectively and sustainably while creating new jobs
around the country
Replace petroleum-based fuels with alternatives that are
environmentally sustainable over their entire lifecycle
Advanced biofuels can compete with and reduce the consumption of oil
When taking into account a few assumptions, cellulosic biofuels can
compete directly with oil when prices are in the $70-$90 per barrel
range.\1\ With oil prices currently around $80 per barrel and the
Energy Information Administration (EIA) predicting the price per barrel
to settle around $130 over the next 20 years,\2\ the industry is
feeling confident in its ability to compete with oil without long-term
government subsidies.
---------------------------------------------------------------------------
\1\ Sandia National Laboratories, 90-Billion Gallon Biofuel
Deployment Study. February 2009.
\2\ Information Administration (EIA), Annual Outlook 2009. DOE/EIA-
0383. Washington, D.C., June 2009
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By economically competing with oil, advanced biofuels have a real
opportunity to reduce our dependence on oil by reducing imports. In
fact, advanced biofuel production under the RFS could reduce U.S.
petroleum imports by approximately $5.5 billion in 2012, $23 billion in
2016, and nearly $70 billion by 2022. The cumulative total of avoided
petroleum imports over the period 2010-2022 could exceed $350
billion.\3\
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\3\ BIO Economic Research Associates, U.S. Economic Impact of
Advanced Biofuels Production: Perspectives to 2030. February 2009.
---------------------------------------------------------------------------
In addition to the obvious economic benefits, this enormous
reduction would provide tremendous socioeconomic and geopolitical
benefits. Given that the U.S. imports more than 65% of our oil--much of
it from countries who don't share our same political and economic
beliefs--being able to produce fuel from materials we grow and/or
gather within our borders will keep dollars in the United States, as
well as serving to create and maintain jobs.
The biggest hurdle we face as an industry is the lack of project
finance to start building early-stage facilities. The issue is no
longer that advanced biofuels are 5-10 years away from being cost
competitive. They are competitive today, but we need help getting the
first facilities off the ground in the face of difficult capital
markets.
Advanced biofuels can scale effectively and sustainably while creating
jobs
For biofuels to make a meaningful impact, it's critical that we're
able to scale rapidly and sustainably. As I stated earlier, it is
unlikely the industry will meet the mandate of 100 million gallons of
cellulosic ethanol by 2010. However, because several feedstock-flexible
companies in the industry are ready to go to commercial scale now, it's
very conceivable that the industry will still meet the full RFS mandate
by 2022.
Feedstock flexibility is a major component of why we believe the
industry will not only be able to scale rapidly, but more importantly,
will be sustainable over time. One major lesson we have learned from
the corn ethanol and biodiesel businesses is that being dependent on
only one feedstock can not only lead to a volatile price structure, but
it also places geographic production restrictions that lessen the
overall environmental profile of the fuel.
This is why it is essential for the biofuel industry to be early
adopters of a feedstock flexible approach toward conversion
technologies. Only by using a diverse array of feedstocks will the
industry be able to convert the 1.3 billion tons of renewable biomass
that is available each year \4\ and do so without significant land use
changes.\5\ This approach affords two main benefits:
---------------------------------------------------------------------------
\4\ U.S. Department of Energy and U.S. Department of Agriculture,
Biomass as Feedstocks for a Bioenergy and Bioproducts Industry: The
Technical Feasibility of a Billion-Ton Annual Supply. April 2005.
\5\ Sandia National Laboratories, 90-Billion Gallon Biofuel
Deployment Study. February 2009.
1. It helps reduce the exposure to commodity price volatility,
which has recently been a major problem for grain-based fuel
producers. This reduction in exposure is essential to keep
---------------------------------------------------------------------------
prices steady and ensure long-term viability.
2. It allows for geographic flexibility and therefore a wider
distribution of the economic benefits associated with its
adoption. Companies with feedstock agnostic technologies can
build facilities all over the country: the Southeast, where
wood biomass is abundant; the Midwest, where they produce ample
amounts of agricultural waste; or large urban areas, with high
volumes of municipal solid waste. That way, when the advanced
biofuels industry grows to the levels established in the
Renewable Fuel Standard, the more than 800,000 new jobs that
will be created \6\ can be spread from coast-to-coast in
sectors of the economy that have experienced the highest rates
of job losses over the past year, including agriculture and
construction.
---------------------------------------------------------------------------
\6\ Ibid.
---------------------------------------------------------------------------
Advanced biofuels are environmentally beneficial over their entire
lifecycle
It is no surprise that one of the main reasons government policy is
being established to promote the growth of the biofuel industry is
because of its clear environmental superiority over petroleum. In fact,
cellulosic ethanol on average has the ability to reduce GHGs by
anywhere from 50-96%. That means 60 billion gallons of ethanol could
provide annual GHG savings of 260 million tons of CO2e per
year. This is equivalent to shutting down 45 coal-fired power
plants.\7\
---------------------------------------------------------------------------
\7\ Sandia National Laboratories, 90-Billion Gallon Biofuel
Deployment Study. February 2009.
---------------------------------------------------------------------------
For Coskata, Argonne National Labs performed a ``Well-to-Wheel''
analysis to determine the true carbon reductions possible with our
technology. They found that our technology has the ability to reduce
greenhouse gas emissions by up to 96% versus conventional gasoline when
looking at the entire lifecycle of the process. As we've learned from
our grain-based pioneers, viewing the environmental impact through the
prism of the entire ``lifecycle'' is fundamental.
Another important area not to be overlooked is water use in the
industry. According to a water study performed by Argonne National Labs
in 2009, 3-6 gallons of water are used for every gallon of gasoline
produced in the U.S. We believe that we will be able to produce a
gallon of ethanol using less than 2 gallons of water from a wet ton of
biomass, and that our industry partners are not far away. Water issues
are only growing in importance, and as an industry we remain committed
to utilizing water in a sustainable way.
IV. We need enduring government policy
Congress has been prolific in recognizing the tremendous benefits
that advanced biofuels can contribute. The passage of EISA in 2007 and
the 2008 Farm Bill have allowed significant progress for our industry
in establishing market demand for our product and providing various
incentives for its production. However, we believe Congress has a great
opportunity, and indeed an obligation, to establish enduring policy
that will catapult our industry forward, and ensure that it can deliver
on these promises. We believe the focus of such an enduring policy
should be three-fold:
1. Ensure consistent, transparent and fair regulatory regimes
governing our industry.
2. Establish alternative financing mechanisms for the impending
technology roll out.
3. Ensure the entire supply chain is ready for scale up.
Consistent, transparent and fair regulatory regimes
Biofuels producers have had a hard time planning future projects
because of the lack of a consistent, transparent and fair government
policy toward biofuels. This includes a consistent and inclusive
biomass definition, an easing of the current ``blend wall,'' and a
uniformly applied methodology to calculate carbon benefits.
Ensure consistent and inclusive biomass definition-- The
EPAct 2005, EISA 2007 and Farm Bill 2008 all have different
definitions for acceptable ``Renewable Biomass.'' In order to
avoid roadblocks down the road, we urge Congress to set an
inclusive definition of biomass to be used by all Federal
agencies and set a level playing field allowing the best
technologies to compete. Such a definition should be as
inclusive as possible, so as to not artificially limit the
potential supply of advanced biofuels. Specifically, the
Renewable Biomass definition across regulations should include
all forms of wood and waste, including those produced on
Federal Lands, Construction and Demolition Debris (C&D), and
Municipal Solid Waste (MSW). Congress should also limit the
record keeping requirements with regard to biomass origins on
biofuel producers, and ensure that those record keeping
requirements are consistent across all other biomass-based
industries such as renewable power generation.
Address the blend wall--Congress mandated the use of 36
billion gallons of renewable fuel by 2022. This mandate will
not be realized unless the government removes artificial
restrictions on ethanol and approves the use of higher ethanol
blends in America's vehicles. We urge Congress to urge the EPA
to lift the arbitrary limit on ethanol, especially considering
the science supports the use of E15.
Carbon offsets and credits--We urge Congress to adopt carbon
legislation that expressly recognizes and encourages biofuels
as a solution to reduce greenhouse gas emissions. Specifically
we ask that the biofuel component of fuel blends be excluded
from the cap since biofuels are already regulated under the
Renewable Fuel Standard. We also urge Congress to continue to
recognize the carbon neutrality of biofuels and to specifically
recognize the ability of biomass based fuels as carbon offsets.
We commend you and your colleagues in the House of Representatives
for recently passing the American Clean Energy and Security bill
(ACES), which goes a long way towards addressing these Renewable
Biomass and carbon issues, and we encourage your colleagues in the
Senate to follow your example.
Establish alternative financing mechanisms for technology roll out
While there have been some efforts aimed at encouraging commercial
scale development within the industry, it is our experience that most
of these programs have fallen far short of expectations. The industry
could benefit from new policies that encourage investment and ensure a
stable market for biofuels in the future. The technologies are ready,
but the U.S. Department of Energy's expectations for credit risk
profiles are unreasonable. We need to establish new funding mechanisms
to deploy new energy technologies and provide new energy companies a
way to utilize tax credits.
Establish a Green Bank--We commend Congress for including
the Clean Energy Deployment Administration (CEDA) in the recent
passage of the ACES bill. We believe CEDA will be instrumental
for accelerating the deployment of advanced biofuels. In order
to maximize the effectiveness of this new entity, we believe
this Administration must be independent and modeled on
successful public-private financial institutions such as the
Export-Import Bank and not be under the authority of the
Department of Energy as suggested in the Senate version of the
legislation.
Extend cellulosic producer tax credit--Under current law,
the production tax credit for cellulosic biofuels is only
available for eligible fuel produced before 1/1/2012. This
constitutes a significant impediment to investment considering
only few commercial cellulosic facilities will be placed into
service by that time. By amending section 40(b)(6)(H) to cover
all fuel produced before 1/1/2022, Congress would help
stimulate private investment by incentivizing these innovative
technologies. In addition, the current structure of this
credit--the VEETC excise tax credit available to blenders with
the balance as a producer tax credit (PTC)--creates unnecessary
confusion over the total value of the PTC since it is dependent
on the value of the VEETC, going forward. Congress could help
by amending section 40(b)(g)(H) to remove the VEETC component,
making the entire value of the PTC available to cellulosic
ethanol producers.
Allow flexibility in the monetization of tax credits--
Biofuel tax credits are currently very difficult to monetize,
causing capital hungry start-ups to sell their tax credits at a
substantial discount (>40%) if they can find a counterparty at
all. Instead, Congress should re-structure these credits to
allow the option of taking them as a one time, up-front,
investment tax credit/grant that can be used to finance
projects, mirroring the solar and wind industry PTCs.
Ensure the entire supply chain is ready for scale-up
In order to make a meaningful impact on the country's overall
energy mix, Congress must invest in both the front and back end supply
chains.
Ensure proper feedstock development--Help initiate
demonstration projects throughout the country for the
establishment, production, harvest, collection, storage and
transportation of cellulosic feedstocks. We commend Congress
and the USDA for their work in this area and look forward to
seeing positive impacts from the Biomass Crop Assistance
Program (BCAP) and some of the recent grant programs from the
U.S. Department of Agriculture.
Fund investments in fuel delivery infrastructure--Although a
fair level of infrastructure is already in place, it's
important for Congress to continue fostering the development of
flex fuel vehicles, rail expansion, construction of blending
facilities and E85 fuel pumps.
V. Conclusions
The biofuel industry is now at a tipping point. Many technologies
are showing tremendous promise and are going to commercial scale now.
Our technologies can compete with gasoline without long-term government
subsidies, can scale rapidly and sustainably, and can help deliver real
environmental benefits. The leading venture capital and private equity
investors in the world are putting their money behind the industry.
With the help of government policy, even major oil companies are now
seeing the benefits of investing in feedstock-flexible ethanol
technologies. We have the ability to meet the primary energy goals of
Congress by reducing our dependence on oil, ensuring environmental
sustainability, and creating jobs in every corner of the country. What
we need is enduring government policy that will help stimulate the
significant capital investment that it will take to ensure this change.
Thank you for the opportunity to present today. We look forward to
working with Members of Congress and the entire industry in bringing a
sustainable alternative to oil to the world.
The Chairman. Thank you.
Mr. Jamerson.
STATEMENT OF BRUCE A. JAMERSON, CHAIRMAN, BOARD OF DIRECTORS,
MASCOMA CORPORATION, LEBANON, NH
Mr. Jamerson. Thank you, Mr. Chairman, and Members of the
Subcommittee. I appreciate the opportunity to testify. Thank
you for the opportunity to be here today.
Mascoma is an energy biotech company. We have corporate
offices and a large R&D lab in Lebanon, New Hampshire. We have
a fully operative demonstration plant in Rome, New York, and we
are developing our first commercial scale plant in northern
Michigan. We were founded 4 years ago. We have raised about
$100 million of equity investment. We have 100 employees, about
75 are scientists. Our Consolidated BioProcessing Method
converts non-food feedstocks such as woody biomass, sugarcane
bagasse, corn stover and energy grasses into low carbon
cellulosic ethanol. Our Kinross, Michigan biorefinery is in a
rural area. Once operational, it will employ 50 to 60 highly
skilled people and according to the State of Michigan the
construction, maintenance and operation of the facility will
create approximately 450 indirect jobs for a total of about 500
regional jobs over the next 5 years.
I am going to talk about our experience with the USDA loan
guarantee program. Given the current loan structure at the USDA
and the challenging credit markets, banks are reluctant to
provide project financing and to use the loan guarantee program
as currently structured. We applied for the guarantee. We
approached 174 commercial lenders. Only two of them were
willing to work with us. We selected one but in the end they
were unable to move forward due to structural challenges with
the loan guarantee program. I am going to give you some detail
on those concerns.
For example, as the project size increases, the loan
guarantee amount reduces so that discourages larger projects.
There is a requirement to hold a minimum. The bank has to hold
a minimum of 50 percent of the non-guaranteed portion of the
loan that has to have the same terms for the non-guaranteed and
guaranteed portion of the loan. They limit to one percent the
difference between the guaranteed portion and the full loan
amounts. We also, think that we should be able to use the
Federal Financing Bank instead of having to seek commercial
banks to allow the guarantee to apply to a revolving credit
facility for working capital, and to be able to replace the
non-guaranteed portion of the loan with equity or subordinate
debt. So those are some comments I would have on changing the
program.
While it is not the jurisdiction of the Committee, I would
echo what Bill said about the investment tax credit that the
wind and solar industry have obtained that is refundable
through a monetized Treasury Department grant. This mechanism
has proven to be very effective for jump-starting renewable
electricity projects in wind and solar, and we believe that a
similar 30 to 40 percent refundable investment tax credit for
advanced biofuels would be very significant in attracting
private equity to the sector. We are very grateful for the
Federal support of commercial cellulosic biofuels and we are
confident in our technology. We have invested a lot in it,
however given economic conditions we will need continued
Federal commitment to support the industry. Thank you.
[The prepared statement of Mr. Jamerson follows:]
Prepared Statement of Bruce A. Jamerson, Chairman, Board of Directors,
Mascoma Corporation, Lebanon, NH
Good morning, Mr. Chairman and Members of the Subcommittee. I
appreciate the opportunity to testify on behalf of Mascoma Corporation
today. I have been active in the biofuels industry since 2001, having
previously served as President of corn ethanol producer VeraSun Energy
and CEO of Mascoma.
Mascoma Corporation is an innovative biofuels company committed to
developing environmentally sustainable, low cost, low carbon biofuels
from cellulosic biomass. The company's corporate office and R&D
laboratories are based in Lebanon, New Hampshire. Mascoma is producing
cellulosic ethanol on a demonstration scale at its facility in Rome,
New York. Its affiliate, Frontier Renewable Resources, is developing a
commercial scale production facility in Kinross, Michigan.
Background on Mascoma's Technology and Facilities
As being described today, there are a number of different
technologies that may be used to transform excess and waste biomass to
ethanol, and long term, to other biofuels and biochemicals. Depending
upon available feedstocks and other region and site-specific factors,
different cellulosic conversion processes will better suit specific
regions of the country. For example, wood chips may be used in northern
climates, sugar cane in the Gulf Coast, and corn stover in the Midwest.
A diverse portfolio of technologies and fuels will be required to meet
the United States liquid fuels demand in the coming years, and Mascoma
is confident that we can meet that challenge. We know that the
technologies exist to convert cellulosic material into fuels. Our focus
now is to scale up our process to operate on a cost competitive
commercial basis.
Mascoma's Consolidated BioProcessing method converts non-food
biomass feedstocks into cellulosic ethanol through the use of a
patented process that eliminates the need for costly enzymes and
additives. This transformative technology enables ethanol competitively
priced with gasoline to be derived from cellulose in a manner not
previously possible. The processing steps involve:
1. Sustainable harvesting of pulpwood (the feedstock we are using
in our first plant).
2. Pulpwood chipping.
3. Pretreating the feedstock by cooking and processing the wood
chips into a softened material (similar to peat moss).
4. Combining the pretreated material with proprietary
microorganisms in a fermenter, and fermenting the cellulose
into ethanol.
5. Recovering ethanol and lignin from the process. Cellulosic
ethanol is blended with gasoline as a low carbon motor fuel.
The unconverted fiber, called lignin, is used as a low carbon
boiler fuel or converted into other non-ethanol fuels.
Since several different biological actions that carry out this
transformation are consolidated into a single type of microorganism,
our method is referred to as Consolidated BioProcessing or CBP. The
technology is derived from an array of molecular tools used to
manipulate the makeup of the organisms. Unlike other biological methods
of producing ethanol, Mascoma's CBP process eliminates the need to add
expensive enzymes used to convert cellulose into the sugars needed to
produce ethanol. Since enzymes are one of the highest cost components
of cellulosic ethanol production, eliminating them greatly decreases
the cost of production.
Mascoma's aim is to develop the lowest cost technology for low
carbon cellulose ethanol production that will, in turn, be used in
commercial scale ethanol facilities in rural America that will create
new economic opportunities for local feedstock providers, create jobs,
and lessen our dependence on foreign oil.
Efforts Underway to Develop First Commercial Facility
Mascoma, in conjunction with J.M. Longyear, is actively developing
the first commercial scale production facility through its affiliate
Frontier Renewable Resources in Kinross, Michigan. The facility will
utilize sustainable, lower-value wood products such as pulpwood chips
to produce up to 80 million gallons of cellulosic ethanol per year. We
have spent considerable time analyzing feedstock availability to ensure
sufficient supplies of pulpwood. The feedstock supply will exclude wood
chips from sawlogs or veneer logs, which are too valuable for use in
biofuel production.
I want to thank the Committee for its leadership and work to
reconcile the definitions of renewable biomass included in the 2008
Farm Bill and the Renewable Fuels Standard in the 2007 Energy Bill. The
clarification included in the American Clean Energy and Security Act of
2009 is of significant help to us in obtaining our feedstock supply.
We have made substantial strides forward in developing the Kinross
site by combining significant private capital with grant assistance
from both the State of Michigan and the United States Department of
Energy Office of Energy Efficiency and Renewable Energy's Biomass
Program. Site acquisition and preliminary design engineering are
complete. Key technology milestones are on track. Significant progress
has been made on environmental and permitting processes. Letters of
intent for construction and off-take agreements are in place.
The Kinross biorefinery will be located in a rural area in the
Upper Peninsula of Michigan. The plant will be constructed on a site
near a decommissioned U.S. Air Force base. Kinross Township is located
in Chippewa County, Michigan, a sizable rural county of 2,700 square
miles. At the time of the 2000 U.S. Census, Chippewa County had a
population of only 38,543, while Kinross Township had a population of
5,922. The construction and operation of a cellulosic ethanol plant in
this area will create jobs and develop demand for underutilized
regional hardwood timber resources, providing support for the local
economy within a 150 mile or greater radius. Once operational, the
plant will employ an estimated 50-60 highly skilled people. According
to the State of Michigan, the construction, maintenance, and operation
of this facility will create approximately 450 indirect jobs, for an
estimated total of 500 regional jobs created by this project over the
next 5 years. After the financial success of the facility is proven at
20 million gallons of cellulosic ethanol production per year, further
expansion of the facility up to 80 million gallons per year is
anticipated. This future expansion will amplify the longevity of new
jobs created by this activity.
Like the other cellulosic companies, we continue efforts to secure
sufficient financing to complete the project. The first commercial
biorefineries capable of producing 20 to 40 million gallons of
cellulosic biofuel per year will cost more than $200 million to
construct. These commercial scale facilities, once under operation,
will lead to rapid de-risking of the technology, and open the path to
significant cost reductions as operating data becomes available and
larger scale plants are constructed. Securing financing for a first-of-
a-kind facility is often challenging. The difficult capital market
conditions over the past year and a half have made financing even
tougher, particularly for commercial debt financing. Thus, continued
Federal Government support is critical to keep the cellulosic fuels
industry on track to meet the production mandates of the RFS and meet
the promise of new jobs, less dependence on imported fuels, and
enhanced national security.
Experiences With USDA and DOE Loan Guarantee Programs
The USDA and DOE loan guarantee programs could be valuable tools to
help commercialize new technologies. Unfortunately, they have not, to
date, proven to be the catalyst for quickly developing commercial scale
cellulosic facilities.
Given the current USDA loan guarantee structure, challenging credit
market climate, and new technology of cellulosic projects, banks are
reluctant to provide project financing and to use the USDA loan
guarantee program to fund commercial scale cellulosic ethanol projects.
Earlier this year, Mascoma and its financial advisors contacted 174
commercial lenders seeking a bank partner to apply for a USDA loan
guarantee for the Kinross project. We spent significant time and money
on the loan guarantee application process. Only two lenders were
willing to work with us. We selected one, but in the end were unable to
move forward due to structural problems with the USDA loan guarantee
program requirements. Other first-mover cellulosic companies had
similar experiences with their projects.
Lenders told us that they need several adjustments to the USDA loan
guarantee program in order to meet their credit and pricing guidelines.
For example, as the project size increases, the loan guarantee amount
reduces. This discourages larger projects with more impact on jobs,
climate and energy independence. Other areas that need addressing
include:
holding a minimum of 50% of the non-guaranteed portion of
the loan;
requiring identical terms for the non-guaranteed and
guaranteed loan portions despite much different risk profiles;
and
limiting to 1% the difference between the interest rate on
the guaranteed portion of the loan and the weighted average
interest rate of the full loan amount.
In addition, we recommend several other program improvements that
would improve funding prospects:
allowing biorefinery applicants to use the Federal Financing
Bank as the sponsor lender, similar to the DOE loan guarantee
program;
authorizing guarantees of a revolving credit facility for
project working capital needs;
allowing the replacement of the non-guaranteed portion of
the loan with equity or subordinated debt at market rates to
provide more flexibility and options in the financing
structure; and
increasing the percentage of guaranteed debt for projects
over $125 million to enhance recruitment of sponsor bank
support.
We are working with other industry leaders to encourage USDA to address
these issues moving forward.
We appreciate this Committee's efforts to create a workable loan
guarantee program at USDA and hope the Department of Energy's loan
guarantee program will also evolve to eliminate present, although
perhaps unintended, significant hurdles for developing commercial
cellulosic ethanol facilities. In the most recent round of
applications, it seems to us that DOE may have applied the same
evaluation criteria for both mature and developing technologies. This
has the consequence of bias in favor of mature technologies and
companies versus new ones like advanced cellulosic fuels.
The cellulosic industry will develop as quickly as the first plants
are constructed and proven. To speed the current trajectory of
construction, more direct, risk-tolerant assistance will be required.
Refundable Investment Tax Credit Would Encourage Equity Investment
While not within the jurisdiction of this Committee, I want to
briefly raise a concept that a coalition of several leading ethanol
companies, including Mascoma, are advocating. The American Recovery and
Reinvestment Act of 2009 included a provision making the Investment Tax
Credit for renewable electricity generation, including wind and solar,
refundable through a monetized Treasury Department grant. To date, over
$1 billion has been awarded through this program to help develop
renewable energy projects across the country. This mechanism is proving
to be an effective and efficient means of jump-starting development of
renewable electricity projects. We believe that providing a similar 30
to 40 percent refundable investment tax credit for advanced biofuels
projects would be significant in helping attract private capital needed
to build the next generation commercial production facilities.
As we look at the RFS2 mandated levels of advanced and cellulosic
fuels in the near term, it is critical that the first wave of
cellulosic ethanol facilities close their financing and begin
construction as quickly as possible. Given the current constraints of
the USDA and DOE loan guarantee programs, a monetized investment tax
credit is one of the few policy mechanisms that can be employed in a
timely manner to help ensure cellulosic ethanol production capacity
comes on line in time to comply with the mandates of the RFS.
Conclusion
We, at Mascoma, very much appreciate the significant Federal
support to help develop a commercial cellulosic biofuels industry. We
are confident in our technology and our ability to produce cellulosic
biofuels in a cost-competitive manner and appreciate the ability to
leverage Federal support moving forward. From significant investment of
funds in the 2008 Farm Bill's energy title for advanced biofuels, to
the expanded Renewable Fuels Standard in the 2007 Energy Bill, to the
cellulosic ethanol production tax incentive, to Department of Energy's
grant funding, Congress has provided important support to help this
industry succeed.
However, given the current economic conditions, we will need
continued Federal involvement and commitment to seeing the promise of
the cellulosic industry come to fruition. I look forward to continuing
to work with the Committee in that regard.
Thank you.
The Chairman. Thank you.
Mr. Shealy.
STATEMENT OF L. CRAIG SHEALY, PRESIDENT, CEO, AND CO-FOUNDER,
OSAGE BIO ENERGY, LLC, GLEN ALLEN, VA
Mr. Shealy. Good afternoon. Thank you, Chairman Holden, and
distinguished Members of the Subcommittee.
My name is Craig Shealy and I am the Co-Founder and
President and CEO of Osage Bio Energy based in Glen Allen,
Virginia. Thank you for extending us the privilege of
addressing you today on the future of second and third
generation biofuels. I would like to provide a brief background
on Osage and discuss our positive impact on agriculture, review
several key challenges that are facing Osage and the biofuels
industry, and conclude with a few specific policy
recommendations on these challenges.
Osage was formed in January of 2007 to build market-based
ethanol plants on the East Coast. Each plant will employ proven
bioprocessing technologies and carries a capital investment of
approximately $200 million who will employ approximately 55
people. Our plants will be optimized around local winter barley
but can also process a variety of small grain feedstock. Last
fall Osage broke ground on its first plant in Hopewell,
Virginia. The Hopewell plant will be operational in May 2010,
and will be the only commercial scale barley-fed ethanol plant
in the United States. Our process uses state of the art
technologies from a number of industries to create four
marketable products, 65 million gallons of motor fuel grade
ethanol, approximately 50,000 tons of renewable biomass fuel
pellets made from the barley hulls, 170,000 tons per year of
barley protein meal, actually an offset for soybean meal, and
150,000 tons per year of food grade liquid CO2.
Osage is a deployment and operations company. While other
companies work on developing tomorrow's second and third
generation technologies, our goal is to deploy the best
technology available and incorporate it into a commercial scale
operating plant. We look forward to the successes of our
technology counterparts, hoping that someday very soon we will
have the opportunity to bring their technologies to commercial
scale reality as well.
Each Osage barley project will create an immediate annual
market for 300,000 acres of winter barley. These acres will
come from relatively under-utilized winter acres, many of which
are left fallow before a full-season soybean crop. This
translates into a truly new incremental $100 million annual
revenue opportunity for the local farming community around each
of our plants. Many of these farmers also responding to this
opportunity, particularly around Hopewell are located in the
Chesapeake Bay Watershed. Winter crops, especially barley are
promoted in the watershed as common and accepted soil and water
conversation practice, and the Chesapeake Bay Commission has
spoken out publicly in support of our project. The use of
barley as a feedstock contributes to positive and accepted land
use practices and actually avoids indirect land use change. The
bottom line is our projects have positive land use effects and
avoid negative implications associated currently with ILUC, and
keep farmers on the farm.
The challenges we face in the industry as a whole we can
enumerate in several key areas. The first as has been mentioned
before, there is a complete absence of financial market
liquidity for future projects. We are actually having to
finance our first project out of 100 percent equity. There is
currently an inability in the industry because of this to meet
the RFS2 advanced biofuel carve out. Furthermore, there is a
great market uncertainty as has been referenced by my
colleagues here on the panel due to the E10 blend wall. The
reality is that maintaining this cap will have the impact of
rendering second and third generation advancements meaningless
as there will be no market driven reason to deploy them.
Additionally, the declining value and pending elimination or
expiration of the blenders tax credit is also forcing great
uncertainty into the industry.
Existing Federal programs that could bridge the financial
downturn are either too restrictive or too structured around
specific technologies and exclude commercial scale biofuel
projects from eligibility. One example is of the recent DOE
loan guarantee program which is very specific around renewable
electricity, and the other that has also been referenced here
is the USDA Biorefinery Assistance Program. Our view of that
program can be summed up as such, in good times you don't need
it because the banks will provide the capital. In bad times you
can't use it because the banks want to take zero risk on the
industry, and, in particular, that is what we see at the
moment. In addition, RFS2 represents another policy area with
significant implications in the industry and in an attempt to
overcompensate for the lack of sound science on lifecycle
emissions impact to biofuels, RFS2 over complicates the rules
that govern biofuel markets. Specific examples of this include
the RFS2's feedstock certification requirement as well as much
of everything involved around the indirect land use change. In
addition, we feel strongly that advanced biofuel designation
should be performance-based, not policy-based. Therefore,
developers of second and third generation technologies need a
level playing field with the entire spectrum of feedstock and
conversion processes at their disposal. Now, RFS2 seeks to
unnecessarily stovepipe these into a complex matrix of fuel
pathways, each with their own unique challenges and validation
requirements.
In conclusion we recommend the following policy actions.
First, we have to raise the E10 volume cap through an EPA grant
of an E15 waiver or at a minimum an intermediate E12 waiver. We
have to extend the blenders tax credit, and we have to revise
Federal loan and grant programs to make them more widely
accessible and applicable, and finally we have to simplify the
RFS2 by removing ILUC requirements and making it a performance-
based advanced biofuel status. Osage Bio Energy can build high
performance commercial scale advanced biofuel plants today and
we are, and we stand ready to deploy second and third
generation technologies as they emerge from development and
demonstration phases.
Thank you very much for the opportunity to talk to you
today.
[The prepared statement of Mr. Shealy follows:]
Prepared Statement of L. Craig Shealy, President, CEO, and Co-Founder,
Osage Bio Energy, LLC, Glen Allen, VA
October 29, 2009
U.S. House of Representatives,
Committee on Agriculture,
Subcommittee on Conservation, Credit, Energy, and Research,
Washington, D.C.
RE: Testimony of Craig Shealy, Osage Bio Energy, LLC
Ladies and Gentlemen,
Good morning. My name is Craig Shealy, and I am the founder,
President, and CEO of Osage Bio Energy. Thank you for extending me the
privilege of addressing you today on the future of second and third
generation biofuels. I would like to provide a brief background on
Osage Bio Energy, discuss our positive impact on agriculture, review
several key challenges facing Osage and the biofuels industry, and
conclude with policy recommendations on facing these challenges.
1. Company
Osage was formed in January 2007 to build market-based ethanol
plants on the East Coast. Each plant will employ proven bio-processing
technologies and carries a capital investment of approximately $200
million.
Our plants will be optimized around local, winter barley, but can
also process a variety of small grain feedstock. Last fall, Osage broke
ground on its first plant in Hopewell, Virginia. The Hopewell plant
will be operational in May 2010 and will be the only commercial scale,
barley-fed ethanol plant in the United States. Our business model is to
develop at least two more similar facilities.
Our process uses state-of-the-art technologies from a number of
industries, the most important example being in grain processing.
Incorporating advanced food processing technology, our milling and
fractionation of barley grain allows us to efficiently process the
independent grain fractions into high quality product and co-product
streams. It also allows us to capture the exceptional protein profile
found in barley, and our specialized processing and drying methods
preserve this in a high quality livestock meal product.
We have engineered and packaged these technologies into a unique
bio-products plant that will create four highly marketable products:
65 million gallons per year of fuel grade ethanol;
50,000 tons per year of renewable biomass fuel pellets from
barley hulls;
170,000 tons per year of Barley Protein Meal; and
150,000 tons per year of food-grade liquid CO2.
Osage is a deployment company, which distinguishes us from other
biofuel companies you are hearing from today. While other companies
work on developing tomorrow's 2nd and 3rd generation technologies, our
niche is finding the best that is out there and incorporating it into
the engineering, design, and construction of an operating plant. We
look forward to the successes of our technology counterparts, hoping
that someday soon we will have the opportunity to bring their platform
into commercial scale reality.
2. Agricultural benefits
Each Osage project will create an immediate annual market of
300,000 acres of winter barley. These acres will come from
underutilized winter acres, many of them followed by a full-season
soybean crop. Winter barley is harvested early enough to allow full-
season beans to follow, providing an ideal double-crop opportunity.
This translates into an additional cash crop, with a $100 million
annual revenue opportunity for the local farming community.
Many of the farmers responding to this opportunity for our
Hopewell, Virginia plant are located in the Chesapeake Bay Watershed.
Winter crops are promoted in the watershed as a common and accepted
soil and water conservation practice. As a winter crop, barley will
capture remnant nutrients left in soils after the fall crop harvest,
reducing non-point-source nutrient runoff. The Chesapeake Bay
Commission has gone on record endorsing our project as a ``generation
1.5 biofuel'' serving as an ``important stepping stone'' toward
cellulosic ethanol. The use of barley as a feedstock contributes to
very positive and accepted land use practices and avoids indirect land
use change. Furthermore, barley hulls and barley straw have been
identified as attractive cellulosic feedstock options. Our access to
this resource provides us valuable and abundant raw materials for our
entry into 2nd and 3rd generation plant deployment.
According to the most recent Ag Census statistics, Virginia, alone,
lost more than 100,000 acres of farmland per year over the 5 year
Census period. Because winter barley utilizes otherwise idle cropland,
equipment, and manpower, it can be grown with minimal investment by the
farmer. Coupled with a clear revenue stream, this may be just what is
needed to reverse the trend of declining farmland acres. Let's not let
concrete become the last crop. Bottom line: our projects have positive
land use effects, avoid negative implications associated with ILUC, and
keep farmers on the farm.
3. Challenges
The biofuels industry, as a whole, is challenged on a number of
fronts:
Absence of financial market liquidity--Growth opportunities
are limited to small, privately funded research and
demonstration activities.
Inability to meet the RFS2 advanced biofuel carve-out--Osage
is poised to develop additional commercial scale projects that
will meet the greenhouse gas performance standards of advanced
biofuels and can be part of the solution to this problem.
Industry myths and bad press--As the result of efforts of
certain advocacy groups and much of the media, biofuels have
been given a bad name. Some of the misinformation leads the
public to believe that biofuels have negative greenhouse gas
impacts and are the culprit for high food prices. To those of
us in the industry, the spread of these clear falsities is
damaging.
Market uncertainty--The E10 blend wall represents an
industry volume cap and limits growth opportunity and how far
ethanol can go in helping to displace imported oil. Maintaining
this cap will have the impact of rendering 2nd and 3rd
generation advancements meaningless as there will be no market
driven reason to deploy them. Additionally, the declining value
and pending elimination or expiration of the blenders tax
credit (VEETC) is forcing the industry in the direction of
increased uncertainty.
4. Policy Issues and Recommendations to Face Challenges
Existing Federal programs that could bridge the financial downturn
are either too restrictive or too structured around specific
technologies, excluding commercial scale biofuels projects from
eligibility. An example of technology eligibility limitations is the
recently announced DOE Loan Guarantee program for commercial
technologies. This program is structured around renewable electricity
technologies, such as solar and wind, and excludes biofuels from
eligibility. In fact, it appears to us that DOE is abandoning
alternative fuels altogether in pursuit of hybrid and battery/electric
technologies.
As an example of being overly restrictive, I offer the USDA
Biorefinery Assistance Program. Osage has spent considerable time in
researching and trying to apply this program to our projects. Our
conclusion is this: In good times, you don't need it; in bad times, you
can't use it. Even in these bad times, Osage stands ready to commit
$100 million of equity toward a second project. In order to proceed, we
need $100 million of debt. A 70% BAP loan guarantee of $70 million
doesn't help, because no bank will take the risk on the remaining $30
million. In working closely with exciting partnering opportunities in
South Carolina, Kentucky and Pennsylvania, one approach considered was
for the state to backstop and guarantee a loan on the remaining $30
million. Unfortunately, the BAP program restricts this, eliminating it
as an option. In short, the program doesn't work because of a single
and rather simple program restriction. (Congressman Holden and Mr.
Chair . . .), we have been working closely with Lancaster Biofuels on
their pursuit of a barley-based plant in Lancaster, Pennsylvania. Osage
is their partner of choice in deploying this project. If we could
eliminate or waive this one restriction, it could be the single most
important thing to get us started on our next project.
The RFS2 represents another policy area with significant
implications on the industry. In an attempt to overcompensate for the
lack of sound science on the lifecycle emissions impact of biofuels,
the RFS2 seeks to overcomplicate the rules that will govern biofuel
markets. An example is the RFS2 feedstock certification requirement.
The rule seeks to have all shipments of biofuel feedstock certified to
ensure it was produced from croplands in existence prior to December
19, 2007. The purpose of this is to help prevent the creation of new
bioenergy crop acres through deforestation practices. With no sound
science to quantify or confirm this, we view this as an unnecessary
administrative burden that will add cost layers and complexity, with no
true benefit. Osage feedstock in particular will be sourced from legacy
farms, many in existence prior to 1807, much less 2007. In fact, one
participating farm, only 8 miles from our Hopewell, VA plant, was
founded in 1638. With Renewable Electricity Portfolio standards
requiring no such certification, biofuels will be placed at a
disadvantage. Oil companies that bristle at the recent suggestion of
requiring certification of crude oil country of origin provide a stark
reminder of the lack of subsidy and regulatory parity within the fuel
industry.
The Osage business model is based on the opportunities associated
with advanced biofuel designation, and we feel strongly that this
designation should be performance based, not policy based. Osage is a
member of the Advanced Biofuels Association, and we agree with the
platform that biofuel-related policies and regulations need to be
technology neutral, feedstock neutral, and subsidy neutral. Developers
of 2nd and 3rd generation products need a level playing field with the
entire spectrum of feedstock and conversion processes at their
disposal. The RFS2 seeks to unnecessarily stove-pipe these into a
complex matrix of fuel pathways, each with their own unique challenges
and validation requirements. The intent of facilitating renewable fuels
has been completely lost in a policy driven, regulatory complex
conundrum.
In conclusion, we recommend the following policy actions:
In order to develop market certainty, raise the E10 volume
cap through the EPA grant of an E15 waiver, or at a minimum an
intermediate E12 waiver. This will provide a market reason for
companies such as Osage to invest and expand into the 2nd and
3rd generation space.
In order to develop market certainty, extend the blenders
tax credit.
In order to bridge financial market downturns, revise
selected Federal programs to make them accessible and
applicable to existing commercial scale biofuels technologies.
In order to facilitate biofuels in the marketplace, simplify
the RFS2. As written, proposed rules do more to impede
advancement. The complexity of the rules will delay growth and
add cost layers to an industry already burdened with thin
margins and uncertain economics.
To be clear, Osage Bio Energy can build high performance,
commercial scale advanced biofuels plants today, standing ready to
deploy 2nd and 3rd generation technologies as they emerge from
development and demonstration phases.
Ladies and gentlemen, that concludes the testimony of Osage Bio
Energy. We sincerely thank you for the opportunity to stand before you
today.
Very truly yours,
Attachment
Thank you.Mr. Jamerson, thank you for your comments about the
problems you see with the loan guarantee program. I hope you had a
chance to talk to Mr. Tonsager about that.
Mr. Jamerson. We did.
The Chairman. Okay, well we will follow up with that as well and,
Mr. Roe, you are absolutely right about different and conflicting
definitions. Now, this Committee has worked very hard since H.R. 6 was
passed, without any input from this Committee, to change that
definition. We are still trying, with an energy bill moving now, but if
we are unsuccessful in getting the law changed, how will this impact
the future of investment in biofuels, for anyone on the panel.
Mr. Jamerson. Well, first of all there is a lot of chatter around,
and rightfully so, around the emerging technology platforms but
ultimately, these technologies will get legs or they won't and at a
point this all becomes a feedstock game. It is very much a feedstock
game, so I listened with great interest to our friends from the USDA
this morning talk a little bit about feedstocks, where they are going
to come from and their ultimate development. Ultimately, all of the
rhetoric around the commercialization of processes and technologies is
hollow unless the definition of the feedstocks is clean and clear, and
the way is paved for the utilization of those in some sort of a planned
fashion.
The Chairman. Anyone else care to comment?
Mr. Shealy. If I may, our view very strongly is that there needs to
be, again, a very performance-based approach where we model the true
GHG impact of any given feedstock and actually create an environment.
One which does not overly specify a specific pathway, which is what the
current situation is with respect to several of the legislative
remedies mentioned here, as well as the RFS2 implementation process.
The Chairman. Anyone else? No.
Mr. Roe, your plant in Pennsylvania, it is in southwestern
Pennsylvania, correct?
Mr. Roe. It is just about an hour or so outside of Pittsburgh,
south and a little bit east actually.
The Chairman. Okay, and what made you choose that location?
Mr. Roe. A variety of things we have had, we find the Commonwealth
to be a place that is friendly as far as its outlook on energy in
general. We have a technology partner that is located in the near
vicinity that made it convenient for us to come there as well, but a
whole variety of things caused us to go there.
The Chairman. And are you saying you are just in design or are you
in construction there?
Mr. Roe. No, that demonstration facility is complete and now in
operation. We have been running now, we commissioned it back in July
and it is in operation, and we needed that facility essentially to
confirm the final design parameters on the full scale plant that we
have designed.
The Chairman. Okay and what affect has that had on the local
economy, if you know?
Mr. Roe. Probably very little in that we kind of broke ranks here
in that we decided to build this facility, we decided to build the
smallest facility that we could possibly build that would still scale
to 50 million and 100 million gallon a year type facilities. So
essentially we have added maybe 14 or 15 jobs in terms of full-time
jobs to operate that small facility in Pennsylvania.
The Chairman. Okay, thank you.
And finally, for all the panelists, what are each of you doing to
engage the agriculture community, and what efforts are you making to
talk to farmers as you proceed with the next generation biofuels?
Mr. Shealy. Well, if I may just start. That is really the core
bread and butter of our business. We were with farmers yesterday,
today, the day before and tomorrow we have an active contracting
program on our energy crop program around the winter barley in the mid-
Atlantic. So, we have, I would say, daily conversations with the whole
farming community in our region.
Ms. Ellerbusch. On BP's side with our partner, Verenium and our
facility in Highlands County, Florida we have a partnership with Lykes
Brothers, who are one of the largest landowners in Florida and they are
our farming partner there. We have a 20 year land lease and are in
conversations around growing contracts with them, so we work on a
regular basis with them. We are, as we are looking for our second
facility, we are in conversations with multiple landowners elsewhere in
the U.S. Gulf Coast. We, as BP, are beginning to work with farmers and
landowners to understand where we can explore opportunities to develop
different varieties and propagate those varieties to be able to
establish product facilities, going forward. And we have begun working
with the USDA on programs as well that could help in terms of
understanding the genetics and development of further feedstocks.
The Chairman. Anyone else?
Mr. Jamerson. I would say for our first commercial plant we are
using pulpwood, excess wood material and we are not talking to farmers.
We are talking to landowners, timber owners, also to an environmental
group to help us develop sustainable standards. We use, essentially,
the branches after others use the main stem of the tree, and so we are
very active on a weekly basis meeting and talking to people about that.
The Chairman. Thank you.
The chair recognizes the gentleman from Virginia.
Mr. Goodlatte. Thank you, Mr. Chairman.
Ms. Rosenthal, I understand the U.S. Navy for the first time ever
is purchasing renewable fuels derived from algae for testing and
certification, and that the volumes provided under these contracts are
over 20,000 gallons of the type of diesel fuel for Navy ships and 1,500
gallons for jet fuel. It sounds to me like this is the real first step
toward commercialization. What can you tell us about this technology
that is being used to produce these volumes?
Ms. Rosenthal. That is one of our member companies and is actually
producing those using algae for these jet fuels and for Navy
requirements. Unfortunately, I cannot tell you as much as I would like
to about the specific technology because it is proprietary, however, it
was a great step in the right direction as far as real
commercialization from one of our member companies.
Mr. Goodlatte. And do you think this is likely to lead to a steady
contract, be able to actually, I mean, Navy ships require huge
quantities of fuel. Do you think this can be scaled up to the level
that would accomplish this?
Ms. Rosenthal. The availability is an opportunity. It is probably 1
to 2 years out before we are fully scaled and to a commercialized
industry, however there is opportunity for us to do so with our
selected member companies. Being an industry trade association, I can't
speak to specific organizations. I have to speak to my membership.
Mr. Goodlatte. Sure, but whether you think it is available?
Ms. Rosenthal. Yes, the ability is there.
Mr. Goodlatte. We have heard about many obstacles that must be
overcome before we see large-scale commercial production of advanced
biofuels, whether it be policy, research, or financing. In your
opinion, what is the biggest hurdle facing commercialization of second
and third generation biofuels, and I will just go right down the line.
I will start at the other end, Mr. Shealy.
Mr. Shealy. I would say the biggest hurdle today is market driven
with respect to the uncertainty around the blend wall as it relates to
the only really large scale commercial biofuel, renewable fuel we have
in this country which is ethanol. We need to have some clarity in that
and that is for both second and third generation, as well as the first
generation technologies. We have to have some market certainty. I think
that is probably the single most critical thing if I had to pick one
that we have to get resolved is the blend wall issue.
Mr. Goodlatte. And explain that a little, if you could.
Mr. Shealy. Well, the current situation is we have an arbitrary cap
of a ten percent blend with respect to EPA's lines of E10. The only way
that RFS is going to be met, even in as soon as 2010, is we have to
have a waiver to get to E12. So that is creating--there is no reason to
build any second and third generation plants at this stage of the game
until there is greater market certainty around that demand and the
ability to blend at those higher levels.
Mr. Goodlatte. So you don't think these products can stand on their
own and sell in the marketplace because there obviously are a lot of
controversies surrounding raising those limits. We have heard from a
number, I have and I am sure others here have as well about various
types of machinery not functioning properly the higher the ethanol
percentage is. Do second and third generation fuels take care of that
problem? Would that be a replacement for it that would eliminate that
kind of uncertainty in the marketplace?
Mr. Shealy. Well, I mean if you had fuels ready to deploy which
truly were a direct offset to gasoline and diesel fuel, the reality is
while there may be some very promising, those were discussed in the
last panel as being classified as sort of third generation according to
Dr. Shah. If you had those that could replace directly gasoline and
diesel then perhaps that would be the case. However, today the issue
holding back the use of greater ethanol is an allowance to blend at a
higher level, and so it is not even a market driven decision. The EPA
simply doesn't allow a blend.
Mr. Goodlatte. Are we talking about corn-based ethanol or are we
talking about something else?
Mr. Shealy. It doesn't matter what type of ethanol, how the ethanol
is produced. There is no reason to blend at a higher level whether it
is corn-based ethanol or whether it is what you might call a second
generation fuel, i.e., what both Mascoma and Coskata are doing where
you are producing ethanol from biomass, there is no reason to build one
of their plants today if you don't have any, you can't blend past the
current limit. We can meet ten percent roughly, or very close to it,
based on the corn-based ethanol capacity that is out there today.
Mr. Goodlatte. Mr. Jamerson.
Mr. Jamerson. Yes, so I would say the biggest challenge is
financing. Debt capital is just plain not available without a loan
guarantee. It is just not there and equity investors really don't want
to put in 100 percent equity at these plants. They need to have a
leverage return to make their IRRs look good and so I think that is a
big hurdle. I truly believe that if we can get loan guarantees opened
up, and also this investment tax credit, that there will be plenty of
equity for these plants. So I do share some of my colleagues concerns
about the blend wall, but I think that with the RFS2 which mandates
cellulosic fuels, I think you will see further acceptance of the
cellulosic component if you will, in the marketplace. So, I am maybe a
little less concerned about that but the financing is a big thing.
Mr. Goodlatte. Mr. Roe.
Mr. Roe. I will save your time. Ditto. It for us is exactly the
same issue. It is the hurdle that we have in front of us that we can't
seem to figure out how to jump is how do we get this first plant up and
built. Now, I am an optimist and I believe once the first one, the
first 50 or 100 million gallon plant that we build, the doors are going
to swing open for financing of future ones and we won't need anymore
help, but getting that first one up is nigh on impossible in this
environment right now.
Mr. Goodlatte. Yes, now are you going to produce a fuel that stands
independent or has to be blended with gasoline?
Mr. Roe. Well, we are producing ethanol and so we have the same
types of market restrictions as some of the other folks have discussed
here in terms of the blend wall and that type of thing, but I am
confident that we can overcome that.
Mr. Goodlatte. And what do you have to say about those who say that
machinery has to be retooled? Are you going to see more flex-fuel
vehicles or I mean I would love to have E85 pumps. I looked at buying a
flex-fuel vehicle a few years ago and I went on a website that tells me
where I can find E85.
Mr. Roe. Well, number one.
Mr. Goodlatte. Well, let me finish and on that website I found that
the closest one to Roanoke, there were none within a 100 mile radius
and there were 20 within a 200 mile radius, but, obviously, that wasn't
going to meet my needs.
Mr. Roe. Well, what you describe is real but we shouldn't consider
that to be a technical challenge to figure out a way to use blend pumps
and that type of thing. It is very true that there are internal
combustion engines out there that aren't going to operate well with
high concentrations or even lower concentrations of ethanol. I would
not deny that but for the current automobile fleet, we can all burn at
least ten percent and science is there for 15 percent.
Mr. Goodlatte. Right, I understand the interest in mandates. I am
much more of a free market guy. In Brazil, they have flex-fuel vehicles
almost universally available and the consumer knows how to do the
computation based on you get less miles per gallon perhaps.
Mr. Roe. Right.
Mr. Goodlatte. But how to do the computation whether they are
better off with the E85 or whether they are better off with gasoline
and they switch back and forth.
Mr. Roe. Exactly.
Mr. Goodlatte. I would love to see that develop in our marketplace
and I would bet you would, too.
Mr. Roe. So would we.
Mr. Goodlatte. How do we do it?
Mr. Roe. Well, you tear a page out of Brazil's book. I mean it was
clear what they did. They did it, essentially, through a government
mandate.
Mr. Goodlatte. In what respect?
Mr. Roe. Well, first of all they basically worked at this for a
number of years and didn't give up. It wasn't an overnight success in
Brazil. It was 20+ years in the making, but over that period of time
with the production of the fuel and the introduction of automobiles
that could burn that fuel they were able to do this. But, it took a
government definition and a government mandate to get there.
Mr. Goodlatte. But what was the mandate?
Mr. Shealy. They mandated flexible fuel vehicles. Every vehicle in
Brazil is a flexible fuel vehicle.
Mr. Goodlatte. Okay, the car companies have been pretty forthcoming
in saying they would love to build them. I know of companies that
manufacture cars that work with entities like Wal-Mart and Sam's Club
and say look if you put an E85 pump at a particular location, we will
notify everybody in that area who has a flex-fuel vehicle that they can
find that fuel at these locations in that area. So, the car companies
are on board with wanting to make flex fuel vehicles, I don't think
that is the problem.
Mr. Roe. Even before the issues of last year, General Motors
committed to having 50 percent of their models flex-fuel capable within
the very, very foreseeable future, single digit years and they are on
that track, as you know.
Mr. Goodlatte. Right, good.
Ms. Ellerbusch.
Ms. Ellerbusch. So in terms of the challenges, I would echo what
Mascoma and Coskata are indicating are financial challenges. I think
the financing industry has essentially been closed down, and without
this financing you cannot bring commercial facilities to bear and also
continue to support the continued development we need on technology. We
need stability in the policy and regulatory support frameworks that we
have today to make those investors believe that they can invest in this
industry and feel like they will be able to get some return for their
investment. So banks won't come into this base because they are
concerned about what they saw happen on corn ethanol, and they are
concerned that the technology risk that sits in cellulosics and other
advanced biofuels is too great for them to risk their money. And
second, for us, we see that feedstock support is critical. Right now,
if you look at our facility we are building in Highlands County,
Florida, we are using energy cane. There are only a few varieties of
energy cane available anywhere in the U.S. Nobody in Brazil builds
facilities without less than a dozen types of varieties of sugarcane
because of the issues you may have with crop failure. So, we have an
industry that is trying to form around perennial energy crops with
almost no variety development that has been done. So to get to this
scale around development we are going to have to work with USDA,
farmers, seed companies, other developers in this region to be able to
develop feedstocks to go forward to make success happen in this
industry.
Mr. Goodlatte. Well, thank you, Mr. Chairman. I know I have vastly
exceeded my time. Since I am the only one on this side maybe that is no
real problem.
The Chairman. The gentlewoman from Pennsylvania.
Mrs. Dahlkemper. Thank you, Mr. Chairman. Thank you for this
important hearing. Thank you for the, thank you to the witnesses for
coming forward.
I have a number of different questions. First of all, do any of you
have a biodiesel plant? You are all ethanol-based, right, okay, just
wondering about that.
Ms. Rosenthal, I actually watched a very interesting documentary
the other day called FUEL, have you seen it?
Ms. Rosenthal. I have not seen it yet.
Mrs. Dahlkemper. Very interesting and in anyway I would recommend
people watch it. It talks a lot about the diesel engine actually, and
from that film and just thinking about the rest of the world, where do
you see we are here in the United States in terms of respect to our
development, whether we are talking about biodiesel or ethanol in terms
of any kind of biofuel? Where are we? Are we falling behind? Are we
equal with other parts of the world? Where do you see the United States
is in terms of development of these alternative fuels?
Ms. Rosenthal. I can only specifically talk about algae, but I see
a lot of development in China, India, in Europe with the algae
community and what they are doing with both biodiesel and other jet
fuels. Do I feel like we are falling behind? Absolutely not. We have
had more investment here in the last year, close to $1 billion of
private investment into the algae community with a variety of different
stakeholders that I represent with my trade organization. Our key is
just making sure algae is treated equally to other fuels, that we get
financial parity as far as the same tax incentives, subsidies with
other renewable fuels as well as.
Mrs. Dahlkemper. Well, on that specific question. Can you give me
an idea of, or can you give me the specific definition of algae, where
that falls because that was one thing that you brought up. I wanted to
ask you about that. Can you explain where algae falls in that
definition and why there is an issue with that?
Ms. Rosenthal. I cannot.
Mrs. Dahlkemper. Okay. I didn't mean to cut you off.
Ms. Rosenthal. No, that is okay. I will just be very, very candid.
I am relatively new into this role and I don't have the science behind
me to do that.
Mrs. Dahlkemper. Okay, if somebody could get that information to
me.
Ms. Rosenthal. I can get that information to you.
Mrs. Dahlkemper. Does anyone else want to address where we are
compared to the rest of the world at this point?
Ms. Ellerbusch. I will comment. I think the Energy Independence and
Security Act of 2007, really was a catalyst to take the U.S.,
potentially, to the forefront of advanced biofuels. In BP, we were
looking at advanced biofuels through kind of a long term technology
partnership with universities here that we have called Energy Bio
Sciences Institute. When we saw the EISA form in 2007, it catalyzed us
to become a major investor now, and I think we have realized through
our efforts around the globe that the U.S., on the technology side, on
things like cellulosics is well-advanced to others. We have the
opportunity in the U.S. to actually be at the forefront and be the
first to make a material, scalable business in cellulosics here. So I
do think we are different here in the U.S.
Mrs. Dahlkemper. I have a question for those with first generation
ethanol plants. Tell me what the difficulty is in converting that to
second and third generation feedstocks, because I know I have a
biodiesel plant in my district. They designed the plant to be able to
take many feedstocks and actually they are one of the few biodiesel
plants that is actually up and running today. If this is one of the
issues with your plants, if somebody could address that, I would
appreciate it.
Mr. Shealy. I think I am probably the closest one. We are, we kind
of consider ourselves as generation 1.5. We actually ferment grain-
based starch, which means that we don't have any corn-based plants, but
we are building a barley-based plant which is fundamentally very
similar technology-wise. What I would tell you is, I think it actually
has a great opportunity to have a bridge into these new feedstocks, and
let me give you a couple examples that we are working on. With barley
in particular, you create a decent amount of straw which is incremental
straw that wouldn't have otherwise have been available on the ground
which could be collected and used as a cellulosic feedstock. Also, we
create a byproduct essentially from the hulls of the barley which we
currently turn into a renewable biomass fuel pellet, which is co-fired
with coal or potentially shipped to Europe because there is a big
demand over there for that. We see those as two great cellulosic
feedstocks as potential to and with cellulosic technology from one of
the, potentially one of the folks sitting beside me here or others in
this space as well. I think very similar situations are out there and
opportunities in the corn space where you have the cob, you have the
stover and there are certain pieces of the back end of the plant, if
you will, that can be leveraged to multiple technologies, specifically
distillation and dehydration of the ethanol.
Mrs. Dahlkemper. Okay.
Ms. Rosenthal. I wanted to add one element so we are working on
technology, butanol with DuPont, and actually that is a technology that
will give us an advanced molecule that can be retrofitted, actually we
call it the software change, into existing corn ethanol facilities and
any other grain-based facilities today. So for a small capital
investment we can take today's ethanol facilities and potentially make
them into biobutanol facilities, and this is a molecule that can be
blended in at higher rates than today's infrastructure. So, it does
allow us to have an opportunity to even move through the blend wall as
a transition.
Mrs. Dahlkemper. Okay, I have one more question, Mr. Shealy. One
thing you mentioned, you said that you feel strongly that this
designation should be performance-based and not policy-based.
Mr. Shealy. Correct.
Mrs. Dahlkemper. And I just wanted to question you on that because
I am wondering should we not look at issues in terms of clean water or
clean air? Should it all be just, when you say that it should just be
performance-based, that is a question I had with that statement.
Mr. Shealy. Oh I absolutely think it should be that those things
should be considered to the extent they can be quantified, and so for
example with the winter barley crop that we are utilizing, it actually
prevents the nutrient runoff that would otherwise occur during the
winter months on land that is typically left fallow between a corn and
soybean cropping system. So we target those acres and the Chesapeake
Bay Foundation has actually come out in support of our project for that
very issue because of the positive impact to the watershed.
Mrs. Dahlkemper. Well, maybe I don't understand then what you mean
by performance-based, because if we are looking at policy, obviously,
here. When we look at these different feedstocks we have to look at
things such as water and air and things that obviously would
potentially harm our society.
Mr. Shealy. Sure.
Mrs. Dahlkemper. So not just performance when I think of
performance, and maybe I am not understanding exactly.
Mr. Shealy. I think performance again has to be things that you can
quantify. For example, currently the indirect land use change
calculation is a very arbitrary, it is a very arbitrary approach which
is trying to sort of assimilate one number across the board to any type
of pathway.
Mrs. Dahlkemper. Well, I have some issues with that, too, so I
guess I don't have issues with water and air and some of those things I
know we can measure.
Mr. Shealy. Yes, if we can measure it I am fully supportive of
actually trying to make if we can actually quantify and measure what a
given impact is, then that is how a given pathway should be measured.
Mrs. Dahlkemper. But basically you are saying policy does have,
should be part of this as bringing the performance.
Mr. Shealy. What I mean is I don't think we should get overly
specific with respect to the pathway, say going from one feedstock to
one fuel. We need to look at, we need to have set metrics which, again,
can be measured and actually tested. Then you can say okay this
particular pathway, while it may be from some type of grain starch
actually has an overall greenhouse gas emissions profile which is 60
percent better than the baseline gasoline and there are not additional
other land use concerns such as water, et cetera, that can come up. I
think if you can measure and you can set real guidelines around that
and really test for that, then that is exactly what we should be doing.
Ms. Rosenthal. If I could just interject on that, from our
perspective, everything should be based on a technically neutral
standard. It needs to be based on validated lifecycle assessments that
are measuring the variety of different inputs and outputs of the fuel
as compared with fossil fuels. It needs to be very specific to
lifecycle assessments that are validated, peer reviewed and equitably
measured. I have just spent 5 years in the bio-plastics industry and
have been deep into LCA for several years.
Mrs. Dahlkemper. Well, thank you. Thank you all. My time has
expired.
The Chairman. Thank you, gentlewoman, the chair recognizes the
gentleman from Michigan.
Mr. Schauer. Thank you, Mr. Chairman.
As I am from Michigan I want to direct some of my comments to Mr.
Jameson. Thank you for being here. I was in the Michigan Legislature
when we enacted some of the tools that drew you to northern Michigan. I
am from down south, but I am pleased that you are all here. I have two
ethanol plants in my Congressional district, one biodiesel plant. The
biodiesel plant is having a very, very difficult time especially right
now.
Mr. Jamerson, I am assuming you located to Kinross because that is
where the feedstock was?
Mr. Jamerson. Yes, if you look at the timber feedstock in the upper
peninsula there is competition over on the western side from some of
the pulp and paper mills, but there isn't competition over in the
eastern side of the state, or in the northern lower peninsula.
Mr. Schauer. Would there be adequate resources in the lower
peninsula or even the southern part of the state for a plant like
yours?
Mr. Jamerson. There certainly would be. We draw a radius of 150
miles from Kinross area, and there is about 8 or 9 million tons a year
of available feedstock in that area. The first phase of our plant will
only use less than a half of a million tons of that excess pulpwood so
there is a terrific amount of feedstock. To go lower down into the
lower peninsula, we would have to work the transportation costs, but we
do intend to source from the lower peninsula.
Mr. Schauer. I heard two themes, one blend wall, the other debt
financing so again I will direct this to you, Mr. Jamerson. If the
demand was there--and I will connect that to the blend wall issue--you
can blend higher percentages and if the financing was there, you all, I
suppose, could be very busy constructing these biofuel facilities all
over the country.
Mr. Jamerson. Absolutely, there is huge demand.
Mr. Schauer. Including a lot of jobs in the process.
Mr. Jamerson. Correct, there is a huge demand for what we are
doing. Right now, the financing market and then legislative uncertainty
is what I would call it.
Mr. Schauer. Yes.
Mr. Jamerson. It is a combination of blend wall, indirect land use,
some questions on the RFS2 so investors just need to get clarification.
Mr. Schauer. Sure, you need that certainty.
Mr. Jamerson. They need certainty in order to make decisions.
Mr. Schauer. I want to ask a quick question and I will throw this
open to any of you. I am in Michigan where we make a lot of cars and do
tremendous automotive R&D, best in the world. What is in your opinions,
the science on the blend ratios? How is ten percent really in your
opinion a low-ball arbitrary limit? What, how high could you go without
GM, Ford or Chrysler or any of the transplants having to change their
technology?
Mr. Jamerson. I have been looking at this for a number of years.
Before being with Mascoma I was President of Earth Energy, a corn
ethanol producer and so I have been in this sector since 2001. The
studies I have seen over the years show that most vehicles can run up
to 15 to 20 percent without any problems on the engine. That has been a
lot of independent research, universities and the like. I think the big
question is liability. What if there is a problem? Who is liable, but
the biggest problem is just getting the infrastructure in place getting
the oil companies behind it. The car companies can make the cars. GM
will have in a couple of years 50 percent of their fleet that will be
flex-fuel, but they need the distribution system. I am a big fan of E85
and I think that is also a very big driver but we don't have it.
Mr. Schauer. But a flex-fuel vehicle could burn E20.
Mr. Jamerson. Absolutely.
Mr. Schauer. Without any problems at all, correct?
Mr. Jamerson. Correct, correct.
Mr. Schauer. Do you collaborate with the car companies?
Mr. Jamerson. Well, for our company, GM is an investor. It is also
an investor in Coskata as well so we collaborate with them and talk to
them. We also have an oil company, Marathon Oil that is an investor in
our company and so we collaborate with them. It is going to take the
technology, the production, the oil companies and the car companies all
to get this together.
Mr. Schauer. The final question is on the financing side. What did
those 172 lenders that ignored you, or said, ``no,'' say, or did they
respond?
Mr. Jamerson. Most of them responded. Some of them didn't respond.
I think the challenge was that when we went out to that market earlier
this year, I mean the credit markets were just flat on their back and
they just weren't doing any business of any kind, and even today it is
very, very challenging. I am sure you hear this in the marketplace. The
credit markets are extremely challenging.
Mr. Schauer. Well, Mr. Chairman, I would like to work with you and
work with USDA and some of our panelists on seeing if we can provide
some relief in that area. There is no question in my mind in my state,
and I am sure in Pennsylvania as well, that we would be much further
along in our recovery if there was greater access to credit. I have
been focusing on manufacturing but you are an industry that echoes that
story. We are losing out on the creation of jobs because even with
highly guaranteed credit that credit isn't flowing, so it is a burning
passion of mine and I look forward to making progress on that issue.
Thank you. I yield back.
The Chairman. The Chairman looks forward to working with them. The
chair also thanks our panelists for their testimony today. Under the
rules of the Committee, the record of today's hearing will remain open
for 10 calendar days to receive additional material and supplementary
written responses from the witnesses to any question posed by a Member.
This hearing of the Subcommittee on Conservation, Credit, Energy, and
Research is adjourned. Thank you.
[Whereupon, at 1:00 p.m., the Subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Submitted Statement by Kevin Gray, Ph.D., Chief Technology Officer,
Qteros, Inc.
Chairman Holden, Ranking Member Goodlatte, and distinguished
Members of the Subcommittee, I am Dr. Kevin Gray and I serve as the
Chief Technology Officer for Qteros, Inc., a leading biofuels company
focused on converting cellulose to ethanol. I want to thank you for the
opportunity to share my thoughts and insights with you on the future of
next-generation biofuels.
Qteros is a venture-backed company committed to delivering
innovative process technologies for clean transportation fuels that
reduce greenhouse gas emissions at a price competitive with gasoline.
Our team is dedicated to producing liquid fuels to achieve a
sustainable solution to the world's growing energy needs.
The Energy Independence and Security Act of 2007 (EISA) enacted on
December 19, 2007, mandates the annual use of 9 billion gallons of
renewable fuel in 2008, growing to 36 billion gallons by 2022,
including 16 billion gallons of cellulosic biofuels. With recent
ethanol prices approximately $2.50 per gallon, the cellulosic ethanol
mandate translates into an addressable market of over $40 billion
annually within the U.S. alone.
In addition, the Food, Conservation, and Energy Act of 2008 (FCEA),
enacted on June 18, 2008, puts in place a $1.01-per-gallon production
tax credit for cellulosic ethanol, as well as new forms of assistance
for biorefinery development, energy crop production, and research into
techniques for processing cellulosic biomass feedstocks for biofuels
production.
Currently in the United States there are 201 ethanol plants using
almost exclusively corn grain as the raw material (a small percentage
use other grains like milo or barley). These plants have a total annual
nameplate capacity of 13 billion gallons. However, there are currently
no commercial scale cellulosic ethanol plants in the U.S. though the
EISA mandates 100MM gal in 2010 and 250MM gal in 2011 (increasing to 16
B gallons by 2022).
One of the major reasons for delays in deployment of cellulosic
biofuel plants is the poor economics of the currently proposed
processes. Ethanol production involves the conversion of the feedstock
(be it corn grain or biomass) into sugar and subsequent fermentation of
that sugar into ethanol. The conversion into sugar is carried out by
enzymes, whereas the fermentation is carried out by a microbe, for
example a yeast or bacterium. The ``conventional'' biomass-to-ethanol
processes utilize separately produced enzymes and microbes, and cost
analyses have shown that one of the most expensive steps of the process
is the enzymatic conversion into sugar. For example the enzyme producer
Novozymes estimates today that enzymes alone contribute up to $2.25/
gal, almost as much as what ethanol sells for. Once the other parts of
the process are added together it is easy to see that ethanol today
produced from biomass is not economical.
Certainly other biofuels can be made from sugar, including butanol
and longer-chain alcohols and hydrocarbons. The longer-chain
hydrocarbons may be considered more ``infrastructure compatible'' or
``gasoline-like'' than ethanol or even butanol, however the economics
of production of the longer-chain molecules will be even more
challenged, since it will take more sugar to produce those molecules.
The economics of a sugar-based process is determined by the cost of
the sugar (i.e., the original cost of the feedstock, whether biomass or
corn), the cost of producing the sugar from the material, and the yield
of product from the sugar. Glucose (sugar) is a 6-carbon molecule and
ethanol is a 2-carbon molecule, and the chemistry is such that two
molecules of ethanol are produced for every molecule of glucose
consumed during fermentation (in addition to two molecules of carbon
dioxide). Butanol is a 4-carbon molecule, therefore only one molecule
of butanol is formed per molecule of glucose, making butanol more
expensive than ethanol to produce on a pound-for-pound basis. The more
gasoline- or diesel-like hydrocarbons contain upwards of 6-8-carbon
atoms. Hence it will take multiple molecules of sugar to produce the
longer-chain hydrocarbons and they will be even more expensive.
Until the cost of sugar comes down via more efficient processing,
the economic production of sugar based hydrocarbons will always be
challenged. In a sense, therefore, ethanol is in a ``sweet spot'' for
the economic production of biofuels.
My company, Qteros is developing a process of producing ethanol
from biomass that will ultimately eliminate the need for exogenously
added enzyme, therefore removing the estimated $2.25 from the
production costs. The company is doing this by using a microbe (known
as the Q microbeTM or Clostridium phytofermentans) that has
the ability to both break down the biomass into its component sugars
and ferment those sugars into ethanol, thereby producing ethanol from
biomass in a single step (known as ``Consolidated BioProcessing'' or
CBP).
The current yields are very high (close to theoretical), though the
current rates of production need to be improved to achieve industrial
scale production, the current focus of our development efforts. The
current status of the Qteros process is that this organism requires
approximately 75% less enzyme than standard yeast in a biomass process,
resulting in huge cost savings. In addition the yields of ethanol from
biomass are significantly higher using the Q microbeTM as
compared to yeast (81% conversion versus 50% conversion).
The ultimate goal of the company's efforts is to completely
eliminate the need for any exogenously added enzyme.
Thank you again, for the opportunity to share my thoughts with this
distinguished Subcommittee on the future of next-generation biofuels.
______
Submitted Statement by Neal Gutterson, CEO; and Greg Ikonen, General
Counsel, Mendel Biotechnology, Inc.
Mendel Biotechnology, Inc. appreciates the opportunity to submit
written testimony regarding the opportunities and challenges in the
advanced biofuels industry. We believe that biofuels produced from
purpose-grown energy crops, like perennial grasses, provide a
compelling means of helping to reduce our country's energy dependence
on foreign sources, while maintaining and improving overall
environmental health of our landscape.
Mendel Overview
Mendel was founded in 1997 as a plant science-based technology
company, focused on genomics and biotechnology for plant improvement.
Mendel has collaborated with Monsanto for 12 years developing a deep
understanding of plant gene expression and regulatory pathways to
create traits for improvement of Monsanto's leading seed products,
particularly for corn and soybean. Mendel has more recently emerged as
a leading developer of purpose-grown energy crops for the production of
renewable power and transportation fuel, leveraging its understanding
and expertise in plant expression, and use of state-of-the-art
molecular biology and genomic tools to create improved plant varieties,
both conventional and biotech. In 2007 Mendel partnered with BP, a
leader in renewable fuel research and production, to develop new
purpose grown energy crop varieties.
Mendel's crops--high-yielding perennial grasses like Miscanthus and
high biomass sorghum--can be grown on marginal or underutilized lands,
require minimal water and other inputs, and yield significant
greenhouse gas emission reductions compared to other renewable biomass
sources. Biofuels produced from Mendel's renewable feedstocks can be a
major contributor to a more secure and sustainable energy future. By
appropriately mobilizing the agricultural sector, we can help meet
America's need for a sustainable bioenergy supply that substantially
improves energy security while providing a broad-based economic
opportunity.
Government incentives established the first generation biofuels
industry
Congress' passage of the Energy Independence and Security Act of
2007 (EISA) provided necessary incentives to 2nd generation biofuels
producers to develop the first commercial scale quantities of biofuels
derived from cellulosic sources. EISA required that an increasing
percentage of the renewable fuel mandates come from advanced biofuels,
and specifically cellulosic fuels, to encourage development of biofuels
from these nonfood feedstocks.
The current Renewable Fuel Standard (RFS) mandates in EISA require
production of 36 billion gallons of biofuels by 2022, of which 15
billion gallons must be from cellulosic sources. This production will
require more than 150 million tons of biomass. Further biomass demand
exists in the power sector, as power utilities are sourcing biomass for
co-firing in existing coal-fired generators, as well as building new
dedicated renewable power plants. The combined growth of the biofuels
and biopower industries will drive demand substantially over the next 2
decades, which could require as much as 800 million tons by 2030. This
level of biomass production would support substantial quantities of
renewable electrical power generation and up to 30% of America's liquid
transportation fuel requirements.
Dedicated energy crops can meet biomass need
As the interest and potential of biofuels has increased, questions
have arisen over greenhouse gas emissions, land use conversion, and
diversion of food to fuel. These issues are part of a broader theme of
sustainability: if 30% of our country's liquid transportation fuel in
future years is to come from biofuels, these feedstocks will have to be
produced in a sustainable fashion. And while corn stover and timber
residues will be part of the solution, meeting these targets will
require purpose-grown, perennial energy crops--crops like the C4
grasses switchgrass and Miscanthus, and woody crops, such as poplar,
eucalyptus, and willow. These energy crops can be produced on less
productive land, like hay or pasture land, and can yield carbon
negative energy given their low fertilizer and other input needs. This
represents a unique opportunity for energy production while reducing
atmospheric carbon, in contrast with other carbon neutral energy
sources.
Much modeling of future landscape conversion is being done at
projected yields of 5 dry tons/acre, based on historic data that is
being replaced now with more recent figures from academic institutions
and field trials by companies like Mendel. Fast-growing, perennial
grasses like Miscanthus have yields more than double these projected
levels, and we are confident that with targeted development of
feedstocks and focused breeding efforts, these yields will exceed 15
dry tons/acre over the next decade.
In this decade, the Federal Government has committed more than $2
billion to support the development and deployment of biorefineries to
produce ethanol from biomass as a cornerstone of the renewable fuel
effort. The goal of this funding has been to accelerate development of
a renewable fuels market that is competitive with fossil fuels by the
end of the next decade. These funds, however, have focused on
downstream activities, like development and improvement of conversion
technologies, and loan guarantees for new biofuels refineries. Less
than 6% of DOE funding dollars have targeted upstream activities, like
development of feedstocks and their supply chains.
To meet EISA's advanced biofuels and cellulosic biofuels targets
and to ensure that we are positioned to reap the benefits of the
government's significant investment in downstream technologies and
refineries, we must devote attention and resources to development of
consistent, sustainable production of renewable feedstocks. This effort
will require targeted breeding of new feedstock varieties, and
significant trialing to test different energy crops and varieties of
these crops, produced in different regions, and converted with
different processes, to ensure efficiency of biofuel production despite
disparate crops, varieties and production practices.
These purpose-grown energy crop varieties do not exist today in
commercial form, but are in development by leading feedstock providers.
Mendel and other companies are working to develop varieties that are
higher yielding, climatically adapted to different growing regions
across the U.S., and that can be optimized for its ultimate purpose--
whether conversion to transportation fuel or co-fired for production of
electricity--to have compositional characteristics best suited for
greatest extracted energy value per pound of feedstock.
Supply chain development and feedstock development are two key needs
Biorefineries and renewable power generators need consistent and
reliable supplies of biomass produced in a way that refining processes
or systems for burning for power are most able to utilize. Purpose-
grown, perennial energy crops are ideally suited to meet these biomass
demand needs in a well-structured supply chain. However, in contrast to
the well-developed supply chains for commodity crops such as corn and
soybean, the supply chain for cellulosic biomass has not been
established. Neither has the promise of high-yields from these crops
nor their regional adaptation with appropriate yields and utility for
particular energy conversion processes been established. Research and
field studies in target regions across the United States are needed to
validate industry's projections of high yields in these regions that
would maximize GHG emission reduction benefit while minimizing land
requirements.
Current legislation and policies should be continued
BCAP
The public-private partnership efforts should coordinate with
existing regulatory and legislative efforts, including the Biomass Crop
Assistance Program (BCAP) established in the 2008 Farm Bill. USDA is
finalizing its proposed rulemaking for BCAP, and we believe that this
program is a key means of encouraging biofuels and bioenergy projects
using next generation feedstocks, and is a key means of de-risking the
developing feedstock supply chain. We urge Congress to extend this
program for at least 5 years in the next farm bill to ensure continued
private investment and development of bioenergy projects through a
critical transition period for the industrialization of 2nd generation
biofuels and biopower generation.
Funding for future BCAP projects should be prioritized to optimize
productivity and sustainability. Additional research and development
efforts to determine best production and sustainability practices
should be developed in conjunction with these BCAP projects, as well as
in smaller-scale, focused projects.
Energy crop insurance
In addition to concerns about a market for their energy crops,
farmers are concerned about agricultural risk. Establishment of a crop
insurance program for purpose grown energy crops would help drive
farmer adoption, and further encourage planting of these feedstocks to
provide variety performance data and develop agronomic and other
protocols to ensure the sustainability of their production.
A public-private partnership would drive development of the supply
chain and new varieties optimized for different regions
The development of new feedstock crop varieties, and the evaluation
of biomass production systems from these varieties in the context of a
full supply chain, are generally considered to be the responsibility of
private companies. However, the cost of capital for the emerging
companies committed to this market is very high today, much as it is
for those companies developing biorefinery conversion processes. The
cost of capital will only come down when reliable production processes
from new varieties has been established sufficiently that biofuel and
power companies are willing to enter into contracts with growers to
produce required amounts of biomass for bioenergy production. The
required steps to enable the industry would benefit from efforts both
from emerging feedstock genetics companies and academic/agency
scientists.
A public-private partnership would provide industry the means to
collaborate with agency scientists and land-grant universities,
leveraging government resources, much like current partnerships being
deployed by the DOE to support biorefinery development. These new
partnerships can ensure that the best feedstocks are available when
conversion facilities are developed, and that a viable supply chain for
delivery of those feedstocks is established. A number of land-grant
universities are already shifting academic priorities to support
perennial crops for bioenergy, including Purdue University, University
of Illinois, University of Kentucky, University of Tennessee, and Iowa
State University--and we expect others to follow as interest in
bioenergy continues to grow.
Agronomic and climatic trials
The first effort would be to establish watershed-scale trialing and
agronomic practices to accelerate understanding of how different
feedstocks are established, grown and harvested in different climatic
regions, as well as help develop agronomic best production practices
for farmers to ensure sustainability and further development of the
upstream supply value chain. These trials and efforts would be
undertaken with leadership from key agencies, like USDA and DOE, to
work with land-grant universities and other local research centers to
determine the productivity and adaptation of leading feedstock
candidates in these geographies, as well as the convertibility and
compositional characteristics of leading feedstock candidates. These
results will be required for biofuels and power utilities to secure
financial funding and resources needed to build new facilities in these
regions.
Additionally, research in various local and watershed-scale trials
would drive understanding of overall carbon and energy balances,
including carbon sequestration and improvement in soil quality through
development of below ground root systems, as well as establish
practices to reduce the potential for the spread of seed or genes to
relatives outside of production zones. These efforts would further
drive private industry's development of the entire upstream supply
value chain through delivery to refiner or power utility.
Feedstock development
The second goal would be funding of development of best feedstocks
to supply to the biofuels and biopower markets. Leading feedstock
suppliers have developed extensive germplasm collections with thousands
of accessions and are beginning to undertake focused breeding and
adopting cutting edge molecular markets and other genomic tools to help
rapidly improve yield and other key traits. Government funding to
accelerate this development will help ensure reduced land use and
sustainable production with varieties using less nitrogen, having
greater conversion efficiency, and less environmental effects than even
today's figures, which are good.
If properly resourced, by 2015 this public-private partnership will
deliver sufficient yield and performance data for leading feedstock
varieties in various regions to enable biofuels refineries and
electrical utilities to make investment decisions. Additionally, key
agronomic practices for these varieties in those regions will have been
identified, and work on energy and carbon balances, greenhouse gas
emission analyses and carbon sequestration will be well underway.
By 2020, feedstocks tailored to particular end uses and conversion
technologies will be developed and yield and performance data in
diverse climatic regions will be developed, and a set of best
production practices for each region will have been optimized to ensure
sustainable, long-term production of biofuels and biopower to meet our
nation's renewable energy goals.
Conclusion
Mendel strongly believes that cellulosic biofuels will be a
significant part of America's transition to renewable transportation
fuels and more sustainable energy production. We see dedicated energy
crops like Miscanthus and other energy grasses as the principal means
for producing the cellulosic feedstock required for production of these
fuels.
Mendel is committed to working with Congress, government agencies,
and state officials and universities to accelerate and develop high-
performing varieties and a robust supply chain that can compete with
hydrocarbon fuels by 2020.