[Senate Hearing 112-277]
[From the U.S. Government Publishing Office]
S. Hrg. 112-277
FUNDAMENTALS AND FARMING:
EVALUATING HIGH GAS PRICES
AND HOW NEW RULES AND
INNOVATIVE FARMING CAN HELP
=======================================================================
HEARING
before the
COMMITTEE ON AGRICULTURE,
NUTRITION AND FORESTRY
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
MARCH 30, 2011
__________
Printed for the use of the
Committee on Agriculture, Nutrition and Forestry
Available via the World Wide Web: http://www.fdsys.gov/
_____
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COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY
DEBBIE STABENOW, Michigan, Chairwoman
PATRICK J. LEAHY, Vermont PAT ROBERTS, Kansas
TOM HARKIN, Iowa RICHARD G. LUGAR, Indiana
KENT CONRAD, North Dakota THAD COCHRAN, Mississippi
MAX BAUCUS, Montana MITCH McCONNELL, Kentucky
E. BENJAMIN NELSON, Nebraska SAXBY CHAMBLISS, Georgia
SHERROD BROWN, Ohio MIKE JOHANNS, Nebraska
ROBERT CASEY, Jr., Pennsylvania JOHN BOOZMAN, Arkansas
AMY KLOBUCHAR, Minnesota CHARLES GRASSLEY, Iowa
MICHAEL BENNET, Colorado JOHN THUNE, South Dakota
KIRSTEN GILLIBRAND, New York JOHN HOEVEN, North Dakota
Christopher J. Adamo, Majority Staff Director
Jonathan W. Coppess, Majority Chief Counsel
Jessica L. Williams, Chief Clerk
Michael J. Seyfert, Minority Staff Director
Anne C. Hazlett, Minority Chief Counsel
(ii)
C O N T E N T S
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Page
Hearing(s):
Fundamentals and Farming: Evaluating High Gas Prices and How New
Rules and Innovative Farming Can Help.......................... 1
----------
Wednesday, March 30, 2011
STATEMENTS PRESENTED BY SENATORS
Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan,
Chairwoman, Committee on Agriculture, Nutrition and Forestry... 1
Roberts, Hon. Pat, U.S. Senator from the State of Kansas......... 2
Panel I
Berkovitz, Dan M., General Counsel, Commodity Futures Trading
Commission, Washington, DC..................................... 7
Broin, Jeff, CEO of POET, LLC, Co-Chairman of Growth Energy,
Souix Falls, SD................................................ 11
Dale, Bruce E., Professor of Chemical Engineering, Department of
Chemical Engineering and Materials Science, Michigan State
University, Lansing, MI........................................ 13
Newell, Richard G., Ph.D, Administrator, Energy Information
Administration, U.S. Department of Energy...................... 6
Townsend, Stanley R., on behalf of the Kansas Farm Bureau,
Townsend Farms, Weskan, Kansas................................. 9
----------
APPENDIX
Prepared Statements:
Berkovitz, Dan M............................................. 34
Broin, Jeff.................................................. 43
Dale, Bruce E................................................ 50
Newell, Richard G............................................ 54
Townsend, Stanley R.......................................... 68
Question and Answer:
Stabenow, Hon. Debbie:
Written questions to Dan M. Berkovitz........................ 74
Nelson, Hon. E. Benjamin:
Written questions to Richard G. Newell....................... 91
Thune, Hon. John:
Written questions to Dan M. Berkovitz........................ 75
Written questions to Jeff Broin.............................. 77
Written questions to Bruce E. Dale........................... 80
Written questions to Rihard G. Newell........................ 82
Berkovitz, Dan M.:
Written response to questions from Hon. Debbie Stabenow...... 74
Written response to questions from Hon. John Thune........... 75
Broin, Jeff:
Written response to questions from Hon. John Thune........... 77
Dale, Bruce E.:
Written response to questions from Hon. John Thune........... 80
Newell, Richard G.:
Written response to questions from Hon. John Thune........... 82
Written response to questions from Hon. E. Benjamin Nelson... 91
FUNDAMENTALS AND FARMING:
EVALUATING HIGH GAS PRICES
AND HOW NEW RULES AND
INNOVATIVE FARMING CAN HELP
----------
Wednesday, March 30, 2011
United States Senate,
Committee on Agriculture, Nutrition and Forestry,
Washington, DC
The Committee met, pursuant to notice, at 10:30 a.m., Room
SR-328A, Russell Senate Office Building, Hon. Debbie Stabenow,
Chairman of the Committee, presiding.
Present or submitting a statement: Senators Stabenow,
Klobuchar, Bennet, Roberts, Johanns, Grassley, and Thune.
STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR FROM THE STATE
OF MICHIGAN, CHAIRWOMAN, COMMITTEE ON AGRICULTURE, NUTRITION
AND FORESTRY
Chairwoman Stabenow. Well, good morning and welcome to the
Senate Agriculture, Nutrition and Forestry Committee. We are
going to get started. We know we have other colleagues that are
going to be joining us but we want to make sure we have as much
time as possible to hear from witnesses. We thank you all for
coming and to have an opportunity to ask questions.
We are here today to discuss an issue that affects
everyone, all Americans, especially farmers and middle-class
families across America. The high, volatile price of gasoline
and diesel fuel and the role that new rules and American
farmers are playing to address this problem.
We have seen reports that as many as 600,000 jobs could be
at risk because of these recent spikes in gas prices. Certainly
in Michigan as well as across the country, high prices are
squeezing farmers. They are squeezing our middle class
families, who live on tight budgets. When they pay more for gas
at the pump, it is only logical that it means less cash in
their pockets and less ability to purchase things that their
families need.
When businesses pay more for fuel, they are unable to hire
and retain employees which is a dangerous place to be in a very
fragile economic national economy. A number of questions remain
about what is causing these spikes. And that is why we are here
today.
Certainly, supply and demand play a significant role, but
we also know it is not quite as straightforward as that, which
is why I have asked the Energy Information Administration to
appear before us today to focus on what is happening.
We also know that what goes on in the markets plays a role,
and we need to discuss the significance of that role, which is
why we put in place tough new rules to stop abuses and
manipulation; and I want to make sure that the CFTC has the
tools and resources it needs to protect American consumers from
oil prices that are out of line with market fundamentals.
But despite all the questions and the complexity
surrounding the price of oil, the one certainty that there is
in the marketplace is that oil prices are volatile which poses
a real danger, again as I said, to our economy which is what we
are extremely concerned about.
That is why we will hear about how America's farmers can
help reduce our dependence on foreign oil. We need a real
American energy policy, and agriculture has a very important
leadership role to play and what more they may be able to do in
the future to help us create that American energy policy.
Biofuels are the pioneers as we work toward a future where
we have real alternatives to foreign oil, but there is much
work ahead of us and a strong need for more innovation to
diversify biofuel supply.
Our country cannot afford to lose another 600,000 jobs
because of spiking fuel prices. This Committee stands ready to
continue to do what we can to support American agriculture, our
farmers, as we create alternatives to foreign oil and we will
continue to work on real solutions. The oversight that is
needed using the tools that the CFTC has been provided to bring
relief to farmers and families.
So again, welcome to all of you and I turn now to my good
friend from Kansas, our ranking member, Senator Roberts.
STATEMENT OF HON. PAT ROBERTS, U.S. SENATOR FROM THE STATE OF
KANSAS
Senator Roberts. Madam Chairwoman, thank you very much.
With apologies to my colleagues and all present, I am not as
sick as I sound but I do have a cold.
I want to thank you for holding today's hearing and to our
witnesses for taking time out of their valuable schedule for
appearing before our Committee to help us provide insight on
this important issue that you have so aptly described.
In particular, I want to thank Stan Townsend, who is from
Weskan, Kansas, for traveling all this way, and I emphasize all
this way, to give us a producer's perspective as of this
morning which I think will be very helpful.
Stan and his family operate farm ground that has been in
their family since 1875. He will tell you more about their
experiences later, but I think it is important for this
Committee to hear what he has to say.
Madam Chairwoman, whether it is powering our homes or
fueling farm equipment or filling up our cars at the pump, the
price of energy, as everybody knows, directly impacts the cost
of goods and operating expenses for American producers.
While this hearing will examine energy costs under the
purview of our jurisdiction, it is important we do not overlook
the main factor of impacting gas prices, and that is the factor
of global supply and demand.
With roughly 70 percent of the price of gasoline and diesel
contingent on the price of crude, it is easy to understand that
any fluctuations in global supply and demand of crude is the
most important factor determining what consumers pay at the
pump.
We can recall from 2008 and 2009, just a few short years
ago, a weakened global economy drove down the demand of crude
by almost 2 million barrels of oil per day, and the prices
bottomed out at roughly $30 per barrel, and about a buck fifty
at the pump. Increased demand and recent instability in the
Middle East has again placed uncertainty on that global supply
of crude.
For too long, our country has been overly reliant on
foreign supplies of petroleum. That is probably the
understatement of my statement. In my state, the oil and gas
industry supports over 119,000 jobs and contributes $14 billion
annually to the Kansas Gross State Product.
We must be careful not to pursue policies counter to this
type of job creation. I realize we have job to do but let us
not do anything that would run counter to this kind of
contribution, not only in Kansas but in every oil and gas
state.
I understand the President will be offering some remarks
this morning on energy as well, and I know that he will
probably follow up on what he said earlier this month while
speaking in Brazil at a business summit where he explained how
the U.S. is eager to help expand the Brazilian offshore oil
development.
I think it is rather a paradox of enormous irony that with
an estimated 86 billion barrels of oil reserves within the
U.S., the outer continental shelf, that the President would be
offering up technology and support for competitors abroad while
all the while we here have real problems with production here
at home.
I do not offer that in a pejorative way or a partisan way.
I think it is just a fact.
This Committee does not have jurisdiction over the federal
policies that play the largest role in the energy prices but we
sure can have a positive impact in three key areas already gone
over by the Chairwoman.
First, this Committee oversees the CFTC, the ``cop on the
beat'' in the futures market. And Mr. Berkovitz is here today
to tell us how they monitor the markets while allowing
liquidity to flow.
Second, as Mr. Broin and Mr. Dale will tell us, agriculture
is leading the way in the domestic production of alternative
energy. And finally, and more fundamentally, U.S. producers
like Mr. Townsend and his family continue to contribute to
global stability by supplying our Nation and a troubled and
hungry world with low cost, high quality food and fiber
necessary to survive.
As the Agriculture Committee, we must not only understand
this point but advocate on its behalf. Global hunger leads to
instability in regards to any political situation all around
the world.
Many times that instability occurs in areas of the world
from which we rely on for the oil production. The more the U.S.
farmer and rancher can do to reduce global hunger, the less
pain at the pump we will all feel. There is a connection.
Madam Chairwoman, it is my hope that we all learn from
these witnesses and begin moving away from the rhetoric and
toward comprehensive agriculture and energy policies that help
stabilize rising fuel prices.
Chairwoman Stabenow. Thank you very much, Senator Roberts.
I want to just in welcoming all of you and I will introduce
all of you and ask members to include opening statements in the
record in the interest of time but I do want to indicate as,
Mr. Townsend, I am getting a little feel for what it takes to
get here from Kansas as Senator Roberts and I are setting up
our first field hearings and we are trying to figure out, there
are no direct flights to Wichita I just have found out. We need
to work on that, Senator Roberts. We need to figure that one
out.
Senator Roberts. Madam Chairwoman, I am not too sure there
are any direct flights from Weskan to anywhere.
Chairwoman Stabenow. We need to work on that, too.
First, let me introduce all of our panelists. Dr. Richard
Newell, we thank you for coming. Dr. Newell is the
Administrator of the Energy Information Administration. Dr.
Newell is responsible for collecting, analyzing, and
disseminating independent and impartial energy information to
help us make sound policy decisions. We welcome you.
Dr. Newell is currently on leave from his position with the
Gendell Associate Professor Energy and Environmental Economics
at Duke University's Nicholas School of the Environment. So we
welcome you.
Dr. Dan Berkovitz is general counsel at the Commodity
Futures Trading Commission. Previously, he served as counsel to
the Senate Permanent Subcommittee on Investigations, chaired by
my good friend, Senator Carl Levin.
In his capacity, Mr. Berkovitz led several major
investigations into energy markets including the role of
speculation and the trading of natural gas and crude oil
contracts. And so we welcome you.
Senator Roberts, I do not know if you had anything more. I
know you have introduced Mr. Townsend but I do not know if
there is anything more you would like to say.
Senator Roberts. Just a few comments, Madam Chairwoman.
Chairwoman Stabenow. Yes please.
Senator Roberts. We are extremely fortunate to have on
today's panel Stan Townsend, who is a producer from Weskan,
Kansas. Weskan is about five miles from Colorado. I will tell
my colleague.
Chairwoman Stabenow. All right.
Senator Roberts. And five miles away from being represented
by you, sir. But in any rate about 15 miles away from the----
Senator Bennet. That is unfortunate.
Senator Roberts. Right.
[Laughter.]
Senator Roberts. Weskan is about 15 miles away from Mount
Sunflower, which is our State's highest point of elevation. I
am sure all of you are aware of Mount Sunflower and the
wonderful skiing that we have there.
The trick is not to climb Mount Sunflower. The trick is to
find it. I did that on the second time around to show my staff
Mount Sunflower, and I think Stan would get a kick out of this.
We went too far. I did not think we did but we did. Then we
saw a farmer in a truck coming down a gravel road the other
way. We stopped. My driver said how would you like to meet
Senator Pat Roberts. He is your Senator.
And he said, ``Well, I know you, Pat, but you are not my
Senator. You are on Colorado.''
[Laughter.]
Senator Roberts. So I appreciate Stan for coming all this
way and taking time away from his operation because he is very
busy, and his family, to provide us with an in-the- field
account of the effects of high energy cost on our producers. He
is a sixth generation farmer with corn, wheat, livestock, and
fennel beans in their operation. To diversify their production,
they also package and market their beans.
Townsend farms is unique in that some of their farm land
has never been farmed by anyone other than a Townsend, dating
clear back to 1875, and it takes a lot of work to keep any
amount of land in one family for that long.
As he told me yesterday, you have to manage risk. You have
to adapt to changing market conditions, and perhaps
importantly, lay a proper foundation so that those who follow
you can be successful.
I know, Stan that we can learn a lot from that message, and
I thank you for being with us today.
Thank you, Madam Chairwoman.
Chairwoman Stabenow. Thank you very much.
And now we have Jeff Broin with us. I believe Senator Thune
would like to make the introduction.
Senator Thune. Thank you, Madam Chairwoman and Senator
Roberts. I want to thank you for holding today's hearing on how
increasing energy prices are impacting farm and ranch families
across this country.
And I want to welcome Jeff Broin, who is the CEO and
president of POET, which is based in Sioux Falls, South Dakota.
Jeff and his family have been pioneers in the energy industry
since 1987.
Jeff turned a small ethanol production facility in
Scotland, South Dakota, which I think may be even small than
Weskan, Kansas, he has turned that into the world's largest
producer of renewable fuels. With 1.7 billions gallons of
production capacity, Jeff and his team at POET continue to move
the biofuels industry forward toward more efficient corn
ethanol production and next generation cellulosic ethanol
product.
I can attest to my colleagues on the Committee that POET is
looking well beyond the corn belt, sees the potential for
cellulosic ethanol production in every state, and I am very
pleased that Jeff was able to join the rest of our witnesses
this morning in discussing how we can lower energy costs for
all of our agricultural producers.
Thank you, Madam Chairwoman, and Jeff welcome.
Chairwoman Stabenow. Thank you and welcome.
And last, certainly not least, Professor Bruce Dale. We
were talking just before the meeting. This is your third time
before the Committee testifying, and so welcome back.
Bruce Dale is professor of chemical engineering at Michigan
State University, my alma mater. So I am very proud of you and
your work and, of course, what is being done at Michigan State.
He is also the Associate Director for the Office of Bio-
Based Technologies. Professor Dale's research and professional
interests lie at the intersection of chemical engineering and
the life sciences.
I want to thank you for really being a pioneer as we focus
on cellulosic ethanol and other important areas. Specifically,
I know you are interested in the environmentally sustainable
conversion of plant matter to industrial products, fuels,
chemicals, materials while meeting human and animal needs for
food and feed.
So we welcome you. We welcome all of you and thank you for
being here.
Dr. Newell, we will start with you.
STATEMENT OF RICHARD G. NEWELL, PH.D. ADMINISTRATOR, ENERGY
INFORMATION ADMINISTRATION, U.S. DEPARTMENT OF ENERGY,
WASHINGTON, DC
Mr. Newell. Madam Chairwoman, I appreciate the opportunity
to appear before you today. The Energy Information
Administration is the statistical and analytical agency within
the U.S. Department of Energy. EIA does not promote or take
positions on policy issues and has independence with respect to
the information and analysis we provide. Therefore, our views
should not be construed as representing those of the Department
of Energy or other federal agencies.
Starting with a high overview of the linkages between
agriculture and energy, EIA estimates that energy use on farms
accounts for about 1 percent of total U.S. energy consumption.
In addition to direct farm use of energy, agriculture is
indirectly affected by energy requirements in the fertilizer
industry.
Agriculture also has an important current and potential
future role as an energy supplier. Ethanol use in motor fuels
has grown from 1.7 billion gallons per year in 2001 to an
estimated 13.2 billion gallons per year in 2010. Other
important energy supply opportunities for agriculture include
biodiesel, energy sourced from farm wastes and the siting of
wind turbines on farms in areas with attractive wind resources.
Turning to the near-term outlook for oil, gasoline, diesel
and ethanol markets, EIA expects continued tightening of world
oil markets over the next two years, particularly in light of
recent events in North Africa and the Middle East, the world's
largest oil-producing region.
Our latest forecast issued earlier this month projects that
regular gasoline at the retail pump will average $3.70 per
gallon this summer and $3.56 per gallon for the entire year,
which is about $0.77 per gallon higher than last year's level.
On-highway diesel fuel retail prices which averaged $2.99 per
gallon in 2010, are expected to average $3.81 per gallon in
2011. There is significant regional variation in gasoline
prices and also significant uncertainties surrounding these
forecasts as discussed in my written testimony.
While ethanol production has increased nearly eight-fold
since 2001, EIA expects slow growth in ethanol production over
the next two years, with forecast production of 13.8 billion
gallons in 2011 and 14 billion gallons in 2012, about 9.9
percent of the forecast volume of gasoline sales in those
years. Until recently, federal regulations limited the
percentage of ethanol that could be blended for use on all
gasoline powered vehicles to a maximum of 10 percent.
EPA, the Environmental Protection Agency, recently granted
waivers for fuels containing up to 15 percent ethanol for use
in model year 2001 and newer vehicles and there has been long-
standing approval for the use or E85 gasoline blended with 85
percent ethanol in vehicles specially designed to accommodate
that fuel. However, EIA expects slow market growth for E15 and
E85 over the next two years for reasons again discussed in
detail at my written testimony.
Turning to a longer-run prospective, EIA projects that
biofuels use will continue to grow to 24 billion ethanol-
equivalent gallons in 2022 and 39 billion gallons in 2035,
contributing to an expected reduction in the role played by
imported oil in meeting U.S. energy needs. Assuming no changes
in existing laws and regulations, the net import share of the
U.S. liquid fuels supply, which was 60 percent in 2006 and 49
percent in 2010, falls to 43 percent by 2035. As discussed in
my written testimony, future policy changes, notably those
involving fuel economy standards for cars and light trucks
beyond the 2016 model year, could significantly alter this
projection as could other factors.
The final topic in my testimony is the interaction between
physical and financial markets for energy. EIA's traditional
coverage of physical fundamentals such as energy consumption,
production, inventories, and spare production capacity
continues to be essential. But under our energy and financial
markets initiative, EIA is also assessing other influences,
including linkages between energy spot prices, energy
derivative markets, other commodity markets, broader asset
markets, and exchange rates as we seek to fully understand
energy price movements.
My written testimony discusses the correlations we have
observed over the past few months and how they can be
interpreted and contrasted to those during recent past periods
of rising oil prices.
Madam Chairwoman, members of the Committee, this concludes
my testimony and I would be happy to answer any questions.
[The prepared statement of Mr. Newell can be found on page
54 in the appendix.]
Chairwoman Stabenow. Thank you very much.
Mr. Berkovitz, welcome.
STATEMENT OF DAN M. BERKOVITZ, GENERAL COUNSEL, COMMODITY
FUTURES TRADING COMMISSION
Mr. Berkovitz. Good morning, Chairman Stabenow, Ranking
Member Roberts and members of the Committee. I appreciate the
opportunity to testify today regarding the Commodity Futures
Trading Commission's regulation of derivatives markets. The
mission of the CFTC is to ensure the integrity and transparency
of derivatives markets.
With the passage of the Dodd-Frank Act, the CFTC's mission
now includes the regulation of the swaps market in addition to
the futures market. Like futures, swaps can include physical
commodities such as wheat, corn, oil, and gasoline as well as
financial commodities.
The CFTC strives to ensure that the markets within this
jurisdiction are transparent and free from fraud, manipulation,
and abusive trading practices.
The CFTC also seeks to ensure that the transactions within
its jurisdiction do not pose systemic risks. The CFTC fulfills
its statutory mandate through market surveillance, industry
oversight, and enforcement.
In carrying out its responsibilities, the commission
relies, in part, upon industry self-regulatory organizations
such as the futures exchanges themselves to monitor trading and
enforce compliance with trading rules and position limits.
Ultimately, however, it is the commission that is responsible
for the enforcement of the statute and its regulation.
As part of its surveillance function, the commission
routinely collects and analyzes position reports that are
required of large traders in the futures markets. These reports
and other surveillance data allow the commission staff to see
accumulating positions that may be disruptive of fair and
orderly trading, to act to prevent such disruptions and, where
appropriate, enforcement action.
Since fiscal year 2008, the commission has collected just
over $236 million in civil penalties imposed in enforcement
actions. Recently, the commission has seen an increase in the
number of fraud cases, including Ponzi schemes. Since October
of 2008, the commission has filed a hundred enforcement cases
for fraud.
The Dodd-Frank Act repealed provisions of the law that
prior to Dodd-Frank restricted the commission's authority to
regulate the swaps market, including provisions which
specifically related to the energy markets.
Under Dodd-Frank swaps dealers and major swap participants
are required to register and are subject to capital and margin
requirements, record keeping and reporting requirements, and
business conduct standards.
The CFTC is directed to determine which swaps should be
required to be cleared and swaps that are required to be
cleared also must be traded transparently on swap execution
facilities or designated contract markets. Non-financial end
users hedging or mitigating commercial risk are exempt from the
clearing and trading requirements.
The Dodd-Frank Act expands the CFTC's surveillance
capabilities by requiring the reporting of basic data about
each swap transaction to either the CFTC or a swap data
repository.
The Act also provides the public with increased
transparency in the swaps market. The Act directs the
commission to establish speculative position limits as
appropriate for futures contracts and economically equivalent
swaps for agricultural and energy commodities. It also requires
aggregate limits for these commodities.
This January the commission proposed a rule to implement
these provisions. The comment period closed this Monday, March
28.
Dodd-Frank extended the commission's anti-manipulation
authority to cover swaps. The Act further provides the
commission with new anti-fraud authority as well as new anti-
manipulation authority.
The Act also includes new prohibitions on disruptive
trading practices, new protections and potential monetary
recovery for whistle blowers, a prohibition of the trading on
the basis of non-public information obtained from the federal
government, and authority to prevent evasions of the Act's
provisions.
The Act also provides the CFTC with new authority to
register foreign boards of trade that provide direct access to
traders in the United States.
The CFTC is in the midst of the rule-making process with
respect to many of these authorities. The CFTC has encouraged
public comment on all of its rule-makings and is evaluating the
comments it has received so far.
With respect to the CFTC's budget, the President's budget
proposes that $308 million be appropriated for the CFTC for
fiscal year 2012. This funding level is the estimated amount
the agency needs to perform its responsibilities for its
continuing oversight of the futures and options markets and in
beginning to oversee the swaps market.
The CFTC's resources are primarily for staff and
technology. The budget for 2012, the request is for $666
million for technology. This level of funding is necessary for
the CFTC to be able to upgrade and expand its technology
capabilities, to handles its new data and responsibilities
under Dodd-Frank.
Thank you for this opportunity to address the Committee. I
would be happy to answer any questions.
[The prepared statement of Mr. Berkovitz can be found on
page 34 in the appendix.]
Chairwoman Stabenow. Thank you very much.
Mr. Townsend, welcome.
STATEMENT OF STANLEY R. TOWNSEND, ON BEHALF OF THE KANSAS FARM
BUREAU, TOWNSEND FARMS, WESKAN, KANSAS
Mr. Townsend. Good morning, Chairman Stabenow, Ranking
Member Roberts and members of the Senate Agriculture Committee.
I appreciate this opportunity to testify this morning about the
role of energy prices and production on my operation. My fellow
panelists have a broad range of experience in the development
and regulation of energy.
I am here today as a member of the Kansas Farm Bureau to
give the Committee my perspective on the impacts of energy
prices in the field and the management practices my family
employs to mitigate costs and manage risk.
Kansas Farm Bureau represents nearly 40,000 farm and ranch
families across our diverse state who live, raise their
families, and earn a living in these challenging economic
times.
My name is Stan Townsend. I have the privilege to have
married my sweetheart of 31 years and have two grown and
married daughters and four grandsons from 4 to 11 months. We
are a sixth generation farm.
Some of our operation consists of ground that has never
operated by anyone other but a Townsend, some dating back to
but the patent from the U.S. Government. That was prior to a
deed to be given.
Currently the seventh and eighth generations of our family
are helping on the farm and growing up with it as we raise
corn, wheat and pinto beans, and we have a small feedlot that
consists of 999 head capacity. It seems that today many
businesses face increasing margins due in a large part
increasing fuel costs and inflation.
Farming has not been spared this scenario. Investors view
land as a potential safe haven resulting in land values that
have increased 50 percent from just a short time ago. In 1988,
maybe not a fair year to compare but this is when I started on
my own, a new tractor was $41,000. That tractor today is
$281,000. Chemicals we used then were $7 per acre. Today they
are $30. NH3 fertilizer costs have doubled since prepay in
December of 2010 although natural gas prices have not. It is
decoupled and it is a concern of the inflationary things going
on there.
Inconsistent input costs, even when coupled with high
demand and high prices for our commodities, require us to
strategically plan for the future through diversification and
solid marketing. That strategy is especially true when it comes
to petroleum-based products.
Bulk diesel today costs nearly 14 times what it did in
1988. That reality has a significant impact on our operation
which relies heavily on trucking to transport our product.
Those freight costs have doubled in the last year specifically
related to increasing fuel costs.
There are segments of our society that seek to disparage
the development of the ethanol industry and point to the price
of corn as a result of development and then as the sole reason
for increased costs at the grocery store. In reality, as a
livestock producer, I understand the impact of the increased
corn prices. That is part of the reason we produce the corn we
do.
It allows us to feed our stock without entering the market
to purchase that feed. Ethanol has also provided the industry
with the unique opportunity to incorporate the use of high
quality DDGs into our feed cycle. Using the product is one of
the many ways we can mitigate our costs and remain profitable.
In fact, estimates show that up to 60 percent of original corn
inputs can be returned as DDGs.
We also frequently fail to realize the benefits of ethanol
at the gas pump. Without its inclusion in our fuel mix, each of
us would face gas prices 40 to 60 cents higher at the pump. One
of our non-traditional attempts to diversify our operation is
packing and marketing our pinto beans.
This effort provides our operation a direct connection
between the farm and the grocery store consumer. It also offers
a unique perspective on the true culprits in the increasing
cost on the food supply.
Again, the answer can be found in the input costs of
petroleum-based products. Our one pound packages of dryable
beans contain 8 cents in the packaging film, 20 cents in
trucking, and 30 cents that the farmer splits with the
processor. Yet another example of the very tight margins across
our family operation.
At this point I would be remiss if I did not mention the
litany of regulatory costs that directly impact our operation.
From environmental regulation to tax paperwork, we spend
countless hours in compliance with the latest efforts of our
government.
Recently, we have become concerned about the impact on our
operation, providing health insurance reform documentation, W-2
reporting. Anybody that gets a W-2 we are going to have to
produce insurance for.
My family has been sustained by this land for six
generations or 130 years. We have endured drought, hail,
whatever the debacle of that particular generation might have
been.
Beginning in 1873, Townsends left up-state New York and
took a risk and headed west. On the Welsh side of our family,
their presence in the Great Plains dates to the Cheyenne
Indians of which my grandmother was a member. This farm is my
home and my livelihood.
I only have to look into my grandsons eyes to be reminded
of my duty to ensure that my indebtedness or bad decisions does
not impact their future on this land. I continue to hope that
our generation will learn that lesson and apply that knowledge
to our government. The future of the next great generation is
at stake. Thank you. Any questions.
[The prepared statement of Mr. Townsend can be found on
page 68 in the appendix.]
Chairwoman Stabenow. Thank you very much. We appreciate
that very much.
Mr. Broin. Welcome.
STATEMENT OF JEFF BROIN, CEO of POET, LLC, CO-CHAIRMAN OF
GROWTH ENERGY
Mr. Broin. Chairwoman Stabenow, Ranking Member Roberts, and
members of the Committee, thank you for the opportunity to
testify today. My name is Jeff Broin, and I am CEO of POET.
Our 27 plants are spread across rural communities in seven
states and produce 1.7 billion gallons of ethanol and about 9
billion pounds of animal feed each year. Gas prices are
increasing and I applaud the Committee for testing this issue.
A recent summary of several studies concluded that ethanol
keeps U.S. retail gasoline prices about $0.17 per gallon lower.
That translates into an annual savings of $100 per driver or
$24 billion for all U.S. drivers.
The solution to keep gas prices lower for American
motorists is to have an alternative to gasoline. That
alternative is available today in home-grown renewable ethanol.
But to realize this opportunity we must reform existing
policies, allow competition and see beyond RFS, because today
an artificial blend wall limits ethanol to 10 percent of the
fuel supply.
We are exporting affordable American ethanol while
importing more expensive foreign oil. There is also more than
$1 billion of American assets sitting idle, ethanol assets,
that could be providing American fuel and creating American
jobs. Why are gas prices high? This is one reason.
Fortunately, the path for breaking through the blend wall
is clear and early steps have already been taken. Based on
overwhelming scientific data, the EPA approved blends of 15
percent ethanol, E15, to use in vehicles to 2001 and newer.
The certification process must be completed before drivers
can use this fuel. I hope the Senate will block any attempts to
deprive consumers the choice of E15.
The next step is Growth Energy's fuel freedom plan that
will gradually scale back the ethanol tax credit and for a
limited time redirect those funds toward blender pump
installation. Add to that a low-cost flex vehicle requirement
and allow ethanol pipelines access to loan guarantees.
With those elements in place, the oil would no longer enjoy
exclusive access to 90 percent of the fuel supply. The best way
to lower prices for consumers is to allow ethanol to compete
with oil in the marketplace.
Beyond that, what all the industry will need is simple
stability. With your support, the ethanol industry can help
make oil price spikes a concern of the past.
Let me tell you about what POET is doing in another
exciting area. Cellulose or more challengingly corn to convert
into ethanol represents even a larger opportunity because it is
the most common organic compound on earth.
Today, after more than a decade of steady process, POET has
an operating pilot facility producing cellulosic ethanol from
corn cobs and light stover.
Our first commercial project, Project Liberty, which is
scheduled to start production late next year, will create 300
jobs and launch an industry that will create almost 90,000
direct jobs by meeting minimum targets in the RFS.
In the future, we plan to produce cellulosic ethanol from
things like Georgian wood chips, Arkansas rice hulls and other
sources of biomass that exist in all 50 states. But we cannot
get there without stable government policy.
For example, to develop a biomass supply for cellulosic
ethanol producers, Congress established Biomass Crop Assistance
Program or BCAP to match bio-refinery payments to farmers up to
$45 per ton in the first two years of production.
To the 85 farmers we contracted with for last fall's
harvest, it was a sign of the country's commitment to
cellulosic ethanol.
Earlier this year, legislation was introduced to eliminate
BCAP just as the first payments were being made, casting doubt
in the minds of many of those farmers. This uncertainty will
make it more difficult to sign up the additional 200 to 300
farmers we need to produce commercial quantities of cellulosic
ethanol.
Similar situations have had an impact on investors. Today,
it is impossible to get financing for a cellulosic ethanol
plant without a federal loan guarantee. I urge the Senate to
continue funding for DOE's renewable energy loan guarantee
programs.
POET has invested millions in developing our cellulosic
technology, and construction of the facility is dependent on
our pending DOE loan guarantee application.
Cellulosic ethanol can build on the accomplishments of
grain ethanol, hold gas prices down, and make us less dependent
on foreign energy. All we need is stable government policy.
Sustainable grain prices created by ethanol production
helped U.S. farm income rise by 31 percent last year. That will
be mirrored worldwide as farmers bring previously farmed land
back into production because it is profitable for the first
time in 50 years.
Stanford research shows one billion acres of vital crop
land available for production, enough to feed and fuel the
world.
In closing, I would like to emphasize that to keep gas
prices lower we must create public policy stability and give
ethanol the opportunity to compete with oil in the marketplace.
If we can accomplish this use for now, we will see that the
emergence of the ethanol industry was an important turning
point in our Nation and our world's history.
Thank you, and I would be happy to answer questions.
[The prepared statement of Mr. Broin can be found on page
43 in the appendix.]
Chairwoman Stabenow. Thank you very much.
Dr. Dale, welcome.
STATEMENT OF BRUCE E. DALE, PH.D., PROFESSOR OF CHEMICAL
ENGINEERING, DEPARTMENT OF CHEMICAL ENGINEERING AND MATERIALS
SCIENCE, MICHIGAN STATE UNIVERSITY
Mr. Dale. Thank you very much. I appreciate the invitation
to be here today. As Senator Stabenow noted, this is my third
experience testifying before this particular Committee. I first
testified on biofuels when Senator Lugar chaired the Committee
many years ago.
Between then and now we have made significant progress. We
still have a long, long way to go. So I will be very frank and
as honest as I know how to be. Unless we clearly understand our
situation, we will not be able to solve the serious problems we
face. I am going to start out by being quite sober but
hopefully end on a more cheerful note.
So our economy depends very strongly on liquid
transportation fuels, and that market is dependent almost
completely in petroleum. The days of cheap, domestic oil are
gone. No one should mistake this. Those days are gone, and they
will not return. We burned up the cheap oil long time ago.
Likewise, the days of cheap foreign oil are rapidly ending.
We are increasingly at the mercy of much more expensive oil,
much more environmentally damaging oil, and much more insecure
oil supplies. Not a pretty picture.
Three years ago, oil prices peaked at about $145 per
barrel. Shortly thereafter, the stock market tanked, and we
entered a severe recession. We ought to get the message. Every
recession since the end of World War II has been preceded by
increased oil prices. Oil prices are rising again and
threatening to kill this fragile recovery.
So a very sobering scenario arises: high and volatile oil
prices kill economic growth, sending us into recession which
decreases oil prices somewhat, leading to a recovery in which
demand for oil rises again, which recovery is killed again by
rising oil prices. And with every such cycle, more and more of
our national wealth disappears, making us less and less able to
emerge from this vicious circle and achieve a more sustainable
future. Again, not a pretty picture.
So what can we do to reduce our vulnerability to high oil
prices and oil price volatility? We can and should decrease
demand for oil by increasing fuel efficiency standards over
time. We can and should increase domestic production of oil.
One way to do that is to combine carbon dioxide
sequestration with enhanced oil recovery. But increased
domestic oil supply is only a transition to get us to more
sustainable, long term solutions. Increased oil supply cannot
and must not be an end in itself because one day very soon that
oil will also be gone, burned up again. No one should mistake
this fact. And more fuel efficient vehicles will help, but they
are also not enough. We require lots of sustainable liquid fuel
if we are to continue our way of life.
Thus we need to increase production of oil alternatives,
including biofuels. There simply is no way to a sustainable
transportation sector without sustainable biofuels. I have
worked for 35 years to help develop cellulosic ethanol, called
second generation ethanol. Mr. Broin has discussed the corn
ethanol industry, so called first generation ethanol.
That industry has received a lot of criticism, almost all
of it unfounded. Corn ethanol is a much better product and much
better for our economy and environment than most people
realize. But my point is that a viable cellulosic ethanol
industry will depend very strongly on a healthy, strong corn
ethanol industry.
However, cellulosic ethanol has been essentially stalled,
the commercialization essentially stalled for the past couple
of years because of the blend wall that Mr. Broin has
mentioned.
No one was able to move forward with cellulosic ethanol
because there was no market for the additional ethanol, not
because the ethanol is a poor fuel. It is an excellent fuel.
But simply because we do not have the right vehicles and the
right infrastructure to use all the ethanol we can produce.
So we should require that all new vehicles sold in the
United States be flex fuel, and thereby give the consumers the
real choice in the fuels they use. I encourage every Senator on
this Committee to cosponsor The Open Fuel Standard Act in the
112th Congress.
And we need a lot more blender pumps so that infrastructure
limitations are reduced. Since gas stations replace their pumps
every ten years anyway, we should require that all newly
installed pumps be blender pumps.
Ethanol and other renewable fuels have been criticized as
mandates and contrary to free market principles. The folks who
make these claims ought to know better. We already have a fuel
mandate, and it is gasoline.
Worse than that, since we import 60 percent of our oil, the
current mandate is effectively we fill up our cars with foreign
gasoline. That is the mandate we have. Except for ethanol, we
do not have fuel choice. And as for an open market, that is
frankly ridiculous.
The current fuel system is a closed market in which only
oil, mostly foreign oil, is allowed to compete. So some of the
folks again who criticize the ethanol mandate, as they call
them, also call for us to Buy American. I agree with them. We
should open our fuel markets.
If we do not open our fuel markets, I believe we are doomed
to have high priced fuels and very volatile fuel prices
probably provoking one recession after another after another.
Now the cheerful note that I promised. Okay. The Department
of Energy and the Department of Agriculture are advancing
cellulosic biofuels. I would like to mention in particular the
Bioenergy Research Centers funded by the Office of Biological
and Environmental Research in the Department of Energy.
These Centers bring together a large cross section of
expertise to help provide how the integrated, fundamental
understanding, a Manhattan Project, if you will, is critical
large scale cellulosic biofuels. Without such a large,
integrated effort, Manhattan Project progress is much slower or
may not happen at all. So even in a time of tight budgets, we
must press forward with research and development on cellulosic
biofuels.
I am going to tell you one story and then I am done. I am
fortunate to be able to participate actively in one of these
Centers, specifically the Great Lakes Bioenergy Research
Center, called the GLBRC.
In just a few years in the GLBRC, we have greatly improved
our understanding of how to develop sustainable, large-scale
cellulosic biofuels.
For example, many people question whether we can actually
have a large-scale biofuels industry without causing food
shortages or environmental devastation.
With GLBRC, my research group looked at how we could
innovate in agriculture to provide large-scale cellulosic
biofuels, ample food, and big environmental improvements.
The answer turns out or an answer at least turns out to be
quite simple, grow a lot of double crops. Using about 300
million acres of crop land which is 70 percent roughly of our
crop land, we analyzed what would happen if we planted double
crops on about one third of our corn and soy land.
We found that by doing this one simple thing we could
produce about 100 billion gallons of ethanol, roughly the
amount of gasoline we import, provide all the food and animal
feed the land currently produces, improve soil quality and
biodiversity and reduce total U.S. greenhouse gas emissions by
10 percent, a very pretty picture, at last a win-win-win for
national security, economic security, and climate security.
So I am confident that if we open our fuel markets to real
competition, end the current mandate for foreign gasoline, and
promote agricultural innovation, we can exchange our current
precarious and expensive fuel situation for one that is both
economically and environmentally attractive.
Thank you.
[The prepared statement of Mr. Dale can be found on page 50
in the appendix.]
Chairwoman Stabenow. Thank you very much and thank you to
all of you for your testimony.
As we all know, the Committee's purview is very broad both
in terms of advocating and supporting American agriculture,
including our energy policy on biofuels, et cetera, and also
overseeing the markets, and certainly under Dodd-Frank and the
new efforts, new requirements under CFTC focusing on the swaps
markets.
The reason for bringing all of you together today is that
it really does fit when we are thinking about oversight in
terms of what we need to be doing to make sure that there is
not excessive speculation and manipulation in the marketplace
but at the same time what can we do to get off of foreign oil
and be able to create real alternatives both to bring down
costs as well as create jobs.
But let me start, Mr. Berkovitz, with you from the CFTC
stand point because one of my real concerns is the fact that in
passing the new law, the expectation was that it would take
extra resources, new resources at least in the short run to be
able to implement, to be able to get the rules in place, be
able to do the oversight that is necessary.
And unfortunately we have seen nearly a 60 percent cut from
what you indicated was in the President's budget that has come
from the House of Representatives; and when we look at what
that would do, I guess that really is my question.
If we are serious about the policing the markets that
impact the daily lives of all of us, of farmers, of families,
how would these cuts impact your enforcement division and the
ability to police the markets, and when you layout the tools
that are now available to you to be able to bring transparency
and accountability and oversight?
I am concerned as to which of the new tools would the CFTC
be unable to use at the funding levels that we are now seeing
discussed and what are the risks to farmers and businesses and
consumers if you are not able to use the accountability and
oversight power that you have been given.
Mr. Berkovitz. Thank you for the question, Madam
Chairwoman.
As I mentioned for fiscal year 2012, the President's budget
request is $308 million. For fiscal year 2011 which we are
operating in, it was $261 million. Under the continuing
resolution, we have been operating at the fiscal year 2010
levels, continuing in 2011, of $168.8 million.
Under H.R. 1, which would take us back 2008 levels, the
overall funding level would be, for the entire fiscal year of
2010, the year we are in, about $112 million. To get to that
overall funding level, the agency has calculated that we are
currently staffed at about 670, 680 employees. Under H.R. 1, we
would have to lay off about 440 of our current employees so
that would be
Chairwoman Stabenow. What does that mean for us that are
all very concerned about this economy, very concerned what is
happening on gas prices, on diesel fuel prices and so on, and
what is happening in the marketplace and the fact that supply
and demand cannot account for what is going on here.
As we have been hearing, that, in fact, usage is going down
and yet prices are going up. I mean, what does this mean for
the average person in terms of what you are able to do through
the CFTC and what you are not able to do?
Mr. Berkovitz. At that level with that kind of reduction,
we would not be able to fulfill the mandate that Congress has
provided to us to effectively oversee the markets as Congress
has directed.
Chairwoman Stabenow. Thank you.
Let me move to another type of question and ask Dr. Dale
and Mr. Broin if we have time here to talk about cellulosic
biofuel production. And I know, Dr. Dale, you and I have been
meeting and talking about this for years.
We, in the last Farm Bill, put in the cellulosic ethanol
tax credit and have been talking about where we can go on a
commercial scale for a long time. And I know you have been
working on that.
My question is when will we, do you believe, really be able
to see large-scale quantities of biofuels in the marketplace
coming from a wide variety of feed stocks; and then, secondly,
under the 2007 USDA/Department of Energy study, they stated
that we have the potential to produce 1.3 billion tons of
cellulosic biomass per year which would displace about 65
percent of our oil consumption.
So obviously if we can get there and we can get there
quickly, this would make a big difference. So I am wondering
what do we need to do at this point?
Mr. Dale. Thank you. I will try to respond from the back to
the front. Actually I think the USDA/DOE estimate of 1.3
billion tons is probably conservative. I think we probably can
have more than that. A paper that I had left for you folks will
indicate some ways to do that, particularly the cover crop
approach.
Secondly, as to when we, and I do not want to dodge the
question, but I want to be very frank again, as to when we will
do this. We will do it when we choose. It is not so much a
matter of technology. The technology is coming along as Mr.
Broin has pointed out.
We will do this when we choose to open our fuel markets,
when we provide stable policies that allow alternatives to
petroleum to go up, and when we continue to support the
necessary research and development to make this industry
happen. It is more a matter of what we choose, Senator. I
really believe that. It is a matter of our policies, our
choices as individuals, as a society how fast we get to
alternatives.
Chairwoman Stabenow. Thank you. I think in the interest of
time as chair I want set a good example. My five minutes is up.
So we will come back with a second round at this point and we
can continue that discussion.
Senator Roberts, I will turn it to you.
Senator Roberts. Thank you, Madam Chairwoman. I think
basically Mr. Dale said he needs more money.
Stan, you have highlighted the increased cost you have
experienced over the years and most folks have no idea that a
tractor can cost over $300,000. Yet many believe that the high
commodity prices will taken up with the rising costs that you
mentioned in terms of fuel, the input costs, all of that.
How do you manage these rising costs and keep your balance
sheet in the black? How are you doing this?
Mr. Townsend. Well, we have had a lot of practice. We went
through ten years of drought from 1997 to 2007. My family has
kept a history of weather. In 2002, we had two inches and
seventy one hundredth, and that was the driest year in our
recorded family history by seven inches.
We are currently having one of the driest springs we have
had on record at this point in time. So we face tough
conditions most of the time that kind of makes tough people.
We forward-contract. We prepaid our fertilizer into the
December 2010, and those prices have doubled. If you could get
10340 today it would be $1000, and I do not think you can find
it. They have withheld the asset off of the market. So they
have raised the product price to an astronomical level.
So it is just sheer practice. You learn it the hard way.
Senator Roberts. You have commented on the impact that
energy prices have had on your farm. But you also mentioned
that word that I have been hearing over and over and over again
and I think every member of this Committee has, and that is
regulations. Could you comment for this Committee how the cost
of compliance with all of the government regulations that you
face or all of the government regulations that you, there are
some that you probably will face such that you are not aware of
yet compared to these higher energy costs?
Mr. Townsend. The thing that, the unfunded mandates, it
affects all of us. One of the biggest ones right now is we have
36,000 gallons of fuel storage. We are having to build
facilities.
There is some disagreement whether we have to have a
$10,000 engineer per site or whether we can do that with a
program that has been run on the Internet that shows the same
thing that he would for $10,000.
The current one, of course, regulation of dust and spray
nozzles and everything. Stay where your knowledge is at. In our
country we raise the dust. There is nothing we can do about
that.
We are spraying our crops. We are saving fuel. I have cut
the hours on my tractors. Normally, prior to strip till and no
till farming, we used to produce 1700 gallons of nothing but
just waste oil. Now we are down to 300 gallons where our
tractors run less hours, our equipment is bigger and we using
more chemicals.
But we do not need to be regulated out for spray drift. We
can control spray drift. We know what we are doing because if
we drift on another farm we have to pay for that. There is a
consequence.
So we try not to do those things.
Senator Roberts. And you also follow the label under FIFRA?
Mr. Townsend. Yes.
Senator Roberts. All right. I really appreciate that.
I have about a minute I guess left to go. I am going to
yield that time or add the time to Senator Johanns and then I
have some other questions for the other witnesses.
Chairwoman Stabenow. Thank you very much.
We will first turn to Senator Bennet, and then I believe
Senator Thune has left and so Senator Johanns will be next.
Senator Bennet. Thank you, Madam Chair. I want to thank you
and the ranking member for assembling an excellent panel. Your
testimony has been really terrific, and you should know that
you have exceeded the bar of most of our Committees so thank
you for doing that.
I also want to thank you for letting my two little
daughters who have come today and they have been reasonably
well behaved so I will thank them as well.
Mr. Newell, I wanted to start with you because there was, I
think, in a period of very difficult political conversation
over the last two years across the country and certainly in the
State of Colorado, the one thing that people could rally behind
no matter what town hall meeting they were in was the idea that
we ought to break our addiction to foreign oil, especially oil
that we imported from the Persian Gulf.
I think, like the ranking member, I believe we need to move
beyond rhetoric on this question and start to think about
solutions to this problem in a way that will not disrupt our
domestic economy.
I believe that rural America, rural Colorado may be the
best place for the reasons Mr. Townsend stated to look, to gain
an understanding of how vulnerable our addiction to oil makes
us.
In rural areas where work can be 50 miles away from home
and the mechanic 10 miles in the opposite direction, a
fluctuation of just a few cents, as we have heard, in gas
prices quickly can drive up the day-to-day cost of living.
It might mean choosing between driving to work and paying
the heating bill or for a farmer it may mean running over
budget even before getting seeds into the ground because the
fields must be plowed regardless of the cost of fuel.
So I am glad this panel is here with a diversity of views
on this. I wanted to ask you, Dr. Newell, because I know you
have written extensively on energy policy options even before
your tenure at EIA.
As you know, the DOE estimates that United States is
between 2 and 3 percent of the world's oil reserves yet we
consume about a quarter of the world's oil.
Since the price of oil is set on a world market, any new
domestic development can easily be upset by a reduction of the
output from OPEC which clearly creates an unsustainable
arrangement situation.
I wonder what recommendations you have for Congress to
reduce gas prices in the near term and in long term because in
the near term, we know, and I come from a State with abundant
wind, abundant sun, abundant natural gas, abundant biofuel
production. But in 2004, the EIA analysis told us that opening
up protected areas to new oil drilling might reduce gas prices
in America by three to four cents, and those savings would not
come until 2027.
So has there been a change in that estimate at all; and if
not, what are your suggestions for how we do this in the near
term?
Mr. Newell. Well, you correctly point out that the oil
market is a global market. The United States is a significant
consumer of oil. In terms of production of oil, the United
States produces currently about 11 percent of the global
liquids supply. So in terms of understanding the price impacts
of particular actions that could be taken either on the demand
side or the supply side is really important to put that in a
global context.
The typical types of actions that are discussed are usually
measured on the order of hundreds of thousands of barrels per
day or, for major actions, maybe a million barrels per day
which is a significant amount of oil for sure, but in the
global market, which is close to 90 million barrels per day,
these volumes tend to be a very small fraction and they tend to
take place over an extended period of time.
Trying to identify a near-term price impact from actions
that are a small increment of a global market is quite
challenging. We typically see oil price fluctuations on a daily
basis of 1 to 2 percent. Sometimes it is significantly greater
than that.
So trying to separate the signal from the noise of these
actions is very difficult if one focuses on prices.
Senator Bennet. What about over the longer-term?
Mr. Newell. Well, over the longer term, either policy
actions or other market developments that reduce demand or
actions that increase supply will both tend to point in the
direction of lower prices.
The key question is what is the magnitude of the price
change, which is going to depend upon the magnitude of the
action-again put in a global context.
Any number of actions when added up across many different
sources of supply or across many different sources of demand
reduction will have an influence on market prices over a period
of time. But again it is not just what occurs in the United
States and it is not just what occurs from one individual
action. It is really the aggregation of all these effects that
will in the end determine global oil prices.
Senator Bennet. Thank you, Madam Chair.
Chairwoman Stabenow. Thank you very much.
Senator Johanns.
Senator Johanns. Thank you, Madam Chair, and I thank the
ranking member for that courtesy. I appreciate that.
Mr. Townsend, loved your testimony. I can think of so many
families back home in Nebraska who could talk like you do about
just the very, very deep roots that they have laid down.
If your family survived this long, it means you survived
the tough times of the dust bowl years. Anybody who can survive
that has tough genetics in the background, in my personal
opinion.
You talked about regulation, and I would like to focus on
one aspect that I have been working on actually now for nearly
a year and that is the 1099 requirement in health care bill.
You even mentioned that, I think, in your testimony.
Give us a real life view of how that is going to impact
your operation if you have to issue 1099s for all goods and
services purchased over $600 during any calendar year. Just
walk us through the mechanics of what challenges that is going
to present to your operation.
Mr. Townsend. I am going to take it to people. Our
insurance provider in the paperwork we just filled out, one
requirement was a W-2 or 1099 if we have to insure these part-
time people. We have taken in several kids, and our goal is to
teach them a work ethic.
Momma takes one and I take one. And through that time frame
we try to teach them how to work, try to teach them management
skills, teach them how to use the farm ground. There is any
number of things. We just try to develop a better person.
If those kids become, even though they are at home, if we
have to insure those individuals, that will put that into
trouble with us because we are doing that for the kids. We are
trying to build a better generation.
On the other side of it, we have part-time employees that
come in. One of them we had to report worked for us for three
weeks. He had a job. He took his vacation and he helped us
harvest. Would love to have him back, enjoyed it. But are we
going to have to insure him as well?
So those questions I fear.
Senator Johanns. That deals with the actual insuring
requirement. The requirement that I was referring to was the
requirement that every time you make a purchase you would have
to do a 1099 form. You would have to issue it to the IRS and to
the vendor that you purchased from, and it is every purchase
over $600.
How much paperwork is that going to cause you?
Mr. Townsend. I probably in any given single day could make
20 purchases of at least that magnitude in any given day. So
that would be an astronomical problem for me to keep track of.
Senator Johanns. On your operation, do you irrigate?
Mr. Townsend. Yes, I do.
Senator Johanns. Center pivot or?
Mr. Townsend. Yes.
Senator Johanns. What kind of engine? Is it electricity?
Mr. Townsend. I use electric, natural gas, and diesel.
Senator Johanns. Okay. So you use all three. So in addition
to the cost of fueling up the tractors, you have this
additional cost.
Mr. Townsend. Yes.
Senator Johanns. Mr. Broin, good to see you again.
Let me, if I might, ask you a question about ethanol. Been
a supporter of ethanol for a long time, as you know. Supported
it when I was Secretary of Agriculture. I can see the
difference it has made in my State in Nebraska. It really has
transformed the rural economy in many areas.
But the blenders credit, as you know, every time it comes
up for renewal it just seems to be getting a tougher battle.
You talked about, is there a point here where we start phasing
that out and offering a tax credit or something to put the
pumps in?
The more I have rolled that over in my mind it seems to me
to be a wise policy to try to build that marketplace instead of
relying on the credit because one of these times I am worried
that we will not get that done.
Talk to me about how you think we could roll that out and
how that would work. I would like to also just get your sense
of how the ethanol industry would feel about that approach.
Mr. Broin. Well, you probably are aware of the Growth
Energy fuel and freedom plan. That is something we have been
talking about where we would take our current incentive and
take a portion of that and actually use that to build up the
infrastructure, use that to build up the blender pumps.
We believe if we could get about 200,000 blender pumps put
in this country in a five-year period which we think is
attainable with those dollars, with some help for the people
who have to put that in, and couple that with a requirement for
flex-fuel vehicles, in addition to some government loan
guarantees for pipelines because we need some pipeline
infrastructure eventually here as well, that could make the
difference and that would allow us to be head to head with oil.
The problem we have today is we are dealing with an
industry that has a 90 percent monopoly. If we can truly open
up that market, the incentive becomes far less important to the
industry. But today it is very important because we are
competing in a marketplace where we are restricted to 10
percent of the market.
Senator Johanns. I will just wrap up and say you have
caught my attention with that. I hope you will work with us,
the ranking member and the chair. That they have some
possibilities.
Thank you.
Chairwoman Stabenow. Thank you very much, and I do want to
just mention for the record with the advocacy and hard work of
Senator Johanns and many of us working on this 1099 issue, we
are actually going to get this fixed. So you are not going to
have to do that. That would take effect in January of next
year, and I want to thank the Senator for his efforts on that.
Senator Klobuchar.
Senator Klobuchar. Thank you very much, Madam Chair. Thank
you to all of you. I thought it was really good testimony, and
I am just excited about some of the numbers we are getting out
there on developing our own American energy, home-grown energy.
The North Dakota oil right next door to Minnesota, we see a
doubling there of production since 2008. But most importantly
in my State we see the value of biofuels.
I was really quite shocked myself, despite what I see in
South Dakota, Mr. Broin, and Minnesota to know that we are now
almost making as much biofuels as we import oil from Canada.
I think people do not quite understand what a major part of
the market these home-grown fuels are and what the devastating
effect would be if we suddenly pulled the rug out from under
this industry.
And I guess my first question would be of you, Dr. Newell.
There are proposals, and by the way I have a bill with Senator
Johnson to ease down the VTECH issue and to acknowledge we are
going to have to make changes there.
I appreciate Mr. Broin's testimony; but if we were to
suddenly just get rid of any kind of support for ethanol as
there is actually a motion now that would not even be in the
context of a comprehensive energy plan where we maybe ease down
that, do some things with oil to even the marketplace as well
with oil subsidies, what do you think the effect would be on
the marketplace?
Mr. Newell. Well, there are a number of different things
that affect the production of ethanol, both market and policy
related. There is the blender's credit for ethanol. There is
the renewable fuels standard for ethanol, and then there is
also the price of oil and gasoline with which ethanol is
competing in the marketplace. So all of those things matter.
In terms of the blender's credit, right now the most
important binding force on the level of ethanol production the
renewable fuels standard as opposed to the blender's credit.
And so removing the blender's credit would not necessarily
change the volume of ethanol significantly because, assuming
that the renewable fuel standard was maintained, because it
would continue to mandate that that happens.
But there is, even if both of those policies were removed,
there would still be a level of ethanol particularly now that
there has been significant capacity built that would be
competitive given current oil prices and the oil prices that we
project. I would guess it would be smaller than what we
currently see, given the renewable fuel standard and blender's
credit.
But I do not think it would go to zero. Exactly what that
amount would be, we have not done any specific analysis.
Senator Klobuchar. A Chicago Tribune story, and I have
asked other experts this, say that if we cease to produce
ethanol, like if we just got rid of it, which by the way there
are some of my colleagues that think we should do this, that
the price would go up, if we ceased to produce the 14 billion
gallons of ethanol that we make every year, prices would go up
at the pump by as much as $1.40 per gallon. This would be if we
eliminated it.
That is my concern, Mr. Broin, if we made some sudden
change without any plan what do you think the effect would be
on the industry?
Mr. Broin Without question, there would be some point in
the near future where you would see production capacity
curtailed and it would, I am sure, have an impact on prices.
There would be less fuel supply in the market which I
assume would drive prices up. So it would have an impact.
Now, again, that is because we are competing with someone
that has a 90 percent monopoly. If we can open up the market,
that becomes a different discussion; but today we are competing
against ourselves basically, competing against ourselves in a
regulated market.
Senator Klobuchar. Exactly. One of the things I often hear
on the argument here is that the 25 percent, you know, that the
oil companies are not really getting some sort of subsidy; but
when you look at the breaks that they get for the taxes, I
think it goes down from, like, 25 percent to 9 percent of what
they are actually paying in taxes.
And it is hundreds of billions dollars that they have
gotten over the years. So I think people have to remember that,
that you are going against the tide here when you are going
against a 90 percent monopoly.
Mr. Berkovitz, I just have a quick question. I talked to
Mr. Gensler, Chairman Gensler, about the speculation issue,
sent him a letter. We had a good talk this week.
I would just want to re-enforce the need to get these rules
out. While I support a strong exemption for companies like
everyone from Delta Airlines to Cargill that are legitimately
hedging their bets on the prices, I am very concerned about the
60 percent of the speculators now that are out there for
different reasons, and I wonder what the timetable you thought
would be for getting these rules done.
Mr. Berkovitz. Thank you, Senator.
For the speculation rules in particular or?
Senator Klobuchar. The position limit rules.
Mr. Berkovitz. Thank you. The position limit rule, as I
mentioned, the comment period closed this past Monday.
Senator Klobuchar. Right.
Mr. Berkovitz. The count that we have now is 5700 public
comments on that rule. So we, as required by the Administrative
Procedure Act, we will be carefully reviewing all of those
comments.
Chairman Gensler has laid out his vision of the schedule
going forward for all of the rules and the chairman has stated
that his goal would be to have this rule in the middle of the
package of rules, going to final rule with a goal of having
that sometime this summer, that set of rules.
And so the positions limits under that goal would be within
that middle tier, and the chairman said hopefully this summer.
Senator Klobuchar. Okay. Very well. Thank you.
Chairwoman Stabenow. Thank you very much.
We will start with the second round on questions; and I
very much appreciate again your really excellent testimony this
morning; and I think to follow up, Mr. Berkovitz, on what
Senator Klobuchar was talking about in terms of what is
happening, concerns about how do we analyze what information
that we have now really to look at supply versus demand versus
what is happening, concerns about excessive speculation, we do
not yet have a real picture on the swaps markets. Transparency
is certainly a part of what we passed but I know you are still
collecting information on this.
So I am wondering what you can provide us, and more
importantly, provide consumers and American farmers at this
point about the most recent understanding of current oil and
other commodity prices and increases as to whether they
accurately reflect supply and demand fundamentals, I mean, what
is missing, what could be missing from the current analysis,
what is your thinking about what is going on right now in the
marketplace?
Mr. Berkovitz. We have a very active surveillance function
within the commission. The surveillance office gathers data
regarding the market fundamentals and analyzes that. We have
weekly briefings with the commission. It is very active in
terms of ensuring the integrity of the markets, ensuring that
trading is fair and orderly and there are no undue influences
on the market or market disruption.
So we are watching very carefully the markets and taking
that as part of our surveillance function, looking at the
market fundamentals.
Chairwoman Stabenow. At this point, are there red flags and
what are they finding?
Mr. Berkovitz. We are very carefully looking at that and
evaluating. And where there is enforcement action or other
appropriate action, the commission will take it.
Chairwoman Stabenow. Thank you.
Mr. Broin, I had talked a little bit earlier about advanced
biofuels, cellulosic ethanol in asking Dr. Dale about, you
know, how do we get to large scale production.
I know that you indicated in your testimony that you have
300 jobs that are being created from a plant or a series of
plants, I am not sure which it was, but certainly we were
talking about scaling up and creating jobs.
But at this point, again what can we be doing more quickly?
I hear loudly and clearly your concern about stable public
policies and agree strongly with that that we need to send
stable long-term policy so that we are creating a marketplace
where business decisions can get made, investment decisions,
and so on.
But we have been in the last Farm Bill again with the
cellulosic ethanol tax credit and with other efforts, and as we
look to this next Farm Bill and the energy title and so on, you
know, what should we be doing at this point time in order to
get us to the place where we can receive the benefit from the
large quantities that we are talking about this morning of
alternatives to oil?
Mr. Broin. For these first few plants it is really critical
that we are able to access the loan guarantee program, and we
have been working with them for quite some time and we are
making progress and to make that streamlined and efficient and
make sure that it is funded, because we do not need loan
guarantees forever. But the first couple plants do.
Once we have established the technology, it will be easy to
finance them. In addition, we need to continue to support
programs like BCAP. We are trying to get farms to collect a
product they have never collected before.
And while I think POET is as good as anyone on the planet
at dealing with farmers, we really understand how to deal with
them, if they see the government wavering in their support of a
government program, they back away.
It is hard enough to get them to the table in the first
place to produce a brand new cellulosic product. We have 85
farmers that delivered 100,000 tons of cellulose this past
fall, but we need 385.
The next 300 are not going to come if they see the first 85
not getting paid through the BCAP program on issues of not
seeing funding. So it is very important to have stability
around government policy in these areas.
Another point I wanted to touch on, if I may, for just a
moment is, you know, we have been awash in grain in this
country my entire lifetime and I still think there is a
tremendous amount of opportunity in grain ethanol as well. Over
the next 20 years we are going to double our grain yield in
this country and that is more starch that can also go to
ethanol while protein can go to the feed and food markets as
well.
So we continue to see opportunities for both products.
Chairwoman Stabenow. Right. Thank you.
And finally, I have, Dr. Dale, just talk about Michigan for
a moment since that is something of great interest to both of
us.
And I am wondering as we look at the potential for advanced
biofuels, not only around the country but in Michigan, what you
see as the potential for us as a net fuel producer.
I know you have worked with the Mascoma project up in
Kinross, up to our Upper Peninsula, which is going to utilize
hardwood, pulp as a feedstock, but just as you look at
Michigan, what are the opportunities for us?
Mr. Dale. Michigan, as well as almost every other state in
the country, can become a net fuel exporter if they choose to.
We have the land resources. We have the agricultural knowledge.
If we continue moving forward with these alternatives with the
stable policies and making sure that Michigan and almost every
other state with any sort of an agri/forestry base can produce
its own fuel.
Chairwoman Stabenow. Great. Thank you very much.
Senator Roberts.
Senator Roberts. All you need is some good luck on your
basketball team.
Chairwoman Stabenow. There is always next year.
Senator Roberts. Always next year. Being from K State I
agree with that
Chairwoman Stabenow. That is right.
Senator Roberts. And KU for that matter.
Mr. Newell, you state in your testimony that events such as
unrest in the Middle East and North Africa, earthquakes in
Japan or that terrible tragedy change expectations of future
oil and supply demand, that is for sure, and increase the
uncertainty of those expectations.
Do I correctly understand you believe that supply and
demand factors primarily, the key word here is ``primarily'',
are driving up oil prices rather than speculation in the
derivatives market being the culprit?
Mr. Newell. Well, there is----
Senator Roberts. Primarily.
Mr. Newell. Right. The nuance to answering the question is
that we have had----
Senator Roberts. So the answer is yes but go ahead.
Mr. Newell. We have had in Libya an actual loss of supply.
They typically would export 1.5 million barrels per day. So
that is off the market, clearly a supply side fundamental that
would point in the direction of higher prices.
There is also an increased perception of risk in the market
given the importance of that region and the general unrest in
the region.
Now, that has not yet resulted in a current physical loss
of supply but it has raised the possibility that there could be
one in the future.
And that actually does enter in through activity in futures
markets, and so in that sense there is a close tie between
current spot prices and future places, and future prices depend
upon not what is happening today but what we think might will
happen in the next few months or the next few years, and so it
is that sense in which they are tied.
But I think one could attribute the recent run-up in prices
over the past several weeks to supply-side concerns, both
actual and perceived increase in risk.
Senator Roberts. I appreciate that. Can you quantify, if
there is any way could you quantify the additional dollars that
the U.S. consumers have spent on gasoline in 2010 as opposed to
2009 due to the depreciation in the value of the dollar against
other currencies?
Mr. Newell. I would not have that number. No.
Senator Roberts. All right.
Mr. Berkovitz, the CFTC just received or just levied an
adjustment, that is a very nice word for a fine, totaling
several hundred thousand dollars against the National Futures
Association and the commodity exchanges for a mistake made by
the CFTC in calculating the CFTC enforcement fees for the past
fiscal years, years in which the CFTC had already sent the bill
which had been paid. This is has never been done before.
By what authority are you penalizing these folks for a CFTC
error?
Mr. Berkovitz. Senator, the notice that we sent to the
entities that you described, it was not a penalty. It was an
adjustment because the agency had made an error in the original
calculations.
Senator Roberts. But they are going to have to pay it,
right?
Mr. Berkovitz. They will have to pay the additional
amounts, yes, Senator. The agency is obligated by statute to
collect the amounts due the agency. It is regrettable the
agency made the initial error, but we are obligated under the
federal debt collections statutes to collect that debt owed to
the United States.
Senator Roberts. I am not particularly happy with that
response.
The CFTC has issued a proposal to impose federal position
limits on speculation in energy and metals contracts in futures
and swaps, and I have been told that the only study the CFTC
cited in support of its proposal was issued by the Federal
Trade Commission in 1926. That was when Stan's great great
great great grandfather was farming his land.
My question is, do you have some more modern economic
analysis to support that proposal?
Mr. Berkovitz. Senator, that rule is out for public
comment. We are evaluating the comments and we have received
some comments----
Senator Roberts. I know the comments. I am talking about
the analysis to justify it. The President issued an executive
order here January 18, saying that many regulations are
duplicative, costly, and in some cases, stupid. His words not
mine. Asked all the federal agencies to come up with a cost
benefit analysis to justify the current regulations and the new
ones.
I was told by your chairman that that did not apply to you
folks at the CFTC because you are different because of
something about congressional intent or you are a sub-agency or
you are an independent agency; and then there is a whole
paragraph of things that you could, you know, justify how you
are exempt from these regulations. That is what I am really
trying to figure out.
Will the CFTC's imposition of federal position limits lead
to lower energy prices for consumers? And what is the economic
theory supporting this belief?
Mr. Berkovitz. I cannot answer the question of what the
energy prices on consumers are. I can say, Senator, in response
to the question regarding cost benefit and information
supporting the rule that we have received those comments and we
are looking at that very issue in terms of the cost benefit
analysis, in terms of the proposed speculative limits of those
rules.
Senator Roberts. So you are going to comply with Executive
Order?
Mr. Berkovitz. We are looking at the Executive Order to
determine in which instances we can comply with the Executive
Order consistent with the statute that we are operating under
which determines----
Senator Roberts. I know the chairwoman and I would
appreciate that as would the rest of the members of the
Committee.
I would just say whether it is $108 million in the original
CR sent over by the House or $168 million which you get now or
$302 million recommended by the President in his budget, I am
not sure that you are going to produce one gallon of gas.
I know that you are going to certainly try to produce
transparency and aim at the speculation problem. However, I do
not know. Maybe we could have a year's vacation from these
regulations, and we could actually change your purpose. We
could have the Lafayette Center refinery be one of the first
ones built in many years.
You could do that. That would certainly add to a gallon of
gas. I am being very facetious here and I apologize for that.
You should not be on the receiving end of that.
I still have one minute.
Chairwoman Stabenow. Yes.
Senator Roberts. Thank you very much. You just want me to
get done. I know you want to get done. All right.
Has the CFTC analyzed the possible costs and benefits, and
I am still continuing under the President's Executive Order
umbrella here, of its position limit proposal? What is the
CFTC's estimated dollar value of the cost of its proposal? How
did the CFTC arrive at that number?
I think that question is premature right now because you
are going through that study so I am going to skip that and try
to get to my last question.
Mr. Broin, we have the tightest corn stalks used ratio in
history. What has been the biggest impact on today's corn
price, the world corn demand, ethanol demand, smaller corn
supplies or speculative interest in the futures market?
Mr. Broin. Certainly, supply and demand has played a role
in increasing grain prices and actually brought them to
sustainable levels. But speculation has made the markets
extremely volatile. There is a tremendous amount of speculation
put out on the markets by non-commercials, people that do not
use corn, never intend to take delivery of the corn.
And that has, without question in my opinion, added a lot
of vulnerability to the market.
Senator Roberts. Madam Chairwoman, I am out of time. I
would like a third-round if it is possible but I would
certainly yield to you at this particular time.
Chairwoman Stabenow. Thank you. Just one question, and then
I will be happy to let you finish up.
Mr. Broin, I guess back to you. But in your testimony, you
talked about the blend wall and the new obviously rules that
are coming out for ethanol and support removing it and
adjusting it and so on.
I wondered if you could respond to some folks that had
visited with me yesterday, actually in this very room, from the
Michigan snowmobilers who were concerned, and I have heard this
from engine manufacturers as well, about the affect it will
have on small engines.
I wondered if you might respond at all to the concerns that
they have about going to E15.
Mr. Broin. Sure. We are certainly not taking away unleaded
gasoline or E10 which works just fine in those small engines.
E15 will be an option for the consumer. It will be labeled at
the pump, not for small engines.
And so they will still have the other fuels to put in those
engines. So it seems to be somewhat of a mute point to me.
Chairwoman Stabenow. Thank you.
Senator Roberts.
Senator Roberts. Again, Mr. Broin, in your testimony
regarding the production of corn ethanol and cellulosic ethanol
in the same plant, you mentioned that you use a byproduct of
cellulosic production to power the plant.
Could you explain that process further?
Mr. Broin. Absolutely. Actually what we will do in the
ethanol industry is build the cellulosic plant right next to
the grain plant. That plant will take the light stover base to
the cobs and the leaves and the husks off the same acres that
we get the corn off of.
We will process the cellulose and hemi-cellulose and
ethanol. The byproduct of that process is lignin, and there is
enough lignin coming out of the back of a cellulosic plant to
power both the cellulosic plant and a two ex size grain plant
right next to us and export power after that.
So it is a tremendous greenhouse gas move for not just the
cellulosic plant but the grain plant right next to it. And we
are very, very excited about what that is going to do for the
industry.
Senator Roberts. I share your excitement. We are trying to
build one in western Kansas if we can get past some of the
legal ramifications.
Mr. Dale, your testimony recommends extensive adoption of
double cropping of grasses and legumes on corn and soybean
fields. Is such an extensive use of double cropping possible in
most regions of the U.S.?
You can ask Stan about that.
Mr. Dale. Thank you. No, it is not appropriate for all
regions of the country, but we actually have colleagues up at
Penn State University, Dr. Tom Richard, who with a group of
people from the USDA looked in detail at what areas of the
country where it could be done. So they looked at soil types,
winter rains, and all the factors that go into it, and they
believe that our estimate is actually too conservative.
They think that you can produce about 200 million dry tons
per year of mostly winter rye and some other things in the
areas of the corn belt, if you will, that get a lot of wet
weather.
So it is not applicable everywhere but it is applicable in
a lot of places and a lot more, in fact, than we analyzed.
Senator Roberts. This is a basic question in regards to
cellulosic. So Mr. Broin and Mr. Dale, feel free to state what
your opinion might have.
We have heard of all the promise of cellulosic ethanol but
it is obvious we still have some issues in the way of making
this technologically commercial and viable.
You mentioned in your testimony that vehicles require
liquid fuels. That is obvious right now. Are we any closer
today to converting all of this what some people call mass of
stuff, i.e., organic material, out in the field or the forest
into a presumably liquid form so we can actually transport it
more efficiently for further processing? Should we even
consider that in the Finance Committee in regard to a tax
incentive? Where are we?
Mr. Broin Yes, we are. I can speak as a person and company
that has invested heavily in the research and development
around cellulosic ethanol. We have been operating a pilot plant
for two and a half years.
We have decreased the price of producing a gallon of
cellulosic ethanol from $4.13 a gallon to about $2.30 a gallon.
While not yet competitive with grain ethanol, that is
certainly competitive with gasoline. So we have come a long,
long way.
Again with the approval of our loan guarantee, we will be
starting construction on Project Liberty this year. We will
start operation next year, and we have actually committed, I do
not know if you heard about it or not but we have committed to
a three and a half billion gallon amount of the RFS by 2022 at
our company.
So we have said we will take three and a half billion
gallons of the 16 billion gallons by 2022, and I think we can
outperform that. We are probably being a little bit
conservative.
Senator Roberts. I appreciate that detail.
Mr. Dale, do you have any comment?
Mr. Dale. Sure. Just one additional thing. It is being more
and more recognized that we have to figure out ways to densify
cellulosic biomass as close to the point of harvest as we can.
You can convert it to a liquid. You can make it into a
dense solid. But we have to do that so that we can establish
the logistics for large scale systems.
Mr. Broin has referred to one way. There are other ways
that are being looked at and being developed quickly.
I do want to answer one question that you did not ask, if
you will permit me. I was a new father, a 23-year-old father,
when we had the first oil embargo. President Carter and those
responding said we needed to get off foreign oil. Every
president since then has said that.
Now I am a 61-year-old grandfather, and I am really
concerned that my grandkids have a better, more stable economic
environment than we have had recently.
So what we have to realize is this is going to take decades
to do this. We use about 140 billion gallons of gasoline in
this country every year and that it is going to take decades to
get to a very, very large-scale replacement of that.
I wish I could be more optimistic but it is just going to
take awhile. We have to keep going down the path we are going
and not let ourselves be diverted because if we do not we are
going to have a worse situation than it is.
But it is going to take a long time. I realize there is the
short-term pain. I understand that. But we have to look at
long-term solutions also, and we just have to continue. We can
do it with cellulosic and other biofuels but it is going to
take decades.
Senator Roberts. Mr. Dale, I want to thank you for that
comment. It is not either/or. I just mentioned the tremendous
impact that the oil and gas industry has in Kansas and what we
rely on, and other states as well.
And I think sometimes that we get overly excited about one
particular source of energy over another. Obviously, the
situation in Japan now affects that as well but I think it is
any and all.
That does not mean that you are picking and choosing so
much as it is that you know that it is going to take a long
time.
The chairwoman and I are very much aware that in the next
several decades we are going to see the population of the
planet go from 6 billion to 9.3 billion people.
I heard the term awash in grain. We are going to have to
double our ag production to feed those folks, and that is a
moral imperative. It started with Eisenhower and the Food for
Peace Program, and others as well.
It is also a national security issue as well. In terms of
any country that cannot sustain itself to feed its people, then
you get into trouble. Then you get into problems that we see in
the Middle East.
It is not only a problem for agriculture and for the farmer
and rancher whose job it is that Stan has so elegantly spoken
to but it is also a matter of feeding an increased population.
So I am not sure how to do this, Madam Chairwoman, but we
are dedicated to that and I think your comments are certainly
commensurate with that goal.
And I thank the chairwoman and I thank the panel. You have
done an excellent job and thank you for taking time out of your
very busy schedule to come and testify before us.
Chairwoman Stabenow. And I would just say thank you as well
and join with my partner and ranking member in focusing on the
challenges that we have, and I would only add that I think what
is important that has come from today, one of the messages is
that we have put in place a way to be able to create
competition for foreign oil, an American-made source, homegrown
fuel, and that we are making progress.
I think often times we do not hear that. You know, we hear
concerns. Certainly, there are various concerns that are
legitimate about how we move forward but I think we have heard
today very clearly that we are making progress and that we need
to continue to do that. That, in fact, part of our solution,
and it could be a very big part depending on how much we are
willing to be committed to it really comes from American
agriculture and what we can do through focusing on advanced
biofuels and the ability to have homegrown energy which is
certainly in all of our best interests.
So thank you very much. We appreciate the excellent panel
today.
[Whereupon, at 12:13 p.m., the Committee was adjourned.]
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A P P E N D I X
MARCH 30, 2011
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QUESTIONS AND ANSWERS
MARCH 30, 2011
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