    [Senate Hearing 112-283]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 112-283

                         GROWING JOBS IN RURAL AMERICA

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

                                    HEARING

                                   before the

                           COMMITTEE ON AGRICULTURE,
                             NUTRITION AND FORESTRY

                              UNITED STATES SENATE

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JULY 14, 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 P. CASEY, Jr., Pennsylvania   JOHN BOOZMAN, Arkansas
    AMY KLOBUCHAR, Minnesota             CHARLES E. 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

                                  ----------
                                                                       Page

    Hearing(s):

    Growing Jobs in Rural America....................................    01

                                  ----------

                            Thursday, July 14, 2011
                        STATEMENTS PRESENTED BY SENATORS

    Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan,
      Chairwoman, Committee on Agriculture, Nutrition and Forestry...    01
    Casey, Hon. Robert P., Jr., U.S. Senator from the State of
      Pennsylvania...................................................    16
    Bennet, Hon. Michael F., U.S. Senator from the State of Colorado.     5
    Brown, Hon. Sherrod, U.S. Senator from the State of Ohio.........     6
    Klobuchar, Hon. Amy, U.S. Senator from the State of Minnesota....     6
    Lugar, Hon. Richard G., U.S. Senator from the State of Indiana...     3

                                    Panel I

    Bony, Paul, Director, Residential Market Development, Climate
      Master, Oklahoma City, OK......................................    10
    Graham, Bruce, CEO, Indiana Statewide Association of Rural
      Electric Cooperatives, Inc., Indianapolis, IN..................     7
    Sanders, Helen, Ph.D., Vice President, Technical Business
      Development, SAGE Electrochromics, Inc., Faribault, MN.........    12
    Stewart, Zac, Owner, Ambient, LLC, Ignacio, CO...................     9

                                    Panel II

    Hall, Dennis, Assistant Director, Ohio BioProducts Innovation
      Center, Columbus, OH...........................................    27
    McIntosh, John, Vice President of Sales and Marketing, Signature
      Crypton Carpet, Dalton, GA.....................................    26
    Peoples, Oliver P., Ph.D., Founder and Chief Scientific Officer,
      Metabolix, Inc., Cambridge, MA.................................    23
    Verbruggen, Marc, Ph.D., President and CEO, NatureWorks LLC,
      Wayzata, MN....................................................    21
                                  ----------

                                    APPENDIX

    Prepared Statements:
        Roberts, Hon. Pat............................................    36
        Casey, Hon. Robert P., Jr....................................    38
        Thune, Hon. John.............................................    39
        Bony, Paul...................................................    41
        Graham, Bruce................................................    44
        Hall, Dennis.................................................    49
        McIntosh, John...............................................    55
        Peoples, Oliver P............................................    57
        Sanders, Helen...............................................    63
        Stewart, Zac.................................................    67
        Verbruggen, Marc.............................................    68
    Question and Answer:
    Stabenow, Hon. Debbie:
        Written questions to Paul Bony...............................    74
        Written questions to Bruce Graham............................    76
        Written questions to Zac Stewart.............................    90
    Roberts, Hon. Pat:
        Written questions to Paul Bony...............................    74
        Written questions to Bruce Graham............................    77
        Written questions to John McIntosh...........................    85
        Written questions to Oliver P. Peoples.......................    86
        Written questions to Helen Sanders...........................    88
        Written questions to Zac Stewart.............................    90
        Written questions to Marc Verbruggen.........................    93
    Thune, Hon. John:
        Written questions to Paul Bony...............................    75
        Written questions to Bruce Graham............................    81
        Written questions to Dennis Hall.............................    83
        Written questions to John McIntosh...........................    85
        Written questions to Oliver P. Peoples.......................    86
        Written questions to Helen Sanders...........................    89
        Written questions to Zac Stewart.............................    92
        Written questions to Marc Verbruggen.........................    94
    Bony, Paul:
        Written response to questions from Hon. Debbie Stabenow......    74
        Written response to questions from Hon. Pat Roberts..........    74
        Written response to questions from Hon. John Thune...........    75
    Graham, Bruce:
        Written response to questions from Hon. Debbie Stabenow......    76
        Written response to questions from Hon. Pat Roberts..........    77
        Written response to questions from Hon. John Thune...........    81
    Hall, Dennis:
        Written response to questions from Hon. John Thune...........    83
    McIntosh, John:
        Written response to questions from Hon. Pat Roberts..........    85
        Written response to questions from Hon. John Thune...........    85
    Peoples, Oliver P.:
        Written response to questions from Hon. Pat Roberts..........    86
        Written response to questions from Hon. John Thune...........    86
    Sanders, Helen:
        Written response to questions from Hon. Pat Roberts..........    88
        Written response to questions from Hon. John Thune...........    89
    Stewart, Zac:
        Written response to questions from Hon. Debbie Stabenow......    90
        Written response to questions from Hon. Pat Roberts..........    90
        Written response to questions from Hon. John Thune...........    92
    Verbruggen, Marc:
        Written response to questions from Hon. Pat Roberts..........    93
        Written response to questions from Hon. John Thune...........    94

                         GROWING JOBS IN RURAL AMERICA

                                  ----------

                            Thursday, July 14, 2011

                                  United States Senate,
              Committee on Agriculture, Nutrition and Forestry,
                                                         Washington, DC
        The committee met, pursuant to notice, at 9:33 a.m., in
    Room G-50, Dirksen Senate Office Building, Hon. Debbie
    Stabenow, Chairwoman of the committee, presiding.
        Present or submitting a statement: Senators Stabenow,
    Brown, Casey, Klobuchar, Bennet, Lugar, 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 thank you for
    being here at the Senate Committee on Agriculture, Nutrition,
    and Forestry. We will call the meeting to order.
        This is a day of multiple things happening at the same
    time, so we welcome all of our witnesses and hope you will
    understand as people are trying to be two or three places at
    once. Senator Roberts this morning is not able to join us, but
    welcomes you, as well, and we are very, very pleased to have
    Senator Lugar here as a great leader on these issues that we
    are talking about today. So we thank you for being here and
    being a part of this. At some point, I, as well, have a bill up
    in the Energy Committee that is going to be voted on and I am
    going to be running up and down between here and third floor in
    Dirksen at some point, so if I leave, it is not because of
    something you said. It is because I need to attempt to be two
    places at once myself this morning.
        But again, welcome. Today's hearing will focus on ways to
    grow jobs in rural America, and certainly we know the farm bill
    is a jobs bill and there are other ways in which we can
    leverage what we do, the strength of rural America to create
    jobs, and that is really what we are all about in this
    committee. There are 16 million Americans who have a job
    because of agriculture and there is even more that we can do.
    Even as we look at the challenges of the last decade, certainly
    in my State, agriculture continued to grow, and this is a very,
    very important part of our economy. Manufacturing accounts for
    roughly a quarter of rural private sector earnings and accounts
    for more than one in ten rural jobs, as well.
        I have a unique perspective as Chair of the Agriculture
    Committee, because in Michigan, as I always say, we grow things
    and make things, and you have an economy, I believe-- we have a
    middle class in this country because we grow things and make
    things. Agriculture and manufacturing are at the heart of any
    economy. They created the U.S. middle class and really are the
    life blood of rural America.
        All across Michigan, all across America, we have people in
    rural communities working to create jobs and compete just like
    people in every city in America. Today, we are highlighting
    some of the great work that is being done, promising
    opportunities to grow jobs in both agriculture and
    manufacturing sectors around the country.
        First, we will consider the possibility of developing a
    Rural Energy Savings Program which will enable the Rural
    Electric Co-Ops to assist their customers in making energy
    efficiency improvements to their homes and their businesses.
    Senator Lugar has included a similar provision in his practical
    energy plan, and I understand he continues to work on a stand-
    alone proposal with Senator Merkley and we, again, thank you
    for your leadership.
        Further, I know that several other members of the committee
    expressed an interest in this concept last year when we had a
    subcommittee hearing to examine legislation at that time which
    Senator Merkley had introduced. This type of program is
    important because rural residents are more likely to live in
    older, less efficient, energy efficient homes and the USDA has
    found that our rural residents spend as much as $400 more a
    year on energy costs than those living in our cities.
        A rural energy savings program would not only lower energy
    costs for families, for farmers, for small businesses, but it
    would create opportunities for companies that manufacture
    energy efficient installation, heating and cooling systems,
    doors, windows, et cetera. So it is really about jobs.
        Our second panel will examine the link between agriculture
    and manufacturing in the rapidly expanding sector of bio-based
    products. We tend to think of America's dependence on foreign
    oil only in terms of the gas pump, but we also rely on imported
    petroleum for plastics, foams, and other materials that we use
    every day. For years, our best minds have been working to
    develop bio-based alternatives to those petroleum products.
        One of the foremost pioneers in this area was none other
    than Henry Ford, who experimented with ways that soy-based
    products could be used in automotive production. Today, we have
    cars rolling down assembly lines across America being built
    with parts being made from agricultural products--seats,
    interior panels, arm rests, sunshades, to soy wire coatings,
    carpets, and structural foam.
        In Michigan alone, we have over 80 companies manufacturing
    bio-based products and even more using bio-based materials in
    their products, and these products are not just for cars, as I
    said. They are cleaning products, soaps, insulation, plastics,
    foam products, and fabrics. At today's hearing, we will hear
    about a number of these exciting new opportunities to connect
    production agriculture with rural manufacturing, creating jobs
    and prosperity in our Main Street communities in rural America.
        So I am very pleased again to have my friend, Senator
    Lugar, here and would ask him for his opening remarks.

    STATEMENT OF HON. RICHARD G. LUGAR, U.S. SENATOR FROM THE STATE
                               OF INDIANA

        Senator Lugar. Well, thank you very much, Madam Chairman. I
    appreciate you convening this hearing today and for the
    opportunity to discuss the big opportunities we all have for
    job creation for Hoosiers and for all other States, for that
    matter, to save money through rural energy savings.
        Rural energy efficiency has broad bipartisan support.
    Senator Merkley is a leader on this legislation. We also
    appreciate the partnerships of Senator Shaheen and Graham.
    Today's hearing gives us an opportunity to gather more views
    before we formally introduce and mark up the Rural Energy
    Savings Program proposal within this committee.
        I join the Chair in welcoming all of our witnesses, and in
    particular Bruce Graham of the Indiana Statewide Association of
    Rural Electric Cooperatives. The Rural Electric Co-Ops in
    Indiana not only provide essential services for our homes,
    farms, and small businesses they also invest heavily in rural
    community activities across the State. They are pioneering
    efficiency work and investment in new forms of power generation
    that will save Hoosiers money. Bruce has served as the Chief
    Executive Officer for the 39 member cooperative association for
    nearly five years and I thank him for his leadership in Indiana
    and for joining us today.
        Energy efficiency is gaining ground, from utilization of
    digital thermostats and better lighting at Warren Township
    schools in Indianapolis to energy savings contracts pioneered
    by Vectren Corporation Energy Systems Group in Newburgh. The
    potential savings from accelerating this trend can be a
    tremendous windfall for Hoosiers and all American families and
    small businesses. For example, a 2009 study by McKinsey and
    Company found that the end use energy efficiency measures using
    technologies already available can save us $1.2 trillion by the
    year 2020.
        Progress on energy efficiency is a particular need, an
    opportunity for our rural communities. More than 42 million
    Americans live in rural communities, and many of these
    Americans reside in homes that are significantly less efficient
    than those typically found in urban circumstances. In fact, the
    USDA has found that rural households spend $200 to $400 more,
    as you pointed out, Madam Chairman, per year on their utility
    bills than comparable urban households. This utility bill
    disparity is significant, especially given that rural
    households earn $10,000 less per year than the national
    average.
        The Rural Energy Savings Program proposal would permit
    rural families, farms, and other small businesses to receive
    low-interest loans to improve the energy efficiency of their
    properties. Opportunities for savings are abundant. A consumer
    might install better insulation, such as that manufactured in
    Shelbyville by Knauf, or replace drafty doors with a more
    energy efficiency variety like those made by Therma-Tru Doors,
    manufactured in Butler. Those are just two examples of the many
    Hoosier businesses that today manufacture innovative and
    affordable energy efficiency products. Not only will consumers
    save money, but more Hoosiers will be put to work to
    manufacture and install these efficiency upgrades.
        By providing loans, the proposal offers a fiscally
    responsible path toward energy savings. Loans would be issued
    through USDA's Rural Utility Service to qualified local
    entities, primarily nonprofit rural cooperatives, who would
    then issue loans to consumers to meet local needs. Loans issued
    under this program would be repaid within ten years through
    money saved on utility bills. The Rural Energy Savings Program
    proposal is projected to create nearly 26,000 jobs, spur
    retrofits in up to 1.6 million rural homes, save rural
    households hundreds of dollars a year after the loan is repaid,
    and eliminate the need for new generating capacity to power
    625,000 homes in our country.
        Madam Chairman, my recently introduced Practical Energy
    Plan, S. 1321, includes the Rural Energy Savings Program
    proposal we are discussing today. The broader bill will save
    Americans $33 billion each year in savings through energy
    efficiency and reduce the need for foreign oil by more than six
    million barrels per day by the year 2030, or well over half of
    our current imports.
        The costs of the proposals are fully offset, and with
    substantially increased Federal revenues through more oil
    production. In writing my bill, I focused on energy policies
    that are achievable, cost effective, and most importantly, that
    have American consumers saving money and businesses saving
    money. I appreciate very much the Agriculture Committee doing
    its part to take up this energy saving for all Americans.
        I thank the Chair.
        Chairwoman Stabenow. Thank you very much, Senator Lugar.
        We would ask our first panel to come to the table and we
    will introduce them. Welcome. I ask you to come and take a
    seat. We are very pleased to have each of you with us.
        Let me go ahead first and introduce our first panelist, Mr.
    Bruce Graham. Mr. Graham is the Chief Executive Officer,
    Indiana Statewide Association of Rural Electric Cooperatives
    based in Indianapolis, Indiana, so I am sure that Senator Lugar
    may want to say hello, as well. Prior to his current
    appointment, Mr. Graham worked for the Kansas Electric Power
    Cooperative as the Vice President of Member Services and
    External Affairs. So we are very pleased to have you with us.
        Our next panelist is Mr. Zac Stewart, and he will be
    introduced by his home State Senator--and I just want to note,
    Senator Bennet, this is at least two weeks in a row we have had
    people from Colorado with us, so I think you are getting more
    than your fair share of bragging about Colorado.
        Senator Bennet. Well, I was going to mention that, Madam
    Chair. This is a record for us. I think we had three panelists
    two weeks ago and two panelists this week, so thank you for
    recognizing the incorporable talent from the State of Colorado.
        Chairwoman Stabenow. Great. Well, we appreciate very much
    having Mr. Zac Stewart with us, the owner of Ambient, LLC, a
    building performance company in Durango, Colorado, that
    provides energy services, consulting, and construction, and I
    understand you have been in the energy efficiency field for 16
    years and have a very impressive background, so we welcome you.
        Also, Senator Bennet, I understand that our next witness,
    Mr. Paul Bony, who is actually from Oklahoma City, or your
    business is in Oklahoma City, but you also live in Colorado, so
    you are certainly welcome to make a comment on that, although I
    think you are running up against your limit on people from
    Colorado.

      STATEMENT OF HON. MICHAEL F. BENNET, U.S. SENATOR FROM THE
                           STATE OF COLORADO

        Senator Bennet. Well, thank you, Madam Chair. If I could
    say, first, how much I appreciate your holding this hearing,
    and, Senator Lugar, your leadership on this issue has made a
    huge difference, as well. And if I could spend two seconds
    introducing the witnesses from Colorado, and then I want to
    apologize to them because I have got a Banking Committee
    hearing and Chairman Bernanke is testifying and you may have
    noticed that things are not going so well on that score, so I
    am going to have to go to that, but----
        Chairwoman Stabenow. That is because he is not from
    Colorado.
        Senator Bennet. That is right. I will try to come back.
        But I do want to say that we are happy to have Zac Stewart
    here, who is from Ignacio, Colorado, the home of Senator Ben
    Nighthorse Campbell, the beautiful Four Corners region of our
    State. Mr. Stewart is a native of nearby Durango and a graduate
    of Fort Lewis College. He has got broad experience working on
    these issues in State government agencies, both in Arizona's
    Department of Commerce and the Governor of Colorado's Energy
    Office. And as you mentioned, Madam Chair, he has recently
    started his own building performance company, Ambien, LLC, and
    we look forward to hearing of the work that Ambien is doing.
        Following Mr. Stewart, the committee will hear from Paul
    Bony, who is the Residential Market Developer for a company
    called ClimateMaster. ClimateMaster is the world's largest
    manufacturer of geothermal heat pumps, headquartered in
    Oklahoma City. However, while working for an Oklahoma company,
    I understand Mr. Bony has the distinct privilege of living in
    Montrose, Colorado, where he has worked on geothermal heat pump
    issues in several capacities over the years, including
    innovative financing efforts with the Delta-Montrose Electric
    Association, his local electric cooperative. Mr. Bony's energy
    efficiency and renewable energy market development efforts have
    earned the Association of Energy Services Professionals'
    Achievement in Energy Services Award, the U.S. EPA's Excellence
    in Energy Star Outreach Award, and recognition from the
    Alliance to Save Energy.
        So thank you, both of you, for coming here. You need to
    represent us well because next week we will have another
    hearing and we want to have at least two more Coloradans here,
    so let us not break our record.
        [Laughter.]
        Senator Bennet. Thank you, Madam Chair.
        Chairwoman Stabenow. Thank you very much.
        Our final witness on the panel is Dr. Helen Sanders, and
    Senator Klobuchar would like to introduce her.

    STATEMENT OF HON. AMY KLOBUCHAR, U.S. SENATOR FROM THE STATE OF
                               MINNESOTA

        Senator Klobuchar. Well, thank you very much, and I note,
    Senator Bennet, we have Dr. Sanders here from Minnesota. We
    also on our second panel have a witness, Marc Verbruggen, whose
    company is headquartered in Minnesota, but let us go on.
        Dr. Helen Sanders is the Vice President of Technical
    Business Development at SAGE, based out of Faribault,
    Minnesota. She has been involved with SAGE since 1999 and has
    been involved with nearly all aspects of the manufacturing
    business. SAGE manufacturers windows that use innovative high-
    performance energy saving technology. They are really cool. I
    hope she describes them to you. It is really something, that
    can kind of change colors on a dime and is really an innovative
    technology.
        She is a unique witness on the panel because SAGE is a
    producer of energy efficient products and is also working with
    Rural Electric Co-Ops to put in place new energy efficient
    technologies at manufacturing facilities to reduce their energy
    bill. So this is just a great example.
        Our manufacturing is really on the upswing in Minnesota. I
    realized this back in January when I could start to visit all
    the companies on Saturdays because they were going 24/7 and we
    had one of our biggest export quarters of our State's history
    last quarter. Actually, I would add one good thing. Ag exports
    are up, Madam Chair, 22 percent in Minnesota. The whole rural
    area has really been holding our economy together, and SAGE is
    a great example from the manufacturing sector of how it can be
    done right. So I am pleased to have Dr. Sanders here.
        I would also mention Mr. Verbruggen, who is the President
    of NatureWorks, and he is going to be testifying on the second
    panel. NatureWorks is headquartered in Minnetonka, Minnesota.
    It produces new bio-based products and is reinvesting in rural
    America, creating jobs. Mr. Verbruggen is going to testify
    about the exciting bio-based products at NatureWorks.
        So thank you, both of you, for being here.
        Chairwoman Stabenow. Thank you very much, and I understand
    that Senator Brown will have to be being two places at once
    this morning, as well, and that you did want to bring hello and
    introduce someone that will be on our second panel. Senator
    Brown.

    STATEMENT OF HON. SHERROD BROWN, U.S. SENATOR FROM THE STATE OF
                                  OHIO

        Senator Brown. Thanks, Madam Chair, and thanks for going
    out of the regular order. I preside over the Senate later this
    morning, so I cannot be here during the second panel, but
    wanted to welcome Dennis Hall from Columbus, Ohio. Dennis, whom
    I spoke with earlier today and walked over with, is a sixth
    generation farmer near Marysville, Ohio. His family many
    generations ago served as a stop on the Underground Railroad in
    northern and just outside of Columbus.
        He is an Assistant Director of the Ohio BioProducts
    Innovation Center at Ohio State. Not only does he bring decades
    of experience as a farmer, he has been at Ohio State in the
    Extension Service as professor for ten years, working with
    students and educators.
        And, Madam Chair, a couple of really brief comments in
    addition to introducing Dennis. Ohio is home to approximately
    130 companies that use agricultural products to make new
    products--the agricultural crops to make new products, ranging
    from pet foods to bio-based paint to soy ink and toner, and the
    passion that Dennis brings to this, you will see in a few
    moments. To date, the Federal Government has provided minimal
    support to these efforts and I think this discussion today and
    beyond will help to form some partnerships that can work for
    all of us.
        Mr. Hall, welcome. I appreciate that.
        Chairwoman Stabenow. Thank you very much.
        We will now turn to our witnesses, and Mr. Graham, welcome.
    We would ask each of our witnesses to take five minutes. We
    certainly want your written testimony, as well, but we would
    ask for you to give us five minutes of testimony, and then when
    we are finished, we will open it up for questions. Mr. Graham.

      STATEMENT OF BRUCE GRAHAM, CHIEF EXECUTIVE OFFICER, INDIANA
      STATEWIDE ASSOCIATION OF RURAL ELECTRIC COOPERATIVES, INC.,
                         INDIANAPOLIS, INDIANA

        Mr. Graham. Thank you, Madam Chairwoman Stabenow and
    Senator Lugar and members of the committee. I appreciate the
    opportunity to express the views of the electric cooperatives
    on the Rural Energy Savings Program Act. It is a cost effective
    concept that can save energy and create jobs in rural America.
    It is an honor to be here before the committee.
        As mentioned, I am Chief Executive Officer of the Indiana
    Electric Cooperative Association, which is the first Electric
    Cooperative Association in the country. Our 39 electric
    cooperatives and two GNTs provide safe and affordable energy to
    more than half-a-million homes and businesses and farms, and we
    continue to be leaders in making energy efficiency manageable
    for our consumer members in the State.
        As also mentioned, I began my career with Kansas Electric
    Power Cooperative, and I mention that because as part of my
    responsibilities those 18 years, I managed our economic
    development, marketing, and our consumer efficiency programs at
    KEPCO.
        Just as a reminder, the electric cooperatives are nonprofit
    member-owned utilities that were created to provide affordable
    and reliable electricity, not to make a profit for
    shareholders. We have for many years provided information and
    advice to consumers to help them manage their energy bills.
    This includes programs and incentives for their member owners
    to use electricity in an efficient and cost effective manner.
    The wide range of assistance includes rebates for energy
    efficient appliances, installation of efficient lighting, and
    rate incentives to encourage off-peak usage. In addition, in
    Indiana, Hoosier Energy successfully utilized the Federal
    stimulus program to weatherize more than 2,000 homes, giving us
    an important experience in consumer home improvement
    initiatives.
        Just a couple of statistics from the electric cooperatives.
    As I said, we have been engaged in this for quite some time. In
    fact, 96 percent of the cooperatives in the country operate an
    efficiency program currently, and 70 percent of the
    cooperatives offer some kind of financial incentives already to
    promote efficiencies.
        We believe that a RESPA program would be another tool that
    electric cooperatives can use to enable their member owners to
    maximize energy efficiency. The RESPA program authorizes an on-
    bill financing mechanism that allows co-op customers to borrow
    money from the cooperative for energy efficiency improvements
    at their homes and businesses and to pay back those loans
    through the monthly electric bill. This program was actually
    modeled in part on a successfully operating program developed
    by Midwest Energy in Hayes, Kansas, called House Smart.
        The RESPA program design is simple. Cooperatives would be
    authorized to borrow no-interest funds from the Federal
    Government acting through the RUS at USDA and, in turn, make
    loans to their residential or business customers for the sole
    purpose of improving the energy efficiencies of those
    residences and businesses. No loan funds would be approved
    until an energy audit is performed, an application for funds is
    approved by the RUS, and the project is completed in accordance
    with the plans included in the application.
        RESPA requires energy efficiency loans to have a pay-back
    period of no more than ten years. The savings to consumers
    related to the energy efficiency projects must be more than the
    amount of the loan. Customers will be able to repay the loan
    from those monthly energy savings through their electric bill.
    This rule means that energy efficiency projects that are not
    cost effective within a ten-year period will not be funded.
        Consumer loans would only cover structural improvements,
    such as blocking air infiltration, insulation, HVAC systems,
    windows, and other improvements that co-ops can demonstrate
    will provide sufficient savings. Loans will not be used for
    appliances that do not stay with the structure, such as
    refrigerators, window air conditioner units, et cetera.
        RESPA is designed to minimize the impact on the Federal
    budget because it is a loan program, not a grant program, and
    requires repayment of loans to the Federal Government.
        The RESPA program will use the existing infrastructure at
    the RUS and the RUS loan protocols to evaluate loan
    applications, obligate funds, and advance them to electric
    cooperatives. Most cooperatives already have the billing
    capabilities and consumer relationships that will enable them
    to deliver and administer the loans to their consumers.
        The program does have a jump-start loan component that
    enables co-ops to receive up to four percent of the loan amount
    in order to offset the up-front costs of initiating the
    program. Despite that, the loan funds provided by the
    government will not cover the entire cost of the program, so
    the individual cooperatives will likely still incur
    administrative costs. That being said, the program is voluntary
    and individual co-ops will be able to determine whether there
    is a need in their community that could be addressed with the
    funds from the RESPA program.
        It is important, also, to remember that co-ops are
    ultimately responsible for paying back the loans from the RUS
    and not the individual consumers. Therefore, co-ops have a
    strong incentive to make careful evaluations of potential
    projects that make sure the member owners get the value they
    expect and they have the ability to repay the loan. Rural
    Electric Cooperatives have an extraordinary track record of
    positive payment under the RUS and we look forward to
    continuing that trend using RESPA.
        The Indiana Co-Ops and the National Rural Electric
    Cooperatives Association support the Rural Energy Savings
    Program Act because we believe there are co-op members across
    the country that would benefit from energy efficiency
    improvements on their homes and businesses and cannot afford
    the up-front investment in those improvements. The RESPA bill
    would benefit rural Indiana by making homes and businesses more
    comfortable and energy efficient. Importantly, RESPA also has
    the potential to create much-needed jobs in rural America for
    energy auditors, contractors, installation crews, and thousands
    of jobs to manufacture the new windows and doors, insulation,
    heating and cooling systems, and other energy saving
    improvements.
        Chairwoman Stabenow. Mr. Graham, we would ask you to bring
    it to a close. Thank you.
        Mr. Graham. That is it. I thank you for the opportunity to
    be here this morning and that concludes my comments.
        [The prepared statement of Mr. Graham can be found on page
    44 in the appendix.]
        Chairwoman Stabenow. Thank you. We very much appreciate
    your input and being here today.
        Mr. Stewart.

        STATEMENT OF ZAC STEWART, OWNER, AMBIENT, LLC, IGNACIO,
                                COLORADO

        Mr. Stewart. Chairwoman Stabenow, Senator Lugar, Senator
    Bennet--he left--and distinguished members of the subcommittee,
    thank you for allowing me to speak today regarding the
    potential Rural Energy Savings Program and the possible impact
    on job creation in rural America.
        I operate a small home energy retrofit business located in
    Southwest Colorado. We are a full-service home performance
    business, which means that we conduct the initial energy audit,
    generate a recommendations report based on potential energy
    savings, and then perform the repairs. So it is a one-stop shop
    for the homeowner. We install windows, insulation, other energy
    saving measures. I currently have three employees and all
    three, including myself, were previously employed in the
    residential home building industry prior to the downturn in the
    housing market.
        We are experiencing a steady demand for energy efficiency
    repairs in my region, but face the same challenges most markets
    face, which is access to capital. For home performance programs
    to work, a funding mechanism must be in place to meet the needs
    of the homeowners who want and need repairs but lack the money
    to proceed.
        In metropolitan areas, there are large national home
    performance contractors who have the capital to offer financing
    to homeowners. In rural areas like Southwest Colorado, we are
    made up of small businesses, small home performance contractors
    that do not have the ability to offer any financing options to
    customers.
        Financing options, coupled with existing energy efficiency
    initiatives, is the piece that we are missing, especially in
    the rural areas, and I believe this would propel many
    homeowners to move forward with repairs and, in turn, create
    more jobs for contractors like myself.
        The housing stock in the Southwest in general, and I would
    venture to say in the rest of the nation, is weathered and
    aged. Home repairs usually only take place when there is a good
    year or the furnace stops working and there is no other choice
    but to fix it. There is no shortage of homes that need to have
    energy efficiency upgrades. As a home performance contractor,
    our greatest challenge is converting the audit into repairs. I
    can perform an energy audit and have the most talented
    salesperson around, but if the homeowner does not have the
    money to implement those repairs, there is no savings for
    anyone. An audit has no realized savings unless the repairs
    take place.
        So I routinely encounter homeowners that are taking
    advantage of rebates that are available through the electric
    co-ops. However, they cannot proceed with any of the repairs
    because of funding issues. We are talking $3,000, $4,000, up to
    $8,000 repairs that they would like to have done, but that is a
    big chunk to come out of their pocket at that point.
        A rural energy savings program would benefit homeowners by
    making their homes safer, healthier, and more efficient, and it
    would definitely benefit rural contractors like myself by
    increasing our workload.
        It is a perfect piece. When I sit down with a homeowner and
    have the leveraging opportunities, it is a perfect sales tool
    for a contractor like myself in that there are existing rebates
    for audits. There are existing Federal tax credits and now a
    potential for loans. I believe it would increase--go from a
    $300 audit to a $4,000 repair would no doubt create jobs.
        Thank you. Thank you for your time. I appreciate it.
        [The prepared statement of Mr. Stewart can be found on page
    67 in the appendix.]
        Chairwoman Stabenow. Thank you very much.
        Mr. Bony, welcome.

         STATEMENT OF PAUL BONY, DIRECTOR, RESIDENTIAL MARKET
          DEVELOPMENT, CLIMATEMASTER, OKLAHOMA CITY, OKLAHOMA

        Mr. Bony. Thank you. Good morning, Chairwoman Stabenow,
    Senator Lugar, and distinguished members of the Senate. It is
    truly an honor and a pleasure to be here this morning to offer
    support for the Rural Energy Savings Program on behalf of my
    employer, ClimateMaster, which is based in Oklahoma. I was
    living in Colorado when they hired me and refused to leave, so
    I get on airplanes every week. ClimateMaster is based in
    Oklahoma, where our manufacturing facilities are, but we also
    have over 1,000 dealers and distributors across the United
    States, so our product goes into every State in the Union.
        I have 25 years of electric utility experience focused on
    energy efficiency, renewable energy, and demand management. I
    have worked for two electric cooperatives, including the one
    where my great uncle was the first elected board president, and
    I am a member of the Delta-Montrose Electric Co-Op where I
    worked until I took this job. And thanks to the Fifth Army, I
    am a native Hoosier. I have a degree in agriculture from Kansas
    State University. And I own a registered farm in Colorado, so I
    am a very bi-State kind of guy.
        But based on my utility energy efficiency experience, this
    pending legislation will provide many benefits to electric
    cooperatives and the members they serve. This legislation will
    save energy. Buildings use nearly 40 percent of the primary
    energy consumed by this nation, with heating, cooling, and
    water heating consuming nearly one-half of that usage, and in
    rural homes it can be as much as 70 percent of the energy used.
        Geothermal heat pumps, our product, can reduce this energy
    consumption by up to 50 percent. This legislation will save
    rural consumers money. Most rural areas do not have access to
    well-capitalized and organized energy efficiency retrofit
    companies. Rural areas also rely on a high proportion of
    expensive fossil fuels for heating and water heating. Customers
    can benefit greatly from energy efficiency upgrades, including
    geothermal heat pumps that provide energy bill reductions that
    can exceed the loan repayments under this proposed legislation.
        I conducted an extensive home energy retrofit project at
    the Delta-Montrose Electric that confirmed that homeowners can
    easily reduce their annual energy usage by 50 percent or more
    from efficiency measures that provide a positive cash flow
    after debt service. In a survey ClimateMaster recently
    completed, 53 percent of our potential customers would have
    purchased our system if they could have obtained financing that
    would provide them a payment lower than their energy savings,
    giving them a positive cash flow.
        Unfortunately, in today's tough economy, customers do not
    have ready access to affordable loan funds to implement energy
    efficiency measures. This legislation will be invaluable in
    breaking this financial barrier.
        This legislation will also create jobs. The energy
    efficiency upgrades financed by this legislation will generate
    employment for local labor. For geothermal heat pumps, the
    installation of the equipment and ground loop has to be done
    locally. We will never import ground loops from offshore. I
    started an installation company that focused exclusively on the
    installation of 50 to 70 of our systems annually. This company
    employed seven full-time people in good paying jobs with full
    benefits. We also hired other contractors to provide services,
    including energy audits, drilling the ground loops, and
    weatherizing homes.
        This legislation will improve the financial stability of
    the participating co-ops. Geothermal heat pumps offer
    cooperatives an excellent tool to obtain significant peak loads
    reduction and improve their system load factor. This allows a
    cooperative to provide energy efficiency to their members and
    reduce the need for expensive new generation without putting
    pressure on electric rates. These energy savings also provide
    four to ten metric tons of annual carbon savings per home.
        Electric co-ops are a great vehicle to administer the RES
    program. They have a long track record of providing member-
    focused services and paying back their Federal loans. They are
    trusted by their members and they can collect payments on
    utility bills. And in the rural communities, they are often the
    only organization with the resources and talent to administer
    this type of effort.
        I recognized over 15 years ago that access to affordable
    financing was the key to customer participation in energy
    efficiency when I started a successful cooperative geothermal
    loop lease program that is still working today in California.
    In Colorado, I again proved that customers will respond to co-
    op financing to make efficiency investments. While individual
    members in my loan portfolio experienced the misfortunes that
    can happen to any of us, it always generated a positive cash
    flow, and I can also assure you that my general manager and our
    board of directors paid very close attention to my monthly
    reports on how that loan portfolio was performing.
        However, in both programs, our ability to fund member
    efficiency was limited to internally generated funds, as the
    RUS was not able to finance these efforts. This legislation
    will close this large financing gap, and in my humble opinion,
    greatly accelerate the implementation of energy efficiency in
    co-op country.
        In conclusion, ClimateMaster is very supportive of this
    legislation. I am convinced that it will provide great benefits
    to the millions of members of electric cooperatives. It closes
    the financing gap that has prevented the greater adoption of
    energy efficiency in rural America and it leverages the
    resources and talent embedded in America's electric co-ops.
        Thank you for giving the opportunity to share my comments
    this morning.
        [The prepared statement of Mr. Bony can be found on page 41
    in the appendix.]
        Chairwoman Stabenow. Thank you very much.
        Dr. Sanders, welcome.

    STATEMENT OF HELEN SANDERS, VICE PRESIDENT, TECHNICAL BUSINESS
     DEVELOPMENT, SAGE ELECTROCHROMICS, INC., FARIBAULT, MINNESOTA

        Ms. Sanders. Thank you. Chairman Stabenow and Senator Lugar
    and members of the committee, I really want to thank you very
    much for the opportunity to come testify here today on the role
    SAGE Electrochromics is playing in creating economic
    opportunity and strengthening the green economy in rural
    America. In her absence, I would like to thank Senator
    Klobuchar for her kind introduction to me earlier.
        My name is Helen Sanders and I have a Doctorate from the
    University of Cambridge in surface science, and today I serve
    as the Vice President of Technical Business Development at SAGE
    Electrochromics, which is located in Faribault, Minnesota, in
    rural Rice County, where I have lived for the last 13 years.
        I want to tell you a little bit about SAGE. We are actually
    creating glass for windows that go beyond your traditional idea
    of the window being just simply a piece of glass in the wall.
    What is unique about our glass is that it uses a technology
    called electrochromics, which allows it to be made highly
    tinted or highly transparent or any tint level in between at
    the touch of a button. So in this way, you can actually manage
    the amount of light and heat that comes into your building
    depending on the exterior environment or the needs or the
    occupants. So you kind of have like a heat or light valve for
    your building. This reduces the load on the HVAC system and
    improves thermal and visual comfort for the occupants.
        At SAGE, we like to think of the window now as an appliance
    that allows occupants to actively manage the amount of sunlight
    entering their building, and it allows occupants to keep out
    excessive heat and glare without resorting to the use of shades
    and blinds, which block the view to the outside. So you get to
    maintain that view and connection with the outside and let
    natural daylight in-- which, of course, is the reason you put
    the window in in the first place.
        SAGE is the world's leader in the commercialization of this
    technology for buildings, and we supply electrochromic glass
    for commercial, institutional, and residential windows. The
    electrochromic glass provides both daylighting and energy
    management solutions for a wide variety of buildings, for
    example, commercial offices, museums, religious buildings,
    high-tech buildings, colleges, and health care facilities,
    anywhere you need heat and light control.
        And, in fact, Lawrence Berkeley National Laboratories found
    that by actively managing lighting and cooling, these smart
    windows could actually reduce peak electric demand loads by 20
    to 30 percent in many commercial buildings, and potentially
    enhance the human comfort and productivity by maintaining that
    access to natural daylight and that view and connection with
    the outdoors.
        The U.S. Department of Energy has determined that the use
    of electrochromic glass in windows can save up to 28 percent of
    energy in most climate zones through reduced air conditioning
    demand and increased use of natural daylighting. That makes it
    a huge part of the energy efficiency equation. And, in fact,
    what we call variable solar control that is provided by
    electrochromic glass is one of the key building envelope
    technologies cited on DOE's roadmap for achieving the zero
    energy commercial buildings goal in 2030.
        Now, SAGE has actually advanced this technology to a point
    where we are actually expanding our manufacturing facility in
    Minnesota. We are constructing a 300,000 square foot facility,
    manufacturing plant, in Faribault and it has already created
    over 200 construction jobs and will create about 160 permanent
    green manufacturing jobs.
        The project is in part financed by a loan guarantee from
    the Department of Energy, and Senator Klobuchar has been
    instrumental in helping secure that loan guarantee. Another
    element of our funding is coming from the local electric
    cooperative, which is funded through a USDA loan program which
    is similar to the RUS program under discussion here. And the
    USDA financing provides a valuable contribution to our project
    because it is supporting the cost of implementing energy
    efficiency enhancement in our factory, including the use of
    energy efficient lighting systems, dimmable lighting controls,
    which, when we combine that with the unusually large number of
    windows and skylights that we are putting into our
    manufacturing facility, is going to provide significant energy
    savings.
        We are also doing a number of other--implementing a number
    of other energy efficiency measures in this factory, and as a
    result of these and other energy savings, we project that our
    facility will be--the energy performance will be 28 percent
    better than the ASHRAE 90.1 baseline, which is the key national
    energy standards today. We are also going to be pursuing LEED
    certification for the building.
        So we expect to make significant energy savings to lower
    our operational costs, and as a result, we will be able to make
    further investments in our facility. The faster that we can
    reduce the cost of our product, the faster that we can build
    adoption in the marketplace and then the faster that we will be
    able to grow our business, increase the number of jobs, and
    also the faster that the nation will be able to capture the
    significant energy savings potential both in new construction
    and also in renovations of the existing building stock and the
    faster we will be able to get to the goal of low energy or zero
    energy buildings.
        I want to thank you very much for the opportunity that you
    have given me to testify today and I look forward to answering
    any questions you might have.
        [The prepared statement of Mr. Sanders can be found on page
    63 in the appendix.]
        Senator Lugar. [Presiding.] Thank you very much, Dr.
    Sanders.
        The Chairman has asked me to preside momentarily as she
    takes care of another committee emergency and will reemerge
    soon.
        Let me commence the questions to the panel by asking you,
    Mr. Graham. You have described the 39 co-ops that are a part of
    the co-op organization that you head. How many rural homes in
    Indiana, from your estimate, would be eligible for the program
    we are talking about today? What is the extent of the market,
    taking Indiana as a possible State for that?
        Mr. Graham. Well, I would hesitate to give you an actual
    number, but as some of the other testimony indicated, the
    challenges we have in rural Indiana and across rural America
    are oftentimes substandard housing. We found-- Hoosier Energy
    in the program that they just completed found that easy market
    for 2,000 homes to weatherize in that program alone, really
    without turning over too many rocks to find those homes. I
    mean, there is a lot of interest in these programs, and that
    was just the Southern part of Indiana. It was very easy to find
    eligible projects for that.
        I think there would be a great deal of interest. I do not
    know that I could tell you exactly how many, and, of course,
    that is going to depend upon how easy the rules are to comply
    with, how easy the program is to implement. The less red tape,
    the more aggressive our cooperatives can get with the program,
    and I think that is an important thing to remember.
        Senator Lugar. Mr. Stewart, just trying to think through
    how all this gets underway, let us say that there are thousands
    of rural houses that would be eligible, but why do you believe
    that homeowners in these houses are going to apply for the
    program? First of all, how will they ever find out there is
    such a program and call upon you or other panel members today
    to commence so-called audits of their situation, which I gather
    is an examination of the way that energy savings might occur in
    that particular dwelling. In other words, how do we get the
    momentum going, even if we make estimates of how many houses
    there are and how much energy might be saved in America?
        Mr. Stewart. Marketing.
        Senator Lugar. Yes.
        Mr. Stewart. We have got to get out and hit the streets,
    and we are doing that. We are hitting it. And additional
    funding to market, the electric co-ops being able to send out
    flyers with the bill every month. I mean, there are definitely
    ways to get the word out, ways that I cannot do, fellow
    contractors like myself cannot do. The county that I live in is
    all served by an electrical co-op. Every county around the area
    is. They have a unique opportunity to get the word out to their
    members.
        Senator Lugar. So the co-op or the organization Statewide
    has to, through circulars or through some type of
    advertisement, make this knowledge available. Even at that
    point, there must surely have been a lot of homeowners for
    years who knew down deep they could probably have a more
    efficient situation but never got around to it or this was not
    so obvious in terms of savings that they thought about it,
    quite apart from how it would be financed. What is going to
    bring about, not a revolution in rural America, but at least an
    awakening so that significant percentages of people say, ``Aha,
    this really is an opportunity for me. I would like to call
    somebody, a co-op or contractor, to get on with this.''
        Mr. Stewart. Well, as the prices of your utility goes up, I
    mean, that is going to sell itself. We battle with that every
    day. How do we get them on board? How do we convince this
    person that they need to have that happen? And it is really
    those case studies and their neighbors getting it done and
    getting into one neighborhood or area. Everybody is close knit,
    so if I can get into one house and then we can start rolling
    that around, then the word of mouth that I saved $150 on my
    utility bill a month during the winter because of these things
    that happened, I believe that is going to benefit and it is--
    that is one way.
        Senator Lugar. Well, if somebody calls you and asks for an
    audit, how much would that cost? What would the cost of the
    audit be?
        Mr. Stewart. It definitely depends on how extensive they
    want it to be, but they generally run from $300 to $500, based
    on the square foot. I mean, if it is a huge home, obviously,
    there is more time into the house.
        Senator Lugar. So the homeowner up front spends $300 or
    $500----
        Mr. Stewart. Right.
        Senator Lugar. --to get the word as to what kind of
    changes----
        Mr. Stewart. Right.
        Senator Lugar. --as the basis for the loan, then, that is
    taken.
        Mr. Stewart. Absolutely. And I definitely--audits are a
    crucial point in this whole process and I really want to
    encourage any incentives for rebates on audits to be done only
    if they do select measures. If they do not choose to do
    anything, then they are going to have all their skin in the
    game, right, and pay for the whole audit. But when you can
    couple the incentives rebates from utility companies with
    actual measures being installed, I believe that is a very
    useful approach.
        Senator Lugar. Dr. Sanders, why would somebody come to you,
    even if you have these remarkable windows? How do people know
    of the 28 percent savings? Do you advertise this widely? Would
    it be likely that rural customers would say, I need those
    windows?
        Ms. Sanders. We do advertise. Mainly, you buy our glass
    through the standard window purchasing channels from some of
    the large wood and vinyl window manufacturers. Our testimony
    was primarily to look at the impact of the loans for small
    businesses in reducing our overhead and our operating costs
    and, therefore, being able to deliver our glass to customers at
    a lower cost. So the more that we can do that, the more
    accessible they are to the rural customers.
        Senator Lugar. But let us say an audit has been conducted
    by Mr. Stewart, so windows are a part of this situation. But
    how does this customer, who may not be sophisticated in terms
    of all the options, decide that he or she wants your windows?
        Ms. Sanders. I think it would, again, go back to marketing
    and the knowledge of the people doing the audit who are making
    recommendations about how--what is the best technology to be
    retrofit to solve their problem. I think it goes back to
    awareness with the people doing the audits.
        Senator Lugar. I appreciate your responses. I want to turn
    to my colleague now for his questions. Senator Casey.

     STATEMENT OF HON. ROBERT P. CASEY JR., U.S. SENATOR FROM THE
                         STATE OF PENNSYLVANIA

        Senator Casey. Thank you, Senator Lugar.
        I apologize to the panel for being late. I missed most of,
    except the very last part of Mr. Graham's testimony. I heard
    the other testimony after that. But I am grateful for the
    opportunity, and Mr. Chairman, I will submit my statement for
    the record as part of this hearing. I will not read a
    statement.
        [The prepared statement of Senator Casey can be found on
    page 38 in the appendix.]
        Senator Lugar. It will be made a part of the record.
        Senator Casey. Thank you. I just wanted to ask a couple of
    basic questions about not just the topic that we are examining
    today, but also that topic within the context of what is
    happening here in Washington the last couple of days and
    certainly even over the last couple of weeks. There is an
    appropriate focus on deficit and debt, but all the time we are
    doing that, we seem to have lost our way or lost our focus on
    the question of job creation. So this hearing is particularly
    timely.
        I wanted to ask if you had to answer--you are not required
    to have an answer to this, but I will try--if you had to answer
    the following question, how do we create jobs in rural America
    in the next 12 months, or let us say six months to 12 months,
    either in the context of this legislation or more broadly,
    because I know in Pennsylvania, we have got a State of
    approaching 13 million people. We are about between 12-and-a-
    half and 13, depending on what year you pick. Of those 12-and-
    a-half-plus million people, we have got at least three-and-a-
    half, if not more than that, who are living in so-called rural
    areas demographically. It is a huge rural population.
        And when I go across our State and see the unemployment
    rates, invariably, the highest percentages have been in rural
    areas, small towns, communities, rural counties where most of
    the county is considered rural. Some of the economic trauma has
    been focused on a particular sector or industry. Dairy farmers,
    of course, have lived through hell, if I can say that in a very
    dramatic way. Some have just been suffering through what a lot
    of other communities are, whether they are rural or urban or
    suburban. It is access to capital. It is energy costs. It is a
    whole range of impediments to job creation.
        So I would ask you, in the context of this legislation, and
    just based upon your own experience, you are in the trenches
    meeting budgets and creating jobs. What could we do here that
    would either have a direct impact on job creation in rural
    America or would be an incentive or a triggering mechanism to
    create jobs? And I am talking short-term. Maybe start with you,
    sir, Mr. Bony.
        Mr. Bony. Yes, thank you, Senator. By the way, Pennsylvania
    is the largest State for our equipment, so thank you for that.
    You are our number one market.
        Senator Casey. I cannot take credit for that, but I will.
        [Laughter.]
        Mr. Bony. Well, you are tied for first with New York, so we
    appreciate that.
        Senator Casey. Thank you.
        Mr. Bony. There is a precedent in the past, and it was the
    Rural Conservation Service, which was an energy audit program
    implemented in the Carter administration where utilities got to
    do energy audits, or actually--I hate to use the word--but were
    mandated to do energy audits for all of their members. The gas
    companies did the gas audits. The electric companies did
    propane and electric if it was the primary heating and cooling
    fuel. The flaw in RCS is the audits were mandatory, but there
    was no mechanism to get consumers to take action after the
    audit.
        What is being proposed in this potential legislation is now
    the utilities could do the audits. They would have, at least in
    co-op country, they would have the financing available then to
    connect the consumers with the contractors and any
    implementable measure that had a positive cash flow, it is a
    lot easier purchase decision for a consumer when it is a
    turnkey package.
        The other part of this bill that I do not want to be
    overlooked is the on-bill collection component, where the loan
    stays with the property through the electric meter or the gas
    meter. Now the consumer is not frozen up on, wait a minute,
    what happens if I want to sell? What happens if I have to move?
    The infrastructure investment stays with the meter so the
    consumer is not hung up on having the loan stay with them.
        Those are very powerful tools that did not exist when we
    had the RCS audit program, and so if you could have the
    utilities--you could say, utilities, we want you to go audit
    these homes. We want you to offer on-bill financing. And we
    want you to train and aggregate your contractors, and there
    is--I live in the second-highest unemployment county in
    Colorado. We are rapidly pushing to be number one, and that is
    very unfortunate. Most of my friends who are in the
    construction industry--I flew home last week. The guy who did
    my brick work was taking tickets at the airport to get out of
    the parking lot. That is very disconcerting to me.
        So have the utilities do the audits. Have the financing
    available. The utilities can put the contractors together and
    use on-bill as the mechanism to make sure the consumers can
    fund anything that has a positive cash flow in that audit
    report and I think you can put people to work in a hurry.
        Senator Casey. Thank you. I know we may only have time for
    one other response, but either Mr. Stewart or Dr. Sanders? It
    is a jump ball.
        Ms. Sanders. I guess from a small business perspective, to
    drive job creation in small businesses we need to think about
    trying to reduce operating costs, and the extent to which you
    can provide the ability to implement energy efficiency measures
    will help drive down operating costs which will give, or
    improve cash flow and enable people to put the money to work in
    building their businesses and creating more jobs.
        Senator Casey. Thank you.
        Chairwoman Stabenow. [Presiding.] Thank you very much, and
    I apologize for stepping out again to go to the Energy
    Committee, but we were successful there and I am now glad to be
    back.
        So let me ask each of you, specifically around jobs,
    because I appreciate the discussion in terms of rural America,
    but when we are discussing the possibility of the Rural Energy
    Savings Program, some of you have touched on it, each of you in
    some way, but from the outside, I am not sure people really
    understand exactly what we mean or the broad array of which
    jobs can be created from something like this. So I wondered if
    each of you might talk about the fact that--what would happen
    if the program was available and walk me through the process
    that each of you would use from your positions to make
    improvements in a home or business and how this, in fact, would
    create jobs on the ground. What kind of jobs are we talking
    about? Mr. Graham.
        Mr. Graham. Certainly. The job opportunities are diverse
    for a program like this. From the electric cooperatives'
    perspective, we are going to--it is going to be in our best
    interest to have an energy auditor on staff, I think, because
    the cooperatives are ultimately responsible for repaying the
    loan, and so that would probably be an immediate job creation
    opportunity for the cooperatives.
        We are going to have to--we would work with contractors
    that exist already, because you have heard about the important
    relationship we already have with contractors that exist. There
    would be a need to promote the program. There will probably be
    a need for somebody to track the costs of the program. There
    are going to be jobs that are created there.
        But we can demonstrate in the project that we had for the
    stimulus program that the immediate jobs are going to be for
    the installation and the contractors. The program that Hoosier
    Energy went through, the contractor that did that work created
    30 full-time jobs just to do that program. So that is just from
    the contractor's perspective. Then you had the wealth that is
    created by those jobs that has the downstream positive effect
    from all of those opportunities.
        Chairwoman Stabenow. Mr. Stewart.
        Mr. Stewart. At my level, I cannot install windows by
    myself. If the workload picks up, obviously, I have to hire
    people to do that. And what goes with that, obviously, is
    windows. I have to buy my windows. I have to go to Home Depot.
    That is the large supplier in the area. I mean, I have to buy
    those things. I have to hopefully hire another auditor and buy
    the equipment, the associated equipment that goes with it, the
    blower doors, the infrared cameras, whatever.
        That is the jobs that I would be creating, in addition to
    administrative positions just within my company. And then
    subcontractors. I do not install furnaces myself, so I
    subcontract it out to a HVAC contractor.
        Chairwoman Stabenow. So you are talking about actually
    purchasing equipment, which means other retailers, which means
    they have been getting equipment from the folks that make it.
    Then you are talking about hiring people to install it and so
    on.
        Mr. Stewart. Absolutely.
        Chairwoman Stabenow. Yes. Mr. Bony.
        Mr. Bony. Thank you, Madam Chair. I did a program called
    the Home Energy Makeover Contest, which is now run nationwide
    by the Electric-Gas Industry Association, the first one being
    done in Colorado, another testament to our great State, I
    guess. We wanted to know how bad the homes were and we wanted
    to know how much employment it would take to put them in order.
        We basically set out in our cooperative newsletter, if you
    think your bills are too high, let us know, and we looked up
    people's bills. We got several thousand folks who entered that
    contest. Now, that is on a meter base of about 40,000 total
    customers. So we had about a five percent response rate just to
    win this home energy makeover.
        So then we had to go through the steps. The first was we
    needed to do the home audit, like Mr. Stewart's company would
    do. So a fellow showed up with the blower door and the thermal
    camera, and I even crawled in a few attics and basements myself
    just to see if it was as bad as I remembered, and it was worse.
        [Laughter.]
        Mr. Bony. The next step is then you have to fix all the
    stuff that does not done right, correctly--disconnected
    ductwork, adding insulation, taking windows out if they have
    totally failed, that kind of thing.
        Then for the particular equipment that we represent, ground
    source heat pumps, somebody has to put the loop in, so that is
    either a fellow on a backhoe with a helper or two guys on a
    drill rig. We had to install the heating and air conditioning
    equipment. That is usually a two-man crew. There was always
    somebody in the back office to answer the phones and process
    the paperwork and do the purchasing. We hired other trades,
    which would include weatherization contractors, insulation
    blowers, electricians, carpenters, sheet rock workers if we had
    to tear out a wall.
        And then upstream, with the job I do now, we had to buy
    products from manufacturers. They had to get those products on
    trucks. Those trucks had to go to distribution warehouses and
    they had to get it to the field.
        So when you summarize all the folks that are involved, my
    personal math said five jobs per 100 homes that got a full
    workover. When I argue this with my friends, they say up to
    seven jobs per 100 homes, so the truth is probably somewhere in
    between that range.
        Chairwoman Stabenow. Very good. Very interesting. Thank
    you.
        Dr. Sanders?
        Ms. Sanders. From SAGE's perspective, we would be able to
    implement energy efficiency technologies into our buildings,
    which would reduce our operating costs, and obviously the
    implementation of those energy efficiency measures would create
    jobs by virtue of the fact they need to be installed.
        But on top of that, though, it is really as we reduce our
    manufacturing costs, it enables us to produce our product at
    lower cost and, therefore, offer it to the market at lower
    prices, which drives market adoption, which allows us to grow
    our business, which allows us to expand our manufacturing and
    hire more people. And it is like a virtual circle.
        On top of that, one of the benefits of energy efficiency
    and developing more sustainable design in your building is that
    you get to have a more comfortable and more productive
    workplace, and that also enables us to attract and retain top
    talent, which is really important for us to remain competitive,
    especially in the global environment.
        Chairwoman Stabenow. Thank you very much.
        And in closing, let me just ask, Mr. Graham, could you talk
    just for a moment and elaborate a little bit more about the
    difference between the existing program and the proposal for a
    Rural Energy Savings Program.
        Mr. Graham. The existing program and----
        Chairwoman Stabenow. What you have been doing and what the
    difference is, why it is good to have the kind of program that
    we are talking about.
        Mr. Graham. Well, the Rural Energy Savings--there are
    existing programs, but right now, they are few and far between.
    The value of this program would allow us to roll it out
    nationwide and there are a lot of efficiencies in that. Our
    national association or the government, if we create a model
    plan that everybody can adopt--there would be unique features
    to every State because every State has different needs weather-
    wise and improvement-wise--but if we create a wider range of
    program, then I think we have a much stronger success rate
    opportunity from this. So this is really kind of rolling it out
    nationally rather than leaving it to the individual
    cooperatives to initiate this program.
        Chairwoman Stabenow. Great. Well, thank you very much for
    each of you coming today. This is an important discussion,
    certainly in terms of jobs, which is a major focus for us, as
    well as what we can do in terms of energy savings, and we look
    forward to continuing to work with you on this. Thank you.
        I am going to ask our second panel to come forward. I
    apologize again that we continue to have people coming in and
    out, but it does not negate the interest in the topic by any
    means. We are actually very excited about the opportunity to
    expand upon the great work that is being done, both around
    energy efficiency but also around bio-based products, and this
    is the beginning of that discussion as we look for ways that we
    can be supportive. Please come forward.
        [Pause.]
        Chairwoman Stabenow. Good morning. We are really pleased to
    have all of you here, and as I indicated, we expect colleagues
    coming back from other hearings to join us. We are very anxious
    to hear about the work that you are doing and how we might be
    supportive of that in partnership with you.
        Let me first start with our first panelist and introduce
    Dr. Marc Verbruggen, who is the President and Chief Executive
    Officer of NatureWorks. Prior to this appointment with
    NatureWorks, he was the President of Toho Tenax America and we
    are very, very pleased to have you with us today.
        Our next witness is Dr. Oliver Peoples. Dr. Peoples is the
    founder and Chief Scientific Officer for Metabolix,
    Incorporated, based in Cambridge, Massachusetts, and Dr.
    Peoples is a pioneer in the field of metabolic pathway
    engineering. He holds many patents related to genomics,
    including the first U.S. patent on the expression of PHA genes
    in crop plants, so we welcome you today.
        Our third panelist is Mr. John McIntosh. Mr. McIntosh is
    the Vice President of Sales and Marketing for Signature Crypton
    Carpet in Dalton, Georgia, and most recently was instrumental
    in forming a partnership with the Yellowstone Park Foundation
    which recycles all of Yellowstone National Park's plastics,
    remaking them into Signature's carpet backings. We are pleased
    to have you with us.
        Mr. Hall, who has already been introduced by Senator Brown,
    who we hope is going to be joining us, returning with us, as
    well, but we appreciate Mr. Dennis Hall, who is the Assistant
    Director of the Ohio BioProducts Innovation Center in Columbus,
    Ohio.
        So welcome to all of you and we will start with Mr.
    Verbruggen first.

      STATEMENT OF MARC VERBRUGGEN, PRESIDENT AND CHIEF EXECUTIVE
              OFFICER, NATUREWORKS LLC, WAYZATA, MINNESOTA

        Mr. Verbruggen. Thank you, Chairwoman. My name is Marc
    Verbruggen. I am the CEO of NatureWorks located in the home
    State of committee member Senator Klobuchar.
        I would like to start with recognizing Senator Nelson. We
    have worked with Senator Nelson for a long time, even going
    back to the time when he was Governor. I also would like to
    thank Senator Johanns from Nebraska for all his great work he
    has done for us.
        We have a large manufacturing plant in Blair, Nebraska,
    where today we directly employ about 100 people and are
    presently investing tens of millions of dollars expanding the
    existing capacity, all because of the large global growth we
    see for our product.
        I would like to start out by talking about not the bio
    industry, but the regular chemical industry. Just some
    statistics. Between 1997 and 2003, the U.S. trade balance, if
    you think about chemicals, has plummeted from a $20 billion
    surplus to a $10 billion deficit. Over that same time period,
    the U.S. chemical industry lost about 100,000 jobs. If you
    wonder where those jobs went, you can look at any statistic and
    see that the Middle East plastic industry is growing by about
    20 percent per year.
        In contrast, if you look at bio-polymers, according to a
    recent jobs report issued about bio, this committee could help
    create about 250,000 direct U.S. jobs in the sustainable
    chemistry sector, which could capture about 19 percent of an
    estimated $1 trillion global bio-chemical market.
        With that broad context, I would like to talk a couple
    minutes about NatureWorks. We were the first company to
    commercialize a broad range of bio-polymers derived 100 percent
    from renewable resources. We engineered and built the first
    ever large-scale bio-polymer plant with the required economies
    of scale to compete head to head with traditional plastics. Our
    proprietary PLA polymer, marketed under the Ingeo brand name,
    can today be found in a wide variety of applications. By the
    way, we were able to put some of them on the desk over there.
    You can look at rigid and flexible disposable packaging, wipes,
    diapers, and in a blended form, an increasing range of semi-
    durable products, such as gift cards, mobile phones, computer
    housing, and copier housing. Today, global brands and retailers
    such as Coke, Pepsi, Danone, Nestle-Purina, Toyota, Walmart,
    all have Ingeo products in their global portfolio.
        Beyond NatureWorks, this Ingeo demand is creating jobs and
    spurring new product growth for our customers. Just to name a
    couple, we have large customers in Ohio, like Clear Lam and
    PolyOne, and a large customer in Michigan, Fabrikal. Actually,
    Fabrikal today is one of our largest global customers for our
    product.
        NatureWorks is a typical representative of the broader bio-
    polymer industry in that it creates a number of benefits, a
    carbon footprint typically half of traditional plastics. And
    since our products are 100 percent based on renewable
    resources, we have abundantly available feedstock in the United
    States. And based on present feedstock economics, so today's
    oil price versus today's corn price, PLA can compete very well
    with disposable oil-based plastics such as polystyrene or PET
    while creating value for upstream farmers and downstream
    customers.
        Just to put it in perspective, even during the global
    recession, NatureWorks grew about ten percent per year, and out
    of the global recession for the last two years, we have been
    growing by more than 30 percent year over year. Clearly,
    consumers around the world have been driving this demand for
    sustainable cost-effective plastics and global brands see the
    value in low-carbon product launches. Another piece of
    information is that we export more than 50 percent of our
    products outside the United States.
        Because of time, in my written testimony, I gave seven
    different policy principles which could really help driving our
    business forward. Because of time, I will not go into them.
        One thing to keep in mind, though, is that in a global
    economy, the importance of bio-plastics have now been
    understood globally, also. The U.S. today is by far the most
    efficient corn producer, which for us is our feedstock in
    Nebraska, but other feedstocks can also be used such as cane
    sugar or other starches. Therefore, other countries around the
    world are trying to get bio-plastic investment to their country
    to add value to their feedstocks and create jobs over there.
    Just as an example, there is one Southeast Asian country who is
    now providing an incentive package containing a 15-year tax
    abatement for investors in the bio-plastics industry.
        In the end, only the marketplace will decide which
    innovations will succeed. NatureWorks is a very firm believer
    that green plastics, which economics tied to renewable
    resources, will be one of the key growth drivers for the next
    decade, creating numerous green jobs tied to domestic
    feedstocks rather than imported oil.
        Where the U.S. Government can help is to support innovation
    through competitively awarded research funds, but most
    important at this point, to redouble their efforts through tax
    legislation to attract the manufacturing base, because we are
    ready to manufacture. We are not a start-up. We are not an
    emerging technology. We are ready to manufacture today. Other
    countries know that, as well, so there is a competition going
    on. It is very important over the next five years that the U.S.
    positions itself well.
        Thank you.
        [The prepared statement of Mr. Verbruggen can be found on
    page 68 in the appendix.]
        Chairwoman Stabenow. Thank you very much, and we want you
    making your items in America, no question about it, so thank
    you very much.
        Dr. Peoples, welcome.

     STATEMENT OF OLIVER P. PEOPLES, FOUNDER AND CHIEF SCIENTIFIC
           OFFICER, METABOLIX, INC., CAMBRIDGE, MASSACHUSETTS

        Mr. Peoples. Well, thank you, Madam Chair, and thank you
    other distinguished members of the Senate.
        The creation of long-term sustainable jobs in rural America
    is something I consider to be a personal mission. I have been
    very fortunate to come to this country many years ago and this
    country has been very, very good to me. I have also found the
    creation of jobs in rural America to be one of the most
    rewarding aspects of my career.
        As a much younger scientist, I came to the U.S. from
    Scotland 27 years ago and I went to MIT in Cambridge,
    Massachusetts. One thing led to another and I was very
    fortunate to help found a new company with two of my
    colleagues. The company, Metabolix, will celebrate its 20th
    anniversary in June of next year.
        This company was formed with what was then a revolutionary
    vision and mission: To use the emerging tools of genetic
    engineering to create a new chemicals and materials industry
    based on renewable agricultural resources. This was always
    going to be about rural development. This concept stemmed from
    a basic science project funded by the Office of Naval Research,
    and at the time, the terms ``industrial,'' ``biotechnology,''
    and ``synthetic biology'' had not been coined. Oil prices were
    under $20 a barrel. We were effectively pioneering in a very
    lonely way what is known today as the bio-based products and
    biochemicals industry.
        In thinking about the message I wanted to convey to today's
    hearing, given that this is not really my forte, I came up with
    three with respect to jobs in rural America. Bio-based products
    and chemicals, as my colleague has said, has the potential to
    revitalize U.S.-based manufacturing and create large numbers of
    sustainable jobs. Continued government investment in industrial
    biotech innovation and R&D providing value to agricultural
    feedstocks is also crucial to long-term sustainable job
    creation. The government can facilitate deployment of this
    emerging industry in the U.S. based on locally developed
    technology by creating demand, both through policy and also
    your purchasing power. You are a very large customer.
        To get back to my story, with the help of a few visionary
    investors, we worked on the technology in our labs in
    Cambridge, Massachusetts with Federal support in the form of
    grants, as we watched the bio-pharmaceutical industry emerge
    around us. When I first came to the U.S., companies like Amgen,
    Genentech, et cetera, were very small start-up companies.
    Today, if you look at Cambridge, it has been completely
    transformed and we have tens of thousands of very high-paying,
    high-quality jobs based in biotechnology.
        In Metabolix's case, given our focus, today we are pleased
    to see that our first production plant with a capacity of
    50,000 tons per year of new bio-plastic is in operation with
    our partner, ADM, in Clinton, Iowa. The Clinton polymer plant
    has over 100 employees with future expansion plans to quadruple
    this. I believe there were over 500 construction jobs during
    its development.
        Well, why Clinton, Iowa? Frankly, there is not too much
    corn in Massachusetts and ADM operates a very large corn wet
    mill in Clinton with enough infrastructure and sugar to supply
    future expanding demand. This speaks to a very fundamental
    advantage of rural areas in the emerging bio economy, which is
    the ability to supply the necessary feedstock for these new
    products and for new production facilities based on
    technological innovation.
        Jobs will always move to the center of competitive
    advantage. That is why the oil and gas is moving to the Middle
    East. In the case of the U.S. Midwest, we have that feedstock.
    We have that foundation. What we need is to get that industry
    going.
        The ADM polymer employees in Clinton are well trained,
    capable, and very hard working with a ``can do'' attitude so
    typical of rural America. Another plus in addition to having
    the feedstocks available for this new industry, we have the
    employment workforce ready to go.
        A compelling feature of bio-based products is the
    downstream job multiplier effect. Based on this new bio-
    plastic, we have rejuvenated the plastics industry in
    Massachusetts, which is where, fondly enough, the plastics
    industry actually started before it started to move away. With
    our Telles Bioplastics Center headquartered in the revitalized
    industrial city of Lowell, a former big mill town, very big in
    basically the textile manufacturing before that migrated over
    the sea, as well. Telles is the name of the joint venture with
    ADM. So in this converted textile mill, we have 50 plastics
    scientists, engineers, and commercial staff working and
    processing applications and sales of Mirel Bioplastics. These
    jobs are further multiplied by end users or converters of the
    Mirel Bioplastics into products like bags, films, consumer
    goods, et cetera, et cetera.
        Globally, as my colleague has said, bio-plastics are
    growing very rapidly, over 20 percent per year, with an almost
    unlimited upside potential. The chemicals and plastics
    industries currently account for some ten percent of all
    petroleum used with the global production of plastics being
    around 500 billion pounds. The net value of this is around 400
    billion pounds, if you focus on the lower value end. Simply
    put, replacing a barrel of oil making higher value-added bio-
    plastic products and chemicals is as effective at reducing
    dependence on imported oil as a gallon of bio-fuel.
        The technical innovation developed in the U.S. to make bio-
    products is an opportunity for the U.S. to recapture its once
    dominant position in the plastics and chemicals markets. At its
    peak in the 1950s, the industry was responsible for over five
    million jobs and a $20 billion positive trade balance. My
    colleague has addressed what has happened in the last decade.
        So with respect to bio-based chemicals and plastics, they
    represent a historic opportunity to reverse these trends
    through the creation of a new generation of renewable,
    sustainable products developed and produced in the U.S. The
    U.S. and in particular rural America has a substantial
    competitive advantage in available arable land, advanced
    agriculture and infrastructure. We can couple this with leading
    innovative industrial biotech, an outstanding labor force, and
    excellence in manufacturing. In addition, we have the potential
    to use all of the infrastructure created for the existing
    petroleum industry to essentially take large volumes of bio-
    plastics to market. We basically have the makings of a very
    powerful bio-based products industry to revitalize
    manufacturing in this country.
        Even in its early stages, the bio-based products industry
    accounts for several thousand direct jobs and likely tens of
    thousands economy-wide. Achieving the industry's full potential
    could create tens of thousands, bring jobs into the United
    States within the next five years, and the majority of these
    will be where the feedstock is, which is the rural areas. And
    when I say feedstock, it is not just corn. It is also trees. We
    have a very considerable forest industry in this country also
    in demise due to the lack of need for packaging, mainly because
    we have stopped making things to package.
        As I stated earlier, Federal funding of innovative R&D is
    also crucial to maintaining and building on our advantages. The
    technology behind the success of the Mirel Bioplastics and the
    two other commercial platforms being developed by Metabolix was
    based in part in Federal funding. Using only the bio-plastics
    case, Metabolix translated less than $5 million in Federal
    support into what is now over $300 million in private
    investment in the business. Economic development impacts will
    include the creation of high-valued green jobs, improved trade
    balance, reduction of CO2, and enhanced energy security through
    reduction of dependence on imported foreign oil.
        Chairwoman Stabenow. I have to ask you, Dr. Peoples, if you
    could wrap up. Thank you.
        Mr. Peoples. Thank you.
        [The prepared statement of Mr. Peoples can be found on page
    57 in the appendix.]
        Chairwoman Stabenow. Thank you very much. We very much
    appreciate your testimony.
        Mr. McIntosh?

        STATEMENT OF JOHN McINTOSH, VICE PRESIDENT OF SALES AND
          MARKETING, SIGNATURE CRYPTON CARPET, DALTON, GEORGIA

        Mr. McIntosh. Thank you, Chairwoman Stabenow and the rest
    of the committee. It is an honor and we are very excited to
    share with you what we are doing in Northwest Georgia. On
    behalf of 1,100 employees of Textile Management Associates that
    include such brands as AstroTurf and SynLawn and Syntec,
    Universal Textiles Technology, and my company, Signature, we
    are excited to share with you how we are growing jobs by the
    utilization of bio-based products.
        Eight years ago, the leadership of our company, led by Tom
    Peeples and Larry Mashburn and Doug Giles of UTT began the
    exploration of bio-based technology to replace existing
    petrochemicals that had been used in polyurethane carpet
    backings for some 30 years. Through their exploration, they
    were led to the United States Soybean New Uses Committee and a
    new and dynamic partnership was made with American farmers.
        Through those efforts, the industry's first high-
    performance carpet backing, BioCel, was introduced and has
    become a standard in the specified commercial market sector as
    we know it. Today, BioCel can be found in some of the most
    prestigious installations across the U.S., including the U.S.
    Department of Agriculture and U.S. Patent Offices, walk-off
    matting systems that have just been installed at the Pentagon,
    landscape turf all across the country by SynLawn, AstroTurf
    athletic fields that are found in professional stadiums like
    the St. Louis Rams and also most recently in the University of
    Cincinnati baseball field, and two home runs in Kansas at the
    Kansas Jayhawks baseball fields and the K State Wildcat
    football field will now all be scoring on soy in the future.
        All totaled, UTT and through its use of polyols extracted
    from American-grown soybeans have displaced literally millions
    of pounds of foreign-dependent petrochemicals each year. By
    depending on U.S. agriculture, we are depending on the U.S.
    chemists and chemistry. More importantly, the use of soy in our
    backing technologies has shown no increase in our cost, while
    in the manufacturing process improving performance resulting in
    a cost-neutral environmentally responsible solution for our
    customers.
        This has driven great demand for our product over the last
    three to four years, and that is very important, because over
    that time in Northwest Georgia, our economy, like many of the
    manufacturing places across the country, have been hit hard
    through the economic downturns, with our unemployment rates
    hovering around 11 and 12 percent. Through these tough times,
    Textile Management Associates and UTT and our brands, by
    utilizing bio-based technologies, have actually been able to
    grow our workforce by some ten percent, and we are currently
    investing around $3 million in creating our own plant to create
    our own polyols to expand into other markets, as well,
    continuing to lessen our industry's dependence upon foreign
    oils.
        One of the things that I have learned is that success draws
    success and innovation draws innovation. The USB introduced us
    to an incredible gentleman, Jim Evanoff, who is an
    environmental protection specialist at Yellowstone National
    Park where he had a little problem, where 43 tons of plastics
    were going overseas every year. This was not acceptable. We
    partnered with Yellowstone and Four Corners Recycling, CPE, in
    South Carolina and the USB to form a partnership where we now
    take all of these plastics back to Dalton, Georgia, and recycle
    them back into our products.
        My company, Signature Crypton Carpet, was so inspired by
    this, we created an entire line devoted specifically to the
    inspiration of the natural order of nature in Yellowstone
    National Park. We formed a partnership with Aquafil, a yarn
    provider that is now providing us with nylon yarns that are 100
    percent recycled content. Combined with the BioCel products, we
    now have the industry's leading 82 percent green by weight
    products. We have displaced 82 percent of either petrochemicals
    or virgin petrochemicals out of our products while increasing
    performance 30 percent.
        We are proud that the first installation went into the Snow
    Lodge just two months ago with plastics out of the Park.
        Having felt a need that the industry needs to adopt a more
    socially responsible position, as well, we partnered with the
    Foundation to say that 50 cents a square yard of every product
    sold out of that collection will go back into the Yellowstone
    Park Foundation that will help protect and preserve one of
    America's most pristine natural resources.
        We firmly believe that if you always do what you have
    always done, that you are always going to get what you have
    always gotten. It takes great courage to create change. Our
    leadership changed 30 years of a mindset on how to make a
    petrochemical product and other new innovations inspired by
    such products like this will increase awareness, develop
    strategic partnerships, and we will take back our leadership in
    the world by doing well by doing good.
        We thank you for this opportunity to share these stories
    with you and look forward to questions.
        [The prepared statement of Mr. McIntosh can be found on
    page 55 in the appendix.]
        Chairwoman Stabenow. Thank you very much for your terrific
    work.
        Mr. Hall, welcome.

    STATEMENT OF DENNIS HALL, ASSISTANT DIRECTOR, OHIO BIOPRODUCTS
                   INNOVATION CENTER, COLUMBUS, OHIO

        Mr. Hall. Chairwoman Stabenow, members of the Senate
    Agriculture Committee, thank you for the opportunity to speak
    today. I would also like to especially thank Senator Sherrod
    Brown for inviting me and his very kind introduction. It is a
    privilege to come before you as a member of the Ohio State
    University, the Ohio BioProducts Innovation Center, and also as
    a farmer, to talk about the amazing potential of bio products
    and bio-based manufacturing.
        My history is to have been doing this in Ohio, where we
    have as our number one industry in the State agriculture. But
    we also are very fortunate to have the number one polymer State
    in the country in terms of polymer employment and a very strong
    specialty chemical industry. And so the Ohio BioProducts
    Innovation Center was really born out of the idea of helping
    our polymer and chemical companies innovate by using bio-based
    materials from Ohio farms.
        We have some amazing stories of companies that have been
    successful, some stories of products that we are just close to
    seeing the commercial scale, and a big line of entrepreneurs
    and small and medium-sized companies that are eager to get to
    that next level. So some of our stories.
        First is a young woman by the name of Cathy Horton who
    helped to create a company called Nutek. It is a line of
    cleaners and lubricants made from soybeans, the soybeans grown
    in Northwest Ohio, processed by Mercer Landmark and a farmer-
    owned co-op and converted into a wide line of cleaners and
    lubricants.
        Another product that most people from farm country are
    familiar with but did not really know is a composite known as
    Envirez. It is manufactured by Ashland Specialty Chemicals, and
    where people see that product is if they see a John Deere
    combine or tractor. The green panels that are on those combines
    and that farm machinery is actually a product of Ashland
    Specialty Chemicals.
        A product that we are very excited about, think has great
    potential but is still in a very early start-up phase is a
    natural fiber composite. We work with a company called the
    Natural Fiber Composite Corporation that has a proprietary
    technology to infuse the fiber into the plastic and make a
    composite that competes very nicely with fiberglass, being
    lighter in weight, less abrasive for manufacturers, lower in
    cost, and comparable in performance.
        And then one of the other stories that I am so excited to
    share about is we have a company that is a start-up company
    that is converting swine manure into an asphalt substitute for
    roofing applications. Yes, we are making shingles from swine
    manure.
        So we do not need to put biomass in the ground and cook it
    for a couple thousand years in order for us to make products
    out of it. One of the reasons that I think this is such an
    incredible opportunity for the United States is this single key
    statistic. Three-point-four percent of all the oil we use today
    has a value as petrochemicals equal or closely equal to 70
    percent of the oil we use today for transportation fuels. In
    other words, only 3.4 percent of all of our U.S. oil is used to
    make plastics, adhesives, paints, coatings, cleaners,
    detergents, those kinds of high-value products, and those
    products are equal in value to the 70 percent of the oil we use
    today for transportation fuel.
        It is that key point, the value-added opportunity of taking
    our wonder biomass materials and converting them into specialty
    goods, specialty materials, much the kinds of things that my
    panelists here have already talked about, that I think is an
    incredible opportunity.
        There is great demand out in the Midwest and across the
    country for these kinds of businesses, but we find that many of
    our companies very much struggle with the opportunity to hit
    that scale-up phase. It is very easy for them to make a
    beaker's worth of quantity, but when they go to make a barrel's
    worth of quantity for product testing that they run into
    trouble.
        I have outlined in my testimony other suggestions that I
    think are appropriate, but I will just conclude with saying
    that I am very honored to be here today. Thank you, Senator
    Stabenow, for this opportunity and I look forward to doing
    anything I can to help advance jobs in rural America and really
    developing the supply chain that can provide up to a trillion
    dollars' worth of material for our country.
        [The prepared statement of Mr. Hall can be found on page 49
    in the appendix.]
        Chairwoman Stabenow. Thank you very much, and thank you to
    each of you. This is an area that I find very exciting, what
    you are already doing, and the question for our committee is
    what can we do to help take it to the next level. How can we be
    supportive, both in terms of supporting jobs for rural America
    and opportunities in terms of markets, continuing value-added
    processes, and so on for our farmers.
        Let me start, Mr. Hall, with what you were just saying as
    you were concluding your testimony in terms of being able to go
    to the next level and what happens in terms of
    commercialization. What has been the most effective tools and
    strategies that you have found, and are there things that we
    should be doing to help companies get through what is commonly
    called the ``valley of death,'' where new technologies struggle
    to get the financing to be able to commercialize and move
    forward.
        Mr. Hall. Yes. That is very common problem for small start-
    up companies and there are several strategies for how we can
    help them, how we as a government can help them. First, I would
    say that one of the strategies that the Ohio BioProducts
    Innovation Center uses is to surround that start-up company
    with a cluster of other companies that both precede them in the
    supply chain and are interested in purchasing their products.
    In that economic ecosystem, we can help to create the
    relationships that can help them move forward.
        But many of these companies need assistance with that next
    phase, that pre-commercial quantities, being able to provide
    sufficient material that those customers can effectively
    evaluate that material and see if it is going to work for them.
    We think that in most cases, once they have had the chance to
    try out these bio-based products, they are going to find them
    superior and beneficial in many ways to their line of products.
    And so being able to access that is a very big deal.
        I am struck by the Biomass Research and Development
    Initiative Program that is a joint program between the U.S.
    Department of Agriculture and the Department of Energy. In
    2009, there were 800 pre-proposals submitted requesting funds
    for that program, of which there were 22 grants awarded. The
    next year, people saw that and said, well, do I take the effort
    to write these big proposals, submit them to the USDA or to
    this program, only to find out that I am one of a thousand and
    the chances of me winning this award are so slim? The next
    year, the number of pre-proposals fell to 320 and eight grants
    were awarded.
        The BRDI program is a model program. It is just
    underfunded. And it really would help so many companies to be
    able to get the sufficient quality and quantity of materials
    out to potential customers to address their opportunities.
        Chairwoman Stabenow. Thank you very much.
        Mr. Verbruggen, I noticed as you talk about Blair,
    Nebraska, that this is a population of about 7,500 people in a
    county seat which has a population of about 19,000. So this is
    a rural community. I also understand that you have--NatureWorks
    sources the field corn for the PLA plastic produced within
    about 300 miles of Blair. So from a jobs standpoint, again,
    today, could you talk about the advantage of--a little bit more
    about the advantage of putting the plant where you have in a
    rural community in terms of quality of workforce, access to
    feedstock, and so on. Why does this make sense in the context
    of rural communities?
        Mr. Verbruggen. From that point of view, we are actually
    not too different from your traditional petrochemical company.
    When I said earlier on that a lot of the traditional chemical
    jobs are moving to the Middle East, it is they just follow
    their feedstock. We are doing exactly the same. So if your
    feedstock is in Nebraska or Iowa, you are not going to build a
    plant in New York. I assume none of the New York Senators are
    here.
        So, truly, I think if you look at bio-plastics,
    biopolymers, you will see those plants very close to your
    feedstock, and the reason is very simple. Transporting
    feedstock is expensive. If you look at our variable cost, I
    would say well over 50 percent of our variable cost is
    feedstock. So it is to be expected that wherever you have
    vegetables oils or corn or any other feedstock, as my colleague
    here said, whatever feedstock you are going to use, that is
    where you are going to see the plants.
        And as I indicated before, it is important here to say that
    this is no longer technology development. It is no longer early
    innovation. We are way beyond that. So we are, indeed, ready to
    build plants wherever the feedstock is in North America.
        Chairwoman Stabenow. Thank you very much.
        Mr. McIntosh, could you talk a little bit about the
    partnership with the United Soybean Board to replace petroleum-
    based products and develop the new technologies in bio-based
    materials.
        Mr. McIntosh. I will. A long time ago, I learned that those
    who say it cannot be done are usually interrupted by somebody
    doing it. The USB is one of those organizations. Our
    partnership with them has led to some pretty amazing
    advancements within our industry that was somewhat stuck in the
    status quo, and I think some of the most difficult things for
    manufacturing is moving the status quo. That requires
    investment. That requires vision. But most of all, it requires
    courage. And everyone that we have been associated with with
    the USB continues not to rest on, as our founder and owner, Mr.
    Peeples, has taught me, you cannot go pick yesterday's
    blackberries, and they go and they are constantly looking to
    what is next and what is next.
        One of the things that I have seen most about today, the
    infrastructure is in place. We now have to go execute and
    educate and inspire, because I genuinely believe, like they do,
    that everyone, given the opportunity to do the right thing,
    will choose that. If we can provide performance and value and
    environmental responsibility, that is a win-win and that is
    what everyone is looking for. And they have been a great
    inspiration for us.
        Chairwoman Stabenow. Thank you very much.
        Senator Thune?
        Senator Thune. Thank you, Madam Chairwoman, and I want to
    thank our panel for their insights.
        I am a big fan of science and technology and the advances
    that have been made there in terms of energy issues. I think it
    has dramatically changed and continues to change agriculture in
    rural America, and I think the question is how do we in this
    next farm bill utilize reduced dollars that are available to
    fund the necessary research to promote the increased
    development and utilization of bio-based products and ensure a
    continued role for agriculture in sustainably lessening our
    dependence on foreign oil. And that is going to be extremely
    difficult because of the budgetary constraints that we are
    facing, and that is a challenge that we are going to have to
    deal with.
        But it is pretty clear to me, Madam Chairwoman, that based
    on the testimony that we received from the witnesses today here
    that they are already moving rural America forward with a lot
    of these innovative, common sense approaches to growing
    America's potential and to securing its sustainability. Bio-
    based products hold an exciting future for agriculture and
    potentially can help the United States to recapture chemicals
    and manufacturing jobs that we have been hemorrhaging to
    foreign countries.
        I just have a couple of questions, if I might, in that
    vein, and I would like to direct this one to Dr. Peoples. What
    do you think that the plastics and manufacturing industries in
    this country need to shift manufacturing back to the United
    States?
        Mr. Peoples. You know, fundamentally for the plastics
    manufacturing in this country, it is really about what is the
    opportunity and what is in it for them, quite frankly. And I
    think what is in it for them is really a whole new feedstock,
    which is basically the agricultural resource plus the
    technology that enables it to be converted into plastics that
    they can then use, as NatureWorks has ably demonstrated. And so
    I think it is really about them recognizing that there are
    materials coming along which can do the job, that they are bio-
    based, that they are made in America based on American
    feedstocks, using American employees, and I think it is a
    matter of them just recognizing that that is the case.
        In terms of what the Federal Government can do, my own view
    is I think you can help to create the demand, the demand for
    bio-based content. There are rules in place at the USDA for
    that already in some areas and I think that is an area where
    you can be very effective in helping to deal with this industry
    in the United States.
        Senator Thune. Do any of the tax policies need to be
    changed?
        Mr. Peoples. I really do not--I am not really able to
    comment----
        Senator Thune. You do not dabble in that?
        Mr. Peoples. I do not dabble in that. I am a scientist and
    I like to----
        [Laughter.]
        Mr. Peoples. --to stay within my comfort zone, which is I
    am happy to talk about the next great discovery, but it is
    really not my place to talk about tax policy.
        Senator Thune. Right. Yes.
        Mr. Peoples. My colleague can perhaps comment.
        Mr. Verbruggen. Thankfully, I am not a scientist, so I can
    talk about it.
        [Laughter.]
        Mr. Verbruggen. No, I think what is very important right
    now is to get for the bio-plastics industry something like a
    production tax credit initiated for two reasons. If I look at
    some of my colleagues, which are early start-ups, a production
    tax credit can be the difference between being non-competitive
    compared to traditional plastics in that early stage of
    development, versus being more competitive and therefore
    quickly helping the industry displacing traditional plastics,
    traditional chemicals.
        For a company like myself, like ourselves, NatureWorks,
    having a U.S. tax credit in place will make the U.S. more
    competitive versus foreign governments. I mentioned in my
    testimony that in a Southeast Asian country today which I will
    not name, you get a 15-year tax abatement for bio-plastics
    investment. We are working in a global economy. We are working
    in a global business. So the U.S. for getting investments in
    the United States will compete with those types of countries.
        So it will do two things, the production tax credit. It
    will help companies like NatureWorks, who are established, who
    are selling around the world, investing in the United States
    rather than somewhere else. For start-ups, it will make them
    more competitive out of the gate and, therefore, will help them
    grow quicker.
        Senator Thune. Let me direct this question, if I might, to
    Mr. McIntosh. What commodity crop do you see as having the most
    potential to produce bio-based products?
        Mr. McIntosh. There are two within the carpet industry
    right now that are pliable for what we do in backings, that
    being soy and also corn, poly-light [phonetic] gasses out of
    corn. Our research has shown and our performance has shown that
    soy-based products are performing better in our backing
    systems. Being in the commercial end of our business, neither
    provide the tensile strength for a face fiber quite yet. The
    USB is funding and supporting a lot of research to be able to
    do that, because right now, the most embodied energy of a piece
    of carpet is in its fiber with nylon. So we are working hard to
    do that. But right now, it has been the soy-based products.
        Senator Thune. Do you see that changing?
        Mr. McIntosh. You know, I would need to check with our
    chemists, but I know everything that we are doing right now,
    our investment in our own plants to create polyols, I do not
    see it changing any time soon.
        Senator Thune. Thank you, Madam Chair. Thank you all very
    much.
        Chairwoman Stabenow. Thank you very much.
        Let me just conclude by asking each of you, and we have
    begun to really talk about it a bit in terms of a production
    tax credit, but if there was one thing that we could do to help
    move this forward so that we are really developing large-scale
    production of bio-based products, what would that be? Dr.
    Verbruggen.
        Mr. Verbruggen. Let me start with this comment. It is
    something very obvious. I think the USDA, about, I think, six
    months ago, it might be a little bit longer, came out with a
    ``BioPreferred'' label, and I think for the first time,
    consumers all over America have now the option to choose
    between a traditional packaging material or a bio-plastic. And
    again, you see a lot of them around here. That by itself will
    create demand, because you could go in a Walmart a year ago and
    see our products everywhere, but often very difficult to
    recognize. Now, with that label on there, with the stamp of the
    U.S. Government on it, I think that will really spur demand.
    With demand come jobs, comes investment. So support for that
    particular program is going to be very important, for example,
    if you look at the next farm bill.
        Chairwoman Stabenow. Thank you very much, Dr. Peoples?
        Mr. Peoples. I would reiterate that and also indicate that
    I think there is a role in this for small businesses in terms
    of getting something similar to the set-aside program for small
    businesses so that small businesses can compete in this area.
    This is a very capital-intensive industry and it is very
    difficult for small businesses to participate in that way. So I
    would recommend that on top of what Marc said.
        Chairwoman Stabenow. Thank you, Mr. McIntosh?
        Mr. McIntosh. I think a purchase order for the 500,000
    buildings in the U.S. Government that represents three billion
    square feet would be a good start.
        Chairwoman Stabenow. A good place to start.
        Mr. McIntosh. Yes, ma'am. But seriously, I was going to
    mention the USDA BioPreferred program. What we are dealing with
    is education, is educating the consumer that there is a better
    alternative, a more not only environmentally responsible, but
    socially responsible, as well, that improves performance.
        So just the fact that I get to sit here from Dalton,
    Georgia, to be able to share with you these exciting things is
    somewhat overwhelming in itself. But our goal and I think where
    the government can help is in the GSA contracts which we are
    going to be taking the Yellowstone project to, the farm bill
    act that has already been placed. So all of these things are
    helping. But what I have learned is that it takes time. It is a
    crock pot, it is not a microwave fix. And it is going to take
    more and more people like Yellowstone that are in a leadership
    position, and everyone realizes that, the first national park
    and does incredible work.
        And so those are the type of things that will help because
    it starts all the way--our wellhead is a farmer's field and it
    goes to an end product that is never put in a landfill. And so
    throughout the entire chain, from installers to farmers to mill
    workers to whomever touches it, maintenance people and things
    of that nature, just the exposure and the education to be able
    to create demand.
        Chairwoman Stabenow. Thank you, Mr.Hall?
        Mr. Hall. The Federal Government does a lot of really good
    things right now, and the Hatch Act that provides for research
    funding, the Smith-Lever which provides for extension, outreach
    programs, are very important, and we would not have an Ohio
    BioProducts Innovation Center in Ohio if we had not had those
    funds.
        But I think the current farm bill has one excellent program
    that--one model program that misses the mark for bio products,
    and that is the Bio-Refinery Assistance Program, Section 9003.
    It misses the mark in two ways. The first is that its focus is
    solely on advanced bio-fuels and we are not able to use this
    kind of program to target these much more higher value-added
    products, the plastics and the advanced materials.
        And the second thing is the existing paradigm is that of
    rural development for that program, rural economic development,
    not agricultural economic development. We see great alliances,
    great opportunities to partner with major corporations that
    happen to be in the city, you know, and being able to more
    fully exploit that opportunity of connecting the agricultural
    resources to companies like a Goodyear or an Emery
    Oleochemicals would be very valuable, who happen to be in Akron
    and Cincinnati.
        Chairwoman Stabenow. Well, thank you very much to all of
    you. This is an area, I think, of really exciting opportunity
    for our country and certainly for rural America and we want to
    thank you for being here as a part of this.
        I would say that any additional questions for the record
    should be submitted to the Clerk five business days from today,
    which is Thursday the 21st of July at 5:00 p.m.
        Let me also say that we, at our very first hearing back in
    February, gave an overview of agricultural and rural economies
    and the importance of jobs. We started from the perspective of
    jobs, 16 million people working in rural America in
    agriculture. And some, I think, off this committee were
    actually surprised that our agricultural economy is leading the
    nation's economic recovery, which is, in fact, true, and we
    want to continue to stress that and continue to lead that. But
    agriculture will continue to lead the country in creating new
    opportunities in small towns in rural communities across
    America with all of our efforts.
        We heard today we can spur job growth, reduce our
    dependence on foreign oil, and add value to farmers'
    agricultural products by supporting innovations such as the
    emerging bio-based manufacturing sector and encouraging energy
    efficiency improvements through legislation like the Rural
    Energy Savings Program. We are going to continue in the weeks
    and months to focus on these and other issues that will
    strengthen our economies in rural America and ensure that
    American agriculture continues to thrive, and I think this is a
    great opportunity for us to work together to make sure that
    happens.
        So thank you very much and the meeting is adjourned.
        [Whereupon, at 11:26 a.m., the committee was adjourned.]

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                                A P P E N D I X

                                 JULY 14, 2011

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                             QUESTIONS AND ANSWERS

                                 JULY 14, 2011

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