[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
FULL COMMITTEE HEARING ON
THE IMPACT OF RENEWABLE ENERGY
PRODUCTION IN RURAL AMERICA
=======================================================================
COMMITTEE ON SMALL BUSINESS
UNITED STATES HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
MAY 3, 2007
__________
Serial Number 110-19
__________
Printed for the use of the Committee on Small Business
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA M. VELAZQUEZ, New York, Chairwoman
WILLIAM JEFFERSON, Louisiana STEVE CHABOT, Ohio, Ranking Member
HEATH SHULER, North Carolina ROSCOE BARTLETT, Maryland
CHARLIE GONZALEZ, Texas SAM GRAVES, Missouri
RICK LARSEN, Washington TODD AKIN, Missouri
RAUL GRIJALVA, Arizona BILL SHUSTER, Pennsylvania
MICHAEL MICHAUD, Maine MARILYN MUSGRAVE, Colorado
MELISSA BEAN, Illinois STEVE KING, Iowa
HENRY CUELLAR, Texas JEFF FORTENBERRY, Nebraska
DAN LIPINSKI, Illinois LYNN WESTMORELAND, Georgia
GWEN MOORE, Wisconsin LOUIE GOHMERT, Texas
JASON ALTMIRE, Pennsylvania DEAN HELLER, Nevada
BRUCE BRALEY, Iowa DAVID DAVIS, Tennessee
YVETTE CLARKE, New York MARY FALLIN, Oklahoma
BRAD ELLSWORTH, Indiana VERN BUCHANAN, Florida
HANK JOHNSON, Georgia JIM JORDAN, Ohio
JOE SESTAK, Pennsylvania
Michael Day, Majority Staff Director
Adam Minehardt, Deputy Staff Director
Tim Slattery, Chief Counsel
Kevin Fitzpatrick, Minority Staff Director
______
STANDING SUBCOMMITTEES
Subcommittee on Finance and Tax
MELISSA BEAN, Illinois, Chairwoman
RAUL GRIJALVA, Arizona DEAN HELLER, Nevada, Ranking
MICHAEL MICHAUD, Maine BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana STEVE KING, Iowa
HANK JOHNSON, Georgia VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania JIM JORDAN, Ohio
______
Subcommittee on Contracting and Technology
BRUCE BRALEY, IOWA, Chairman
WILLIAM JEFFERSON, Louisiana DAVID DAVIS, Tennessee, Ranking
HENRY CUELLAR, Texas ROSCOE BARTLETT, Maryland
GWEN MOORE, Wisconsin SAM GRAVES, Missouri
YVETTE CLARKE, New York TODD AKIN, Missouri
JOE SESTAK, Pennsylvania MARY FALLIN, Oklahoma
.........................................................
(ii)
?
Subcommittee on Regulations, Health Care and Trade
CHARLES GONZALEZ, Texas, Chairman
WILLIAM JEFFERSON, Louisiana LYNN WESTMORELAND, Georgia,
RICK LARSEN, Washington Ranking
DAN LIPINSKI, Illinois BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois STEVE KING, Iowa
GWEN MOORE, Wisconsin MARILYN MUSGRAVE, Colorado
JASON ALTMIRE, Pennsylvania MARY FALLIN, Oklahoma
JOE SESTAK, Pennsylvania VERN BUCHANAN, Florida
JIM JORDAN, Ohio
______
Subcommittee on Urban and Rural Entrepreneurship
HEATH SHULER, North Carolina, Chairman
RICK LARSEN, Washington JEFF FORTENBERRY, Nebraska,
MICHAEL MICHAUD, Maine Ranking
GWEN MOORE, Wisconsin ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana DEAN HELLER, Nevada
HANK JOHNSON, Georgia DAVID DAVIS, Tennessee
______
Subcommittee on Investigations and Oversight
JASON ALTMIRE, PENNSYLVANIA, Chairman
CHARLIE GONZALEZ, Texas LOUIE GOHMERT, Texas, Ranking
RAUL GRIJALVA, Arizona LYNN WESTMORELAND, Georgia
(iii)
?
C O N T E N T S
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OPENING STATEMENTS
Page
Velazquez, Hon. Nydia M.......................................... 1
Chabot, Hon. Steve............................................... 2
Bartlett, Hon. Roscoe............................................ 3
Jefferson, Hon. William.......................................... 3
WITNESSES
Dinneen, Bob, Renewable Fuels Association........................ 4
Jobe, Joe, National Biodiesel Board.............................. 7
Urbanchuk, John, LECG, LLC....................................... 8
Graves, Leon C., National Council of Farmer Cooperatives......... 10
APPENDIX
Prepared Statements:
Velazquez, Hon. Nydia M.......................................... 36
Chabot, Hon. Steve............................................... 38
Altmire, Hon. Jason.............................................. 40
Braley, Hon. Bruce............................................... 41
Dinneen, Bob, Renewable Fuels Association........................ 43
Jobe, Joe, National Biodiesel Board.............................. 49
Urbanchuk, John, LECG, LLC....................................... 54
Graves, Leon C., National Council of Farmer Cooperatives......... 63
Statements for the Record:
National Cattlemen's Beef Association............................ 68
(v)
FULL COMITTEE HEARING ON
THE IMPACT OF RENEWABLE ENERGY
PRODUCTION IN RURAL AMERICA
----------
THURSDAY, MAY 3, 2007
U.S. House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:00 a.m., in Room
2360 Rayburn House Office Building, Hon. Nydia Velazquez
[Chairwoman of the Committee] presiding.
Present: Representatives Velazquez, Jefferson, Shuler,
Larsen, Cuellar, Braley, Clarke, Sestak, Chabot, Bartlett,
Heller, Buchanan and Jordan.
OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ
ChairwomanVelazquez. I now call this hearing to order.
Today we are going to examine the issue of renewable fuels
and their impact on small businesses in rural America.
Entrepreneurs in this country have a huge stake in ensuring
access to an affordable energy supply. Their bottom line is
affected every time prices go up at the pump, natural gas
spikes, or the cost of electricity rises. Today we will hear
that small businesses are not only consumers of energy, but
they are also playing a vital role in producing it.
At a time when this country is facing record energy prices,
it is critical that we find alternative energy supplies to help
reduce costs as well as foreign dependence. Today's panelists
will outline how rural America is achieving this with the
production of biofuels. The growth in the renewable fuels
industry has been a win-win for the U.S. economy. Biofuels have
had an enormous impact on rural communities while helping
provide this nation with another source of clean energy.
It is an industry that small companies are at the
forefront. Approximately 70 percent are small firms with most
employing less than 50 people. These small businesses are not
only growing themselves, but they are helping other
entrepreneurs in rural America. Small farmers are providing the
necessary inputs for the production of these fuels.
For ethanol, farmers provide the 2.5 billion bushels of
corn each year. In the biodiesel industry, they supply the
soybeans, canola, and other inputs. And they are also working
to develop resources in the growing area of cellulosic ethanol.
As a result, all of these have increased the demand for
farmers' products.
The industry has also had a lasting imprint on the economic
picture in rural America. A February 2007 study points out that
163,000 new jobs were created because of ethanol production.
This includes more than 20,000 jobs in our manufacturing
sector, making biofuel production the single-most important
value-added market for farmers.
But while the growth in this industry has been strong,
challenges remain. Because producing biofuels involves high-
cost inputs, it has been necessary to have in place federal
policies that make plans financially viable. These range from
tax incentives and trade policies to usage requirements and
financing assistance. Without these incentives and programs the
industry would not be where it is today.
With all this success, we still have a long way to go.
Though renewable fuels have grown exponentially over the past
decade, they still make up less than 1 percent of current U.S.
production. My hope is today's hearing will focus on ways that
this can be increased.
Whether it be the new and improved energy programs or
maintaining existing ones, we need to do what it takes to
ensure small businesses in these areas will have the chance to
thrive.
The issues discussed today affect every member's district.
While it may seem that there is no connection between an
ethanol plant in Iowa and the price of gas in New York, the
economics shows otherwise. Biofuels impact those in urban
districts and rural districts alike. Today's hearing will
provide the Committee with a better understanding of the
biofuel industry from those who understand the challenges the
most.
I look forward to hearing about what policies have been
successful and if there are additional reforms needed to ensure
future growth. The success of small companies in this sector
can serve as a model for other industries. The Committee can
draw on this as it formulates legislation to improve the
overall economic environment for small businesses.
I appreciate the witnesses coming here to talk about these
important issues, and I look forward to today's discussion. I
now yield to Mr. Chabot for his opening statement.
OPENING STATEMENT OF MR. CHABOT
Mr.Chabot. Thank you, Madam Chairwoman, and I want to
commend you for holding this timely hearing on renewable energy
production and its impact on rural America and its impact on
the entire country. I also want to thank our panel of witnesses
for traveling here to Washington to share your views with us.
In recent years, it has become painfully clear that America
is far too dependent on foreign oil. We import nearly two-
thirds of the oil that we consume. With gas prices in my
district in Cincinnati and throughout the country hovering
around $3 a gallon again, it is important for Congress to
continue exploring ways that we can produce more of our energy
domestically rather than relying on oil from the volatile
Middle East or in other parts of the country, other parts of
the world.
In fact, according to the General Accounting Office, GAO,
Americans paid $38 billion more for gasoline in the first six
months of 2006 than they paid during the first half of 2005.
That is just unacceptable, and there is no reason to think that
trend won't continue.
I believe that America must adopt a diversified and
balanced energy strategy to become more self-sufficient, and I
have supported, as many of us have, policies such as the Energy
Policy Act of 2005, that took significant steps in that
direction. For example, I believe we should increase our
production of traditional fuels such as oil and natural gas and
strengthen conservation and efficiency efforts.
It is also important to provide incentives for the research
and development of promising new technologies such as hydrogen
fuel cells. And, as we will hear today, renewable energy, the
vast majority of which is produced in our nation's rural
communities, is serving an important role in meeting America's
energy needs as well.
Biofuels have the potential to help wean Americans off
foreign oil and to provide an economic boost to farmers and
rural communities. I believe they also have the potential to
foster a serious and long overdue debate about reforming our
nation's agriculture policy, which, in my view, with its
subsidies and tariffs is in dire need of reform.
Again, I thank the chair for holding this hearing and look
forward to hearing testimony from our witnesses. And I yield
back the balance of my time.
ChairwomanVelazquez. Thank you, Mr. Chabot.
If there is any other member who wishes to make an opening
statement? Yes, Mr. Bartlett.
OPENING STATEMENT OF MR. BARTLETT
Mr.Bartlett. Thank you. If I might, I want to thank you
very much for holding this hearing. There are several groups
that have common cause in the subject that we are discussing
today. Several weeks ago T Boone Pickens joined a growing
chorus of professionals who believe that the world has reached
its maximum production of oil, that it will stabilize for a
bit, and then actually really go downhill. It is called ``peak
oil.''
Just recently more than 100 countries agreed that we have
global warming, that excessive consumption of fossil fuels is
very largely a major contributor to that. A couple of years
ago--and this was mentioned by the minority member--30
prominent Americans wrote to the President saying, ``Mr.
President, the fact that we have only 2 percent of the known
reserves of oil in the world, we use 25 percent of the world's
oil, and we import almost two-thirds of what we use, is a
totally unacceptable national security risk. We really have to
do something about that.''
And the subject of this hearing today is front and center
in the interest of these three groups. So thank you, Madam
Chairman, very much for holding this hearing.
ChairwomanVelazquez. Thank you.
Now I recognize Mr. Jefferson.
OPENING STATEMENT OF MR. JEFFERSON
Mr.Jefferson. Thank you, Madam Chair, very briefly. And I
thank you for holding this hearing, and I thank the others who
have spoken to the issue.
The American people gave us a clear mandate to diversify
energy resources, reduce our trade balances and--imbalances, I
should say--and address our environmental challenges and make
our economy more competitive. We all know that it will not
happen if we are not serious about using more alternative and
renewable sources of energy. The only concrete way to do this
is to incentivize the sector, so that it will create more
opportunities for our farmers, for our small businesses.
Many states are experimenting with opportunities in this
area, and I think there is a need to find some way to harmonize
these efforts and to make sure that there are opportunities
that exist throughout the country that are consistent. Our
state, for example, has a biodiesel mandate that establishes a
minimum biodiesel requirement for diesel fuel in the state.
Once annualized production volume reaches 10 million gallons, 2
percent of the total diesel sold by volume in the state must be
biodiesel produced from domestically-grown feedstock.
Louisiana's first biodiesel plant started operating in
April of 2006 and has produced about 700,000 gallons of
biodiesel so far. That production is expected to increase to 10
million gallons, or maybe 15, even in the next few years. Six
biofuel projects are underway with three ethanol and three
biodiesel plants, and this is an example of what states are
doing but there is no coherent policy that rewards those
investors in various parts of the country.
And there isn't any guarantee that--the federal incentives
can be much deeper than the ones the state can offer in any
event. And so I would urge that we find some way to harmonize
this effort across the country and provide opportunities
throughout. I think the emphasis has to be on rural small
businesses, and I thank the chairlady for offering this
important idea and supporting the hearing.
ChairwomanVelazquez. Any other member?
Well, now, I want to again welcome all of the witnesses for
taking time to come before the Committee and discuss such an
important issue with us. Our first witness is Mr. Bob Dinneen.
Mr. Dinneen is the President and CEO of the Renewable Fuels
Association, the national trade association for the U.S.
ethanol industry. As such, he is the ethanol industry's lead
representative before the Congress and administration.
Mr. Dinneen became President of RFA in July of 2001. In
this capacity, he has led the association's effort to build
coalitions with the industry's petroleum customer, as well as
transportation and environmental groups in order to provide for
marketplace growth for the industry. Welcome, sir.
STATEMENT OF MR. BOB DINNEEN, PRESIDENT AND CEO, RENEWABLE
FUELS ASSOCIATION
Mr.Dinneen. Thank you, Madam Chairwoman, and thank you for
holding this hearing. And I want to congratulate you--I am
sorry. Do you want me to go now, or do you want to finish--
ChairwomanVelazquez. No. I just want to say you will have
about five minutes to make your presentation.
Mr.Dinneen. Thank you. I want to congratulate you for
holding this hearing and for recognizing that small business
absolutely has a very vital role to play in our nation's energy
and economic future.
The ethanol industry today is a very dynamic industry. It
is not one that is dominated by large agri-business. It is one,
frankly, that is driven by small businesses. Today there are
116 ethanol plants in operation located across 19 different
states, but there are 81 plants that are currently under
construction that will add another six billion gallons of
production capacity to the six billion gallons of production
capacity we already have, so that within the next 18 months our
industry will be producing more than 12 billion gallons of
high-performance, high-octane motor fuel for the nation's
public.
Already today ethanol is blended in 46 percent of our
nation's fuel. So we are having a significant impact today. But
as you noted, renewable fuels, ethanol specifically, is having
a growing role and is touching virtually every part of our
country.
As I sit here and I look at the panel, Congressman Larsen
in Washington, there is a plant under construction in your
state. Congressman Shuler, there are plans for as many as six
ethanol plants in North Carolina. And one company, Novozymes, a
leader in your community, is actually on the cutting edge of
technology to produce ethanol from cellulosic materials.
Congressman Jefferson, there is a plant that has been
looking to build in Louisiana, producing ethanol from
cellulosic materials and will be one of the leaders in the
future industry. Even in New York, Madame Chairwoman, there are
two plants that are currently under construction and will be in
production later on this year or early next.
And, of course, Congressman Chabot in Ohio, there are now
five plants under construction, steel on the ground, plant
going up next week, there is going to be another groundbreaking
in Ohio, there will be six, which will put Ohio among the
leaders in terms of plants that are currently under
construction. Your state is going to be one of the leaders.
Congressman Bartlett, in Maryland, as you know, there is a
plant that is looking to be sited in Baltimore. There is
another group out on the Eastern Shore that is looking to
produce ethanol, and that will have some real synergies because
of the poultry market out there and being able to feed the
distiller's dry grain from the plant to the vibrant poultry
market out there.
Congressman Heller, I apologize, I have got nothing in
Nevada. But I will tell you--
[Laughter.]
I will tell you that Las Vegas uses a heck of a lot of
ethanol and is one of the reasons Las Vegas is now in
attainment for carbon monoxide. Again, in Texas actually there
are more plants under construction in Texas than in Illinois
today. That ought to tell you something about where our
industry is going. And, in fact, in Texas they are going to be
producing ethanol right on a feed lot, and feeding the
distiller's grain wet, not having to dry it. It will be a very
integrated operation, and the manure from the feed lot is going
to run the ethanol plant.
It is absolutely one of the cutting edge technologies in
our industry today, and, of course, Congressman Braley, you
certainly know a lot about--
[Laughter.]
--the ethanol industry. Iowa is the leader in ethanol
production today.
But it is small businesses; these aren't large. Taken as a
whole, the single largest ethanol producer in the country is
the farmer-owned ethanol plant. It is farmers that are driving
this industry today, and it is having a huge impact on our
nation's economic security.
The industry last year, which produced five billion gallons
of ethanol, added $41 billion to gross output. It was
responsible for 160,000 jobs across the country. That is huge.
The Secretary of Agriculture, Johanns, a couple of weeks ago
had made a comment that, you know, it is relatively easy to
create a job in the big cities. Comparatively speaking, it is
much more difficult to create a job in rural America, but that
is what our industry is doing today.
It is creating jobs in small businesses in a very important
industry, and it is revitalizing rural communities. I get to
see it all the time.
As President of the association, when I have to go out to
grand openings at ethanol plants--and, believe me, they are
happening at a fairly rapid pace right now--but I will stand in
the middle of a field with 1,000 farmers that have seen a new
business come to their community for the first time in a
generation, and they know the economic development that is
going to occur. And they can feel the excitement; it is
palpable.
We have not built an oil refinery in this country in 35
years, but in that time we have built 116 ethanol
biorefineries, and we are going to continue to grow. And small
businesses are going to continue to be at the forefront of that
effort, because they are the ones that are going to embrace the
new technologies that are going to lead our industry to be able
to produce ethanol from things other than grain, because we
know that has to happen.
They are also going to be the ones that will move our
industry toward other markets for ethanol--E-85. It will be the
small, independent gasoline marketer willing to take a pump and
convert it to E-85 as opposed to the major oil companies. So
small businesses will be at the forefront of this debate, and I
appreciate your leadership.
[The prepared statement of Mr. Dinneen may be found in the
Appendix on page 44.]
ChairwomanVelazquez. Thank you so much. Quite optimistic
overview and passionate.
Mr.Dinneen. I haven't gotten started yet.
[Laughter.]
ChairwomanVelazquez. Our next witness is Mr. Joe Jobe. He
is the CEO for the National Biodiesel Board. The NBB is the
national trade association representing the biodiesel industry,
which serves as the coordinating body for biodiesel research
and development in the United States. Its members include
feedstock producers and processors, soybean commodity boards,
biodiesel suppliers, and fuel marketers and distributors.
Mr. Jobe has been with the NBB since 1997 and has served as
CEO since January 1999. Welcome.
STATEMENT OF MR. JOE JOBE, CEO, NATIONAL BIODIESEL BOARD
Mr.Jobe. Madam Chairwoman, Ranking Member, members of the
Committee, thank you very much. It is always a challenge
following Mr. Dinneen, and his very enthusiastic and clearly
very effective leadership in the ethanol industry. The
biodiesel industry is considerably less mature than the ethanol
industry. The ethanol industry's tax incentive was passed in
1979. The biodiesel tax incentive was passed in 2004, took
effect in January of 2005.
And I am here today to talk about how effective that tax
credit has been in stimulating rural development investment in
the biodiesel industry. It has been a phenomenon and one that I
have been very proud to be a part of. We have benefited from
the experience of the U.S. ethanol industry, the challenges and
successes, and we have grown very rapidly. And there is heavy
investment going on from coast to coast, mostly in rural areas
where it is needed most.
I was very impressed by Mr. Dinneen's discussion of how
ethanol plants has impacted virtually every member of the
Committee present. I will say that biodiesel has as well. Even
Nevada--we have biodiesel plants going into Nevada. Texas and
Iowa, I did a speech in Iowa last fall where there are so many
biodiesel plants either operating or coming online it is
absolutely phenomenal. And I told the Iowans that I believe
that Iowa is becoming the Texas of renewable energy.
Texas has now surpassed Iowa in terms of production
capacity, and I will be darned if Texas hasn't become the Texas
of renewable energy. It is phenomenal. It is not a regional
phenomenon. It is one that is going on throughout the country.
One of the things that I want to share with you today--I
know Mr. Urbanchuk will share with you some of the statistics
on the economic impact that the biodiesel industry has
benefited to the country. One statistic--the very first
priority--our tax credit that has done so much to stimulate--in
two years we have built 85 plants throughout the country. With
every plant that goes up this adds jobs to those communities,
investment in those communities, opportunities for agricultural
commodities in those regions, and, most importantly, it is
adding refinery capacity to the nation's fuel supply.
However, our tax incentive is expiring next year, and it is
very important that we get it extended this year. One of the
statistics that is very important that I want to share with you
is just the net impact just to the U.S. Treasury, not the
return on investment to the entire economy and to the
taxpayers. But assuming the biodiesel tax credit is extended
past 2008, the program would cost $3.5 billion.
However, during that time, the industry will generate $8.3
billion in revenue to the Federal Treasury, not in terms of
economic impact. It is far broader than that. Just to the U.S.
Treasury, there will be a $4.8 billion net positive impact
coming into the Treasury. It will be a revenue gainer.
So we urge members of this Committee to do what you can to
help extend the biodiesel tax credit and help see its benefits
multiply. Congressmen Pomeroy and Hulshof have introduced the
bipartisan bill H.R. 196, and I hope you will help support
that.
I do want to share with you a very strong concern that we
have about a development that we believe seriously--could
seriously threaten our industry. The IRS has recently issued an
interpretation of the Energy Policy Act's renewable diesel tax
credit. It was a provision that expanded--this interpretation
expands the definition of renewable diesel.
This ruling came as a result of very intense lobbying of
the administration to the U.S. Department of Treasury to
exploit an ambiguity in the Tax Code to expand that definition,
and the net result is that conventional, large, integrated
petroleum companies can get a dollar per gallon for adding
biomass in very small percentages in their conventional
petroleum refinery capacities.
This is very significant, because this has the potential--
it effectively results in a subsidy for existing petroleum
refinery capacity. The reason it is a threat to the biodiesel
industry is because the volumes that are potentially eligible
here for dollar per gallon could bid up the price of the
feedstock supply and basically strangle off the supply to all
of these small businesses that are building new refinery
capacity.
The reason it is bad policy is because the integrated oil
companies already had available to them a tax credit of 50
cents per gallon under the transportation bill for adding
biomass to their conventional petroleum refineries. However,
this expands it to a dollar per gallon, and it amounts to a
subsidy of petroleum refinery capacity. So we urge the members
of the Committee to please help us support finding a more
reasonable piece of public policy that will address this.
[The prepared statement of Mr. Jobe may be found in the
Appendix on page 50.]
ChairwomanVelazquez. Thank you, Mr. Jobe.
Our next witness is Mr. John Urbanchuk. He is an economist
at LECG in Pennsylvania. Mr. Urbanchuk specializes in applying
economic analysis tools to individual firm and industry
problems. This includes market analysis, business strategy
development, and analysis of the impact of government policy
and regulatory changes on business and industry. His research
specializes in renewable energy, agriculture, and consumer
foods. Welcome, sir.
STATEMENT OF MR. JOHN URBANCHUK, DIRECTOR, LECG, LLC, WAYNE,
PENNSYLVANIA
Mr.Urbanchuk. Thank you, Madam Chairman, Ranking Member,
members of the Committee. Appreciate the opportunity to come
and talk with you a little bit this morning about the economic
contribution that this industry is making to America. It is
hard to follow these two guys. You have heard them both; they
are very impassioned, they are very well informed, and they are
doing a masterful job.
Looking at an industry that is a young adolescent in the
scope of industrial development, the modern-day ethanol
industry, as we know it today, is about 30 years old. The
biodiesel industry, as Mr. Jobe said, is less than 10 years
old. And we have come a very, very long way.
You have heard some of the statistics with regard to
production, the number of plants. The numbers are truly
impressive. They are truly impressive when you think about the
amount of distance that we have come in a short period of time.
And we have had some very, very significant impacts resulting
from that as well.
The economic contribution of the biofuels industry,
ethanol, and biodiesel today is very substantial. Last year
alone the ethanol industry spent $6.7 billion on inputs
required to make ethanol. The biodiesel industry spent over
$300 million--an additional $300 million on inputs required.
Now, a large share of that, the greatest share of that, is
corn, vegetable oil, fats and oils used as the feedstock. They
account for somewhere between 60 percent in the case of ethanol
to 80 percent in the case of biodiesel. And they are largely,
as you know, the output of rural communities.
But in addition to that, small businesses benefit most
directly from the renewable fuels industry because most of the
other goods and services that are supplied are provided by
small businesses locally owned in or nearby the communities
where the biodiesel and ethanol production facilities are
located.
These range, as I said, from corn and grains used to make
ethanol and vegetable oils and fats for biodiesel, but they
also include things like business and administrative services
and maintenance support services, machinery and equipment
supplied by local firms--the whole wide range of other
businesses that support those activities, largely locally-
owned, locally-operated, small businesses in those communities.
While the direct impact in terms of creating demand is
quite clear, the indirect impact is also quite clear. That is
that every time that one of these plants buys something it
represents a purchase of an output from another industry and
another business, if you will. And the dollars that are spent
directly create output for those other firms, so the dollars
that are spent circulate through the economy two or three
times.
The wages are paid by the biofuels plant. They get spent,
but the wages that are paid by their suppliers get spent, and
so forth and so on, so when you look at the overall economic
impacts they are quite significant--as Bob Dinneen said, for
ethanol about $41 billion of gross output, about $22 billion
added to GDP from ethanol alone last year, $7 billion of
income, household income, 160,000 jobs supported by the
industry, quite significant, and, in addition to that, tax
revenue--tax revenue both at the federal level and at the state
level.
There is another important factor to keep in mind when we
talk about the biofuels industry, and that is--that has been
alluded to by Bob, and I am sure will be talked about by Mr.
Graves, and that is the contribution of the cooperative sector.
We have come a long way. And as you indicated Madam Chairwoman,
the ethanol industry now represents one of the most significant
value-added industries for agriculture. And, in fact, farmers
have looked for a long time for ways to participate in the
value-added to their raw commodity, and the ethanol industry
has provided that.
If you go to back to 1991, the majority of ethanol plants
were corporate-owned and operated. Today about 40 percent of
the ethanol plants are farmer-owned cooperatives or limited
liability corporations, and they represent about half of
ethanol production. Those are small businesses.
They are locally owned or locally operated, and work that
we have done looking at the economic impact suggests that the
impact on a local community, a local economy from a farmer-
owned cooperative or a farmer-owned plant is 40 percent greater
than that of a plant that is owned by an absentee corporate
owner. So it is very important for that segment of the
renewable fuels industry to continue to operate and continue to
grow, and we need policies in place that will continue to
foster that growth and development.
Thank you very much.
[The prepared statement of Mr. Urbanchuk may be found in
the Appendix on page 55.]
ChairwomanVelazquez. Thank you.
Our next witness is Mr. Leon Graves, who became the
Director of Industry Affairs for Dairy Marketing Services in
January of 2003, a farmer cooperative. In March of 2007, he
assumed the position of the Director of Operations and
Regulatory Affairs for DMS. Mr. Graves is representing the
National Association of Farmer Cooperatives. They are the main
entity representing farmer ownership interest in biofuels
production. Welcome, sir.
STATEMENT OF MR. LEON C. GRAVES, DIRECTOR OF OPERATIONS &
REGULATORY AFFAIRS, DAIRY MARKETING SERVICES, SYRACUSE, NEW
YORK,ON BEHALF OF THE NATIONAL COUNCIL OF FARMER COOPERATIVES
Mr.Graves. Thank you, Madam Chairwoman and members of the
Committee, and thank you for the opportunity to appear here
today and speak to this very important issue.
We represent a number of cooperatives, and from a personal
perspective we represent a significant amount of the animal
livestock industry here in the United States being part of the
dairy industry. Two of the members of the National Council for
Farmer Cooperatives that I work for--Dairylea Cooperative out
of Syracuse, Dairy Farmers of America based out of Kansas
City--are dairy cooperatives first and fifth in the country
with respect to the amount of milk that we produce,
representing a lot of the agricultural livestock side of the
industry.
I also have the perspective of having been a farmer many
more years of my life than doing what I am currently doing now,
and bring that enthusiasm and passion for the industry and
expertise to the table relative to the animal agricultural side
of this issue and the significant potential that I will speak
to in a moment of the use of animal waste and livestock waste
as part of a renewable energy stream.
As you have indicated, today I am here representing the
National Council of Farmer Cooperatives, NCFC, the national
trade association representing the nearly 3,000 farm
cooperatives across the United States. Cooperatives help meet
the feed, fuel, and fiber needs of consumers at home and abroad
and provide farmers with the opportunity to improve their
income from the marketplace.
You might be surprised to learn that farmer cooperatives
provide consumers with many of the brands that they have grown
up on--Sunmaid Raisins, Welch's Grape Juice, and Sunkist
Oranges, just to name a few.
Farmer-owned companies account for nearly half the ethanol
production in the United States. It is this farmer ownership
and local decision-making in the industry that will ensure that
rural America, and not just the short-term investors of Wall
Street, benefit from this country's new interest in
domestically-produced fuels.
Energy-generating farmer cooperatives are more than just a
local employer, as has been said a number of times here this
morning. They are often the hub of the community and the
trigger for improvements in infrastructure. Cooperative
businesses are based on three fundamental operating
principles--governance by farmer members, ownership of the
business by those who use it, and, most importantly, the return
of earnings to members in proportion to their use of their
cooperative.
Because nearly 80 percent of all milk produced in the U.S.
is marketed through a cooperative, NCFC is investigating
opportunities to provide animal agriculture a stake in the
renewable fuels industry by maximizing the use of manure as a
feedstock for renewable energy. As the renewable fuel industry
increases profitability for corn farmers, high corn prices have
translated to higher feed prices for the livestock and poultry
sector.
Federal resources are desperately needed to develop the
waste energy market in order to restore profitability, deal
with waste issues, and allow livestock producers to participate
in the renewable energy boom.
NCFC is working with the National Rural Electric
Cooperative Association to develop a template for the
generation of electricity from manure including wheeling the
electricity onto the grid and ensuring dairy producers fair
compensation. We will identify needed incentives and hope that
Congress will support this effort much like you have supported
the incentives which helped build the ethanol and biodiesel
industries.
Madam Chairwoman, using just a fraction of the manure
generated on this country's swine and dairy operations we can
generate enough electricity to power the homes in New York's
capital of Albany for nearly 13 years, or to the homes in the
nation's capital for two years. AgStar's data shows us that
dairy and swine operations in Iowa that could apply methane
digester technology would produce enough electricity to light
all the homes in Congressman Braley's district for two years.
If anaerobic digesters were more affordable and applicable
to smaller operations, the amount of renewable electricity
produced would have an even greater impact. As cooperatives, we
stand ready to be an important part of this industry that could
add millions of dollars annually to the incomes of U.S. dairy
and swine producers and to the economies in rural America.
Madam Chairwoman, as you know, the dairy industry is the
largest agricultural sector in the State of New York,
accounting for one-half of the state's total agricultural
receipts. As the nation's third leading producer of dairy
products, we are anxious to apply these technologies to all our
farms, maximize environmental benefits, and realize a higher
income to dairy producers across the state.
We cannot ignore the fact that by using manure as a
feedstock to produce gas, fuel, or electricity, we are
positively addressing many very important issues. First, we
will be increasing the country's ability to produce its own
energy. Second, we will be addressing an expensive
environmental management issue, which includes odor and
wastewater concerns. Third, we will be capturing methane gas
and decreasing carbon dioxide emissions. This is clearly a win-
win for livestock and poultry producers and consumers in urban
areas alike.
In conclusion, farmer-owned cooperatives are playing a
vital role in maintaining and strengthening the rural economy,
as well as local communities, as vital players in this
country's quest for energy self-dependence. The cooperative
business structure ensures that rural America benefits from
this country's recent interest in domestically produced
renewable energy.
We appreciate this Committee recognizing the contribution
that small businesses in rural America, like farmer-owned
cooperatives, are having in the renewable energy industry, and
look forward to working with you in the future, and thank you
for the opportunity to appear.
[The prepared statement of Mr. Graves may be found in the
Appendix on page 64.]
ChairwomanVelazquez. Thank you very much.
It has been quite an exciting presentation, and I just want
to assure you that we are going to be looking at ways where
what type of role, not only the Federal Government can play to
continue to address the issue of energy as an important issue,
not only economic issue but also a security issue, and what
type of tools can be provided through the Federal Government
from tax incentives to the regulatory issues that you have to
face, and access to capital. There is a role for the Small
Business Committee to play, and that is exactly what we are
doing today.
So my first question is to Mr. Dinneen. Conventional debt-
based financing via the SBA's 7a and 504 loan programs is
already available for businesses engaged in renewable energy
projects. Could you comment on the drawbacks that these forms
of debt-based financing, even those guaranteed by the
government, have in your industry?
Mr.Dinneen. Absolutely. I would like to give you a more
detailed review for the record, but let me just say now--I
mean, I think generally the Small Business Administration's
loan program has not worked very well for renewable energy
projects because of the limitations in terms of how much can be
lent and some other issues. But it is going to be critically
important, because the grain-based ethanol industry doesn't
need loan guarantees in order to continue to grow. That is
going to happen.
But one of the most significant challenges that the
cellulose industry faces is the increase in capital costs
relative to a grain-based facility. And lenders with that new
technology are going to need to have some kind of loan
guarantee from the Federal Government. Quite frankly, the
Department of Energy has been somewhat slow to get their
program up and going. There are some limitations to the USDA
program, although they are making some changes.
If SBA could be motivated to create a program or enhance
its existing programs to accommodate renewable energy
technologies, I think that would be a tremendous thing, because
it is going to be the smaller businesses that are going to be
willing to embrace some of these new technologies, but there
will be risks associated with that.
ChairwomanVelazquez. Mr. Dinneen, do you think that the
creation of an equity financing program aids the development of
new technologies in the ethanol industry.
Mr.Dinneen. Absolutely, particularly for cellulosic
conversion technologies.
ChairwomanVelazquez. Do you think that it will be helpful
for the Small Business Administration to provide counseling and
technical assistance to help small businesses develop a
strategy to become producers?
Mr.Dinneen. I absolutely believe that could happen, should
happen. Again, these are indeed small businesses that are
engaged in these activities, and the small business community
is going to have a critical role in our future energy system. I
don't see our future energy needs being continued to be met by,
you know, the current infrastructure with really large
petroleum refineries.
As we mature in our energy future, I think you are going to
see much more localized, smaller production meeting market
niches. Our industry is going to grow not just in the Midwest.
I mean, I am not sure we can get any more plants in Iowa. But
as the industry grows, it is growing beyond the traditional
grain belt to other parts of the country, to, you know, areas
where woody biomass in upstate New York or rice straw in
California or agricultural waste in Florida--I mean, there are
feedstocks for ethanol all over the country.
And as entrepreneurs seize those opportunities, it is going
to be the small business community that does that, and it will
be a different energy infrastructure in the future.
ChairwomanVelazquez. Thank you.
Mr. Jobe, in your program you noted--in your testimony you
noted a federal program that has been critical to the growth of
the industry, and that is the biodiesel fuel education, which
was authorized in the farm bill in 2002. Can you explain why
this program has been important to the biodiesel industry? And,
please, can you provide some example where you think this
program has worked?
Mr.Jobe. Yes, absolutely. Thank you. The Biodiesel
Education Program in the previous farm bill has provided very
much-needed education and awareness about biodiesel. Before the
biodiesel education program came around, less than 10 percent
of Americans even knew what biodiesel was.
Now over half of Americans can identify that they know what
biodiesel is and they have some level of awareness about that,
and so school systems are adopting biodiesel for their school
bus use and their fleets, which is a perfect application.
School boards and mayors are hearing about biodiesel and
looking to integrate biodiesel into their usage. That education
program has been essential in helping educate the petroleum
industry on how to handle and distribute, how to integrate
biodiesel into the existing infrastructure, and so there is an
effort to extend that program in the next farm bill, and we
hope that it will get extended.
ChairwomanVelazquez. Mr. Graves, what is the single-most
important factor to development of the waste to energy market?
And why is this technology not yet applicable to smaller
operations?
Mr.Graves. Madam Chairwoman, I think the single greatest
impediment is the cost. The cost of the technology is still
significant. We have a number of dairy operations that are
spending between a million to a million and a half to implement
an anaerobic digester on a farm for methane captured just on
that farm.
So access to capital, the opportunity for technical
assistance, which has been provided to some degree through USDA
and the National Resource Conservation Service. Grant resources
from that agency would definitely be helpful in addition to
technical assistance. I also think that technologies need to be
geared--we need resources for R&D to gear those technologies to
smaller operations.
We still have a lot of small livestock operations out there
that really cannot put the capital together, nor have the
interest, quite frankly, in managing a facility like that. So
there is still a lot to be done, and I think the opportunity to
capture animal waste and the animal waste stream is a
renewable--for renewable energy, we are just beginning to
scratch the surface on that, and we are excited about some new
opportunities there with the right resources.
Thank you.
ChairwomanVelazquez. Thank you.
Now I recognize Mr. Chabot.
Mr.Chabot. Thank you very much, Madam Chair.
First of all, let me preface my question by commenting and
acknowledging that I do believe that ethanol is one of the keys
to resolving our--the fact that we are too reliant upon foreign
sources of energy, and this is something that we can deal with
and handle and begin and end with right here in our own
country. So it makes sense in pursuing it.
There are some effects, however, and I would ask Mr.
Dinneen and Mr. Urbanchuk, could you discuss the impact that
increasing uses of ethanol do have on other foodstuffs and the
pricing that consumers pay at the markets and that whole issue
there? And I would ask either one of you to--or both to comment
on that.
Mr.Urbanchuk. Go ahead, Bob.
Mr.Dinneen. Let me just start, and you can actually give
the numbers. I would just say, I mean, first of all, one of the
reasons why members of Congress and the President have promoted
the increased production in the use of ethanol over the years
is, in fact, to increase the commodity prices, to make sure
that farmers are getting more of their revenue from the
marketplace as opposed to the Federal Government. And that has
absolutely worked.
I mean, yes, ethanol today is responsible for increasing
the price of corn, but a lot of people believe that corn had
been undervalued for quite some time. And the chief economist
at USDA earlier this year had actually indicated that the
increased demand for corn used in ethanol production was
actually reducing federal farm program costs by more than $6
billion. So it has been a huge winner from that perspective.
In terms of its impact on food prices, I think it is going
to be very minimal, and the marketplace will work those things
out. And Dr. Urbanchuk can probably respond more specifically
to what some of the impacts have been.
But, you know, I think the marketplace is going to find an
equilibrium for corn. You have already seen it. It was up over
$4 earlier this year. It has come back down. The marketplace
worked. Farmers saw the increased demand for grain for ethanol,
and what happened? They planted more corn. USDA reports that
there may be as many as 90 million acres of corn planted this
year. That is 15 percent more than a year ago. It is a
tremendous increase. It is a real shift in agriculture. So, I
mean, I think the marketplaces will respond.
Mr.Urbanchuk. Thanks, Bob.
It is an excellent question and one that has gotten a
tremendous amount of attention, particularly in the press, a
lot of it not very fact-based unfortunately. We have seen a
sharp increase over the last several years in the use of corn
for ethanol production, and most of the corn--most of the
ethanol made in the United States is made from corn. We do use
some other grains, and we have the ability to use other grains
to make corn--to make ethanol, but for the most part we use
corn. There are other potential feedstocks out there.
The impact that has had, of course, by increasing the
demand has drawn down stocks and resulted in increased prices
that we have seen in the marketplace. But as Bob indicated, the
market has responded and responded quite significantly.
We have an opportunity now. We have a farm bill structure
in place that allows farmers to base their planning decisions
on the signals the market gives them, and they are, in fact,
responding with 90 or 90.1 million acres of corn scheduled to
be planted this fall, at least farmers indicated intentions for
that. We are going to see a large crop come in.
But there is another aspect of this that is important to
keep in mind as well, is that with that renewed interest in
corn agriculture and in grain agriculture we are starting to
see technology come into place that is going to increase yields
as well, which will also help increase production.
We have seen an increase in corn prices, and that has
resulted in smaller margins and higher prices at wholesale
level for a lot of meat and poultry prices. But it is important
to keep in mind, it is instructive to keep in mind when you
look at those price increases to look at the increase from
where we were a year ago.
For example, poultry prices at the consumer level declined
for most of 2006. So you are looking at prices now relative to
a--you know, I won't say a peak versus a trough, but a high
point versus a low point. Ag prices have gone up significantly.
Again, ag prices are up sharply over very, very low prices the
early part of 2006.
We have seen an increase in milk and dairy prices as a
consequence of higher feed prices, but most of that isn't
attributable to increased demand for corn. Rather, it is
attributable to changes that have happened in forage conditions
and hay prices that have been unrelated to the increased demand
for corn.
What I am suggesting to you here is that the market, in
fact, is sorting itself out. We are looking at a period of
prices that I believe are going to adjust downward as increased
production comes into play. But there is also another factor to
keep in mind, and that is that when we take corn and we turn it
into ethanol, we don't lose the full feed value of that grain.
In fact, what you are doing is you are taking the starch
and converting that into alcohol, but you are leaving the
fiber, the nutrients, the protein that is in that corn kernel
behind. And those nutrients in the form of distiller's grains
of dry mill production or corn gluten feed or corn gluten meal
from wet mill production can be used for--they are widely used
as a dairy feed for other ruminant animals like beef cattle and
for swine and poultry.
And as we increase the production of that, you are also
going to see that take some of the pressure off of higher
grains with regard to the animal agriculture side. I don't
expect that we are going to see significant increases in food
prices as a consequence of increased either ethanol production
or biodiesel production as we move through the next several
years.
Mr.Chabot. Thank you.
Mr. Jobe, let me switch to you if I can now. Do you
anticipate the number of flexible fuel vehicles on the road is
going to increase with increasing demand for renewable fuels,
considering the high cost of these vehicles? And what types of
new technology or innovations do you see that may be on the
horizon for biodiesel? And if you could keep that relatively
brief, because I want to get one final question in to Mr.
Graves if I can.
Mr.Jobe. Sure. We are already seeing a shift. Because of
fuel economy, the fuel economy increased benefits of diesel
fuel in light-duty diesels, we are already seeing a shift to
diesel technology in light-duty vehicles. Diesel technology is
20 to 50 percent more fuel efficient, which is why about half
of the light-duty vehicles on the road in Europe are diesels.
We are starting to see that now. Biodiesel blends can be
used in any diesel engine. Currently, in terms of light duty,
only about 3 percent of the cars on the road in the United
States are diesel. We are seeing a shift in that now because
diesel technology is getting cleaner and better, and biodiesel
is well-positioned to play a role in that.
Mr.Chabot. Thank you.
And finally, Mr. Graves, there is obvious, you know,
reduction in the fossil fuel consumption when one talks about
converting manure, etcetera, to energy sources and that. How
environmentally friendly is that process? And could you sort of
walk us through, again relatively briefly, how it works? And
you can use as much discretion or as little as you need to
considering the subject matter.
Mr.Graves. Sure. Thank you, Congressman. It is a relatively
simple technology, fairly old technology. The production of
methane from animal waste and animal manure, it is a matter of
capturing the methane gas produced from animal manure in some
type of containment. It can be as simple as a concrete pit in
the ground with some type of bladder over the top of it to be
able to capture the methane gas.
Normally, the methane gas is then captured and run through
some type of an internal combustion engine to turn a generator
to produce electricity, and the technology works--it is
basically fool-proof, as long as you have the right bacteria,
the appropriate mix of carbon-based material or the appropriate
bacteria in the system to start it, and then it automatically
produces methane gas and, you know, it is a fairly efficient
technology.
From an environmental standpoint, very environmentally
friendly. The animal wastes are completely contained. In many
instances, the animal wastes are then separated. The solids can
be used, composted, dried, put into other soil amenities and/or
used for bedding or, you know, soil amenities back on the farm,
the liquid portion being spread. So it works relatively well.
Mr.Chabot. Thank you, Madam Chair. I yield back.
ChairwomanVelazquez. Thank you.
We have two votes, but we are going to go to Mr. Larsen,
and then after that we will take a recess for maybe half an
hour.
Mr.Larsen. Thank you, Madam Chair.
Mr. Graves, I want to follow up on that. I am just reading
an article that was e-mailed to me. It was in my local paper
today in Lynden, Washington, up on the--if you are from
Vermont, just go all the way across the border to the other end
of the country and you will be in Lynden, all the way across,
3,000 miles from where you are.
The headline is ``Lynden Cows Fuel Western Washington
University Vehicle.'' The point is that the Vehicle Research
Institute of Western Washington University is university-run,
but it is a student research-run institute. They just won a
$75,000 grant from the EPA for their methane--biomethane-
powered vehicle.
And what they are doing is using methane produced at an
anaerobic digester at the Vander Haak farm in Lynden, and they
are scrubbing it because it is dirty. They have got to scrub
out the CO2 and scrub out--I think it is H2S, and then they can
use it as a compressed gas like natural gas, but they have to
scrub it, so their technology that they are experimenting with
is to scrub this methane so it can be used as a compressed gas
in their experimental vehicle. And they just won one of six out
of 41--only six of 41 universities around the country who
recently won a grant from the EPA to look at this further.
So there is--the idea is out there, and I think what you
are describing is the idea on paper. There is a little ways to
go on this, and we are relying on university students to do
this research. And we probably ought to be relying on more
people to do this kind of research.
It also looked at--interestingly enough, what they have
calculated is things like cows per mile, and, you know, sort of
put it in real terms for everyone and how much cows can produce
in terms of methane and how many cars that means and how many
cars--the equivalent of taking them off the road, in terms of
the environmental benefit, how much CO2 they are pulling out of
the--emissions they are pulling out of the air.
So there are things going on that are important, but there
are challenges in the Vander Haak--Mr. Vander Haak, the farmer
on this project, is facing serious cost constraints to continue
operating his anaerobic digester and needs subsidies not just
from government subsidies but also from the private utility
that is taking the electricity that is being generated from the
generator that is being powered by methane gas as well.
So there is a lot of little moving parts and a lot of
financial moving parts to this as well, and I think that is
something worth looking into, especially for folks who have got
a lot of dairies in their areas.
A second issue, I will just point out--and maybe someone
can address this--we also--if you eat coleslaw,
congratulations, it is probably from seeds grown by--from
cabbage seeds grown in my district, which produces 75 percent
of the cabbage seeds in the country. And they are facing the
challenge--it is a $20 million industry in one of my counties.
They are facing a challenge because people want to grow canola
for biofuel, but if there is a cross-pollination it blows out
the cabbage seed production and you can't grow cabbage.
So I am wondering if maybe Mr. Dinneen or one of you have
looked at this--the challenges of growing crops next to other
crops when you don't want them to grow next to each other, and
how we address that issue, so you are not blowing out one ag
industry for the benefit of another part of the ag industry.
Mr.Urbanchuk. I think that is relatively--I believe it is
relatively rare, where you have got that kind of a cross-
pollination I guess, or you get one crop damaging another.
Typically, what you can run into is problems with regard to
crop protection chemical drift from one crop to another.
Mr.Larsen. This is not a crop chemical drift at all.
Mr.Urbanchuk. No. But that is typically where that kind of
a problem runs into, but I think it is relatively rare for that
circumstance to exist with regard to canola and cabbage seed. I
can't remember too many instances that I have--
Mr.Larsen. Well, it would be rare, since we grow 75 percent
of the cabbage seed.
Mr.Urbanchuk. Cabbage seed, yes.
Mr.Larsen. It is not grown much anywhere else.
Mr. Dinneen?
Mr.Dinneen. Canola would be grown for biodiesel, not for
ethanol. But this would be so far out of my wheelhouse, I just
would hate to hazard a response.
Mr.Larsen. And I don't mean to be a killjoy on this. I am
as enthusiastic as you all are about it. I am just saying that
you have got to be sure that we are looking at other parts of
the ag industry to be sure, again, we are not destroying--
Mr.Jobe. This is certainly the first time I have ever heard
of rapeseed wanting to inappropriately fraternize with cabbage
seed, so we will--we are certainly willing to work with you and
figure out, you know, if there are solutions.
Mr.Larsen. And that is--well, and the state legislature in
Washington State is trying to sort that stuff out. And, you
know, you can laugh, I know it might sound funny, but this is--
to farmers who are making $20 million a year for a very small
industry, it is a pretty good deal.
ChairwomanVelazquez. Mr. Larsen, it seems like Mr. Graves
wants to add--
Mr.Larsen. Yes.
Mr.Graves. I would actually like to, Congressman Larsen,
just comment on the research that you referenced at the
University of Washington. We have a group of--
Mr.Larsen. Western Washington.
Mr.Graves. Western Washington. We have a group of larger
progressive dairy producers north of Syracuse that are
contemplating a pipeline, either piping it directly into a
plant to produce electricity or to scrub the gas and put it
right into the natural gas pipeline system. So we would
certainly welcome access to any of that technology and anything
that is learned in Western Washington.
Thank you.
ChairwomanVelazquez. Time expires, and the Committee is in
recess subject to the chair's call.
[Recess.]
ChairwomanVelazquez. The Committee is called to order.
And I now recognize Mr. Jefferson.
Mr.Jefferson. Thank you, Madam Chair.
I want to ask Mr. Joe, if I might, you made a reference to
two issues here that relate to what you think may be a misuse
and inappropriate interpretations of the federal tax laws we
passed regarding the reexporting issue and the issue of the
thermal depolymerization definition.
Let me talk about the second one first, rather than have to
say it twice.
Mr.Jobe. Yes.
Mr.Jefferson. The ambiguity that you speak of here has led
to a definition that you say permits a misuse, and that you
have here some large petroleum industry concerns that are
taking advantage of this credit without having to meet the same
EPA regulatory requirements as those that go directly into the
business. Can you explain that further, and tell us what you
think the fix is for that?
Mr.Jobe. Yes. Thank you for asking the question. This
problem is a result of in the 2005 energy bill there was a tax
credit added to our biodiesel tax credit extension called
renewable diesel, and the tax credit was intended to stimulate
a class of technology called thermal depolymerization that
turned waste--animal wastes into a boiler fuel, so turkey offal
was specifically referenced in the statutory language, turning
that into a boiler fuel.
However, after that was passed, the large integrated oil
companies aggressively lobbied the administration to have the
definition of that process expanded to the point of such a
broad interpretation that it would include even conventional
petroleum refinery capacity. The petroleum companies--and I
want to mention that--
Mr.Jefferson. Well, what is the fix for this, do you think?
Because I know my time is going to be short.
Mr.Jobe. Well, the solution for this--the petroleum
industry, we are not opposed to the petroleum industry blending
biomass into their existing refineries. They can already get 50
cents per gallon for doing that.
However, by allowing them to expand the definition and get
a dollar per gallon, it will have very serious negative
unintended consequences to the biodiesel industry and lock up
the raw material supply for the biodiesel industry and small
businesses who have invested in those communities.
Mr.Jefferson. So you would limit the amount of incentive
they can receive under this? Is that the fix for it or--
Mr.Jobe. Yes, sir.
Mr.Jefferson. Or do you want to redefine the definition of
thermal depolymerization more narrowly?
Mr.Jobe. Correct. If thermal depolymerization were defined
so that it did not include co-processing biomass with--in
conventional petroleum refinery capacity, they can--
Mr.Jefferson. Well, that is probably the real fix for it,
then. Okay. Now, are you concerned, as we go through this, you
know, bit by bit, like in this case, you will have someone come
up with the notion that, you know what, if we do this--pick
this one, we can help in this way, without there being a
comprehensive look-see at all the ways that we might help with
biomass and all the rest, ethanol, all the rest.
So the Congress keeps picking winners on this thing, as
people kind of come up and say, ``Here is what we think we can
do.'' As they make some advances, they will come to Congress
and say, ``Let us pick up mine this time, because we can make
this a benefit to small businesses, to the government, to
society in general.'' How do we kind of get at this thing in a
comprehensive way where we aren't picking winners, we aren't
picking any narrow little areas, and we are addressing the
issue of alternative fuels?
Mr.Jobe. That has been the success of the oil companies who
have aggressively lobbied for this. That has been their sound
byte. We can't pick winners and losers. And the problem is by
allowing the large integrated oil companies to get this subsidy
by exploiting an ambiguity in the Tax Code and bypassing the
regulatory and legislative process, we will indeed pick winners
and losers. The winners will be the oil companies who will
receive windfall profits, and the losers will be the small
businesses who have invested in their communities, and the
taxpayers.
Mr.Jefferson. Okay. May I clarify? I meant between those
who are in the biofuel industries, those who are in the
ethanol, those who are in the animal waste, all those folks. I
am saying there is a great panoply, a large panoply of
alternatives here.
And I am trying to figure out how you might suggest this
Committee gets after essentially all of them without saying it
is--ethanol is this or not--so that we might find a way to
incentivize this whole alternative energy field as opposed to
trying to pick a winner here, a winner there, as we did here,
and this evolved--then, they all attack it and make themselves
available for it.
Is there some way to get at this thing in a general way?
Mr.Jobe. Yes, absolutely. And by making sure that an
ambiguity in the Tax Code cannot be inappropriately exploited
and bypass the legislative process. It is the responsibility of
Congress to enact sound government policy through the
regulatory and legislative--
Mr.Jefferson. Should we prefer agri-business over fuel from
other--waste from a restaurant?
Mr.Jobe. The reason--
Mr.Jefferson. And should we prefer, at the end of the day,
that when it is used for production for electricity, there is a
case for using it for fertilizer?
Mr.Jobe. The reason that the agri-biodiesel was given a
dollar per gallon tax credit, and the yellow grease-based
biodiesel was given a 50-cent tax credit was because using 20-
year historic averages recycled products are about half of the
cost of the first use animal fats and vegetable oils.
And so in order to keep the cost of the tax credit program
down, it was given half of the incentive, because that was what
the requirement would be. And so it was to--it was really
mainly designed to keep the cost of the program down.
Mr.Jefferson. Yes, I see. That does make it logical,
though.
May I ask one more thing? How can we--we have talked about
this as a small business opportunity. How can we go about
making policy here, try to do some things that ensure that the
big companies--that it remains a small business opportunity for
most folks in rural America, or anywhere else, and it isn't
taken over by the larger concerns? Can anybody answer? What can
we do to keep the emphasis in this area on small businesses?
Mr.Jobe. Well, I will just go first, and I have already
made it clear that if this renewable diesel tax credit is not
further defined, it will pick winners and losers, and it will
pick the large integrated oil companies over the small
businesses and will put those investments and assets at risk.
And so I urge the Small Business Committee to look at this
issue and please urge a more reasonable policy on this matter.
Mr.Graves. Congressman Jefferson, I would also add, if we
are going to make this a business for small businesses, we have
to pay attention to access to capital. The regulatory arena has
to be fair and predictable and affordable, and I think we still
have to work on the R&D for new, efficient, less expensive
technologies that work in smaller settings than we normally
would see in other places.
ChairwomanVelazquez. Time is expired.
Mr. Chabot, do you have any questions at this point?
Mr.Chabot. I have a couple of questions, but I would be
happy to defer to your members and maybe go last, if you would
like.
ChairwomanVelazquez. Okay. Thank you. Yes, sir.
Mr. Braley?
Mr.Braley. Thank you, Madam Chairwoman.
There is two things in Iowa that we are very proud of--
agriculture and education. My family has been farming and
teaching in Iowa for about 150 years. And, Mr. Graves, it may
interest you to know that my great-great-grandfather, George
Washington Braley, walked to central Iowa from Northfield,
Vermont in 1855, looking for better farm ground.
My other great-great-grandfather sailed here from Ireland
around that same time looking for better farm ground. And one
of the things that I know is that we are going to have to think
about how we are going to educate the next generation of
leaders and technicians in the renewable fuels industry or are
we going to be left with a huge void.
And that is why I was very proud to introduce as my first
bill in Congress H.R. 872, the New Era Act, which creates a
partnership between community colleges and the renewable fuel
industry to make sure that the next generation of technicians
have the proper education and training to serve this rapidly-
expanding industry.
This is a big concern to me, because I am probably one of
the few people serving in Congress who took four years of high
school shop classes. And I am disturbed by the fact that we
don't look holistically at our educational issues, including
our rapidly-diminishing vocational programs in high schools,
and, in fact, not only ag but also the technicians of tomorrow.
And we have a huge void between what is being done in high
schools and what is available at community colleges.
So I would just urge you to pass on to your members that
this is a great bill to get behind to make sure that we have
the proper technicians. And I would like to hear from you about
what your respective groups are doing to look not just at the
production side of this but also how we sustain it by having
trained people with the skill sets that are going to be
necessary to continue to crank out what I think we all believe
is a very appropriate switch in our focus from dependence on
Mideast oil to what we can grow in the Midwest.
Mr.Dinneen. Congressman, I would like to thank you for your
leadership on that bill, because, quite frankly, the workforce
needs of our industry are tremendous right now. Our industry is
going to double in the next 24 months, and one of the real
challenges that we face is finding qualified people, finding
welders to build the facilities, finding people that are able
to work in the plants and have the skill set necessary to help
this industry move forward.
So we are strong supporters of your bill. We are also
working with the Future Farmers of America. We are partnering
with them on an education program. We have put a quarter of a
million dollars into that just so far this year, and that is
going to be an ongoing project.
We are also working with a group called Skills USA that is
looking at workforce issues, and we are just beginning to
develop a program with them. And we also have been working with
the community colleges, mainly across the Midwest, trying to
develop curriculum that will help our industry as we move
forward. Your bill is going to help all of that, and we
appreciate that.
Mr.Jobe. I will just add real briefly that we also support
that initiative. We have also been looking at supporting the
FFA education initiative that Mr. Dinneen referenced. In terms
of the biodiesel industry, there is a shortage of trained
technicians, particularly in the chemical engineering, the
chemistry engineering sector, safety is a very important
concern in our growing industry. In an industry that is growing
as fast as our industry is growing, safety is definitely a
concern. So we support what you are doing to try to enhance
those measures.
Mr.Urbanchuk. Briefly, from the economic side, as you are
all aware--and it is not just limited to the renewable fuels
industry but all small business and large business--but,
largely, our competitive advantage is hinged to our quality of
our labor force at all levels. And the approach that you have
taken, the legislation you have taken, I think is going to be a
tremendous step in helping us maintain that competitive
advantage.
We have for a long time been moving jobs offshore, and one
of the obvious reasons for that has been labor, access to
labor, not just price but quality as well. And it is very
important to keep in mind that what we are talking about here,
this is the manufacturing sector industry. We have been losing
manufacturing sector jobs in the United States for a long
period of time.
You are looking at an industry here that is creating
manufacturing sector jobs, and is helping to revitalize rural
communities and allow those job opportunities to bring young
people back into communities in Iowa and in other areas in the
Midwest. In central Pennsylvania where I come from, okay, we
are seeing opportunities, and that is a very, very important
aspect of maintaining that competitiveness to allow us to help
reverse that trend.
Mr.Graves. Congressman Braley, just very quickly, my
youngest brother drove to Iowa State in search of better
farmland, graduated, and now farms about 4,000 acres of your
finest land, so I am still back farming the land in Vermont.
So, but on a more serious note, we appreciate your efforts
and your leadership on this. Many of the cooperatives are
developing staff expertise. We need to develop that expertise,
so that we can be good ambassadors and help educate and provide
good information to our members. That is, we think, a very
critical step.
We also have in many of our cooperatives young cooperator
groups where we foster leadership, young folks that come
through the industry, through 4-H and FFA and this is the next
logical step where they will gain some expertise and have
access to good information. And so we believe very strongly in
what you are doing, and we thank you for your efforts.
Thank you.
ChairwomanVelazquez. Thank you.
Ms. Clarke?
Ms.Clarke. Thank you very much, Madam Chair, and thank you
to all of you.
I am from New York City, so we will use your products; we
won't manufacture them. But I am glad to have you here in what
I call the dawning of the next phase or the new era in terms of
where we are moving as a nation to produce fuel that will take
us into the 21st century. I wanted to raise an issue that I
think is very important in the context of the growth and
development of this industry, and I wanted to examine the
federal policies that focus on renewable fuels but take on a
global perspective.
I wanted to raise the issue of imported duties on ethanol
fuel, and the global implications and impact of renewable fuels
given where we are, and the availability of resource and
production and demand.
We have currently in place the Caribbean Basin Initiative,
also known as the CBI, which was created in 1983 to promote
stable political and economic climate in the Caribbean region.
It granted duty-free status to many products from these
countries, including ethanol under certain conditions.
I wanted to ask Mr. Dinneen and Mr. Urbanchuk--I know that
duty-free treatment for CBI ethanol has raised some concerns,
especially, as you both stated in your testimony, that U.S.
demand for ethanol has been growing. However, historically,
imports played a relatively small role in the U.S. ethanol
market. Last year, for example, the ethanol from CBI countries
represented only 3.4 percent, yet many critics contend that
duty-free imports from the CBI would undermine the domestic
U.S. ethanol industry.
Can you give us basically what your position would be on
the duties for imported ethanol fuel?
Mr.Dinneen. Absolutely, Congresswoman, and thank you for
the question. Before I get there, don't discount the fact that
New York City may one day be in the production business of
ethanol as well, because there is a company in California,
BlueFire Energy, that is looking to produce ethanol from waste
products, from municipal solid waste, and they are setting up a
facility right at a landfill in Los Angeles. And there is no
reason the same technology could not be used at landfills all
across the country, so New Yorkers may one day find a market
for the ticker-tape parade material.
Ms.Clarke. Madam Chair, we have got to take note of that.
[Laughter.]
Mr.Dinneen. With respect to the duty, let me clarify. The
Renewable Fuels Association was part of the coalition that
supported the CBI agreement in 1990, and we continued to
support it today. We do think that there are important policy
objectives of allowing that region to grow in industry, and we
have not been at all concerned about the imports from that
region at all.
Where we do have concerns about the secondary tariff, those
people that would seek to lift the secondary tariff have
characterized it as a barrier to entry when, in fact, the
secondary tariff is not a barrier to entry at all. We imported
650 million gallons from Brazil last year.
Brazil has built a heck of an ethanol program through 35
years of production incentives, mandates, vehicle tax
incentives, infrastructure development, export enhancement, all
things that I think make sense. They have built a great
industry, just as we are trying to do here, but they don't need
our tax dollars. We don't need to incentivize them as well.
And the reason I say that is refiners get a tax incentive
when they blend ethanol whether that product is imported or
domestic. So if you remove the secondary tariff, what that
means is that imported product is now being subsidized. It gets
the same incentive that is intended for encouraging domestic
production. And we welcome competition from Brazil; we just
don't think that U.S. taxpayers need to subsidize that product
at all.
Mr.Urbanchuk. And that is really one of the key components
to this issue, and I want to come back also to the issue of
competitiveness as well. As I indicated to you, we make most of
our ethanol from grains, with corn being the primary one. Let
us be honest. In America, that is one of the things that we do
best. We grow corn better than anybody else on the face of the
earth. God has given us the resources to do it, and we have got
the technology to do it, and the farmer know-how, and we do it
very, very well.
If you go south of the equator and you go to Brazil, their
corn is sugar. And they have got a sugar--we have a sugar
program that effectively keeps sugar as a feedstock
uncompetitive in the United States. If you remove that
secondary tariff and you allow a Brazilian exporter to enjoy
the tax benefit that we give the blender, you are going to
provide an incentive for companies to take their investment and
move it from rural America south of the border.
And you are going to essentially end up doing what we have
done to other manufacturing sector industries. You are going to
provide an incentive to take that investment and those jobs and
move them out of the United States.
As Mr. Dinneen indicated, there is no problem in competing
head on head with Brazil. We can compete with Brazil, but we
want to compete fairly. And I think we have to be very, very
mindful of what the potential ramifications of lifting an
embargo are.
The CBI--I think, again, from the perspective of providing
the exemption or, excuse me, the tariff-free status of CBI is
an excellent program, works very, very well. Brazil is an whole
other kettle of fish.
Ms.Clarke. Thank you, Madam Chair.
ChairwomanVelazquez. I am going to take this just one
second, because you raised the issue of Brazil. Why are you--
when we talk about CBI, you raised the issue of Brazil?
Mr.Urbanchuk. The United States is the world's largest
producer of ethanol. The world's second-largest producer of
ethanol is Brazil. If you take all of the other countries in
the world together, they don't produce as much ethanol as the
U.S. and Brazil do.
ChairwomanVelazquez. I understand that. But CBI doesn't
cover Brazil.
Mr.Dinneen. It doesn't. But let me--the question was asked
in the context of the secondary tariff. And currently under the
Caribbean Basin Initiative, the secondary tariff does not apply
to Caribbean product. It would apply to Brazil. And people have
talked about removing that secondary tariff, and the first
people that will be hurt by that will be those that are
currently producing under the CBI.
Mr.Urbanchuk. There's another aspect of it, too, that is
important, and that is that if you look historically at the
development of the Brazilian ethanol industry, they produced a
form of ethanol that contains water. It is called hydrous
ethanol. That can't be blended into gasoline. It has to be
processed. They would ship that to the--largely to the
Caribbean countries--
ChairwomanVelazquez. I know. Yes.
Mr.Urbanchuk. --right, and that provided an industrial
base, which is very, very important for economic development.
Brazil now is producing more and more anhydrous ethanol that
can be directly used. So essentially what happens, they can
bypass the Caribbean countries and come directly to the United
States, so not only are domestic producers adversely affected
but so are producers in industry in the Caribbean Basin.
ChairwomanVelazquez. Mr. Shuler?
Mr.Shuler. Thank you, Madam Chair. We have had some really
great panels, but without a doubt this is the best panel we
have had here at the Committee.
As a freshman coming in, you have a lot of diversity
within--certainly within our own caucus, but diversity
throughout from different regions, different ideologicals,
different areas. But there was one thing that our freshman
class certainly had, and I have two of my colleagues here from
the freshman class.
We all had one thing in common, and that was sustainable
renewable energies. And so regardless of differences we may
have in other subjects, sustainable renewable energy is at the
top of all of our lists.
And so I just want to commend you, Madam Chair, for putting
such a great panel together today.
And also, Mr. Dinneen, I mean, thank you for using the
technologies, the distillery process which we helped create in
the mountains in western North Carolina. We appreciate you
thinking of us and just remember us folks in the mountains of
North Carolina when you use that distillery process every day.
Mr.Dinneen. Drink the best, drive the rest, Congressman.
[Laughter.]
Mr.Shuler. Well, thank you. Mr. Dinneen, while I am--let us
talk about the diversity. I mean, you know, so often in my
district, I mean, a farm in my district is 10 acres. The
topography, 10 to 50 acres, you know, if you find 50 acres that
is tillable in western North Carolina, and that is a very flat
piece of property. Talk about the ways that our farmers can
diverse--and maybe this is open to all--both in the ethanol
and, Mr. Jobe, in the biodiesel.
You know, what more can we do? How can we continue to put
our--we want to put our farmers back in the economic structure
they have been for decades, and we have been losing that
certainly in our area. How do we encourage? And also, what are
some other things that they can grow? Obviously, no one in west
North Carolina--I mean, apples is a big part, so it kind of
gives you a little idea of what--we do grow corn, tobacco.
Mr.Dinneen. Well, indeed, one of the great things about
ethanol is that you can produce it from such a wide variety of
agricultural feedstocks. I mean, yes, today corn is king, but
we are also producing ethanol from sorghum today, which is
grown in the southeast in much dryer climates. Sorghum is also
a grain. We used about 20 percent of the sorghum crop last
year.
In your state, in North Carolina, there have been people
that have been looking to produce ethanol from sweet potatoes,
something that can grow quite well in that area. North Carolina
also has an awful lot of woody biomass.
And I think as our industry grows, and as new capital is
coming into the industry, new intellectual capital is coming
into the industry as well, and they are looking at a range of
new technologies, a range of new feedstocks, and I think areas
of the country are going to soon recognize that they have got
renewable energy feedstocks right there.
And it doesn't need to necessarily be a transition. They
can take advantage of the value-added benefits of ethanol by
processing the agricultural abundance that may already be in
their area.
Mr.Shuler. Very good.
Mr.Jobe. Congressman, in my written testimony, I did point
out--I had to pare it down, but I did point out that there is a
small business in Asheville, North Carolina--Blue Ridge
Biofuels--that is a small producer of biodiesel. They produce
it from recycled cooking oil.
They collect cooking oil from 150 local area restaurants.
They have expanded their capacity to two million gallons a
year. They now employ 10 people. They plan to hire five more.
This is an excellent example of how ingenuity,
entrepreneurship, and small businesses have benefited by this
tax policy and this good, sound, public policy. They are
supplying fuel to the Asheville Municipal Airport, the
University of North Carolina in Asheville, they are helping to
provide the city's electrical power, and it is creating a lot
of just good positive benefits throughout the community.
And that is an example of how, you know, we grow--we grown
corn here. This is what we grow. We also grow soybeans. That is
our primary oil seed crop. It will remain a predominant
commodity for oil seeds in the United States, but in addition
to that all oil seeds--corn oil, canola, as well--all of the
vegetable oils, as well as animal fats that can and are being
used for biodiesel production, and it is having dramatic
positive benefits throughout the livestock industry and the
entire agricultural sector.
Mr.Shuler. Very good. Smoky Mountain Biofuels is obviously
a competitor of Blue Ridge Biofuels. And they are different
sections of my district, both have done incredible--I mean,
just absolutely--of all of my tour in the district, Smoky
Mountain Biofuels have actually taken it to another step. And
there actually they have contracted with the local
municipalities. They have taken the--a condemned piece of
property that was a landfill.
They are extracting the methane gas to work through the
distillery process. And with that excess methane that they are
pulling from there, they are totally self-sufficient, and they
are actually put in an ironworks or a blacksmith shop, in
addition to what they have been able to do.
Are you seeing a lot more of that, of people using some of
the methane and almost getting to the point of almost self-
sufficient? In our district, I mean, they have done an
incredible job, and that can be open to almost any of you.
Mr.Jobe. I will just mention real briefly we have a number
of new--we get approximately two new members a week in terms of
new small businesses that are putting--making investments in
biodiesel production. Many of them, like the one you mentioned,
are utilizing renewable resources.
There was a new plant in Denton, Texas, that went in as a
joint venture with the city of Denton. They located their
biodiesel plant at their landfill, and they are running--they
are powering the plant off of landfill gas, and they are
producing--they are taking in the city's recycled cooking oil.
They are using the landfill gas to produce it in the biodiesel,
and then they are fueling their vehicles and it is very much a
closed loop system. And we are seeing more and more examples of
that throughout.
Mr.Shuler. And this same group actually teamed up with one
of the larger petroleum gas companies in our district. And the
gentleman who--the CEO, the owner of the company, his statement
was, just as our ranking member says, we have to lessen our
dependence upon petroleum. And here is a guy that is in the
fuel industry.
And I think that is great leaps and bounds, and I want to
commend you all. Continue your hard work and dedication to--
because what you are doing today is going to--it is going to
help my children and their children's lives in time to come. So
thank you.
Madam Chair, I yield back.
ChairwomanVelazquez. Mr. Chabot?
Mr.Chabot. Thank you, Madam Chair. Just a couple of final
questions.
In the President's State of the Union address a while back,
he put forth the idea of expanding the nation's supply of
biofuels from five billion gallons in this year, 2007, to 35
billion in--10 years from now in 2017. Is that a realistic
goal? Should it higher or lower or just any comments you have?
If you could keep it relatively brief, because I think we are
getting ready to wrap up here.
Mr.Dinneen. The President's plan was for alternative fuels,
not just renewable fuels. And I think in that context it is an
imminently achievable goal, because it could be biodiesel,
ethanol, cellulosic ethanol, coal to liquids, electricity,
other natural gas fuel. So in that context, I think it is
absolutely a very achievable goal.
Mr.Jobe. In terms of the biodiesel industry, we believe
that we can realistically achieve about 5 percent of that goal.
On the diesel side of the ledger, considering that we are a
gasoline nation, that makes a huge difference. If we could
achieve 5 percent penetration of replacement of our diesel fuel
by 2015, it would be very significant.
Give you an example--of the 37 billion gallons of on-road
diesel fuel we use today, if we are to replace that with 5
percent, it would be 1.85 billion gallons. That happens to be
the exact same amount of diesel fuel that we refine from all of
the crude oil we import currently from the nation of Iraq. It
also represents one-fourth of all of the diesel fuel that we
refine from all of the crude oil we import from the entire
Persian Gulf region. So from the diesel side of the ledger, we
can make very big energy security gains.
Mr.Urbanchuk. Absolutely achievable. Again, keeping in mind
that we are talking about alternatives, which transcend the
biofuels side, you are going to see tremendous growth in the
biofuels, in biodiesel, in new feedstock, cellulose, for
ethanol. But you are also going to see the emergence of other
alternatives such as coal to liquid, which, you know, we--in
Pennsylvania we consider ourselves the Saudi Arabia of coal. I
know the guys in Montana tend to think that they are, but we
know we are.
There are a lot of opportunities, and we are going to see
those--that growth take place. And, again, look at this
industry as a prototype. You see tremendous growth, and an
industry that was an infant is now becoming a young adolescent,
and still has a long way to go before it matures.
And the policies that you all consider and put forth that
stimulate this are also stimulating investment, and those new
technologies are going to help us get to that and help ensure
our energy security and our economic vitality in the United
States.
Mr.Chabot. Thank you.
I have time for one more? As the minimum requirement for
renewable fuel content increases over, say, the next five
years, could you comment on how this would affect the cost at
the pump to the American consumer who is filling up his or her
tank there? It probably goes back and forth, actually, but
there is--it is a little multi-faceted, but anybody like to--
Mr.Dinneen. Well, you are referring to the renewable fuel
standard that passed as part of the Energy Policy Act of 2005
that required 7-1/2 billion gallons to be used in motor fuels
by 2012, as sort of indication as well to just how achievable a
35-billion gallon mark might be in 2017.
Given the market's signal, boy, the industry has sure
responded, because we have doubled in size and we are going to
double in size again over the next 18 months. We will hit 7-1/2
billion gallons not by 2012 but by sometime this year, far
ahead of the schedule that was included in the 2005 bill.
So what that means is you are adding more and more domestic
renewable fuel to the motor fuel supply and you are absolutely
driving down the cost of gasoline. Since the year 2000, 30
percent of our increased gasoline consumption has been met with
ethanol, by ethanol, increased ethanol use.
Taking a shorter timeframe, last year gasoline consumption
increased about a billion gallons. But ethanol production
increased 1.2 billion gallons, so we are outpacing gasoline
consumption in this country, which means we have not just
stemmed the tide of increased gasoline imports, we are
beginning to reverse it. And when you are adding that much
additional supply to the marketplace when you are replacing
imports, you are absolutely having a significant beneficial
impact to consumers.
Mr.Urbanchuk. Absolutely. It is a stabilizing factor, and
it is helping keep gasoline prices and petroleum prices from
being higher than they otherwise would be. Keep in mind, we are
importing about 60 percent, a little bit more than 60 percent
of our energy requirements.
When we can replace those imports with domestically
produced products, the money that we spend on that stays in
this economy rather than going abroad, and that, again, has
those impacts that we talk about. But very clearly, the growth
of this industry is going to be a phenomenally important
stabilizing effect, and I think will eventually force down
petroleum prices.
Mr.Jobe. If I may, the American Trucking Association has
passed a resolution that they strongly support the increased
capacity and production of biodiesel. They see it for a number
of reasons. First of all, with every plant that goes up,
biodiesel plant that goes up, you are growing the fuel supply.
You are actually providing the country with more fuel, creating
downward pressure on prices, and they have realized--they have
come to the realization we are a gasoline nation.
And because there is more gasoline refined in the United
States than diesel fuel, supply disruptions from climate and
other things, the hurricanes, other shocks in crude oil prices,
it hurts diesel fuel prices more and you can see that in recent
years. And the trucking industry, which uses diesel, has said
that biodiesel and biodiesel plants going up decentralized in
rural America is helping grow refineries and grow our refinery
capacity, something the petroleum industry has not done.
Mr.Chabot. Thank you very much. I yield back.
ChairwomanVelazquez. Mr. Graves, for a long time farmer
cooperatives have provided value-added opportunities to
farmers. That is something that needs to continue.
So I would like to hear from you, what is it that your
organization is doing regarding the Farm Bill 2007 to make sure
that continues?
Mr.Graves. The National Council--thank you for your
question. The National Council of Farmer Cooperatives is in the
process of finalizing its position relative to specific
requests in the renewable energy title. We do have some members
within the National Council, though, that have some very
specific requests that, if I might, I would share that with
you, Madam Chairwoman.
I think the first issue that we would like to see--we would
like to see tax credits and tax credits for renewable
investments by our farmer members of our cooperatives, probably
retroactive. And I think there is a specific request by one
organization to go back at least five years, to recognize that
investment, to begin to recapture some of that value to farms.
We would also like to see greater implementation, grant
money, access to capital, primarily through USDA, the Natural
Resource Conservation Service, improved technical assistance,
and access to capital would definitely be very, very helpful.
And then, finally, more money into the research and development
for new, maybe more efficient agricultural waste-to-energy
technologies, and more affordable technology and technology
that is more applicable to smaller operations. Those are some
specific things we would like to see.
Thank you.
ChairwomanVelazquez. Thank you.
Mr. Braley?
Mr.Braley. We have been focusing on fuels, because that is
obviously the subject of this hearing. But I want to move in a
slightly different direction, because we know that businesses
in general, and small businesses in particular have derived
enormous economic benefits from petroleum-based products.
And what I want to talk about is what some of the renewable
fuels derivative potential spillover effect into the economy
is. I will give you a couple of starting points for discussion.
The city of Waverly in my district has long been a leader in
moving toward more sustainable forms of energy supply to the
members that it serves.
They partnered with Cargill to come up with an
environmentally-friendly electrical transformer, replacing PCB-
based lubricants with a soy-based lubricant that can be used,
and at the end of the capacity of that transformer in theory
you could crack open the case of the transformer and pour it on
your salad and eat it.
Another thing that is going on in my district is the
national Ag-Based Lubricants Center is doing great things in
terms of coming up with non-petroleum-based lubricants used in
the rail and trucking industries. And as someone who spent a
lot of time working for the Poweshiek County Road Department
building creosote-treated bridges on farm-to-market roads, and
seeing my face be burned off from the fumes coming off of that
creosote on 100-degree days, I am very excited by some of the
things they are doing in addition with impregnation and
preservatives of wood using renewable fuels as the additive.
So I would the four of you to try to address some of the
things that we can see in the future from renewable fuels that
would provide benefits in other areas as we have seen from
petroleum-based products.
Mr.Dinneen. Well, Congressman, I think you have tapped into
something that is very important here, and that is there is
nothing that is produced today out of a petroleum refinery that
could not be produced out of a biorefinery. Today the focus is
absolutely on fuels, as you say, but as the industry continues
to grow and mature and is utilizing new technologies, you are
going to see more bioplastics and biochemicals and a range of
bioproducts.
USDA has had a program in place, and we are just starting
to identify what some of those other market opportunities might
be, but I think you have to look at this industry as really
being at its foundation. And we are building it today, and I
have said in the past our industry already is unrecognizable
from what it was five years ago. It will be unrecognizable five
years from now, and those companies that are able to succeed
are the ones that are able to diversify and identify additional
markets beyond just fuel to be most competitive.
Mr.Jobe. Just very briefly, I agree with everything he said
and give you an example of what is going on in the biodiesel
industry, about--there is a co-product, a byproduct of
biodiesel production, the primary one of which is glycerin. And
as biodiesel has become more--we have produced more and more
biodiesel, glycerin stocks have become more and more abundant,
and so it is--and with crude oil prices going up, those
compounds are competing more competitively with their petroleum
counterparts.
And as an example, glycerin we have already demonstrated
makes an excellent replacement for propylene glycol, and that
is a primary chemical used in antifreeze, although it is
biodegradable and it is nontoxic, and, more importantly, it is
non-corrosive. And so de-icers for airplanes use propylene
glycol. These can be used, and it has been demonstrated with a
glycerin-based compound. More research needs to be done in this
area, and we are excited to continue to try to promote that.
Mr.Urbanchuk. There has been a fairly substantial long-
standing effort on the part of the corn industry and the
soybean industry to promote the development of industrial uses
of their product. That is non-fuel industrial uses.
One of the things that the growth in the renewable fuels
industry has done is it has devoted or attracted more attention
to how we better utilize that raw material and that raw
resource, so that we can take a kernel of corn or we can take a
soybean and we can get a far greater range of products from
that which don't necessarily compete with one another but
supplement one another. And that has, again, drawn the
attention of people in the research and development community
to develop new varieties of product that can be produced that
do more than one thing and do them very, very effectively.
And I think as both Mr. Jobe and Mr. Dinneen have
indicated, you are looking at an industry that really is in its
infancy with regard to the development of this whole notion of
biorefineries and where we can go. I think you will see over
the next 10 or 20 years a tremendous growth in those products
and their commercial applications, and that is going to provide
a tremendous amount of opportunity.
Mr.Graves. Congressman, I would only add that the National
Council and its members would agree with the positions already
stated, that biorefineries have the opportunity to produce a
lot of primary and secondary products that will be of great
benefit to the agricultural industry.
A couple that come to mind, in addition to equipment
lubricants and--that are in high demand, in need, there are a
lot of plastics that are used. There are a lot of pesticide
products on farms, herbicides, that are derived from petroleum-
based products that we think have some real opportunity as
secondary products coming out of the biorefinery process.
So we would be very supportive of anything that we could do
as an organization to help move that forward as well.
Mr.Urbanchuk. And we can do it without jeopardizing the
food supply.
Mr.Braley. Well, as a student at Iowa State University, I
took classes in Carver Hall, named for one of our most
distinguished alumni, George Washington Carver, who really
started us down this road of exploring innovative uses of how
we can produce things from plants. And I would hope that as we
move forward in this important industry we remember the legacy
he left us and continue to push the envelope in providing
business opportunities and innovative research and science in
areas that everyone in this country can benefit from. So thank
you for your testimony.
ChairwomanVelazquez. Mr. Jordan?
Mr.Jordan. Thank you, Madam Chair. I apologize for missing.
I was in the Judiciary Committee.
But I wanted to talk a little bit about Ohio, and the
Ranking Member has said that there has been some comments about
our state. I think I represent the best district in the
country. These folks might argue with me, but the Fourth
District in Ohio is--actually, of the 18 Congressional
districts in Ohio, it is number 2 in agriculture, but also
number 2 in manufacturing, so it is a great district and big ag
interest there.
I think we have like six ethanol plants coming online,
several in the Fourth Congressional District. I am also getting
it from both sides, as I am sure Mr. Braley in Iowa
understands, the--my old State Senate District, we had more
large livestock operations in that Senate District than the
rest of the state combined. So I am hearing from our poultry
producers, pork producers, etcetera, on the price of corn.
But talk to me a little bit about Ohio. And I happen to
think we are kind of uniquely positioned as sort of the gateway
to the west and where the ag belt kind of starts, and also give
me your thoughts. And I think Mr. Dinneen had commented on
that. I know that is a general question, but fire away if you
can.
Mr.Dinneen. I did indeed. I mentioned that there are five
plants currently under construction, and I think there is going
to be a groundbreaking next week that will add to that. Ohio is
sort of the new frontier for where many of the ethanol
producers are looking as fertile ground for existing grain-
based ethanol production.
I mean, it is putting a--or having some impacts on the
livestock and poultry markets, but, as we talked about earlier,
the marketplace is going to find an equilibrium. It is going to
allow for sufficient quantities of grain to meet the needs for
food, feed, and fuel uses in this country.
You have already seen that start to occur with 90 million
acres planted this year in corn, and you have seen the corn
price already start to drop. But one other point.
Mr.Jordan. Excuse me one second. Ninety million acres. How
much additional acreage is that compared to last year?
Mr.Dinneen. That is about a 15 percent increase over last
year, the single-largest increase--
Mr.Jordan. That is what I heard, 10 to 12 acres, yes, or 10
to 12 million.
Mr.Dinneen. Right. But one of the real benefits of ethanol
production, we just take the starch from the corn. And I am
sort of the poster child for, you know, we don't this much
starch in our diet as we have today. And the same can be said
for animal feed as well. And what we leave behind is a very
high-protein, high-mineral content, high value feed product
that then is sold to the livestock market and is sold to the
poultry markets, and they are using it in their feed today and
will use it increasing rations in the future.
So it is not we are just taking corn and taking it
completely out of the food supply. We are not.
Mr.Jordan. And some livestock groups can use it. The beef--
the cattle industry can use it more than poultry or--
Mr.Dinneen. Well, again, it is going to be an example of
the marketplace responding. And today's distillers' dried
grains--
Mr.Jordan. Right.
Mr.Dinneen. --have some oil content remaining in it. That
oil content makes it a less desirable feed for pork, but there
are plants that are today, with centrifuges, extracting the
oil, using the oil to produce biodiesel, and then you have a
higher value, higher protein content feed, that is even better
for pork. And so instead of being limited to 10 or 12 percent
feed rations today, with that kind of a feed product, they can
feed significantly more.
That is just an example of how the marketplace is going to
respond to the signals it is getting today in a most of
different ways.
Mr.Jordan. Thank you.
If any of the others want to comment, go ahead.
Mr.Jobe. Just real briefly. Ohio is real--has been a
pioneer and a leader in biodiesel production. It was a little
known small business called Procter & Gamble that first
produced the first specialty manufactured biodiesel for
demonstration purposes in Cincinnati about 15 years ago.
But now Ohio is blossoming with a number of small business
investments throughout the state. Of course, it is--Ohio is one
of the leading soybean production states, and that is creating
some very significant benefits for Ohio soybean growers.
Mr.Jordan. Thank you.
Mr.Urbanchuk. A benefit from geographic location as well.
You are closer to the major east coast markets where a lot of
the reformulated gasoline is being used, where ethanol has a
significant share and a growing potential. You have got those
lakes up there. It is very ideal.
See, I am a Pennsylvanian, so, you know--
Mr.Jordan. No, you are right. You--
Mr.Urbanchuk. --I can't say too much bad about Ohio.
Mr.Jordan. You start in Columbus, Ohio, and draw a 500-mile
radius around Columbus, and you get the 60 percent of the
people in the country.
Mr.Urbanchuk. That is right.
Mr.Jordan. So it is uniquely positioned, so that has always
been helpful.
Mr.Urbanchuk. But technology has also been an important
thing. Joe mentioned Procter & Gamble. They are also one of the
leaders in developing some of the plastics from soybeans and
from other products as well and looking at industrial--other
industrial applications. So there is tremendous opportunity.
Mr.Jordan. Great. Thank you, Madam Chair.
ChairwomanVelazquez. Any other questions?
I just have one more question. You know, I come from New
York, New York City, and in this whole discussion I just--I am
here asking myself, what is there for New York City to become a
leader in the biodiesel production side? And having so many
thousands of restaurants, can you talk to me, Mr. Jobe, about
the recycled cooking oil and how much biodiesel is made from
the secondary use?
Mr.Jobe. Yes. Thank you very much for the question. We
actually have a number of members in New York City and around
the metropolitan area that are actually producing biodiesel
right now from recycled cooking oil and from other products.
Yes, there are a lot of restaurants in that city, and it is
being utilized currently.
The city is utilizing that production right now for boiler
fuel and for heating oil and also in the municipal transport
trucks. It is small usage, but it is growing enthusiastically.
And one of the major petroleum distributors in the country, and
certainly in the northeast, is Sprague Energy. They were the--
they are a major distributor of heating oil and other oil
components in the northeast, and they provide the city--they
supply the city with biodiesel. They blend it, and they are
using it currently. So New York City has massive potential.
The northeast, in general, has about 90 percent of the
heating oil usage in the country, and bioheat is now just
really burgeoning in the northeast. B5 blends in New York City
and throughout New England are really going in a very powerful
way.
Mr.Urbanchuk. Several years ago, I think about three years
ago, we did a feasibility study for NYSERDA, looking at the
feasibility of a statewide biodiesel industry in New York. And
we looked at really the middle Atlantic and New England states,
but structured on New York. And when you look at biodiesel,
particularly New York City has got a tremendous opportunity
largely because of the access of non-virgin vegetable oils,
used cooking grease, trap grease, a number of other factors
that will support that industry.
And, in fact, there is biodiesel production, if not
necessarily in the five boroughs, and I think there is actually
one in one of the boroughs, but in the immediate area
surrounding New York City. And, again, the access to feedstocks
is there.
And as Bob said, for future development, the use of
municipal solid waste and other factors, again, of which there
is a significant amount, it makes a tremendous amount of sense
to consider ethanol production in those urban areas. And New
York City is a prime candidate for that.
Mr.Jobe. If I could just add one more thought. In addition
to biodiesel production, and the expansion and the growth of
the biodiesel industry, it has also expanded the service
industries. We have a number of members--tank manufacturers,
centrifuge manufacturers, chemical manufacturers--in the New
York City area that are servicing the biodiesel industry. And
it has really created cottage industries that are also very
much growing.
One of those cottage industries is--emanates from your
area, and that is Wall Street. Virtually all of the major
investment companies are benefiting by the growth and
investment throughout the country in these small businesses.
ChairwomanVelazquez. Any other comments from the witnesses?
If not, Mr. Chabot, would you like to--well, let me just thank
all of you. This has been a fascinating panel. Thank you for
the insight that you have provided to us.
And this is an issue that we will continue to explore and
see how this Committee can play a significant role in making
sure that we provide to the members that you represent the
tools that will help you to continue to grow and expand.
Thank you very much. And let me just say that I ask
unanimous consent for the members to have five days to enter
statements into this record, and this hearing is now adjourned.
Oh, Mr. Braley, I am sorry.
Mr.Braley. I just want to add one thing--this is the Des
Moines Register's April 29, 2007 edition--to reinforce the
point that Mr. Jobe just made. The title is ``Biofuels Industry
Branches Out, Outside Investors Flow In, Wall Street and the
World has Discovered Ethanol and Iowa.'' I think that is why it
is relevant in your district.
ChairwomanVelazquez. Thank you.
[Whereupon, at 12:33 p.m., the Committee was adjourned.]
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