[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

THE AMERICAN ENERGY INITIATIVE, PART 6: CHALLENGES AND OPPORTUNITIES
FOR ALTERNATIVE TRANSPORTATION FUELS AND VEHICLES
=======================================================================

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY AND POWER

OF THE

COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

MAY 5, 2011

__________

Serial No. 112-45

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

Printed for the use of the Committee on Energy and Commerce
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COMMITTEE ON ENERGY AND COMMERCE

FRED UPTON, Michigan
Chairman

JOE BARTON, Texas HENRY A. WAXMAN, California
Chairman Emeritus Ranking Member
CLIFF STEARNS, Florida JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky Chairman Emeritus
JOHN SHIMKUS, Illinois EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania EDOLPHUS TOWNS, New York
MARY BONO MACK, California FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska MICHAEL F. DOYLE, Pennsylvania
MIKE ROGERS, Michigan ANNA G. ESHOO, California
SUE WILKINS MYRICK, North Carolina ELIOT L. ENGEL, New York
Vice Chair GENE GREEN, Texas
JOHN SULLIVAN, Oklahoma DIANA DeGETTE, Colorado
TIM MURPHY, Pennsylvania LOIS CAPPS, California
MICHAEL C. BURGESS, Texas JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California JAY INSLEE, Washington
CHARLES F. BASS, New Hampshire TAMMY BALDWIN, Wisconsin
PHIL GINGREY, Georgia MIKE ROSS, Arkansas
STEVE SCALISE, Louisiana ANTHONY D. WEINER, New York
ROBERT E. LATTA, Ohio JIM MATHESON, Utah
CATHY McMORRIS RODGERS, Washington G.K. BUTTERFIELD, North Carolina
GREGG HARPER, Mississippi JOHN BARROW, Georgia
LEONARD LANCE, New Jersey DORIS O. MATSUI, California
BILL CASSIDY, Louisiana DONNA M. CHRISTENSEN, Virgin
BRETT GUTHRIE, Kentucky Islands
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia

7_____

Subcommittee on Energy and Power

ED WHITFIELD, Kentucky
Chairman
JOHN SULLIVAN, Oklahoma BOBBY L. RUSH, Illinois
Vice Chairman Ranking Member
JOHN SHIMKUS, Illinois JAY INSLEE, Washington
GREG WALDEN, Oregon JIM MATHESON, Utah
LEE TERRY, Nebraska JOHN D. DINGELL, Michigan
MICHAEL C. BURGESS, Texas EDWARD J. MARKEY, Massachusetts
BRIAN P. BILBRAY, California ELIOT L. ENGEL, New York
STEVE SCALISE, Louisiana GENE GREEN, Texas
CATHY McMORRIS RODGERS, Washington LOIS CAPPS, California
PETE OLSON, Texas MICHAEL F. DOYLE, Pennsylvania
DAVID B. McKINLEY, West Virginia CHARLES A. GONZALEZ, Texas
CORY GARDNER, Colorado HENRY A. WAXMAN, California (ex
MIKE POMPEO, Kansas officio)
H. MORGAN GRIFFITH, Virginia
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)

(ii)
C O N T E N T S

----------
Page
Hon. Ed Whitfield, a Representative in Congress from the
Commonwealth of Kentucky, opening statement.................... 1
Prepared statement........................................... 3
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 5
Hon. John Sullivan, a Representative in Congress from the State
of Oklahoma, opening statement................................. 6
Hon. Bobby L. Rush, a Representative in Congress from the State
of Illinois, opening statement................................. 7
Hon. Joe Barton, a Representative in Congress from the State of
Texas, prepared statement...................................... 179

Witnesses

Howard K. Gruenspecht, Deputy Administrator, Energy Information
Administration................................................. 8
Prepared statement........................................... 11
Insert for the record........................................ 55
Answers to submitted questions............................... 181
Patrick Davis, Program Manager, Vehicle Technologies Program,
Department of Energy........................................... 25
Prepared statement........................................... 27
Margo T. Oge, Director, Office of Transportation and Air Quality,
Environmental Protection Agency................................ 33
Prepared statement........................................... 35
Answers to submitted questions............................... 184
James T. Bartis, Senior Policy Researcher, Rand Corporation...... 88
Prepared statement........................................... 90
Lucian Pugliaresi, President, Energy Policy Research Foundation,
Inc............................................................ 102
Prepared statement........................................... 105
Jeffrey G. Miller, Chairman of the Board, National Association of
Convenience Stores............................................. 115
Prepared statement........................................... 117
Diarmuid O'Connell, Vice President of Business Development, Tesla
Motors......................................................... 124
Prepared statement........................................... 126
Richard Kolodziej, President, NGVAmerica......................... 133
Prepared statement........................................... 136
Michael J. McAdams, President, Advanced Biofuels Association..... 143
Prepared statement........................................... 145
Robert Dinneen, President and Chief Executive Officer, Renewable
Fuels Association.............................................. 153
Prepared statement........................................... 155
Answers to submitted questions............................... 192

Submitted Material

Letter, dated May 3, 2011, from Dave McCurdy, President and CEO,
American Gas Association, to subcommittee leadership, submitted
by Mr. Sullivan................................................ 41
Statement, dated May 5, 2011, of the National Petrochemical and
Refiners Association, submitted by Mr. Sullivan................ 44
``Economic Impact of Methanol Economy,'' undated report, Methanol
Institute, submitted by Mr. Shimkus............................ 70
Testimony of Admiral Dennis Blair, U.S. Navy, Retired, submitted
by Mr. Shimkus................................................. 73
Letter, dated May 5, 2011, from Matt Horton, CEO, Propel Fuels,
Inc., to subcommittee leadership, submitted by Mr. Shimkus..... 83

THE AMERICAN ENERGY INITIATIVE, PART 6: CHALLENGES AND OPPORTUNITIES
FOR ALTERNATIVE TRANSPORTATION FUELS AND VEHICLES

----------

Thursday, May 5, 2011

House of Representatives,
Subcommittee on Energy and Power,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 9:37 a.m., in
room 2322 of the Rayburn House Office Building, Hon. Ed
Whitfield (chairman of the subcommittee) presiding.
Members present: Representatives Whitfield, Sullivan,
Shimkus, Walden, Terry, Burgess, Olson, McKinley, Gardner,
Pompeo, Griffith, Barton, Rush, Inslee, Green, Capps, Doyle,
and Waxman (ex officio).
Staff present: Charlotte Baker, Press Secretary; Jim
Barnette; General Counsel; Maryam Brown, Chief Counsel, Energy
and Power; Patrick Currier, Counsel, Energy and Power; Garrett
Golding, Legislative Analyst, Energy; Cory Hicks, Policy
Coordinator, Energy and Power; Heidi King, Chief Economist; Ben
Lieberman, Counsel, Energy and Power; Dave McCarthy, Chief
Counsel, Environment/Economy; Alex Yergin, Legislative Clerk;
Greg Dotson, Democratic Energy and Environment Staff Director;
Caitlin Haberman, Democratic Policy Analyst; and Alexandra
Teitz, Democratic Senior Counsel, Environment and Energy.

OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF KENTUCKY

Mr. Whitfield. I would like to call this hearing to order
this morning. This is our sixth of a multi-day hearing entitled
the American Energy Initiative. The topic today is focusing on
the challenges and opportunities for alternative
transportation, fuels, and vehicles. With gasoline prices
exceeding $4.00 a gallon in many parts of the country, it is
timely that we look at alternatives to petroleum derived fuels
for the transportation sector. Efforts to diversify away from
reliance on oil for cars and trucks have been underway for a
number of years and we know that it has been a goal of the U.S.
Government to be less dependent upon foreign oil for many,
many, many years. And so the purpose of today's hearing is to
provide an overview of these alternative opportunities. We need
to know where we stand today and where we would like to be in
the years ahead as it relates to alternative fuels and
vehicles.
Most notably we have now more than 5 years of experience
with the renewable fuel standard which was first put into place
in the 2005 Energy Bill and was expanded in the 2007 Energy
Bill. The targets for 2011 call for 12.6 billion gallons of
corn ethanol and additional amounts of other biofuels such as
cellulosic ethanol, biodiesel, and algae based fuels. I should
stress that many aspects of the ethanol mandate are going very
well. Nonetheless there are issues facing regulators as they
translate the law into workable arrangements as well as
challenges facing refiners and incorporating increasing amounts
of ethanol into the existing supply chain.
Biofuels, I might add, are but one of the alternative fuels
in vehicles in the works. Vehicles that run on natural gas
continues to make inroads especially in the heavy duty sector,
propane vehicles are also seeing increased use. Progress
continues on electric vehicles and even coal to liquids is
another possible non-petroleum source of transportation fuel.
Each alternative fuel and vehicle has its unique mix of
attributes and more than one will play a constructive role it
the vehicles of the future.
However, as I indicated earlier there are obstacles to
overcome before new fuels and vehicles and technology can take
significant market share away from petroleum. Not only must the
alternative fuel in the vehicles be economically and
technologically up to the task, but the fueling infrastructure
must also be in place. As we are learning with ethanol, we can
get there but it is not always an easy path. The good news is
we have a host of alternatives that show promise and are the
subject of federal research and development tax incentives and
loan guarantees.
But the fact that there have been so many false starts
since the federal government first got involved in alternative
fuels in vehicles in the 1970s is a sobering reminder that we
need to carefully review our efforts. So developing cost
effective alternatives will take time and in no way should
serve as a substitute for taking steps to reduce gasoline
prices. We need to do both. For this reason, the American
Energy Initiative will pursue efforts to unlock America's vast
untapped oil potential along with other efforts.
So we also will have I think two panels of witnesses today
and we look forward to the testimony to all of you and we do
appreciate your taking time to be with us because your
testimony will be vitally important to help us get a better
understanding of where we are on this important subject.
[The prepared statement of Mr. Whitfield follows:]
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And at this time I would like to recognize the gentleman
from California, Mr. Waxman, for his 5-minute opening
statement.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA

Mr. Waxman. Thank you very much, Mr. Chairman. You are
correct that this hearing on alternative fuels in vehicles is a
very timely one. With gasoline prices over $4.00 a gallon in
some cities, the cost of our dependence on oil is glaringly
apparent to consumers.
For decades the Energy Information Administration projected
that U.S. oil consumption would grow year after year. And it
did.
In 2005, nearly 60 percent of U.S. fuels were imported. And
the future looked bleak: higher oil consumption and more
imports far into the future. Republicans claimed then--just as
they do now--that the solution was to produce more oil
domestically.
Production has increased dramatically since that time. Our
domestic crude oil production has increased by nearly 300,000
barrels a day. We have increased our crude oil production to
the point that we are producing more oil today than we have at
any time in the last 7 years.
And yet, gasoline prices are still climbing. And the money
we spend on oil abroad continues to conflict with our foreign
policy goals and national security.
The fact is, more U.S. production is never going to be
enough to appreciably reduce global oil prices or U.S. imports
of foreign oil. We use 25 percent of the world's oil, but we
only have 2 percent of the world's oil reserves. So we could
double or even triple domestic production and it is simply not
going to affect global oil prices all that much.
In fact, this subcommittee has received testimony that
increasing domestic production, as has been proposed, would
increase production by just two-tenths of one percent a decade
from now. The effect that would have on gasoline prices would
be negligible.
The key to making progress is to reduce, and to focus on
how much oil we use. And reducing our share of global oil
consumption from 25 percent can have a real impact both on
global oil prices and on imports.
The new motor vehicle standards promulgated by the Obama
administration illustrate the benefits of greater efficiency.
These carbon pollution tailpipe standards have had a remarkable
impact. They are projected to save 1.8 billion barrels of oil.
They are expected to yield net savings to consumers of roughly
$130 to $180 per year, and $3,000 over the life of a vehicle.
And being able to bring efficient vehicles to the market
has greatly assisted domestic auto makers. General Motors had a
27 percent gain in American sales, led by strong demand for its
new compact sedan and more fuel-efficient sport utility
vehicles. Ford earned $2.5 billion last quarter, up 22 percent
from last year, as its sales have shifted to more fuel-
efficient cars.
Most remarkable is the impact of these standards on U.S.
oil imports and consumption. The Energy Information
Administration now projects that we will be importing less oil
in the future than we did in 2007, reversing decades of
increasing reliance on foreign oil.
And in a fundamental and historic shift, overall U.S.
consumption of oil is predicted to stop growing. By requiring
improvements in how efficiently we use oil, the administration
has reversed a dangerous trend.
The administration wants to build on their success with
stronger standards after model year 2016. It is also working on
standards for trucks and other commercial vehicles. Those
standards could save even more money at the pump while further
reducing our dependence on foreign oil.
At the same time, we need to continue our push toward
alternative-fueled vehicles, whether they are plug-in electric-
drive commuter vehicles, long-haul natural gas trucks, or
renewable fuels used in various vehicles. The Obama
administration has made real progress on the seemingly
intractable problem. We are finally heading in the right
direction.
I look forward to hearing from today's witnesses about how
we can continue and build on this progress. Thank you, Mr.
Chairman. Yield back my time.
Mr. Whitfield. Thank you, and at this time recognize the
gentleman from Oklahoma, Mr. Sullivan, for 5 minutes.

OPENING STATEMENT OF HON. JOHN SULLIVAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OKLAHOMA

Mr. Sullivan. Thank you, Chairman Whitfield and thank you
for holding this important hearing today on challenges and
opportunities for alternative transportation fuels and
vehicles. With the price of oil over $110 a barrel, it is vital
that we look at alternative transportation options to give
consumers and businesses--excuse me--options at the pump. Our
national and energy security demand it. And given the fact that
69 percent of the oil consumed in America is used for
transportation, two-thirds of which we import from foreign
nations, we are spending $2 billion per day importing foreign
oil. This is the largest transfer of wealth in the history of
mankind.
The U.S. has enough natural gas reserves to last us more
than 125 years. By diversifying our fleet--our vehicle fleets,
heavy duty trucks, and utilizing natural gas as a
transportation fuel we can significantly reduce U.S. demand for
foreign oil and begin doing that immediately. Almost a month
ago I introduced bipartisan legislation, The Natural Gas Act, a
common sense bill that makes real world solutions to this major
national security issue. Today I am proud to announce that we
have over 180 cosponsors on this bill including 22 from this
committee alone.
The NAT Gas Act is designed to be a short term 5 year
market driving program to allow the economies of scale to work
with the production of natural gas vehicles and fueling
infrastructure. The bill calls for private capital investment
not by the Federal Government in the production and use of
natural gas fueled vehicles. The bill is consistent with the
goals of the National Energy Policy that would encourage the
use of clean burning domestically produced fuel without the
heavy hand of government mandates.
All told, this legislation will create over 500,000 jobs.
As Congress debates energy solutions and many options are
offered up, but at the end of the day these options give
American consumers few real choices today. In the near term,
natural gas is the best present day alternative to imported
oil, one that can be put in place virtually overnight with the
support of the Nation behind it. And Mr. Chairman, I yield back
the balance of my time.
Mr. Whitfield. Thank you, Mr. Sullivan. At this time I
recognize the gentleman from Illinois for the purpose of making
an opening statement.

OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS

Mr. Rush. I want to thank you, Mr. Chairman. And I want to
thank the--all the guests for their participation and for being
here this morning. Today's hearing is timely, as prices at the
pump climb to $4.00 a gallon for regular gasoline. It is
extremely important that this committee identify short- and
long-term strategies and objectives for developing alternative
fuels for vehicles so 5 and 10 years from now we won't be
having the same debates over rising gas prices due to unrest in
the Middle East.
For far too long, we have been seeing widely fluctuating
gas prices here in this country due to a lack of comprehensive
policies to move us away from imported oil and petroleum. And
every American--and every year or two we are back in the same
place exactly doing the same thing that we find ourselves doing
at this moment, discussing extremely high gas prices at the
pump but no closer to solving this issue, which has had such a
devastating effect on the budgets of American families, both
lower and middle-income families who must once again choose
between putting food on the table or filling up their car in
order to go to work.
I look forward to today's hearing to discuss both the
opportunities and the challenges that we face as we attempt to
transition to alternative fuels to power our cars and to power
our trucks. Americans love their cars and we love to drive, so
it only makes sense that we provide direction for the American
people and move our country away from its heavy dependence on
foreign sources of oil. As a Representative from the corn-
growing State of Illinois, I look forward to learning more
about the impact that corn ethanol has had on the alternative
fuel debate.
A few years ago, it was thought that relying solely on corn
ethanol was the win-win alternative to diesel and petroleum
fuels. Since that time, my office has met with several
constituents and groups that have informed us of the impact of
using corn ethanol for fuel and its subsequent effect on
increased prices for feedstock and the overall fuel supply. So
I am very interested to hear from the experts here today on not
only the impact of corn ethanol, but also the opportunities for
additional alternative fuel sources for transportation,
including biofuels, electricity, natural gas, coal-to-liquids,
and many others.
I believe if we are prudent and we work together, both
sides of the aisle, we can develop a policy for alternative
fuel production that would be to the benefit of all of our
constituents and the American people as a whole. Mr. Chairman,
I sincerely hope that this can be an issue that we can find
common ground on and we can--that we can work together on the
issues for the good of this entire Nation. If we are willing to
provide direction and funding to develop alternative fuel
supplies, we can provide economical and practical benefits to
Americans by decreasing the amount of oil we import while also
eventually decreasing the price our families pay at the pump.
Mr. Chairman, however, we all understand that before we are
able to enjoy the benefits that will ultimately come from
alternative fuels we must first invest in research and
development of these supplies. And even if we are able to come
together on a comprehensive policy to develop these fuels, we
must also invest in the infrastructure to support these fuels
as well. So we have our work cut out for us, and I am pleased
today that we are taking our first step in understanding where
we are and what we need to do to move forward. With that, I
yield back the balance of my time.
Mr. Whitfield. Thank you, Mr. Rush. At this time I would
like to introduce the first panel. We have with us this morning
Dr. Howard K. Gruenspecht, who is the Deputy Administrator of
the U.S. Energy Information Administration. We have Mr. Patrick
Davis, who is the Program Manager for Vehicle Technologies
Program at the U.S. Department of Energy. And we have Ms. Margo
Oge, who is the Director of the Office of Transportation and
Air Quality at the U.S. Environmental Protection Agency. Thank
you once again for being with us, and I am going to recognize
each one of you for 5 minutes for your opening statement and
there is a little instrument on the table there that will show
red when your time is up. So--but we do look forward to your
testimony and what you have to say. So, Mr. Gruenspecht, I will
recognize you for your opening statement.

STATEMENTS OF HOWARD K. GRUENSPECHT, DEPUTY ADMINISTRATOR, U.S.
ENERGY INFORMATION ADMINISTRATION; PATRICK DAVIS, PROGRAM
MANAGER, VEHICLE TECHNOLOGIES PROGRAM, U.S. DEPARTMENT OF
ENERGY; AND MARGO T. OGE, DIRECTOR, OFFICE OF TRANSPORTATION
AND AIR QUALITY, U.S. ENVIRONMENTAL PROTECTION AGENCY

STATEMENT OF HOWARD K. GRUENSPECHT

Mr. Gruenspecht. Mr. Chairman and members of the
subcommittee, I appreciate the opportunity to appear before you
today. The Energy Information Administration is a statistical
and analytical agency within the Department of Energy. EIA does
not promote or take positions on policy issues and has
independence with respect to the information and analysis that
we provide. Therefore, our view should not be construed as
representing those of the Department or other federal agencies.
The transportation sector and petroleum use are tightly
linked. In 2009, 72 percent of total U.S. petroleum use
occurred in transportation while petroleum products provided
about 94 percent of transportation energy. Light-duty vehicles,
including both passenger cars and light trucks, accounted for
63 percent of total transportation energy use in 2009. In that
year, gasoline vehicles had an 85 percent market share out of
9.8 million new light-duty vehicles sold. Flex fuel vehicles
that could use gasoline up to E-85, hybrid electric, and diesel
vehicles held 11 percent, 3 percent, and 2 percent shares,
respectively.
Looking forward, EIA's Annual Energy Outlook provides
projections for the U.S. energy system through 2035. Our
reference case is a business-as-usual trend estimate using
known technology and technological and demographic trends on
the assumption that current laws and regulations including any
applicable sunset dates remain unchanged. We expect vehicles
other than those that can only be fueled with gasoline to play
a growing role in the reference case due to both policies and
rising fuel prices. And their share would grow to 42 percent of
projected sales in 2035. Flex fuel vehicles represent the
largest share of those vehicles, with sales of electric and
hybrid vehicles that use stored electric energy also growing
considerably as do sales of diesel vehicles.
Nonetheless, gasoline-only vehicles maintain a projected 58
percent sales share by 2035 because they are able to
incorporate technology such as lightweight materials and
advanced engine and transmission components that improve fuel
economy. Although growth in the number of drivers and vehicle
miles per driver results in a projected growth of 50 percent in
light-duty vehicle travel between 2009 and 2035, overall light-
duty vehicle energy use increases by only 10 percent due to
improved fuel economy. And projected light-duty vehicle
petroleum use is about 8.2 million barrels per day in 2035, the
same level as in 2009, because there is a shift away from
petroleum toward other fuels in the transportation mix.
There are really four key areas of uncertainty in this
projection: fuel prices, technology costs, consumer acceptance,
and potential changes in policies, which are your business, not
mine. In the high oil price case--and I know many people think
oil prices are high enough, but we have one where oil prices
double in real terms by 2035--we would expect overall light-
duty vehicle fuel consumption to grow by only one and a half
percent between 2009 and 2035, and petroleum use in 2035 would
be only 6.6 million barrels for light-duty vehicles, a million
and a half barrels below the current level.
Vehicle cost is another factor that will play a critical
role in determining the success or failure of unconventional
vehicles in the future. For example, plug-in hybrid and plug-in
electric vehicle incremental cost is heavily dependent on the
cost of a battery. Just how much more these vehicles will cost
the consumer depends on future technology breakthroughs or lack
thereof, and my colleagues will discuss that.
Consumer acceptance is the third critical uncertainty, and
I think some of the opening statements mentioned that regarding
the success of unconventional vehicles and alternative fuels.
As discussed in my written testimony, attributes such as cost
and performance, as well as refueling infrastructure
availability, are essential to acceptance.
And finally, the future regulatory environment is also
uncertain. Fuel economy standards are currently set through
2016. We do assume that they are raised at least through model
year 2020 to reflect the requirements of the Energy
Independence and Security Act. But additional fuel efficiency
requirements that may be promulgated under existing authority
could also have a very significant impact. Our Annual Energy
Outlook includes two fuel economy sensitivity cases, one
assuming a 3 percent annual increase through 2025, the other
assuming a 6 percent annual increase.
Again, in these cases we find sales of unconventional
vehicles grow dramatically to 70 percent of total sales in the
3 percent case and nearly 90 percent of total sales in the 6
percent case compared with 40 percent in the reference case.
And in addition we would likely slow the rate of vehicle stock
turnover relative to the reference case. But overall light-duty
vehicle energy consumption and petroleum use decline relative
to their 2009 level.
This concludes my statement, Mr. Chairman, and I would be
happy answer any questions you or the other Members may have.
[The prepared statement of Mr. Gruenspecht follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

Mr. Whitfield. Thank you very much. And Mr. Davis, you are
recognized for 5 minutes.

STATEMENT OF PATRICK DAVIS

Mr. Davis. Good morning, Chairman Whitfield, Ranking Member
Rush, and members of the subcommittee, and thank you for the
opportunity to testify here today. I am Pat Davis, Program
Manager of the Vehicle Technologies Program at the U.S.
Department of Energy.
The transportation sector accounts for approximately two-
thirds of the U.S. oil consumption. Closer, you say, thank you.
Maybe two--there you go. After housing, transportation is the
second biggest monthly expense for most American families. The
President recently outlined a portfolio of actions which taken
together could cut U.S. oil imports by a third by 2025 and
these include programs that would put one million electric
vehicles on the road by 2015, increase the fuel economy of our
cars and trucks, and expand biofuels market and commercialized
new biofuels technologies. Viewing these past, present, and
future investments are critical to reducing costs for American
families while reducing our dependence on oil and enhancing our
national, economic, and environmental security.
Making our cars and trucks more efficient is one of the
easiest and most direct ways to limit our petroleum consumption
and save consumers money. And while the Department continues to
work on improving existing engine technology, today I will
focus on alternative fuels technologies.
As noted, the administration's goal is to put a million
electric vehicles on the road by 2015. In 2009, the U.S. had
only two relatively small battery manufacturing facilities
manufacturing advanced batteries for vehicles. Over the next
few years, thanks to Recovery Act investments, the U.S. will be
able to produce enough batteries and components to support
500,000 plug-in and electric vehicles per year and
simultaneously create over 6,200 jobs. At the same time, DOE
projects a drop in battery costs of 50 percent by 2013 compared
to a 2009 baseline.
To make electric vehicles even more affordable, the
President proposes transforming the existing $7,500 tax credit
into a point-of-sale rebate, and our fiscal year 2012 budget
also proposes a new Energy Innovation Hub, energy storage
research hub, and competitive programs to encourage communities
to invest in electric vehicle infrastructure.
Domestically produced biomass can provide a cost-effective
alternative to oil while creating business opportunities and
jobs in the U.S., especially in rural areas. U.S. DOE develops
programs that both increase the current use of biomass
technologies and support research development and demonstration
on the next generation of biomass technology.
DOE's efforts to increase the use of biofuels have been
strengthened by the expansion of the Environmental Protection
Agency's Renewable Fuels Standard program and DOE's work with
EPA to understand the potential impact of E-15 on compliance
with vehicle and emissions standards.
DOE is also making investments in next-generation biofuels
technologies from a variety of feedstocks such as corn stover,
wood waste, algae, and other materials, and we are exploring
ways of converting corn and cellulose to cost-competitive drop-
in substitutes for gasoline, diesel, or jet fuel.
Recovery Act funding also enabled us to invest in 29
integrated biorefinery projects to validate first-of-a-kind
technologies at the pilot, demonstration, and commercial scales
which will further reduce risk to investment. These projects
are expected to generate at least 170 million gallons of
advanced biofuels annually, and bringing more commercial
biorefineries online will help us meet the Nation's ambitious
renewable fuels standard goals.
In summary, DOE's transportation portfolio will save
consumers money, reduce our dependence on foreign oil, lower
our environmental impact, and keep America on the cutting edge
of clean energy technologies enabling us to build a 21st
century clean energy economy. Thank you again for the
opportunity to discuss these issues and I welcome any questions
you may have.
[The prepared statement of Mr. Davis follows:]
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Mr. Whitfield. Thank you, Mr. Davis. Ms. Oge, you are
recognized for 5 minutes.

STATEMENT OF MARGO T. OGE

Ms. Oge. Chairman Whitfield, Ranking Member Rush, and
members of the committee, good morning. I really appreciate the
opportunity to appear before you today.
Biofuels can play a very important role in reducing our
dependence on foreign oil, decreasing greenhouse gas emissions,
and improving the world economies. A year ago in compliance
with the Energy Independence and Security Act, EPA finalized
the Renewable Fuel Program commonly known as RFS Program. This
program established an annual volume standards for renewable
fuels of 36 billion gallons in 2022. This includes 21 billion
gallons of advance biofuels for that timeframe.
When fully implemented, biofuels required by the RFS would
displace about 13.6 billion gallons of petroleum-based gasoline
in diesel fuel. That is approximately 7 percent of the expected
annual gasoline and diesel consumption in 2022. This will
decrease all imports by $14.5 billion and provide additional
energy security of $2.6 billion annually.
It should also reduce greenhouse gas emissions by an
average of 138 million metric tons of CO2
equivalent. This is approximately the emissions created by 27
million vehicles on an annual basis. EPA strongly supports
expanded use of advanced biofuels especially cellulosic
biofuels. When Congress enacted ESA, it recognized that
cellulosic targets are very indeed aggressive. It included
provisions directing EPA to reduce the mandated levels set in
the statute if cellulosic ethanol production were lower than
the statutory requirements. Simply put, Congress did not
require refiners to use more cellulosic ethanol than would be
produced on an annual basis when they set those annual
standards.
Unfortunately, the cellulosic industry is not developing as
quickly as Congress anticipated and we have had to lower the
cellulosic mandate for the 2011 timeframe in 2010. For 2010 and
2011, we set the cellulosic standard at about 6.5 million
gallons which is substantially below the initial targets of 100
to 250 million gallons for those years. Although EPA has the
discretion to reduce the total advance and total renewable fuel
standards, we did not do so mainly because we expect sufficient
volume of other advance biofuels would be available in 2011
time frame.
We set the standards in a very transparent rule making
process based on the evaluation of the cellulosic industry
including discussions, one on one discussions with each
producers working with the Department of Agriculture, the
Department of Energy, and the Energy Information
Administration. We intend to propose the 2012 standards early
this summer and to finalize them by end of November 2011.
The biofuel sector is a dynamic one. It is important for us
to evaluate and qualify new fuels where possible for use in the
RFS Program, corn and advanced and cellulosic biofuels approved
for the RFS include biodiesel and renewable diesel from certain
feedstocks, ethanol from sugar cane, biodiesel, and renewable
diesel from algae oil, ethanol and diesel from approved
cellulosic feedstocks in jet fuel and heating oil from certain
feedstocks.
We have also a process of evaluating new biofuels. Last
year we successfully evaluated canola based biodiesel as an
approved pathway. Lastly, I would like to briefly highlight
steps that we have taken to remove barriers from the production
of alternative fuels and vehicles in the auto sector.
Essentially EPA announced a new regulation that would
streamline and simplify the process by which manufacturers of
clean alternative fuel conversions systems made them with said
compliance where at the same time they can maintain the mission
control standards required for those vehicles and engines.
In closing, EPA is currently working to successfully
implement the RFS Program both by following the specific
direction established in ESA and by recognizing that the
statute's strong intent is to replace conventional petroleum
derived fuels with advanced biofuels. I want to say that we are
currently witnessing a period of great innovation in our
country with respect to the development and introduction, not
just of the new fuels but also of new vehicle technologies. We
at EPA strongly supports this innovation and we believe that
the result in new fuels and new vehicle technologies hold a
tremendous potential to reduce independence on foreign oil,
save consumer dollars, and clean the environment.
Thank you for the opportunity. I look forward to your
questions.
[The prepared statement of Ms. Oge follows:]
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Mr. Whitfield. Thank you, Ms. Oge. I will recognize myself
for 5 minutes of questions. And once again we appreciate your
being here. Mr. Davis, you mentioned in your testimony that by
2015, the goal was to have one million electric vehicles on the
roads. How many electric vehicles are out there right now, or
do you know?
Mr. Davis. A few hundred.
Mr. Whitfield. A few hundred.
Well, you know this renewable fuel standard obviously is
very important and I think it is also important that we not
look through rose-colored glasses as we try to anticipate the
future. I was reading an article--two articles recently. One
was in the New York Times. This was the 1917 issue of the New
York Times, front page and it said electric vehicles are the
cars of the future. And then I read an article about a company
in California called DC Green that was formed a few years ago
to go out and remodel service stations to provide electrical
outlets and so forth, and they are now in bankruptcy. So I was
just--would you elaborate? And it is my understanding that the
Volt electric car for example costs like $42,000. So would you
elaborate a little bit on why you are as optimistic as having a
million cars by 2015?
Mr. Davis. Sure. Thank you very much for the question.
First of all, let me say a million vehicles by 2015 is not the
end point. It is a milestone. We want to get to a million
vehicles by 2015. We want to go beyond a million vehicles to
get to five million, 10 million, and even tens of millions and
we are really pretty confident that that milestone is
obtainable. And I would suggest that the situation today is
much different than in the '70s or any other previous time.
We believe that the pieces are in place to achieve this
goal. First of all, the Recovery Act, battery manufacturing
facilities are in place to support the widespread production of
electric drive vehicles. Two billion in batteries and electric
drive component funding that was matched by industry for a
total of 4 billion in manufacturing facilities that are
supporting----
Mr. Whitfield. So how many manufacturing facilities are
there out there now with an advanced battery production?
Mr. Davis. Well, the Recovery Act is supporting a total of
20----
Mr. Whitfield. Twenty.
Mr. Davis [continuing]. And that is an entire supply chain
from the component level, anodes, cathodes, electrolytes, to
cell production, the battery manufacturing and assembly, and
even to recycling. In addition to the Recovery Act projects,
there is the tax incentive of $7,500. We are bringing the cost
of batteries down very quickly. We are highly confident that we
are going to meet our goal in 2015--the middle of this decade--
to get to $300 per kilowatt hour. There is the ATVM, the
Advanced Technology Vehicle Manufacturing Loan Program,
supporting manufacturers of advanced vehicles. In addition to
that, the manufacturers have announced production capacities
that when you look at the total production and the ramp-up
rates, total over one million vehicles through 2015. Now, that
is announced production capacity. It doesn't indicate consumer
acceptance or that consumers will buy those vehicles. But we
are very confident that the production capacity will be there
to meet that goal.
Mr. Whitfield. Yes, you also mentioned that you want to
move from a $7,500 tax credit to a point-of-sale rebate. How
would that rebate be determined?
Mr. Davis. Well, the--of course, the details of that are
still being worked out, but the concept is that a consumer who
goes in to buy a vehicle will be much more incentivized by an
immediate $7,500 benefit off the cost of a vehicle versus
having to pay the entire price of the vehicle with the hope----
Mr. Whitfield. Right.
Mr. Davis [continuing]. Of getting $7,500 back when they do
their taxes some, you know, perhaps 12 months later.
Mr. Whitfield. Mr. Gruenspecht, not too long ago we heard
people talking all the time about hydrogen fuel cell technology
and I don't really hear a lot about that today. Or Mr. Davis,
maybe I should ask you that question. What is happening on the
hydrogen fuel cell technology?
Mr. Davis. Well, the fuel cell technology office is making
great progress. They reduced the cost of fuel cell systems from
about $275 per kilowatt in 2002 to $51 per kilowatt today. That
is a high-volume production cost, and their ultimate goal is
$30 per kilowatt. So we are getting very close to where we need
to be on cost. Infrastructure and hydrogen production is--
remains the most serious challenge, along with storage of
hydrogen.
Mr. Whitfield. OK. All right, my time is expired. Mr. Rush,
I recognize you for 5 minutes.
Mr. Rush. Thank you, Mr. Chairman. I think I will ask Mr.
Gruenspecht these questions. The Energy Security and
Independence Act once passed out of Full Committee and to the
House in '07 contained a renewable fuel standard with the goal
of reaching 36 billion gallons of renewable fuels by the year
2022. Question is where are we? Are we currently on pace to
meet that goal and if not why not? What additional steps are
needed in order to make sure that we are on pace to meet that
objective?
Mr. Gruenspecht. Thank you for that question. I guess from
the--soon after passage of the Energy Independence and Security
Act, EIA as part of its duty needs to put out a projection, and
I think in the projections issued in 2008 and since that time
we have not been showing the 36 billion gallon target being
met. In large part the issue involves cellulosic ethanol. As
was specified by my colleague, that industry is coming along
somewhat more slowly than had been anticipated by the framers
of that legislation. There is waiver authority, and in our
projection that waiver authority is used to reduce that
cellulosic mandate. But over time we expect the use of
renewable fuels to exceed that 36 billion gallon level. So it
is really a matter of the speed with which the cellulosic
ethanol--or cellulosic biofuels more generally, because it is
not just ethanol, you can make other biofuels out of cellulosic
material--can be ramped up.
Mr. Rush. Mr. Davis, on the discussion on cellulosic
biofuels, we have heard a lot of discussion about the greens
and the impact that this type of alternative fuel may have some
day in meeting our war on energy needs reducing our carbon
footprint and decreasing the price of gas at the pump. Are
there any--what are the most promising types of cellulosic
biofuels currently and when will this type of alternative fuel
realistically have an impact on a commercial scale? And are
there any additional policies that can help us move this
process forward at a quicker pace in order to go from a good
idea to a better idea to best idea to reality?
Mr. Davis. Well, thank you very much for your question.
There is quite a lot built in there so let me just try to touch
on a couple things. You know first of all, the biomass program
within DUE has invested more than a billion dollars in 29
integrated biorefineries. So these are projects that are at the
pilot scale, the demonstration scale, and even at the
commercial scale. And we--that $1 billion investment has been
matched by industry with $1.7 billion and these plants in total
would be able to produce about 170 million gallons annually.
And these are projects that are--you know there are many
different types of projects represented in those 29
biorefineries. But they represent mostly cellulosic projects
converting cellulosic resources into biofuels.
I would say you mentioned what kind of other things could
you do. One thing that could be done is a proposed in our
budget for--to support a reverse auction which would support
these commercial scale facilities becoming more cost effective
in the very near term. And could enable more than 50 million
gallons annual biofuel production by 2014. So that is one
thing. And I would say in general our R&D program is continuing
to lower the cost of these biofuels to be directly competitive
with conventional fuels in the long term.
Mr. Whitfield. Your time is up, yes. Mr. Sullivan you are
recognized for 5 minutes.
Mr. Sullivan. Thank you, Mr. Chairman. And before I start
my questioning I would like to ask unanimous consent to submit
two statements for the record.
Mr. Whitfield. What are the statements?
Mr. Sullivan. The first one is from the American Gas
Association supporting my legislation H.R. 1380 the NAT Gas Act
and the natural gas vehicles in general.
Mr. Whitfield. OK.
Mr. Sullivan. And the second is the one I would like to
submit is a written statement for the record from the National
Petrochemical and Refiners Association outlining their concerns
with the renewable fuels mandate.
Mr. Whitfield. Without objection.
[The information follows:]
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Mr. Sullivan. Thank you, Mr. Chairman. Mr. Davis, in your
testimony you don't make any mention of the role of natural gas
vehicles--that natural gas vehicles contain our nation's
transportation portfolio. I hear Secretary Chu talk about
electric vehicles all the time but he hardly every mentions
natural gas vehicles. This is perplexing given the massive
amounts of natural gas resources that we have in this country
and the fact that natural gas vehicles help reduce all types of
pollution. What is DOE's position of the role of natural gas
vehicles or what is their position on the role natural gas
vehicles will play especially in the heavy duty market? Why
don't natural gas vehicles have a primary place in DOE's
strategy?
Mr. Davis. Thank you so much for the question, Mr.
Congressman. You know, actually natural gas does play an
important role in our strategy. We supported natural gas
vehicles and the implementation of natural gas fueling
infrastructure for 17 years through our Clean Cities Program,
most recently, through the Recovery Act, placing thousands of
natural gas vehicles on the road along with the infrastructure
that supports them.
I would say that the Vehicle Technologies Program, being
primarily a research organization, does struggle sometimes with
the fact that natural gas is a pretty mature technology. It is
really more about deployment than it is about R&D. We know how
to build natural gas engines. We know how to build natural gas
vehicles, and that is why we have concentrated our efforts on
natural gas through the Clean Cities Program, the deployment
arm of the Vehicle Technologies Program.
Mr. Sullivan. Well, again this year the administration's
budget request had no R&D funding for natural gas vehicles. Why
does DOE always seem to be promoting alternative fuels of a
distant future, stuff that is 15, 20, 50 years or more--years
away from possibly being commercial to the exclusion of proven,
cleaner, domestically available fuels and technologies like
natural gas vehicles which could make a real difference
tomorrow? Natural gas vehicle technology is readily available
and widely used throughout Europe, South America, and Asia.
There are over 12.5 million natural gas vehicles worldwide, and
we only have 150,000 here in the United States. Can you
elaborate on that?
Mr. Davis. Yes, thank you for your question. Well, I would
say that first of all in fiscal year 2010 we put in place some
natural gas engine development projects, and those projects are
underway this year, in which we leveraged $5 million in funding
for a total of over $15 million in engine development funds
supporting new natural gas engines that could be used in a
variety of vehicles, mainly medium-duty to heavy-duty-type
vehicles. That said, once again our effort has been focused on
deployment, and although you might note that in FY '12, we
don't request any direct funds for R&D in natural gas, we
continually support natural gas vehicles through the Clean
Cities Program, our deployment arm, and we will continue to do
so, both vehicles and infrastructure.
Mr. Sullivan. Thank you, Mr. Chairman. I yield back.
Mr. Whitfield. Thank you, Mr. Sullivan. Mr. Doyle, you are
recognized for 5 minutes.
Mr. Doyle. Thank you, Mr. Chairman. Thanks for holding this
hearing today. You know I--it seems like we repeat this cycle
in this country and here in Washington decade after decade.
Gasoline prices get high and there is great interest in all
these alternative fuels and vehicles. And there is this great
effort to move forward and then all of a sudden the OPEC
ministers get together, or the speculators stop speculating,
or--and gasoline prices come down, and we get lulled back in
this complacency that everything is oK now and we can go back
to our big SUV's and just keep putting gasoline in cars. And it
is-- you just wonder how many times you let the board hit you
in the face before you duck. And we just seem to not be good at
that.
We have to not only put money into R&D, but we have to
sustain an effort in this country to create a situation here
where we can mass produce vehicles that don't use gasoline.
That is the future of the country. When I bought my first
hybrid I used to complain to the Detroit people all the time
why don't we have an American SUV hybrid? And why is it that
other countries developed this technology before ours did?
Well, I got a call one day from the Ford guy who said Ford was
coming out with a Ford Escape hybrid. And I says I want one. He
says well they are putting a waiting list together. So I said
put my name on the list. About 7 months later I got a call that
my car was here in Washington. I forgot I ordered it.
And so I went down to the dealer to pick up that car and I
remember the sticker price on the car was $29,000 and I had
never paid sticker for a car in my life. I didn't think that
was un-American somehow and I said to the dealer how much do
you want for the car? He says $29,000. And I says that is the
sticker price of the car. You don't think--do I look stupid to
you? I am not paying $29,000 for this car. And he said sir, he
says these cars are going for not only sticker price; some
dealers are selling them for sticker plus, the start of the
hybrid cars.
But you know I thought I had this American hybrid car. Of
course that battery came from Japan because we didn't make
those batteries in the United States of America. I am glad to
see we used some stimulus money and one of the factories by the
way is in Pennsylvania that is doing this new battery
technology. As we start to develop this battery technology,
institutions like Carnegie Mellon in Pittsburgh are doing lots
of research on how to make batteries that will allow cars to go
further and further and further. This is the key to the future
and once we can mass produce them, the cost goes down.
Everybody remembers what that first flat screen TV cost. It
cost a cazillion dollars. Right now you can pick one up for
practically nothing. Why? The technology gets better, people
start to buy the product, they mass produce it, the price comes
down. It is going to be the same with batteries in automobiles
in the future once we put--but we need to build them here in
this country. You have to develop an infrastructure in the
United States of America that allows us to do this not just
when gasoline prices are high, but to do this once and for all
and finally relieve ourselves of this constant trap we fall
into with these oil prices. And you know we could drill every
oil well in America and that doesn't mean these oil companies
are going to sell us the oil any cheaper because it comes out
of the ground in America than it does in any other place in the
world. There is no discount for oil that comes out of the
ground in United States of America. It is a world commodity. So
we got to learn to duck. We have got to learn to start building
these facilities in the United States of America. That takes
commitment and R&D. We got to put money in R&D. The first thing
that gets cut when we get tight budgets are the R&D budgets.
That is what gets cut in this country. It is stupid. We need to
not do that. We need to do more to get more of this research in
there.
Let me just ask about incentives. Everybody thinks there is
some magic bullet to bring gasoline prices down here in the
United States in the next six months or a year. I mean it is
complete fantasy that this Congress can do anything that would
reduce gasoline prices in the very short term. But I do think I
want to see how we can incentivize consumers to maybe drive
vehicles that let them go a little bit further on that gasoline
so that they get more miles for their dollar. I know we
subsidize I think just three cars right now: the Chevy Volt,
the Honda Civic, and the Nissan Leaf. I want to ask the three
of you just to comment would the marketplace see more
innovation in a wider spectrum of fuel efficient vehicles if we
simply rewarded vehicles for overall fuel savings regardless of
the technology? In other words, we become technology neutral
and say let's just get the most fuel efficient vehicles out
there. Do you think that is a better idea? And how do we
incentivize consumers in the short term over the next 3 to 5
years, say, not 6 months to a year. That is just fantasy talk
here in Washington, D.C. But realistically how do we
incentivize consumers to start driving more fuel efficient
vehicles? And I will let all three. You can just go in order
and give your opinions. You notice I ended my question just in
time for the guys to answer. That is the technique here. Go
ahead.
Mr. Gruenspecht. I feel the board hitting me in the face.
No, you know, I think in some sense just, again, casual
observation, it is one of the things we don't like, but the--I
think the price of gasoline is having an effect on what people
buy in the way of vehicles. There are various--there are fuel
economy standards as one possibility, policy instrument.
Another one that has been discussed in the academic literature
are fee-bates to--you know, so there are a number of options
that have been proposed. Again, given EIA's role, I wouldn't
really want to--we would analyze them for you, but I don't
really want to express a preference.
Mr. Davis. Well, thank you so much for your remarks. And
thank you for East Penn Manufacturing in Pennsylvania, who is
manufacturing some critical battery technology that will be
excellent application to start/stop hybrids.
You know, we have been doing--I personally have been doing
this for 18 years, the Department has been doing it for decades
to try and reduce our dependence on petroleum and raise the
fuel economy of vehicles and reduce our dependence on
petroleum. So pretty much most of what you said we are in
violent agreement on. I would just echo my colleague's remark
that we would be pleased to work with you on policy instruments
that could be less technology-specific. He mentioned one, fee-
bates, which are similar to the French Bonus Malus Program, and
we would be pleased to talk to you more in depth about that.
Ms. Oge. You ask like the million or $10 million questions.
If we can stay here for the whole day and we can do a
brainstorming session--but clearly gasoline prices are playing
a very important role. As we are seeing right now in talking to
the OEMs, small cars and most recently GM and Ford announce
making profits from selling small cars something pretty unique
for this companies and for the country. So gasoline price is
very important. But also what is very important is the
continuing development of all technologies. There is a huge
opportunity to improve the conventional gasoline engine
significantly. And we are seeing that. All the OEMs that we are
talking to because we are in the process of setting the new
standards for 2017 to 2025 for fuel economy and greenhouse gas
emissions working with the Department of Transportation in
California. All the OEMs are investing and they are introducing
cleaner, more efficient gasoline engines. Anywhere from
reducing the size of the engine with different sizing, you know
fuel injection systems, stop and start, very mild hybrids. As
they introducing these technologies in the marketplace in
bigger numbers including hybrids and electric supply kits, the
cost will come down. So at least we at EPA we are very
optimistic that the efforts that we are seeing right now in our
country to improve the fuel efficiency, reducing the greenhouse
gas emissions from the transportation sector as a whole--both
cars and trucks, if it continues we are going to find ourselves
in a tremendous place in the history of this country.
Also what I want to mention is that there is a program that
EPA and DOT announced last year setting the first set of
greenhouse gas standards and fuel economy standards from 2010
to 2016. By 2016 we are going to have on an average the fleet;
the new fleet sold in the United States at 35.5 mpg is pretty
historic. And we start seeing these new fuel efficient vehicles
introduced in the marketplace today. The program costs about
$900 on an average in 2016, but the consumer because of the
fuel savings will get $3,000 back for that $900 investment just
in fuel savings.
Mr. Whitfield. Ms. Oge, thank you. Thank you. Mr. Barton,
you are recognized for 5 minutes.
Mr. Barton. Thank you, Mr. Chairman. I want to tell my good
friend Mr. Doyle when he is ready for another hybrid, come see
me. They make--we make the Chevy Tahoe hybrid in my district
with United Auto Workers union employees and I will bring you
down to Arlington, Texas, and you can pick it out. And within
the confines of the ethics rules that we operate under we will
make you a deal. I will make you the best deal that it is
possible for you and I to accept under the laws that we have to
operate.
Mr. Doyle. All right.
Mr. Barton. And I am not opposed to the Ford, but we make
the Chevy hybrid in my district and it is a good--I drive one.
It is a good product. It is a good product.
We welcome our witnesses. I want to associate my remarks
with Mr. Sullivan. I am a cosponsor of the natural gas bill
that Mr. Sullivan is the chief sponsor of. We think it is a
fuel that has some real opportunity for transportation. I want
to direct my questions to the representative of the EPA. In
your testimony, you talk about the cellulosic standard which
under the law that was passed several years ago was supposed to
be somewhere between 100 million and 250 million gallons for
this year and next year. And in a very understated way said
because of the ability to actually produce that product they
had to reduce it to 6.5 million gallons. To put that into
perspective--just doing some back of the envelope calculations,
6.5 million gallons is about 20 minutes of fuel consumption for
the United States. Twenty million--about 20 minutes. So my
question, Madame, is at what point in time do you expect the
cellulosic biofuels industry to become viable enough that
volumes are actually commercial and substantial enough to make
an impact?
Ms. Oge. We are also disappointed to see that the
cellulosic industry was not able to meet the 250 million
gallons this year. But clearly Congress did recognize that this
is a new industry. That there would be uncertainties,
especially the early years to meet those volumes. And it has
given the authority to EPA to access that volume. And that is
what we did for 2011. We are in the process of setting the
cellulosic volumes for 2012. The proposal will be coming out
sometime in early summer. And our evaluation we give for 2012
is based in having one on one discussions with all the major
players in the cellulosic industry along with USDA and EIA. The
industry's facing two major challenges right now. One is the
opportunity to raise capital to invest in this new
technologies, or rather on this technological challenges to
move from pilot to commercial levels. However, we remain
optimistic that those levels will be met. There are some
significant number of companies and significant companies in
the oil industry that are investing in this area so we remain
optimistic that these goals will be met.
Mr. Barton. OK. I want to ask the gentleman from EIA is--
what is the fuel used for transportation on a daily basis in
the United States right now?
Mr. Gruenspecht. That is about 70 percent of overall
consumption, so 70 percent of 19--18--19 million barrels a day
probably this year.
Mr. Barton. The number that I use is 12 million.
Mr. Gruenspecht. Yes, that would be pretty good.
Mr. Barton. OK.
Mr. Gruenspecht. Close enough.
Mr. Barton. Yes, that is barrels. That is just to put in
perspective we are using 12 million barrels a day cellulosic we
got 6.5 million gallons last year for the whole year. So I mean
the curve needs to go up fairly rapidly. I am--my time is
expired, Mr. Chairman, and I yield back.
Mr. Whitfield. Thank you. Ms. Capps, you are recognized for
5 minutes.
Mrs. Capps. Thank you very much. And thank you for holding
this hearing. It is a great topic and further, our witnesses.
Some would argue--we hear repeatedly here in Congress that the
best way to address high gasoline prices is with more offshore
drilling. Mr. Gruenspecht, EIA can bring an analytic
perspective of this discussion. In your recent annual energy
outlook--excuse me, EIA begins with a reference case. This
scenario assumes that our laws remain unchanged and that there
are only conservative adjustments in our expectations regarding
technology improvements and the resource base. Is this correct?
Mr. Gruenspecht. Correct.
Mrs. Capps. Close enough?
Mr. Gruenspecht. Close enough.
Mrs. Capps. However, EIA also examined a hypothetical
scenario called the High OCS Resource case. This scenario
assumes that offshore oil and natural gas resources in
undeveloped areas of the Pacific, of the Eastern Gulf of Mexico
and the Atlantic, and Alaska are much higher--would be much
higher than currently expected and are developed in the coming
years. This is hypothetical. This is the assumption in the High
OCS Resource case also assumes that oil and gasoline resources
in these areas to be three times higher than in the reference
case. So far so good? OK. If one were a strong advocate for
offshore drilling the High OCS Resource case would be just
about our best case scenario. Right?
Mr. Gruenspecht. It would be a good scenario.
Mrs. Capps. It would be a good scenario. As part of your
analysis of this scenario EIA examined the effects of these
increased resources and the production in oil prices and their
influence on oil prices. The impact appears almost negligible.
In 2025, increased offshore production under this High OCS
Resource case would result in oil costing $117.12 per barrel
instead of $117.54 per barrel. That is a difference of $.42 per
barrel or just one penny per gallon of crude oil, according to
this scenario as I read it. Mr. Gruenspecht, can you tell us
why changes in domestic oil production tend to have such a
small impact on crude oil and petroleum product prices?
Mr. Gruenspecht. Well, I guess the fundamental point would
be that the oil market is a global market. I also think that
another aspect of this is that there is a lot of time involved
in bringing particularly deep water resources into production
so you would have a geophysical and geological evaluation;
could be a couple years for a deep water prospect. You have
exploratory drilling; could be up to four years for a deep
water prospect. Development after a confirmed discovery could
be seven years. So it takes a long time to get going on these
things and in fact in that case, if you look further out, there
is again a larger impact on production and a larger impact on
price but it is still relatively modest. We are talking about a
world market that by that time is 100 million barrels a day. It
is about 88 million barrels a day now. I guess the idea is that
no one measure is going to have a massive effect on world oil
prices. I think it is really adding up a series of actions that
affect both demand and supply rather than viewing actions as
alternatives to each other that matter a lot. Again, I think
the development of improved production technologies for either
oil or for alternative fuels can lead to higher production not
only in the U.S. but throughout the world because it is a
global production. That matters. Similarly, improvements in
efficiency in the U.S.--and that can be translated throughout
the world--can have an effect on global demand. And so really
you go to move both I think demand and supply if you want to
have a significant impact on prices. Fuel flexibility probably
helps a lot also.
Mrs. Capps. Thank you. Maybe just--there are only 40
seconds but if the other two of you would like to comment on
this scenario and how you interpret it?
Mr. Davis. Actually, I think my colleague handled it
extremely well.
Mrs. Capps. So then I would just I guess finally I will ask
one quick question. Have you translated what a penny per gallon
difference in crude oil would translate for consumers at the
gasoline pump?
Mr. Gruenspecht. I think it was more than a penny per
gallon difference in crude oil.
Mrs. Capps. It--that a 42 cents per barrel or just one
penny per gallon of crude oil in your High Resource case--OCS
case.
Mr. Gruenspecht. If you drive 12--drive 20,000 miles a year
and the vehicle gets--and in your household the vehicle gets 20
miles per gallon on the road, you are talking about 1,000
gallons a year. So a penny per gallon would be $10.00, I
imagine. That is just off the cuff. Instant analysis is about
as good as instant coffee, so maybe I will give you a better
answer for the record.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] T0930.143

Mrs. Capps. That is all right. That is good enough for me
for now. Thank you. I will yield.
Mr. Whitfield. Yes, we were really impressed with that.
Mrs. Capps. How fast he did it, right?
Mr. Whitfield. We have two votes on the House floor. So we
are going to recess. We will be back here about 11:10. So and
then we will resume with this panel. Thank you.
[Recess.]
Mr. Whitfield. We will call the hearing back to order and
we will renew our questioning period for the first panel. At
this time I will recognize Mr. Terry for 5 minutes.
Mr. Terry. All right, I appreciate that, Ms. Oge. I can
barely see you but on cellulosic biofuels you had mentioned in
your opening statement a little bit. I couldn't get all with
Joe Barton, but I was off part--very much part of those
discussions when the RFP came out. And the history of the
mandated sub-mandate on cellulosic was part of the food versus
fuel capping corn as ethanol. And also the secondary is really
to force the markets, the research, and the development into
the cellulosic.
And Mr. Davis, you could help me on this so this question
is really for you. As a supporter of biofuels and cellulosic
fuels, it is frustrating because it doesn't seem like in the
five years since that bill has passed that we have made a lot
of progress. I don't see the cellulosic plants. There may be
pilots out there, small pilots, but I would have expected mass
production today.
So the overall question and I want to start with Ms. Oge,
why aren't we there? What is the holdup? What is the problem
here? It seems like we are spending money on research, but we
are not getting there. Is it the feedstock? What is our holdup?
Ms. Oge. Based on the discussions, you know when we set the
2011 standard for the 6.6 million gallons, our team was
actually was in touch with over 100 companies that had some
form or another of investments on advanced biofuels. You know
from different feedstocks, different processes. This year we
talked about 15 to 20 companies that they continue to have
significant investments. And as I said in my testimony that I
really--two things that are going on and I would dare to say it
is not--something it was to have expected because indeed it is
an extraordinary new industry. And there are different ways to
get there as far as a commercialized volume that is cost
effective and can compete with fossil fuels.
And it has to do with--notice with the feedstocks the type
of feedstock. But those are the type of process they used. What
we have seen--and I cannot--you know, a lot of the information
is company by company, plus it is confidential. We see there
are two things going on. One is that companies don't have--some
of the companies don't have sufficient capital investment to
proceed based on the original plans that they had. And second
is technology challenges that companies are finding as they are
doing these pilot projects, make corrections, and then coming
back to invest more and do more. So my personal view and this
is completely my personal opinion is that we will be able to
catch up on these volumes but it is too early to say the
timeframe.
Mr. Terry. OK. Well, I want to give Mr. Davis some time
here to answer the question.
Mr. Davis. Well, actually my colleague from EPA really hit
the highlights very well. I would just add that ,we started 29
integrated biorefineries. Those projects were initially
started, and some of them as early as 2007, 2008, right before
the economic downturn. This is an emerging industry and what--
their access to capital was very constrained in that timeframe,
and so what you are really seeing as we emerge from that
downturn are these projects starting to get started on a more
rapid basis. And we also have to recognize when you are talking
about building a plant that could cost tens or even $100
million, it takes time to build that plant. Once you have the
capital to do it, you are still looking at a 24-month build
schedule. So I would agree. We, like you, would like to see
this grow faster. And certainly the economic downturn has hurt
us, but I think we are going to start picking up pretty quickly
now.
Mr. Terry. Yes, I would hope so because I think we are
losing credibility frankly the longer it takes. I yield back.
Mr. Whitfield. Thank you, Mr. Terry. Mr. McKinley, you are
recognized for 5 minutes.
Mr. McKinley. Thank you, Mr. Chairman.
Mr. Whitfield. Mr. McKinley, excuse me just one minute.
Mr. McKinley. As a new member to Congress I have a--I have
admired Mr. Doyle's comments a minute ago about the analogous
groundhog day. He didn't use that term but it just--we seem to
be hearing this one over the years. That is all I have ever
heard. We are just--we keep working in cycles that we are going
to have another gas increase and we are going to worry about it
and do nothing. And then we are going to do it again in a
couple of years and we will do it again. I mean, I think the
technology here--excuse me, the--I thought the goal was to use
less energy. We want to be energy independent, but then I think
that is as admirable as it is--but that is not what this
administration is doing with the National Energy Technology
Lab, he slashed the budget for fossil fuel research, the EPA's
overregulation, and causing instability in the private sector.
The assertions that coal is a subsidized industry and I
would ask any of you to please--all I keep hearing answers from
you when I ask this question--we will get back to you. And 120
days later no one has gotten back to me. I want to know what
subsidy is going to coal. If you could please get back to me.
OK? The--so I think it is a false assertion that we have
demonized our large, multi-national corporations.
We have no--as Sullivan said there is no funding here for
natural gas vehicles. We don't have an energy policy. We have
an environmental policy and I am just frustrated. I am
frustrated that when I go home on the weekends with people
talking about how the price of gasoline has gone up $2.00 a
gallon in the last 2 years, I have looked at the--I read a book
the other day and it talked about how we industrialized America
without subsidies when Henry Ford and Auto Denzler developed
not only the engine, but implemented the--that wasn't a
subsidized industry. Thomas Edison developing the light and
other--it wasn't subsidized. He did this all without federal
subsidies. Westinghouse developing the A/C motor. No subsidies.
Charles Lindbergh flew across the Atlantic Ocean with aerospace
technology of the time just simply to win a prize. That--we use
that of--what was it, $20,000? There was no subsidy with that.
I guess I am just skeptical that I don't think there is a
real hunger here for us to solve anything. Congress seems to
want and the research group just to continue the debate. We
have the technology right now to deal with coal liquefaction,
gas liquefaction, using natural gas vehicles, battery powered.
Why don't we just stay on the ones that we are close to
achieving and finish the job instead of taking on new things
and diverting, dispersing our energies so that we don't
accomplish anything? Or is this--we are simply just trying to
have a full employment bill for researchers across this
country? Why don't we just finish the job? Dr.--Mr.
Gruenspecht?
Mr. Gruenspecht. Well, I would say that with respect to
your issue about energy subsidies EIA has put out a couple of
reports, three reports on that issue. I think the most recent
one in response to a request from Senator Alexander that----
Mr. McKinley. I am sorry, could you?
Mr. Gruenspecht. Yes, we had put out a report on energy
subsidies that we update fairly regularly so that might be of
use to you now.
Mr. McKinley. Can you tell me one coal company that is
being subsidized? Because I hear it from this side all the time
and I am getting pretty irritated about it that coal is a
subsidized industry. That is why we have to find something
else. I would like to find one coal company that is being
subsidized and everyone says they are going to get back to me.
Mr. Gruenspecht. Well, I--we do not talk about specific
companies, but I think you will find the information in the
report responsive to your request.
Mr. McKinley. OK.
Mr. Gruenspecht. Let me just leave it there. Thank you.
Mr. McKinley. The--are we on the wrong track here? What do
we have to do to finish a job? Why are we continuing to take on
other things instead of--if we truly want to be energy
independent we know how to be energy independent, but yet we
start new projects whether it is cellulosity, Biomet, whatever
those are? Those are all fine. I have want to support those in
a way, but why don't we just finish the job that we started
with the ones that we are closest to if we really want to
accomplish it instead of taking on spending new money when
industry over the years has worked without these subsidies. Why
are--why is--is it just simply the full employment of research?
Is that what this is about? Because if it is, I just need to
understand. I can play by the game, but I am getting irritated
that we don't solve anything. Mr. Davis?
Mr. Davis. Well, I appreciate your question and I also
appreciate your frustration. This is a very difficult problem
to solve. We have 240 million vehicles on the road today. We
only sell about 12 million per year. It takes 20 years to
turn----
Mr. McKinley. Can we liquefy gas?
Mr. Davis. It takes 20 years----
Mr. McKinley. Can we liquefy gas?
Mr. Davis. Of course we can liquefy----
Mr. McKinley. I am sorry?
Mr. Davis. Of course we can liquefy gas.
Mr. McKinley. Why aren't we doing it?
Mr. Davis. So I think, yes, natural gas is growing in
momentum. Electric vehicles are growing in momentum.
Mr. McKinley. Why is there no--nothing in the budget for
natural gas vehicles? I am sorry--run out of time.
Mr. Whitfield. Sorry, Mr. McKinley. Mr. Green, you are
recognized for 5 minutes.
Mr. Green. Thank you, Mr. Chairman, and I don't come from a
coal area, but I come from an oil and gas, and we were always
hit about our subsidies. But a lot of them are actually
manufacturing subsidies, but Mr. Davis, the--you discussed the
impact. Can you discuss the impact of E-10 and potentially
higher levels of--we have on non-rogue, small, and older
engines and material durability?
Mr. Davis. Are you specifically asking about E-10 or E-15?
Mr. Green. E-15, I guess. E-10, we have E-10 now because of
our smog problems. In our area we have had it since the early
'90s. And typically 10 percent of our fuels--well, it was MTB,
but now it is ethanol, so.
Mr. Davis. So as you may know, I'm sure you know, the EPA
recently issued a rulemaking that would allow sale of E-15, and
I am sure our colleague from EPA can speak to that. We, in
support of that rulemaking, conducted a fairly large test
program, a program costing about $45 million involving over 100
vehicles and over--almost 30 models on the effects of E-15 on
the long-term durability of those vehicles. That data was
turned over to the EPA for their consideration in their
rulemaking and ultimately did lead to the positive rulemaking
to allow E-15 for sale, basically indicating that the effect of
E-15 on those vehicles was minor, was minimal.
Mr. Green. Ms. Oge, the--I would like to talk about corn
based ethanol and air quality. Corn production takes a lot of
fuel to produce the crop, but you have to clear the fields to
get the corn to produce the ethanol. And it seems like there is
air quality benefits is maybe even worse than what we do using
fuel from oil. The promotion of this type seems contrary to the
administration's clean air goals, but we see that with--you
know because it is an alternative, domestically produced fuel.
But is it really a benefit for our air quality when you look at
the corn ethanol--ethanol based on corn. Is it--you do from
gasoline based on oil?
Mr. Oge. The law that Congress passed in 2007 has mandated
36 billion gallons of renewable fuel to be used by 2022. Also
the same law requires that EPA evaluates to what extent there
maybe any increases of air quality as a result of the use of
the 36 billion gallons. It requires EPA to take actions to
address these potential increases. As part of the--too, EPA
concluded that renewable fuels, the 36 billion gallons mandate
would reduce greenhouse gas emissions significantly. But also
we have determined that there is some small increase in
nitrogen oxides particularly in particular matter. So we are in
the process right now to evaluate those increases then taking
appropriate steps to address these through biofuel quality and
reductions from new vehicles.
Mr. Green. OK. I also have a concern as my question of Mr.
Davis is the misfueling of the first few years of E-15. If you
have an older car, you know to make sure that E-15 could damage
your engine. Is the EPA mandating that kind of information on
the pump? I know we have now on our pumps at least in the
Houston area it is you know this contains ethanol. And folks
know that but what about somebody that has a 6 or 7 year old
vehicle and they go up and decide they are going to fill up
with an E-15? Could the damage that could happen to their
engine--is there enough consumer information available?
Ms. Oge. Is it for me?
Mr. Green. Yes, well either of you.
Ms. Oge. Of my colleague from the Department of Energy
since we are doing this work. So you are absolutely right. Last
October the agency based a significant technical data would
give a waiver to 50 ethanol producers to allow E-15 to be
introduced in the marketplace for 2007 in newer vehicles. In
last January we give a second waiver for 2001 and newer
vehicles. However, based on limited data for older cars and off
road equipment as you suggested and engineering concerns that
we have we are in the process of requiring labeling of pumps so
we can educate the consumer about the appropriate fuel that
they need to use. So there is a regulatory proposal that we are
going to finalize early summer that would put those steps in
place because we do recognize the importance to reduce the
events of misfueling with E-15.
Mr. Green. OK. Thank you, Mr. Chairman. I appreciate. I
have some questions I would like to submit to the panel.
Mr. Whitfield. Yes, the record will be open for 10 days on
that. Mr. Pompeo, you are recognized for 5 minutes.
Mr. Pompeo. Thank you, Mr. Chairman. You know it has been
interesting to sit here and listen this morning to the
discussion. Lots of smart people, many of whom think they know
what the next great energy technology is. I don't think any of
us know. I have been in Congress now for four months, a little
bit more. I--full disclosure, I came from the natural gas
industry. I sold the equipment to independent producers all
over the world. I think natural gas holds tremendous promise. I
come from a State where ethanol is very important. It has made
some real progress, too, so I cannot understand for the life of
me why were are here talking about all these subsidies, all
these handouts, all this taxpayer money going to help these
industries as if we know best which technology will ultimately
be the victor.
I heard and I agree with Congressman from Oklahoma, my good
friend who says natural gas could be the next great
transportation fuel. I part company from him, a piece of
legislation like H.R. 1380 which says to the taxpayers, you
will choose that technology. I understand like no one else how
important getting that next right technology is, but I think
consumers will get us there. I believe these markets will
choose it. I understand that there are opportunities and
challenges when you allow the market to work, but when I listen
to decades and decades of folks at EPA and DOE talk about how
they have got it all figured out and if we could just get one
more grant. If we could just take a little bit more money from
the taxpayers, we would cross that hurdle. And when you look
1380, look at its subsidies for natural gas vehicles, I hope
natural gas makes it. I hope it does it in its own way with the
money from the industry. And that is really where I come back
to.
I heard a question or I heard you say, Mr. Davis, today
talk about there being a shortage of risk capital. Did it ever
occur to you that that shortage of risk capital might be a
direct result if we are taxing too much? That is my question
for you this morning. The under--that there is a connection
between. You said DOE made investments, but DOE doesn't have
any money, right? Is that correct, Mr. Davis?
Mr. Davis. We only have funds that are provided by
Congress.
Mr. Pompeo. By Congress and those monies come----
Mr. Davis. And those come from taxpayers.
Mr. Pompeo [continuing]. In every case from the taxpayers,
United States taxpayers.
Mr. Davis. Absolutely.
Mr. Pompeo. So is it possible in your mind, is it possible
that if we had not taken those monies and made a decision--a
political decision about where to direct that money that we
might be further along in finding out the next great
technology?
Mr. Davis. Well, I don't believe so. I would say that the
President has said there is no silver bullet. I have been
working transportation area for a couple decades. If anyone
knew the absolute one answer, you can believe that we would be
concentrating on it.
Mr. Pompeo. I appreciate that Mr. Davis. I actually agree
with you.
Mr. Davis. Yes.
Mr. Pompeo. This is not about this President. It is not
about the President before him. This is about all of us trying
to centralize the decision making process and trying to pick
that silver bullet. I think it is a fool's errand. And I think
50 years of energy subsidy history demonstrates that quite
clearly. Ms. Oge, do you think it is possible that if we had
left more resources with the taxpayer over the last 50 years we
would be further along in finding the next great American
energy technology.
Ms. Oge. Well, you know----
Mr. Pompeo. Just--it is impossible.
Ms. Oge. Let me say this. I agree with you that we should
not be choosing winners and losers when it comes to technology.
And actually I just want to bring to your attention a very
important program that the President just announced last year
and another important program that we are going to announce
this year is to reduce the fuel consumption from on road
vehicles both light duty and heavy duty. So last May our office
worked with the Department of Transportation jointly to have a
national program 2016 will improve the fuel efficiency by 35.5
mpg equivalent.
Now the consumer will pay something. We are not telling
them that--we are not telling the audience how to get there. We
are not telling them to use hybrids or electrics. It is a
neutral standard so companies will get there by using the best
market innovations. And the consumer saves money. You know they
will save about $3,000 from fuel saving.
Mr. Pompeo. I appreciate that. I do appreciate that.
Consumers are going to pick the right solution. Today you can
see it. They are driving less. Right? When gasoline is at 3.50
or 3.80 in Kansas or $4.00, consumers will conserve. And I
just--I have more faith in the American people and innovators
than I do in Government bureaucrats.
Ms. Oge. And I do, too.
Mr. Pompeo. I think that is where we part company.
Ms. Oge. And I do, too, but there can be a hybrid we will
both work together.
Mr. Pompeo. Yes, I think if we would lower marginal income
tax rates, lower corporate tax rates and shrink the size of the
EPA and the Department of Energy, we would get cheaper, better
fuels much more quickly. And so those are just different world
views. I appreciate that and I am going to work hard every day
that that is the direction that this Congress goes. Mr.
Chairman, I yield back my time.
Mr. Whitfield. Thank you, Mr. Pompeo. And at this time
recognize Mr. Griffith from Virginia for 5 minutes.
Mr. Griffith. Mr. Gruenspecht, am I correct in stating that
your office has predicted that coal share of electricity in the
generation mix will only decline slightly in the future?
Mr. Gruenspecht. We project the supply and the share of
electricity----
Mr. Whitfield. Microphone?
Mr. Gruenspecht. I am sorry. Yes, we do foresee a decline.
We see very few new coal plants being--few, if any, new coal
plants being built, but the ones in use under existing laws
continuing to be used.
Mr. Griffith. And it is also correct to state that the
electric needs of this country will increase?
Mr. Gruenspecht. They increase slowly in our reference case
projection, about one percent a year.
Mr. Griffith. OK. If you take an increase and a slight
decrease in coal and no new power plants built with coal, we
are still going to need more coal for power generation. Isn't
that true?
Mr. Gruenspecht. I think we have slow, very slow growth in
coal production--mostly going to power generation as you point
out. Significant export potential for coal as well.
Mr. Griffith. Because other countries don't have the
regulations that restrict them that we have?
Mr. Gruenspecht. Well----
Mr. Griffith. Wouldn't that be true? Yes or no? Sorry to--
--
Mr. Gruenspecht. I am not an expert in regulations in all
other countries, but----
Mr. Whitfield. I think that is true.
Mr. Gruenspecht. Note that was a statement from the
chairman, not from the witness.
Mr. Griffith. Does the EIA see an achievable path for
increasing our energy security without using coal if you
completely did away with it?
Mr. Gruenspecht. Coal is a very significant domestic
resource. Natural gas is a very significant domestic resource.
Renewables are significant domestic resources. Oil is less of a
domestic resource than the others. But again, there is
significant oil reserves and resources as well. So I think
there are--clearly, almost 100 percent of our coal use comes
from domestic production.
Mr. Griffith. All right, Mr. Davis, President wants to have
a million electric cars by what--2015?
Mr. Davis. Yes, sir.
Mr. Griffith. And do you anticipate that coal will be
pretty much passe?
Mr. Davis. I don't believe so.
Mr. Griffith. I don't believe so either and so therefore,
in order to use the electric cars on the highway, we are going
to have to have a lot of coal, aren't we?
Mr. Davis. Well, we would call the--when you plug your
vehicle into the wall to charge it, we normally refer to that
as the grid mix, which is a mix of coal, nuclear, renewables,
all types of generation.
Mr. Griffith. But right now that mix--and we are only four
years away from 2015--would be more than 50 percent coal, would
it not?
Mr. Davis. I am not an expert on our generation capacities
by fuel, but I will take your word on that.
Mr. Griffith. All right, it doesn't sound off base to say
that?
Mr. Davis. No.
Mr. Griffith. All right.
Mr. Davis. It is somewhere in the 40s.
Mr. Griffith. Oh, it has moved into the 40s?
Mr. Davis. Yes.
Mr. Griffith. I just know in my district it is still up in
the high 70s. And so let me ask you some questions, ma'am, if I
might. Would I be correct in assuming that the EPA supports the
electric vehicles?
Ms. Oge. We support advanced technologies including
electric vehicles and plug in hybrids because it really does
offer a tremendous opportunity.
Mr. Griffith. And you are aware of the situation that with
coal we are in the 40s according to one gentleman?
Ms. Oge. Yes.
Mr. Griffith. I have heard, you know different parts of the
country different numbers. And I guess the problem is when you
hear the President saying he wants a million cars, I am trying
to figure out--and you hear the EPA talking about you know coal
is bad and we--they are putting all these restrictions on coal.
How do you expect informed citizens of the United States who
know that a significant portion of our electric grid and I am
sorry I don't have that term right is coming from coal
production, but we are going to save the environment with
electric cars. How do you expect informed Americans to
reconcile those two positions and to think that eliminating
coal and stopping permits and doing all this stuff is actually
in the best interest of the environment and the economy long
term?
Ms. Oge. Sir, I am here as an expert in the transportation
field. I am not an expert on permits and secondary services----
Mr. Griffith. But you would, you would--I understand that,
but you can understand----
Ms. Oge. If I may, if I may----
Mr. Griffith [continuing]. That as a reasonable person----
Ms. Oge. Yes.
Mr. Griffith [continuing]. It would be difficult for other
reasonable people to reconcile those two positions. Would you
not?
Ms. Oge. So we believe that----
Mr. Griffith. You think----
Ms. Oge [continuing.) Electric vehicles----
Mr. Griffith [continuing]. Yes or no? Is it easy for people
to understand that or is it not?
Ms. Oge. To understand?
Mr. Griffith. To understand that on the one hand we want a
million cars but we are still using somewhere around 50
percent, maybe in the 40s now, of our electricity coming from
coal. Do you understand that it is incongruent for most people
to grasp how we are going to have a million electric cars save
the environment, put coal out of business, and have the two
work together?
Ms. Oge. The assumption is that EPA's trying to put the
coal industry out of business. I cannot comment on that. I
cannot comment on that.
Mr. Griffith. Yes, ma'am, that is my assumption. It seems
to be evident in my district.
Ms. Oge. I cannot comment on that, sir.
Mr. Griffith. I yield back my time.
Mr. Whitfield. Gentleman from Texas, Mr. Olson is
recognized for 5 minutes.
Mr. Olson. I thank the Chair and I would like to welcome
our witnesses. Thank you for your patience today and thank you
for your expertise. And I have got a couple of questions for
you, Mr. Gruenspecht. And first of all I would just like to
talk about some of your projections, EIA's projections of the
past years. And earlier this year, President Obama said that,
and this is a quote ``oil production from federal waters in the
Gulf of Mexico has reached its highest level in 7 years.''
Although this makes a great sound bite I believe that the full
picture in the Gulf tells a different story. Can you tell me
what EIA's projections in the Gulf production were for 2010?
Mr. Gruenspecht. Close to 1.6 million barrels a day for
2010. I think all the data, MMS collects all of the data from
operators over time, so I am not sure that all of the end-of-
year data is in yet. Probably close to 1.6 million barrels,
approximately.
Mr. Olson. OK, sir.
Mr. Gruenspecht. Excuse me, probably close to 1.6 million
barrels a day.
Mr. Olson. OK. Thank you, but did actual Gulf production
meet those--your expectations?
Mr. Gruenspecht. I believe that actual Gulf production, it
is well up close to 1.6 million barrels a day in 2010.
Mr. Olson. But what were your projections? Was that 1.6
your projection?
Mr. Gruenspecht. I am not sure when the--I am not sure. The
projection evolves over time as----
Mr. Olson. OK. I appreciate that, sir. I have some numbers
that show it is 20 percent less than you projected in 2007.
That the actual----
Mr. Gruenspecht. 2007, OK.
Mr. Olson. And again, that is the President saying that
production is higher and again it is his policies didn't get
that. We have actually had a reduction in production because we
have loosed our expiration and the moratorium had a significant
impact on that. I have got a question, another one for you, Mr.
Gruenspecht and you, Mr. Davis, as well. And can you guys tell
me what your agencies are doing to ensure that the small
refiners can comply with the RFS mandates and that they are not
being overly burdened? I mean, I have many, many refineries,
small refineries in the district I represent and I--they are
concerned about increase costs for compliance. They want to
compete. Can you assure us that they can compete that these
mandates aren't going to affect them negatively?
Mr. Gruenspecht. Well, I am aware that another part of the
Department that is not represented here--the policy office--I
recently completed a study on small refiners and I believe some
of that information was sent to EPA. So maybe Ms. Oge would be
able to----
Mr. Olson. Ms. Oge, if you have comments, please.
Ms. Oge. Yes, yes. Actually you know Eastside actually
required that small refineries are given an exemption all the
way through 2010, December of 2010. And then the Department of
Energy was required to undertake a study and advise EPA's
administration how to proceed with additional exemptions of
small refineries. DOE completed that study I believe in 2009.
They commended new exemption. Congress asked DOE to go back and
take another look at that. So last week Secretary Chu sent
Administrator Jackson a letter outlining a number of refineries
that DOE is recommending to be exempted based on actual data.
And we are in the process to notify all those refineries by the
end of the week.
Mr. Olson. Can I have a copy of that list?
Ms. Oge. This is two year's exemption from RFS.
Mr. Olson. Yes, ma'am. Can I get a copy of that list?
Because again, I have got many, many refiners would qualify on
my district.
Ms. Oge. Would be glad to provide it to you.
Mr. Olson. Thank you very much. I appreciate that. And I
have another question for you, Ms. Oge. Can you assure the
members of this committee and my constituents back home that
EPA's waiver for E-15 blends in vehicles will not cause
excessive wear and tear on the vehicles?
Ms. Oge. Sir, we understand the concerns that have been
expressed and what I can assure you is that the findings of the
waiver were based on a very robust and sound science. So we are
very confident that E-15 will not damage any vehicle 2001 and
newer. However, we have concern about off-road equipment and we
are concerned about altered vehicles. And we are taking steps
to minimize misfueling and putting labeling, appropriate
labeling on across the country.
Mr. Olson. Thank you, and one follow-up question. Why was
the exemption for vehicles model years before 2001? Why did EPA
give that exemption?
Ms. Oge. The exemption--sir, right now what we are saying
is that for 2001 and newer, E-15 will not under--you know will
not damage emission control systems. So we are very confident
the newer vehicles can use E-15 gasoline blend. But for older
vehicles, 2001 and older and older equipment, both lack of data
and engineering judgment about how those engines were built
gives us a lot of concern. So we are not allowing at this point
E-15 to be used for those for those vehicles.
Mr. Olson. Appreciate that and again I represent the 22nd
Congressional District of Texas. There is a huge off-shore
recreation, private recreation industry right in the shadow of
the Johnson Space Center and they have been really hurt by the
impact of E-10 on those marine engines, those outboard engines.
And I don't want that to happen with our vehicles, so thank you
for your time.
Mr. Whitfield. Gentleman from California is recognized 5
minutes.
Mr. Waxman. Thank you, Mr. Chairman. Ms. Oge, you have been
working closely with the National Highway Traffic Safety
Administration and the California Air Resources Board to
develop vehicle, tailpipe, and efficiency standards for 2017 to
2025. These standards will reduce our oil dependence through
increased vehicle efficiency and use of alternative fuel and
advanced technology vehicles.
Last September, NHTSA and EPA released the technical
analysis of the potential vehicle technologies, fuel savings,
and emissions reductions, and costs of various alternatives.
Could you please describe the results of this analysis in terms
of the potential efficiency improvements and cost savings for
consumers?
Ms. Oge. I will, thank you, sir. Last September, we put
forward a document over 300 pages document based on an
extensive dialogue with major car companies, major OEM
suppliers, but also experts in the Department of Energy,
laboratories, academics and looking at extensive peer review
data, plus work that we have done in our office, Department of
Transportation. And as you know we are working----
Mr. Waxman. Give me the answer to that question of the
potential efficiency improvements and cost savings to
consumers.
Ms. Oge. So it is three--we looked from three percent to
six percent annually from 2017 to 2025 and the cost for those
type of improvements were anywhere from $900 to $3,400 for six
percent. But the payback to the consumer from fuel savings
could be as much as $7,000.
Mr. Waxman. You talked about the work that went into this
analysis. You said you talked to the auto industry. Did you
look at recent peer reviewed literature?
Ms. Oge. Yes, we did.
Mr. Waxman. OK. Technical staff experienced auto--technical
staff of experienced automotive engineers, used most recent
technical information, and many peer reviewed technical papers
and reports, commission new studies. You also talked to DOE
about forecasting work for battery costs, right?
Ms. Oge. Yes.
Mr. Waxman. Right, oK. I understand that EIA has also done
some analysis of potential vehicle standards. Did EIA talk to
you about their analysis and do you know if they spoke with
NHTSA?
Ms. Oge. No, actually I spoke with a colleague from EIA
yesterday about this analysis.
Mr. Waxman. OK.
Ms. Oge. I don't know if they spoke with NHTSA.
Mr. Waxman. OK. Are the EIA results consistent with NHTSA
EPA analysis?
Ms. Oge. They are not.
Mr. Waxman. They are not. I think we should make sure that
all of these analyses used the best available data and
incorporate realistic assumptions. For example, EIA hasn't
released the details of the analysis but it appears that EIA's
analysis may use quite different assumptions from EPA and
NHTSA's analysis about how consumer's value improved fuel
economy and the resulting savings at the pump when they make a
decision about buying a new vehicle. This is a critical
assumption in getting it right and they have a big impact on
the results. As you said earlier in the hearing, Mr.
Gruenspecht, right now we are seeing the effect of the price of
gasoline on what consumers buy. The auto industry has just had
a great month. GM sales went up by 27 percent and the industry
is telling us that gas prices are driving consumers to choose
more efficient cars. Don Johnson, GM's Vice President for U.S.
Sales said ``rising fuel prices have led many to rethink
vehicle of choice.''
Last time gas prices went up over $4.00 a gallon, the
American automakers weren't prepared. This time thanks in part
to the new emphasis on efficiency they have an expanded and
attractive lineup of smaller cars and more efficient trucks and
SUV's and sales and profits are up. Ms. Oge, is what we are
seeing now consistent with your analysis of how the 2012, 2016
standards would affect the auto industry? Did you project that
more efficient lower polluting vehicles would actually increase
sales?
Ms. Oge. Yes, we did. Actually for our 2012, 2016 Program
that was announced last year, we estimated about 600,000 to
800,000 vehicle sale increase due to that regulation. And
clearly, sir, as you know the car companies have supported this
analysis.
Mr. Waxman. Well, it makes sense if owning a new car will
cost less because fuel savings outweigh any price increase
people have more money to spend. And we certainly need to have
a good understanding of this as NHTSA and EPA develop a new
round of standards. I had some other questions, but Mr.
Chairman, my time is expired, so I will cease.
Mr. Whitfield. Thank you. Mr. Gardner, you are recognized
for 5 minutes.
Mr. Gardner. Thank you, Mr. Chairman, and thank you to the
witnesses for your time today. I appreciate the opportunity to
learn from you and wanted to follow up, Ms. Oge, with something
you had said, Ms. Oge at the beginning of your statements
regarding cellulosic ethanol. And I think you had said it
wasn't developing quite as quickly as the administration or the
EPA had thought. I wondered if you could go into that a little
bit more and the reasons why.
Ms. Oge. In both my oral and written statement what I said
is that it was not developed, actually then what the Congress
intended back in 2007 when ESA was signed into law where the
expectation was 100 million gallons of cellulosic fuel in 2010,
and 250 million gallons. But also, Congress I believe
recognized the innovative nature of that industry and how new
it is. So they gave us the opportunity to adjust those levels
which we have done for 2010 and 2011.
And as I said earlier there are two major issues that we
are seeing. One is capital investment. You know Department of
Energy and Department of Agriculture is investing in a number
of companies but what they really need to be on Government
investments so we are seeing limited capital investment for
some of the companies. And the second is they are learning a
lot lessons as they are going so there have been a lot of
technological challenges to move from a small R&D, you know
pilot project to a commercial project. But also we have been
discussing this issue with a number of companies including some
oil companies that are making investments on these advanced
biofuels. So we are moderately optimistic that this industry is
going to come up with the volumes that Congress expected in
2007 time frame.
Mr. Gardner. Thank you. And recently the GAO, Government
Accountability Office recent--issued a report a couple of
months ago as a requirement of the last time the debt ceiling
was increased--a report that identified duplication,
inefficiencies in the Government. One of the areas that that
report talked about was the volumetric ethanol excise tax
credit. And are you familiar with that report?
Ms. Oge. I am not.
Mr. Gardner. OK. Then I can submit that question for the
record then. Wanted to just follow-up a little bit to more on
parity across the tax code when it comes to various kinds of
alternative fuels. Is there do you believe a parity in the tax
code when it comes to alternative fuels and if not, could you
explain why some get more credits than others?
Ms. Oge. Sir, that is not my area of expertise, so I cannot
comment.
Mr. Gardner. And I don't know if----
Mr. Davis. I would just make one comment and that is you
know when you talk about parity, I would say that the tax
incentives are greatly different. For instance you mentioned
the tax incentive for ethanol. That is a great--that incentive
is greatly different than the $7,500 tax incentive when you buy
an electric vehicle. So there are great differences. I don't
know of anyone who has done a comprehensive study that looked
at those various incentives to compare them.
Mr. Gardner. Thank you. And Mr. Chairman, I yield back my
time.
Mr. Whitfield. Thank you. This time recognize the gentleman
from Illinois, Mr. Shimkus, for 5 minutes.
Mr. Shimkus. Thank you, Mr. Chairman. I apologize for being
late. The electric mix of--in electricity generation today as I
understand it is coal 45 percent, nuclear 20, natural gas 23,
hydro seven, and renewable 3.6. Just to get that on the record
because my colleague Congressman Griffith and I obviously are
big coal supporters and it still has a major impact and it
will. There is an expectation that electricity creates, without
even the electric fuel debate, will increase 30 percent by
2035. I think that is EIA's estimation. Anyone confirm that
or----
Mr. Gruenspecht. We are a little bit lower than that.
Mr. Shimkus. And what is your----
Mr. Gruenspecht. In the 20s. In the 20s.
Mr. Shimkus. So and that is without a massive increase in
electric vehicles?
Mr. Gruenspecht. Right. Right.
Mr. Shimkus. Well, at least a 20 percent increase which
will speak to the argument of needing more generation not less
generation. Even with efficiencies as some people would
profess, we are going to need more generation. I would wish
that the administration would look at empowering new power
plants, looking at older facilities, and moving to more supply
in this debate. The 2007 debate on the Energy Security Act is a
curious debate because we are in a very similar position as we
are today: high gas prices, the reality and political reality
was we were pushing for more supply. My friends on the other
side were not--the only way they could do it environmentally
was go through and hope that the cellulosic science would be
there to meet this new demand. It is not there yet. So it
brings me the question is for EPA what about raising--there is
a debate based upon the ethanol side, much discussion on the
blend wall and or a second generation being considered to meet
the next generation renewable fuel portions. What is your
position on that?
Ms. Oge. For 2011, there is as you may know we lower the
volume from 250 million gallons to 6.6. But what we did not do,
we did not lower the advance biofuel.
Mr. Shimkus. And that is what I meant to say. Then----
Ms. Oge. Yes, exactly. It is because today if clearly if
you look at various sources of biodiesel we believe the
capacity is there to make up for the difference of the 200
million gallons of cellulosics. And I believe the second
question that you ask has to do with the blend wall. We believe
that the blend wall, the blend wall meaning that by 2014 time
frame we believe 100 percent approximately of the fuel won't
be--will contain 10 percent of ethanol. So the question then is
how do you distribute the remaining of the renewable fuel
mandate into the marketplace? And that is where we believe the
E-15 it can play a----
Mr. Shimkus. Yes, and let me reclaim my time just to get
some other work done here. Mr. Chairman, I would like to submit
for the record a couple letters: one from the Methanol
Institute on the Economic Impact of the Methanol Economy On an
Open Field Standard; also from the--from Admiral--former
Admiral Blair who is a member of the Energy, Security,
Leadership Council member on electric vehicle issues. Also,
comments for the record submitted by Propel Energy, an ethanol
company in the Bay area of California and very supportive of
that. If I may for the record.
Mr. Whitfield. Without objection.
[The information follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

Mr. Shimkus. And let me just take this time to--and if
Eliot was here, Eliot Engel, my colleague from New York, he
would have taken time to do this also. He is with the President
in New York City in my understanding--led the charge on a
debate called an Open Field Standard. I mean imagine a world
where we have a set standard for vehicle design and people can
drive up to a--instead of a gas station, a refueling station
and allow commodity products to compete at the pump for the use
of a transportation fuel. And that is what the open fuels
standard would do whether that is fuel produced by methanol,
cold to liquid, biofuels, crude oil, I take this time to make
sure I put that into the record, give credit to Elliot Engel
who has been leading this charge. I am now the key sponsor
because of course Republicans are in charge. He allowed me to
be the head sponsor of that legislation. It is bipartisan with
Steve Israel and Roscoe Bartlett. The roll out is right now.
You are lucky to be here. And I would encourage all my
colleagues to look at that. Remember we are constrained by
crude oil. We have to have different commodity products that
will compete at the pump that will increase energy security and
it is best for America. And I yield back my time.
Mr. Whitfield. John, thank you for letting us share this
roll out with you today. All right, that culminates our
questions, so I want to thank the first panel for your time and
testimony. And at this time I would like to call up the second
panel. And on the second panel, we have Mr. James Bartis,
Senior Policy Researcher of the Rand Corporation; Mr. Richard
Kolodziej, President NGVAmerica; Mr. Diarmuid O'Connell, who is
Vice President of Business Development for Tesla Motors; Mr.
Jeffrey G. Miller, who is Chairman of the Board of the National
Association of Convenience Stores; Mr. Michael McAdams,
President of the Advanced Biofuels Association; Mr. Robert
Dinneen, President and CEO Renewable Fuels Association; and Mr.
Lucien Pugliaresi, President of the Energy Policy Research
Foundation. So we welcome all of you to the committee. We
appreciate your taking time to be with us. And I am going to be
recognizing each one of your for your opening statement and you
will be given five minutes for that. And there is a little
device on the table that will turn red when your time is up. So
I hope that you would focus on that as well. So at this time,
Mr. Bartis, we will recognize you for--huh? How do we know
that? Well, let us just go on. Go ahead, Mr. Bartis. You are
recognized for 5 minutes.

STATEMENTS OF JAMES T. BARTIS, SENIOR POLICY RESEARCHER, RAND
CORPORATION; LUCIAN PUGLIARESI, PRESIDENT, ENERGY POLICY
RESEARCH FOUNDATION, INC; JEFFREY G. MILLER, CHAIRMAN OF THE
BOARD, NATIONAL ASSOCIATION OF CONVENIENCE STORES; DIARMUID
O'CONNELL, VICE PRESIDENT OF BUSINESS DEVELOPMENT, TESLA
MOTORS; RICHARD KOLODZIEJ, PRESIDENT, NGVAMERICA; MICHAEL J.
MCADAMS, PRESIDENT, ADVANCED BIOFUELS ASSOCIATION; AND ROBERT
DINNEEN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, RENEWABLE FUELS
ASSOCIATION

STATEMENT OF JAMES T. BARTIS

Mr. Bartis. Mr. Chairman and distinguished members, thank
you for inviting me to testify on the opportunities for the
greater production and use of alternative fuels for
transportation. My remarks today are based on Rand studies that
cover a spectrum of alternative fuels including oil shale, coal
derived liquids, oil sands, and biofuels. An important finding
from this research centers on the vastness of the resource base
from alternative fuels in the United States. The largest
deposits of oil shale in the world are located in Western
Colorado and Eastern Utah. The potential yield is about triple
the oil reserves of Saudi Arabia.
Our coal resource base is also the world's largest
dedicating only 15 percent of recoverable coal reserves to coal
to liquid production would yield roughly 100 billion barrels of
liquid transportation fuels, enough to sustain 3 million
barrels per day for more than 90 years. Our biomass resource
base is also appreciable offering to yield over 2 million
barrels per day of liquid fuels. And over the longer term,
advanced research and photosynthetic approaches for alternative
fuels production offers the prospect of even greater levels of
sustainable production.
Today I will be giving particular emphasis through our
recently published congressionally mandated study on
alternative fuels for military applications. In this research
we examined near term alternative fuels that could substitute
for conventional jet fuel, diesel fuel, and marine fuel. While
our focus was on military applications, many of our findings
also hold for the much larger civilian consumption of these
fuels. In particular, the combined demand in the United States
for these fuels is currently over 5 million barrels per day
most of which is directed at transportation.
Of the various options that we examined we found that the
Fisher-Tropsch Method to be the most promising near term option
for producing diesel, jet, and marine fuels in a clean and
affordable manner. The Fisher-Tropsch Method also produces
gasoline. The method can accept a variety of feedstocks
including natural gas, coal, and biomass. Modern commercial
plants are in operation but none are located in the United
States.
When using coal, our best available information suggests
production would be competitive when world crude oil prices
exceed $70 per barrel. This estimate includes the cost of
capturing and sequestering nearly all of the carbon dioxide
generated at the coal to liquids production facility so that
life cycle greenhouse gas emissions would be in line with those
of petroleum derived fuels.
We also looked at using a combination of coal and biomass
as the feedstock to a Fisher-Tropsch facility while again
capturing and sequestering carbon dioxide emissions. In this
case, production would be competitive when crude oil prices
exceed $100 per barrel. Moreover, life cycle greenhouse gas
emissions can be less than half of petroleum derived fuels. In
particular, with sequestration, a feedstock consistent of a 60/
40 coal to biomass blend should yield alternative fuels with
life cycle greenhouse gas emissions that are close to zero.
Other nearer term sources of diesel and jet fuel are
renewable oils. These oils can be prepared from animal fats or
vegetable oils obtained from seed-bearing plants. Biodiesel
from soybean oil is the most well-known of this class of fuels.
When treated with hydrogen, these renewable oils can be
converted to hydrocarbon fuels that are suitable for both
military and civilian applications.
Unfortunately the prospects for these renewable oils are
dim. For sea oils the main problem is the low oil yield per
acre. Consider producing 200,000 barrels per day which is only
one percent of current U.S. oil consumption. Producing this
amount from seed oils would require about 10 percent of the
total crop land under cultivation in the United States. There
are also serious issues regarding greenhouse gas emissions,
production costs, and adverse effects on food prices. Taking
together waste oils, animal fats, and seed oils, it is highly
unlikely that domestic production can exceed 100,000 barrels
per day. From a national energy policy perspective, this class
of fuels will not contribute much.
Our research also examined advanced alternative fuels such
as oil shale and fuels based on algae or microbial processes.
With regard to oil shale, most of the high grade resources are
on federal lands. Six years ago when we published our
examination of oil shale, we concluded that the prospects for
development were uncertain. They remain so today.
The key to progress lies in formulating a land access and
incentive policy that rewards those private firms willing to
take on the substantial risks associated with investing in
pioneer production facilities. However, it would not be
appropriate to develop detailed regulations that would pertain
to full blown commercial development until more information is
available on process performance. Algae and other microbial
processes may yield alternative fuels without the limitations
and adverse land use changes associated with seed oils. But
these approaches are in the early stages of the development
cycle.
Large investments in research and development will be
required before confident estimates can be made regarding
production costs and environmental impacts. In my written
testimony I have also highlighted the national importance of
alternative fuels, and further discuss policy issues associated
with gaining early commercial experience in emerging
alternative fuel technologies. This concludes my remarks. Thank
you.
[The prepared statement of Mr. Bartis follows:]
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Mr. Whitfield. Thank you very much. And Mr. Pugliaresi, we
will recognize you for your 5-minute opening statement. Be sure
to get the microphone around so it is close----
Mr. Pugliaresi. Thank you, Mr. Chairman.
Mr. Whitfield [continuing]. And make sure it is turned on.

STATEMENT OF LUCIAN PUGLIARESI

Mr. Pugliaresi. Chairman Whitfield, Ranking Member Rush,
and members of the Subcommittee on Energy and Power. On behalf
of myself and EPRINC, we welcome this opportunity to testify on
the topic of alternative transportation fuels. I will summarize
my key points of my testimony but submit the entire statement
for the record.
The Energy Policy Research Foundation is a non-profit
organization that studies energy economics with special
emphasis on petroleum and the development of downstream
petroleum markets. We have been researching and publishing
reports on all aspects of the industry since 1944.
The Federal Government provides a range of subsidies, tax
incentives, and regulatory mandates for multi-use of ethanol
and other renewable fuels into the National Gasoline Pool.
Until recently, ethanol was limited by law to a maximum of 10
percent but as well as a specialty fuel at high levels, what we
call EV5 or 85 percent. Under the Renewable Fuel Standard,
volumetric requirements for ethanol increased annually
regardless of the growth in gasoline use.
For 2001, the renewable fuel standard requires the gasoline
pool to achieve almost 10 percent of by volume and which is
historically level--we have limited for conventional fuels, for
conventional vehicles over concern about safety. So called
obligated parties such as refiners and importers can only
market additional volumes through greater sales of E-85. But E-
85 has met a lot of consumer resistance through poor mileage
performance. E-85 also requires a large investment in new pumps
and tanks. In response to concerns over market limitations of
E-85, EPA has authorized the use of a new fuel with 15 percent
ethanol, or E-15. It is only available for model year 2001 and
newer cars with certain exceptions. These initiatives to
increase the blending volumes for gasoline have been sought as
a means to create additional market access for the mandated
volumes of ethanol as a 10 percent volumetric level or blend
while it is reached. Could we go to the first slide?
[Slide]
Domestically produced--oK well my in--domestically produced
ethanol should have provided some modest constraint on the
rising cost of gasoline as turmoil in the Middle East and North
Africa sent crude prices well above $100 per barrel. Instead,
ethanol has seen its feedstock costs more than double over the
last 10 months and increase considerably greater than the
rising crude prices over the same period.
Now if we go to the second slide----
[Slide]
See that U.S. policy requiring ever larger volumes of
ethanol blended into the gasoline pool is now running two
distinct and important cost realities both of which are likely
to contribute to an increase in the price of gasoline.
The first is a rapidly rising cost of corn. Disappointing
U.S. corn yields, loss of wheat crops worldwide and the
increasing domestic and international demand for corn has
pushed prices from $3.50 a bushel to over $7.00 a bushel in the
last 10 months. The second problem is the volumetric mandate on
the use of ethanol in the U.S. gasoline pool which will soon
exceed the threshold of 10 percent by volume. We have different
debates on when that will happen, but this is going to cause
some serious problems because this transportation fuel sector
will be left with a program that mandates the blending of a
fuel regardless of cost, demand, infrastructure, or value. We
move to the third slide.
[Slide]
We can see in a market free of volumetric mandates, cost
would be the prime determinate of evaluating the appropriate
mix of ethanol and gasoline sold at the pump. EPRINC's analysis
shows that the volumetric ethanol mandate for the gasoline pool
is bringing more costly product to the market, but when ethanol
prices are converted to a gasoline energy equivalent basis, the
wholesale price of ethanol is $3.95 a gallon. Ethanol when
adjusted for BTU and miles per gallon equivalents sells above
the price of premium gasoline at retail outlets. This is DOE
data. Now if we move to the last slide?
[Slide]
The congressional debate over the deficit has highlighted
concerns over the cost of ethanol subsidies now estimated at
nearly $6 billion per year. Ethanol is highly valuable and we
often get criticized that we don't like ethanol, but actually
ethanol's highly valuable as an octane booster and as it
oxygenates. If we had no subsidies, we would use a lot of
ethanol, probably 400,000 to 500,000 barrels a day. So what we
are getting out of the subsidy program in the mandate is the
second increment around 400,000 barrels a day and we are paying
a lot for that.
It is not surprising that the volatility in the oil market
are also present in the corn market. Corn is a globally traded
commodity and China, the world's second largest corn producer
has recently become a net importer of U.S. corn for the first
time in many years. As long as both of these commodities are
locked into a regulatory environment that strictly prohibits
adjustments to changes in market conditions. Opportunities to
temper the costs of market volatility through adjustments in
the domestic fuel mix with corresponding and unnecessary cost
increases for transportation fuels will remain limited.
We are well aware that ethanol producers have made
expensive capital investments in the production of conventional
biofuels. And EPRINC is always maintained that ethanol is an
important critical component in the production of domestic
transportation fuels. We should not abandon this investment,
but existing law would drive the mandate above 10 percent of
the gasoline pool. These higher blend rates for ethanol, one,
pose major cost on the wholesale and retail distribution
components of the fuel sector. In addition to these primal
risks, financial risk, we may find that he mandate has
foreclosed more cost effective alternatives such as drop in
fuels.
Given the costs involved, we should consider holding the
mandate at 10 percent until we can get a full understanding of
the risks and costs of the full range of strategies to increase
the volume of domestic fuels in the transportation sector.
Thank you, Mr. Chair.
[The prepared statement of Mr. Pugliaresi follows:]
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Mr. Whitfield. Thank you. At this time I recognize Mr.
Miller for his 5-minute opening statement.

STATEMENT OF JEFFREY G. MILLER

Mr. Miller. Chairman Whitfield, Ranking Member Rush,
members of the subcommittee, my name is Jeff Miller and I am
President of Miller Oil Company headquartered in Norfolk,
Virginia. I also currently serve as Chairman of the National
Association of Convenience Stores or NACS. Thank you for the
opportunity to testify today on the topic of renewable and
alternative fuels.
The convenience and fuel retailing industry, which sells 80
percent of the fuel in the Nation to 117,000 outlets, has a
unique perspective on the future of transportation fuels. Let
me start by stating that we support the use of renewable fuels
and are working hard to expand their use for the motoring
public. However, we are in the customer service business and
have to make decisions every day regarding what products to
sell and which services to offer our customers.
Choosing to sell a new fuel is very different than choosing
to sell a new candy bar. As new fuels come under the market, we
want to have a reasonable expectation that we will be able to
generate a return on our investment and we will have the option
to sell them while being in compliance with all laws and
regulations. But to do this we need your assistance.
I would like to highlight some of the issues retailers face
when considering whether to sell a new fuel. To illustrate my
points, I will use E-15 just as an example, but these issues
can be applied to almost any other fuel that is being
developed. First off is compatibility. By law, all of the
fueling equipment I use at my stores must be listed by
underwriter's laboratories as compatible with that liquid. If I
use nonlisted equipment I violate OSHA regulations, tank
insurance policies, and other regulatory requirements.
Because UL will not recertify any existing equipment even
if it is technically compatible with the new fuel, my only
legal option is to replace my dispensers. This could cost me
about $20,000 per unit or roughly $80,000 to $100,000 per store
depending on the number of dispensers. Further, if my
underground equipment is not listed for E-15 I would have to
replace that as well. Once we start breaking open concrete, my
costs could easily exceed $100,000 per site. So offering E-15
could become very expensive.
But if I choose to make this investment I am then faced
with a second issue: misfueling. Under EPA's partial waiver,
only certain engines are authorized to fuel with E-15. So how
do I prevent the consumer from buying the wrong product? If I
don't I could be fined or sued under the Clean Air Act or if
using the wrong fuel causes engine problems I could be sued by
the consumer or the word could spread that my fuel causes
engine damage. But let's say I am willing to take this chance.
I come to my third issue and that is long term liability
exposure.
What if the future of E-15 is determined defective? There
is significant concern that such a change in the law would be
retroactively applied to any who manufactured, distributed,
blended, or sold the product in question. We have experience
with this situation and it is a major concern. Now if I am
willing to change my equipment and accept these liability risks
I have to ask myself will my customers purchase the fuel. It is
important to note that this is the first fuel transition in
which no person is required to purchase the fuel, so there are
no assurances of consumer demand.
It is also important to remember that E-15 is approved by
the EPA for only certain vehicles and that the auto
manufacturers do not support this decision. So it is almost
impossible for me to evaluate consumer demand and this creates
a great deal of uncertainty. This leads me to what Congress can
do to help retailers like me reach a decision that will help
renewable fuels growth in our country. Congress can take the
following actions to lower the cost of entry and my exposure to
unreasonable liability.
First, authorize an alternative method for certifying
retail equipment. Last Congress Representatives Mike Ross and
John Shimkus introduced H.R. 5778 which would do this.
Secondly, insure that retailers that comply with the EPA's
labeling regulations cannot be held liable for self service
customer misfueling of nonapproved engines. H.R. 5778 also
included provisions for this. Third, provide regulatory and
legal certainty that compliance with certain laws and
regulations will protect us from retroactive liability should
the laws and regulations change at some time in the future. And
finally, support the development of vehicle and infrastructure
combatable fuels also known as drop-in fuels.
If Congress takes these actions to lower the cost of entry
and to remove the threat of unreasonable liability more
retailers may be willing to take a chance and offer new
renewable fuels. The market then will be able to determine the
fate of the new fuels. Thank you for the opportunity to share
my perspectives.
[The prepared statement of Mr. Miller follows:]
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Mr. Whitfield. Thank you very much. Mr. O'Connell, you are
recognized for 5 minutes.

STATEMENT OF DIARMUID O'CONNELL

Mr. O'Connell. Thank you very much. Start again. Thank you
very much, Mr. Chairman, distinguished members of the
committee. It is an honor to be here as a representative of the
electric vehicle industry, an emerging industry and of the
leader of the technology leader in that industry Tesla Motors,
a California based company.
Tesla Motors was founded in 2003, 2004 by a group of
entrepreneurs, engineers, and venture capitalists with the idea
of creating a company to achieve the mission of catalyzing the
market for electric vehicles. The motivation behind this
mission was a combination of factors. One, our analysis of the
cost of the dependence effective monopoly of oil in our
transportation infrastructure and the fact that has as many of
our representatives have mentioned; a serious negative
economic, environmental, and perhaps most importantly national
security implications, I myself having come from out of the
national security sector to this situation.
Also there is a fact of an absence by virtue of this
monopoly and by virtue of the policy that is effectively
supportive of an incumbent lack of a market or policy signal
that we are seriously interested in approaching any of these
advanced technology fuels or vehicles in a serious fashion.
Also, in terms of facilitating factors is the emergence of a
new suite of battery technologies, batteries having been the
major gating factor for electric vehicles over the course of
time. As the Chairman's mentioned, electric vehicles have been
on the scene since as early as the turn of the last century and
were a serious contender absent the emergence of a facilitating
battery technology to be the car of the future in the early
1900s.
But the fact is that a new suite of lithium ion battery
technology largely growing out of the demand for consumer--
mobile consumer electronics has made a new class of electric
vehicles possible. Plus in terms of technology addressing such
issues as range as well as increasingly addressing the
important issues of economic access.
Finally and perhaps most importantly was the suitability of
our project to the application of the disruptive technology
introduction model. This is the model of bringing together
innovation, venture capital, and available bench technologies
which has led to the emergence of just about every industry
that we have either mentioned here today or could think of.
Most recently in mobile technology whether it is the cell
phone, the personal computer, or all the associate technologies
there, but going back even further in history the fashion in
which airline travel became a commercial reality. Or in the
automotive sector the fashion in which safety technology such
as airbags and antilock brakes have emerged. And that is that
initial technology, early technology tends to be expensive. It
is expensive because of the substantial investments that we
make in the R&D. It is also expensive because economies of
scale and manufacturing are not available for widespread
deployment and thus early unit costs are low.
So in just about all of these technologies and services
that I have just referenced initial costs were high. It was
effectively a luxury item or characterized as such accessible
only to wealthy early adopters. But with commercial viability
proven at that point, further investments are attracted to the
project, economies of scale are increasingly achieved, but most
importantly iteration of that technology, improvement of that
technology is achieved. You will note that the early
generations of this technology, the 1984 version of the cell
phone were substantially bigger and more cumbersome, also much
more expensive.
Tesla Motors has made great progress over the course of
time. Our first project was to develop an electric drive train
that would achieve the necessary efficiency and cost profile.
Our second project was to deploy it. And our first car, the
Tesla Roadster, which is a vehicle which there are over 1,600
vehicles on the road in over 30 countries. Our third project is
to develop an electric vehicle sedan, less than half as
expensive as the Tesla Roadster at less than $50,000 which will
optimize the vehicle to the power train in the same fashion
that cars optimized the early internal combustion technology
evolved from horse carriages powered by internal combustion
engines to more suitable platforms.
Along the way, we have attracted serious investment
interest and validation from the auto industry. Daimler has
invested in our company almost $50 million, so too, Toyota.
Both of those companies are customers for our technology. Their
deploying our batteries and our power trains in their own EVs
and this is helping us to achieve on an accelerated basis our
overall goal which is to create a mass market for EVs. We are
getting there on our own by making increasingly larger volumes
of lower cost vehicles. But the way that we are working with
the industry to effectively borrow their economies of scale to
allow them to put their own vehicles on the road. And already
on the road is the Smart under the Daimler family, the Smart EV
in the U.S. and Europe. They are deploying an A class vehicle
in Europe and coming next year will be the Toyota RAV4 SUV
powered entirely by a Tesla developed and manufactured drive
train.
One other point I would like to make and that is with
respect to infrastructure. In truth, electricity is in terms of
its feedstock and as my friend Pat Davis mentioned, it is
mixed. The ultimate flex fuel vehicle in that the grid is
powered by diversity of historic and new technologies, those
will only get cleaner and better over the course of time. And
it is--the infrastructure is already in place. Mr. Chairman,
you could plug one of our cars into the outlet behind you and
charge that. That exits in every home in America and requires
no investment in large scale infrastructure. Thank you very
much.
[The prepared statement of Mr. O'Connell follows:]
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Mr. Whitfield. Thank you. Mr. Kolodziej, you are recognized
for 5 minutes.

STATEMENT OF RICHARD KOLODZIEJ

Mr. Kolodziej. Mr. Chairman, Mr. Rush, members of the
committee, subcommittee, my name is Rich Kolodziej. I am
President of NGVAmerica. We are the National Trade Association
for vehicles that are powered by natural gas and biomethane.
Thank you for the opportunity to be here today to discuss how
increased use of natural gas can reduce our dependence on
foreign oil while also reducing greenhouse gas production and
reducing urban pollution. And we are doing all this while
creating more jobs here at home.
It is now clear that we have massive amount of natural gas
right here within America's borders. The U.S. information--
Energy Information Administration, the Potential Gas Agency,
other expert bodies have now estimated that we have up to 100
years supply of natural gas as technology improves, that number
is going to continue to go up.
For petroleum, America must pay a well price which is out
of our control. We are a price taker. But because there is no
way to ship large quantities of natural gas off of North
America, the supply and demand of natural gas here is set by
prices here--is actually set to price here. So we have much
more supply than we have demand, so natural gas prices are
forecast to be way below oil. The question is how do we use all
that gas? Well the market tells us that the vehicles, four
vehicles that is the highest valued application of all natural
gas uses. That is why we are seeing such rapid growth in the
NGV market worldwide.
In fact, NGVs are the fastest-growing alternative fuel,
alternative to petroleum in the world. In 2003, we had only
about 2.8 million NGVs globally. Today we have over 13.2
million, and according to the forecast by the International NGV
Association, but 2020, we are going to have 65 million vehicles
on the world's roads.
Most of those are smaller sedans, but for a number of
reasons including the sheer size of America, the strategy of
the U.S. NGV industry has been to focus on high fuel use
fleets: trash trucks, transit buses, short haul, 18 wheelers,
school buses, urban delivery vehicles, shuttles of all kinds,
taxis. We estimate that last year these vehicles used about 43
billion cubic feet of natural gas. That is the equivalent of
320 million gallons of gasoline we did not have to import.
However, with proper government policies, the number could
reasonable grown to 1.25 trillion cubic feet or the equivalent
of about 10 billion gallons within 15 years.
Now some of this will displace gasoline, but the majority
would displace diesel. Diesel represents about a quarter of on-
road petroleum use. While there are many options to displace
gasoline in light duty vehicles, there are very few options to
displace diesel in trucks and busses and other heavier
vehicles. Of those options, natural gas can make the biggest
impact the fastest. This is important since trucks are the
economic lifeblood of America. Everything we buy moves by
truck. If we reduce the cost of trucking, we reduce the cost of
everything and that is going to benefit businesses and
consumers alike. And NGVs can help do that.
Right now the cost of NGVs are--the cost to buy an NGV is
high. It is higher than gasoline and diesel. But the cost to
operate those vehicles is less, therefore, the more miles
driven, the faster the payback. For some fleets, the most
intensive fuel use fleets, NGVs are economic today. But to
expand the use of NGVs and maximize NGVs oil potential--oil
displacement potential, we need to bring down the cost of NGVs,
that first cost of NGVs. We have to make them more economic for
more fleets. And that is going to happen through economies of
scale and through a more large scale production. That is why
the industry is so excited about the bill recently introduced
by Mr. Sullivan, H.R. 1380, the NAT Gas Act of 2011.
That bill would provide federal incentives for the
production, purchase, and use of natural gas vehicles and the
expansion of NGV fueling infrastructure. That bill which was
introduced on April 6 as Mr. Sullivan had mentioned already has
180 bipartisan cosponsors. It would only be in place for 5
years. It is only a 5 year program, but during that time and
long thereafter this would make a big impact on the number of
NGVs for which the fleets would be found and economically
attractive.
This is going to accelerate the NGV use in this country
which in turn would bring more NGV manufacturers into the
market, increase competition, and drive down that first course
premium. NGVs are here and now technology. We don't need any
major technological breakthroughs. What we do need is to grow
faster and the NAT Gas Act would help jumpstart that growth.
Thank you for your attention.
[The prepared statement of Mr. Kolodziej follows:]
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Mr. Whitfield. Thank you. Mr. McAdams, you are recognized 5
minutes.

STATEMENT OF MICHAEL J. MCADAMS

Mr. McAdams. Chairman Whitfield, Ranking Member Rush, and
members of the committee, I am honored to be with you this
morning.
The Advance Biofuels Association represents 36 of our
Nation's and world's leading advance biofuels companies and
feedstock producers. Since its inception, the Association has
advocated technology neutrality, feedstock neutrality, and
subsidy parity. Said another way, put everyone on a level
playing field and please do not pick a winner.
Speaking to the focus of today's hearing, recent energy
information data showed that we as a country use 290 billion
gallons of various fuels products in 2010. Most of those
gallons came in the form of gasoline, diesel, jet, marine
fuels, and heating oils. Over 50 percent of this demand was met
using foreign oil or imported products. Advance biofuels and
cellulosic producers are uniquely positioned to produce fuels
that can meet this demand while delivering more sustainable
environmental performance.
The Association and its members believe that all the
various renewable and alternative fuels have an opportunity to
make a contribution towards reducing the dependence on foreign
oil. We urge Governments to provide stable, long term, common
sense policies which allow everyone to compete to achieve a
clear set of National energy objectives. Recent developments in
the advance biofuels technologies enable our companies to make
significant contributions in diversifying our transportation
fuels.
One of the most noteworthy developments in advance sector
is the ability of many companies to manufacture gasoline, jet,
diesel, heating oil, and crude oil from renewable resources.
These fuels are called drop-in fuels. They are fungible in
today's planes, trains, boats, and automobiles. They do not
require changing current infrastructure or transportation
fleets. Many of them are economically competitive with current
products on the market today.
There are some that would like you to believe that advanced
and cellulosic biofuels are a long way off, but nothing could
be further than the truth. These fuels are commercially being
produced today with many more gallons on the way. In fact,
dynamic fuels, a joint venture between Tyson Fuels of Arkansas
and Centroleum of Oklahoman is currently producing 75 million
gallons of renewable diesel and jet fuel. This plant makes
diesel and jet fuels as if they were made from a traditional
refinery out of a traditional barrel of oil.
In addition, I am pleased to report that several advanced
biofuels companies have gone public with great success. This is
the private sector's money, not the Governments. GVO as a
result of its recent $127 million offering 40 days ago has
begun its plans to retrofit traditional corn ethanol plants to
produce 18 million gallons of isobutanol next year. They
further have plans to develop 350 million gallons of production
by 2015.
These developments would simply not be occurring if it were
not for the vision of this committee and Congress to enact the
RFS. Our Association and member companies strongly believe that
the current RFS is the most important federal policy in
supporting the development of all biofuels in this country. We
specifically urge the committee and the Congress not to tinker
with this statute at this time. One issue we would like to
bring to the committee's attention today is the regulatory
process at EPA and the certification of RIN credits.
When Congress expanded the statue in 2007, the intent was
to back out as many types of gallons of foreign fuel products
as possible. Currently the EPA and their RIN certification
process is showing a tendency to be prescriptive and narrow in
approving some determinations for qualified pathways as well as
qualifying some potential feedstocks. We would urge the
Congress to remain closely engaged with the Agency on these
determinations.
Many are moving forward at this time and could have a
significant chilling effect if not resolved correctly. While we
support EPA's efforts to protect the environment and the
existing commercial change of delivery, we encourage them to
air on the side of bringing as many types of renewable advance
biofuels to the market as reasonably possible.
Additionally we need to acknowledge for the last 20 years
our regulatory structure has regulated gasoline and ethanol and
a number of new types of fuels will need to be harmonized with
existing regulatory system so we are able to compete on a level
playing field. We should not allow the regulatory elements of
the past to be barriers of entry for these new high performance
fuels of the future. As most of you are aware, the chief
challenge of the advance and cellulosic industries has been
acquiring the necessary funding to build the next generation
facilities.
One of the primary reasons is the disappointing lack of
commercial funding has been our biofuels tax policy. The
current code is inconsistent and what it rewards according to
the molecule, the feedstock, or the process used. Advanced and
cellulosic biofuels tax policy does not provide parity and in
many cases the credit is not in the right form to enable the
companies to monetize their value. The depending on the size
and scale of the company, many in the advanced or cellulosic
believe they would have been more successful if they had had a
similar investment tax credit to the solar and wind industries
rather than the production tax credits afforded under the law.
In conclusion, a significant amount of progress has been
made over the last two years by the advance biofuels sector.
Much more is on the way as these fuels continue to make
significant contributions to America's world's transportation
pool. Thank you for the opportunity to be with you and I look
forward to your questions.
[The prepared statement of Mr. McAdams follows:]
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Mr. Whitfield. Thank you. Mr. Dinneen, you are recognized
for 5 minutes.

STATEMENT OF ROBERT DINNEEN

Mr. Dinneen. Thank you, Mr. Chairman. Chairman Whitfield,
Ranking Member Rush, members of the committee, I want to thank
you for the opportunity to be here today. I do believe as
others have stated that this is an incredibly important and
timely hearing. Look, CNN yesterday had a poll of economists
across the country and every single one of them said--suggested
that the single most important threat to our Nation's economy
today is the skyrocketing price of gasoline. We need to get a
hold of this issue as many of you have noted so far this
morning.
But I can tell you that as a consequence of this
committee's actions over the past several years, no matter who
has held the gavel with the 2005 Energy Bill and the 2007
Energy Bill, we are making some progress. As a result of that
bill we now have 200 ethanol plants in operation across the
country. Companies, Mr. Chairman, like Commonwealth Agrienergy
in Kentucky. Certainly, Mr. Rush, many in Illinois, in
Nebraska, in Kansas, in Colorado. And even, Congressman
Griffith, we have a plant now in Virginia in Hopewell,
Virginia, that is processing ethanol from barley, a cover crop.
It is exactly what the renewable fuel standard was hoping to
do. It was hoping to evolve this industry to new feedstocks and
new technologies. It is having some success.
As a result of this committee's work in 2005 and 2007, our
industry is now producing some 13 billion gallons. Our industry
is now responsible for some 400,000 jobs across this country.
This industry is responsible for $53 billion to the gross
domestic product. We are displacing some 445 million barrels of
oil that would otherwise be used in the production of gasoline.
But most importantly and critical to the debate going on
today with respect to gasoline prices, the fact that we are
producing 13 billion gallons, the fact that ethanol is now
blended in 10 percent of the Nation's fuel is having a
dramatically positive impact on gasoline prices. A report that
was released earlier this week by Iowa State University and
professors at the University of Wisconsin concluded that in
2010, the blending of ethanol actually reduced consumer
gasoline prices 89 cents a gallon. That is a savings to
household incomes of about $800 a year. That is a meaningful
impact and it is just going to grow as the ethanol industry and
other biofuels continue to grow and evolve. But a couple things
still need to happen.
As Mr. McAdams just noted, the renewable fuel standard that
has helped propel this industry in this fashion needs to stay
in place as it is. You ought not be tinkering with it. I would
suggest, however, and my testimony goes into many areas where
the Environmental Protection Agency needs to pay a little bit
closer attention to the statute and congressional intent in
implementing this program. There are a number of areas where
they have hampered the continued development and evolution of
biofuels in the implementation of the renewable fuel standard.
And my testimony goes into many--I will just maybe mention one.
The process by which the Agency approves new feedstock and
new pathways is extraordinarily cumbersome and limiting and it
is keeping new fuels from gaining access to the marketplace. In
addition to that, though, we have to find a way to get through
the blend wall. If the 36-billion-gallon renewable fuel
standard requirement is going to be met, we have to blend more
than 10 percent ethanol into gasoline. Now EPA has made some
useful steps in the right direction by allowing E-15 for 2001
in newer vehicles, and I applaud them for that. But quite
frankly by placating the market in the way that they have, by
only making it available to those newer vehicles and not making
it available to consumers that have an older vehicle, they are
causing issues with the implementation of that.
We support efforts and legislation that would address some
of the issues that marketers have brought to bear on this
issue. We do need to find a way to the--assure that the
liability and the implementation issues that the marketers have
raised are addressed.
We supported in the last Congress H.R. 5778. I look forward
to that being introduced again, but ultimately we need to get
beyond just the blend market anyway. We need to be utilizing
some of these biofuels and alternative fuel markets as E-85.
And so we are very supportive of the legislation that
Congressman Shimkus introduced yesterday, H.R. 1687, the Open
Fuel Standard. That will empower consumers to make the choices
that are best for them. Look, every one of you today has talked
about our desperate energy situation, the need to have more
energy choices. We need to stop demonizing domestic energy
supplies no matter where they are whether it is coal or corn-
based ethanol. We need to be empowering consumers to make the
choices that are best for them. Things like the Open Fuel
Standard would do that. Things like making sure the RFS is
implemented as Congress intended will do that. But the
inexorable march toward more domestic renewable fuels like
ethanol, like cellulosic ethanol, like other advanced biofuels,
has got to continue. It is too important for our Nation's
economy, and energy security. Thank you.
[The prepared statement of Mr. Dinneen follows:]
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Mr. Whitfield. Thank you, and thank all of you for your
testimony. We have four votes on the House floor and
unfortunately one of them is a Motion to Recommit in which it
is not only a 10-minute debate on each side, but also 15
minutes. So I am just--I am going to go on and ask my
questions. We will get you, Mr. Rush, and maybe we won't use
all of our time and try to get as many in as we can. And then
we will decide what we are going to do. But, Mr. Dinneen had
indicated that the renewable fuel standard hadn't reduced the
price of fuel by 89 cents a gallon. And I think in your
testimony, Mr. Pugliaresi, you had indicated that the renewable
fuel standard had actually increased the cost. Is that correct?
Mr. Pugliaresi. Yes, I mean, we can -- talking the blend
wall provides that such a threat. It is really crossing the
blend wall is what the major problem is. I can explain while I
think that Mr. Dinneen got his numbers, they removed, their
study removes all ethanol from the gasoline supply. Ethanol has
a value, a very high value at small volumes, three to five
percent because it boosts octane and then it provides an oxygenator. After five percent in the gasoline pool its value
is less than gasoline because it has 30, 35 less BTUs. So the
real question is what is the cost of the fuel? And when corn
prices go up the price of the fuel goes up. And so when we have
a mandate you force that into the system even if they are a
competitive environment you wouldn't call for that. You could
see conditions in which people would want blended or 10
percent, just depending on relative prices. But in the prices
of corn, the feedstock goes way up, we have got a problem.
Mr. Whitfield. Yes.
Mr. Dinneen. Could I just----
Mr. Whitfield. Yes.
Mr. Dinneen [continuing]. Clarify?
Mr. Whitfield. Yes.
Mr. Dinneen. This was not Mr. Dinneen's numbers. This was a
study done by Iowa State University and the University of
Wisconsin.
Mr. Whitfield. OK.
Mr. Dinneen. And you know really what they were looking at
was ethanol today. We are more than a dollar cheaper than
gasoline at the rack and just by the fact that we are 13 clean
gallons of the U.S. motor fuel market we are having a downward
pressure on gasoline prices.
Mr. Whitfield. OK.
Mr. Dinneen. And they concluded 89 cents benefit.
Mr. Whitfield. Mr. Miller, I really appreciated your points
because renewable fuels is good for farmers, certainly good for
a lot of people in this country and it helps us become less
dependent. But it sounds like it presents a lot of just
practical problems for the retailer who is trying to get it out
to the consumer. And do you feel like that most convenience
store owners around the country have this same experience that
you have?
Mr. Miller. Yes, sir. I think the issue for us you know is
the equipment incompatibility with the higher blend of ethanol.
Mr. Whitfield. So if it is certified for EPA-10 it cannot
be recertified for EPA-15 that is on equipment?
Mr. Miller. The certification process now that we go by is
under writers laboratories and they will not go backwards. They
will only certify equipment going forward which was why a
provision was put in the bill last Congress about establishing
a method for certifying older equipment, because some of the
older equipment may work. But we don't have a method of getting
it certified so therefore we would be out of compliance.
Mr. Whitfield. Dr. Bartis, the Fisher-Tropsch's technology,
it is my understanding that they will not license it for use in
the United States. Is that true or not true?
Mr. Bartis. That is not true.
Mr. Whitfield. Not true. OK. All right, thank you. That was
easy.
Mr. Bartis. Some of my members are planning to use it.
Mr. Whitfield. OK. Mr. O'Connell, in your company with
these electric cars, I know they are quite expensive, but it
sounds like you are obviously doing very well with it. And
right now how far can the car go if it is fully charged?
Mr. O'Connell. We saw our first generation Tesla Roadster
had the ability--has the ability to drive at the EPA of--using
EPA roles, 244 miles on a single charge. They have been driven
in demonstrations over 300 miles. Our next generation sedan--so
that's sports car, two-seater, nice weekend car. The sedan,
five plus two seating so a regular everyday driver will have
the ability to drive up to 300 miles on a single charge.
Mr. Whitfield. OK. Thank you. Mr. Rush, you are recognized.
Mr. Rush. Thank you, Mr. Chairman. I--Mr. Dinneen, your
passion is certainly commendable. I am from a corn state--
ethanol-producing state and I just want to ask you and maybe I
will ask this of Mr. Pugliaresi also. I am sorry if I am
mispronouncing your name. Please accept my apology. But it
seems to me that the most striking arguments against the
ethanol is impact on overall food supply. Can you address that,
Mr. Pugliaresi? If you could also address those issues? What do
you think about that argument?
Mr. Dinneen. Thank you for giving me the opportunity to
address that issue. With 5 minutes it is a little bit hard to
get everything in and I certainly wanted to address that
because it has been mentioned so far here today. Look, ethanol
is absolutely not driving crude price inflation today. What is?
It is the skyrocketing price of gasoline. It impacts everything
from the fertilizer the farm utilizes to the diesel fuel to get
the product to the stores, to the packaging that is used to
package the fuels, to the marketing. I mean, petroleum drives
all of our economy today. So that is the single most important
impact.
The second might be the speculation in the marketplace that
is going on today. I mean, it has been a phenomenon just really
over the past five or six years, but you know hedge funds today
with long positions on grain supplies control more corn
ethanol--I am sorry, more corn that does the entire ethanol
industry would utilize in the year. So the role that
speculators is having an incredibly important role in this.
But at the end of the day, Congressman, we are just
utilizing the starch in the processing of corn. All of the
protein, all of the vitamins, the feed value of the corn is
retained and is then used in livestock and poultry markets
across this country. We have produced some 36 million tons of
feed products last year; enough feed to feed every cattle that
is fed on a feed lot. So this is not a food versus fuel
industry. This is a food and feed industry and people need to
take a step back, leave the hyperbolic scaremongering aside and
recognize that the industry is continuing to grow, it is
continuing to evolve, and we need it if we are ever going to
get a handle on skyrocketing prices of energy.
Mr. Pugliaresi. Congressman Rush, I think the issue is not
really--you can talk to the Department of Agriculture, the long
run--we can produce a log more corn at relatively low cost. It
is when we get into these situations in which there is a lot of
volatility in the market that the producers aren't able to
adjust their fuel mix to deliver the product at the lowest
possible cost. So we put this--it is the mandate where we have
the problem. The mandate says we don't care what the cost of
ethanol is, you have to use it. And what we really need is a
lot more flexibility so that when the cost of one feedstock
goes up producers can alter their mix to deliver the product at
the lowest possible costs to the consumer.
Mr. Rush. Thank you so much. Mr. Kolodziej--I am sorry. Are
you familiar with the administration's initiative to green the
fleet? Yes, are you familiar with the administration's
initiative to green our fleet?
Mr. Kolodziej. Green the federal fleet?
Mr. Rush. Right.
Mr. Kolodziej. Yes.
Mr. Rush. OK. What role could natural gas play an advance
in that objective of using more Government owned vehicles that
run on alternative and more efficient fuels?
Mr. Kolodziej. Well, it is a--just like with all the
alternatives, if the Federal Government moves to alternative
fuels you are going to use less fuel. Natural gas has the
benefit of being also less expensive, significantly less
expensive so that you would help reduce the cost of operating
those vehicles especially in the bigger vehicles. I mean, in
the Federal Government has a lot of light duty fleets; you know
vans, pickups, sedans. But they have a number of--a significant
number of larger vehicles where the option is diesel and we are
the best alternative to that.
Mr. Rush. Mr. Chairman, this is the time I am going to
yield back my time.
Mr. Whitfield. Thank you. Mr. Pompeo, you are recognized.
Mr. Pompeo. Great. Thank you. I will try to do this in less
than 5 minutes so we can get on our way. I want to ask Mr.
O'Connell, Kolodziej--we get you pronounced right?
Mr. Kolodziej. Yes.
Mr. Pompeo. I get mine pronounced wrong all the time, too,
so----
Mr. Kolodziej. I know.
Mr. Pompeo [continuing]. And Mr. McAdams, I heard each of
your three testimonies they sounded eerily similar. Each of you
has got industries that have made technological progress. Each
of you has got vehicles that are in production phase. Each of
you believe that you have got the low cost future technology.
You should know that you are the three of 12 industries that
have been in my office in 100 days to tell me that you have
provided the great next American energy solution. I have heard
from 12 different industries. I wish you would go to the
capital markets and not Washington, D.C. for your solutions. I
want to ask each of you, this is a yes or no--are you prepared
for your personal tax dollars to go to the other two guys to
support the tax credits and subsidies that they are looking
for?
Mr. Kolodziej. Yes.
Mr. McAdams. Absolutely.
Mr. O'Connell. Yes, sir.
Mr. Pompeo. So we should subsidize all 12? So everybody who
comes to my office with a great energy solution, the taxpayers
should underwrite each and every one of those industries?
Mr. Kolodziej. No, we should look at--I would suggest is
look at each technology on its own. And with respect to natural
gas vehicles, I can tell you that that is one of the reasons we
have 65 million--we will have 65 million natural gas vehicles
on the road eventually in 2020. We have 13 million now is
because primarily because Governments are supporting that
activity to get oil out of the market. There is very few--and
again there is very few options with respect to diesel
vehicles. And if you want--if the goal of the Federal
Government is to reduce independence on foreign oil and diesel
is one of the problems, natural gas has to be one of the
alternatives.
Mr. O'Connell. And let me expand by giving you the
businessman's answer on this. If you don't believe that there
is a moral hazard in the cost of gasoline, if you don't believe
the cost of national security and protecting supply lines, if
you don't believe that there are subsidies in that I can't
convince you of anything. What I would suggest is that if the
Federal Government or the decision makers in this city decide
that we are going to move away from gasoline, that the best
strategy would be that of an investor which is a portfolio
strategy. Now I believe I have got the best--the best solution.
I will fight it out on those terms both against the incumbents
as well as against the new entrance, but I think that the best
strategy for the investor of the Federal Government if they
decide to go that way is a strategy of variety.
Mr. Pompeo. I agree. I--let me reclaim my time. We will get
out of here. I agree. The best portfolio strategy is exactly
right and the best portfolio strategy is to not invest in any
of them. It creates an infinite number of possible solutions
and outcomes where the best technology will advance. And I
happen to have industries that I think are closest, too. I
happen to think natural gas is the place where we are very,
very likely to get there, but just one guy and I am afraid I
may just not be smart enough to get it right. So my inclination
is just very, very different. And so with that I will yield
back my time.
Mr. Whitfield. OK. Thank you. I want to thank the panel
very much. We have certainly looked at all of your testimony.
We appreciate you presenting it today. I know that there were a
lot of other questions, but because of this sort of erratic
schedule on today particularly I am not going ask you all to
stay around for another hour and half or so. So we are going to
keep the record open for 10 days for additional questions to
the panelists and with that we look forward to working with all
of you as we continue our efforts to solve the problems facing
our country in relation to transportation and if there is
anything the committee can do to be of assistance to any of
you, please let us know. And with that we will adjourn the
hearing. Thank you very much.
[Whereupon, at 1:00 p.m., the subcommittee was adjourned.]
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