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

THE AMERICAN ENERGY INITIATIVE, PART 23: A FOCUS ON ALTERNATIVE FUELS
AND VEHICLES, BOTH THE CHALLENGES AND THE OPPORTUNITIES

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

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY AND POWER

OF THE

COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

JULY 10, 2012

__________

Serial No. 112-159

Printed for the use of the Committee on Energy and Commerce

energycommerce.house.gov

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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 ANNA G. ESHOO, California
MIKE ROGERS, Michigan ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina GENE GREEN, Texas
Vice Chairman DIANA DeGETTE, Colorado
JOHN SULLIVAN, Oklahoma LOIS CAPPS, California
TIM MURPHY, Pennsylvania MICHAEL F. DOYLE, Pennsylvania
MICHAEL C. BURGESS, Texas JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California TAMMY BALDWIN, Wisconsin
CHARLES F. BASS, New Hampshire MIKE ROSS, Arkansas
PHIL GINGREY, Georgia JIM MATHESON, Utah
STEVE SCALISE, Louisiana G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio JOHN BARROW, Georgia
CATHY McMORRIS RODGERS, Washington DORIS O. MATSUI, California
GREGG HARPER, Mississippi DONNA M. CHRISTENSEN, Virgin
LEONARD LANCE, New Jersey Islands
BILL CASSIDY, Louisiana KATHY CASTOR, Florida
BRETT GUTHRIE, Kentucky JOHN P. SARBANES, Maryland
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 KATHY CASTOR, Florida
GREG WALDEN, Oregon JOHN P. SARBANES, Maryland
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. John Sullivan, a Representative in Congress from the State
of Oklahoma, opening statement................................. 1
Prepared statement........................................... 3
Hon. John Shimkus, a Representative in Congress from the State of
Illinois, opening statement.................................... 4
Hon. Bobby L. Rush, a Representative in Congress from the State
of Illinois, opening statement................................. 4
Hon. Mike Pompeo, a Representative in Congress from the State of
Kansas, opening statement...................................... 6
Hon. Joe Barton, a Representative in Congress from the State of
Texas, opening statement....................................... 6
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 7
Prepared statement........................................... 9

Witnesses

Joseph H. Petrowski, Chief Executive Officer, The Cumberland Gulf
Group.......................................................... 11
Prepared statement........................................... 13
Jack N. Gerard, President and Chief Executive Officer, American
Petroleum Institute............................................ 23
Prepared statement........................................... 25
Bob Dinneen, President and Chief Executive Officer, Renewable
Fuels Association.............................................. 33
Prepared statement........................................... 35
Tom Tanton, Executive Director and Director, Science and
Technology Assessment, American Tradition Institute............ 41
Prepared statement........................................... 43
Richard A. Bajura, Director, National Research Center for Coal
and Energy, West Virginia University........................... 60
Prepared statement........................................... 62
Michael J. McAdams, President, Advanced Biofuels Association..... 71
Prepared statement........................................... 73
Mike Breen, Vice President, Truman National Security Project..... 78
Prepared statement........................................... 80
Felice Stadler, Director, Dirty Fuels Campaign, National Wildlife
Federation..................................................... 89
Prepared statement........................................... 91
Gregory A. Dolan, Acting Chief Executive Officer, Methanol
Institute...................................................... 129
Prepared statement........................................... 132
Don Althoff, Chief Executive Officer, Flex Fuel U.S.............. 140
Prepared statement........................................... 142
Shane Karr, Vice President, Federal Government Affairs, Alliance
of Automobile Manufacturers.................................... 146
Prepared statement........................................... 148
Tom Hassenboehler, Vice President of Policy Development and
Legislative Affairs, America's Natural Gas Alliance............ 157
Prepared statement........................................... 159
Mary Ann Wright, Vice President, Global Technology and
Innovation, Power Solutions Division, Johnson Controls, Inc.,
and Chair, Electric Drive Transportation Association........... 166
Prepared statement........................................... 168

Submitted Material

Letter, dated July 10, 2012, from Tom Buis, CEO, and Jim Nussle,
President and COO, Growth Energy, to Mr. Whitfield and Mr.
Rush, submitted by Mr. Shimkus................................. 198
Letter, dated July 9, 2012, from Charles T. Drevna, President,
American Fuel & Petrochemical Manufacturers, to Mr. Whitfield
and Mr. Rush, submitted by Mr. Shimkus......................... 200
Statement, dated July 11, 2012, of Mark W. Oberle, Senior Vice
President, Corporate Affairs, Celanese, submitted by Mr.
Shimkus........................................................ 203

THE AMERICAN ENERGY INITIATIVE, PART 23: A FOCUS ON ALTERNATIVE FUELS
AND VEHICLES, BOTH THE CHALLENGES AND THE OPPORTUNITIES

----------

TUESDAY, JULY 10, 2012

House of Representatives,
Subcommittee on Energy and Power,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:05 a.m., in
room 2322 of the Rayburn House Office Building, Hon. John
Sullivan (vice chairman of the subcommittee) presiding.
Members present: Representatives Sullivan, Shimkus,
Burgess, Bilbray, Scalise, McMorris Rodgers, Olson, McKinley,
Pompeo, Griffith, Cassidy, Barton, Rush, Castor, Sarbanes,
Markey, Engel, Green, Gonzalez, and Waxman (ex officio).
Staff present: Anita Bradley, Senior Policy Advisor to
Chairman Emeritus; Maryam Brown, Chief Counsel, Energy and
Power; Allison Busbee, Legislative Clerk; Cory Hicks, Policy
Coordinator, Energy and Power; Ben Lieberman, Counsel, Energy
and Power; Chris Sarley, Policy Coordinator, Environment and
Economy; Michael Aylward, Democratic Professional Staff Member;
Greg Dotson, Democratic Energy and Environment Staff Director;
and Caitlin Haberman, Democratic Policy Analyst.
Mr. Sullivan. I call this hearing to order, and I recognize
myself for an opening statement.

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

This is the 23rd day of our hearing on the American Energy
Initiative. This morning we will be discussing alternative
fuels and vehicles, both the challenges and the opportunities.
Gasoline and diesel fuel currently dominate the
transportation sector, and that is not likely to change any
time soon. For that reason, we need to take steps to ensure
plentiful and affordable supplies of petroleum and the fuels
that are made from it. That means expanding domestic oil
production, approving the Keystone XL pipeline to allow more
Canadian oil to come into the country, and reviewing the red
tape that raises the cost of refining crude into gasoline and
diesel fuel. That is why I strongly supported measures like the
Domestic Energy and Jobs Act, and why I will continue to fight
for a commonsense, pro-consumer, pro-jobs, and pro-energy
policy.
But in addition, we need to look at options other than
petroleum derived fuels, and indeed we are doing so. We are
well into the implementation of the Renewable Fuel Standard
created in the 2005 energy bill and expanded in the 2007 bill.
The RFS has achieved some successes such as increased ethanol
production. However, some also see shortcomings with the RFS
that need to be addressed.
Even beyond ethanol and other biofuels, there are many
other alternative fuels and vehicles, including natural gas,
electricity, coal-to-liquids, methanol, and flex-fuel vehicles.
Each offers its own unique mix of advantages as well as
disadvantages, and all offer the benefits of diversification.
I look forward to learning more about these options, and
exploring the question of what role, if any, the Federal
Government should play in shaping the fuels and vehicles
markets of the future.
[The prepared statement of Mr. Sullivan follows:]

[GRAPHIC] [TIFF OMITTED] T1616.001

Mr. Sullivan. Thank you, and I yield the balance of my time
to Congressman Shimkus.

OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS

Mr. Shimkus. Thank you, Chairman Sullivan. I want to thank
Chairman Upton also for allowing us to have the hearing.
Gasoline remains the primary source of fuel, and it will
remain that for a long time. The Republican position on energy
security is ``all of the above,'' and so part of the RFS
hearing today and other pieces of legislation that I have
introduced are really to address that ``all of the above''
arena.
Ethanol has been a great success at this time. We will hear
more about that from Mr. Dinneen, but a couple highlights I
wanted to start with were ethanol produced 14 billion gallons
in 2011. U.S. oil and imports dropped to just 45 percent of
demand that same year. Ethanol represents 10 percent of our
national gasoline pool. Last year, ethanol reduced wholesale
gas prices by an average of $1.09 per gallon. And as I try to
remind people, that is without a blender's credit, which has
gone away. People still think that there is a tax credit with
ethanol blending, and that is not the case.
So the question is, why not add a variety of alternative
transportation fuels to the mix, which is the part of this
debate, and I am glad we have a huge panel today. Our country
must challenge our scientists and engineers towards that end.
The bipartisan Open Fuel Standards, H.R. 1687, is intended to
move this conversation forward, and I really want to thank my
colleague and friend, Mr. Engel from New York, for really being
a leader on that and Congresses before this one.
H.R. 1687 would have an increasing percent of new
automobiles take on a variety of fuels like natural gas,
electricity, biodiesel, hydrogen, flex fuel vehicles that can
run on blends of methanol and ethanol, or other emerging
technologies. This would create a marketplace where fuels can
compete with each other for the consumer's dollars.
I look forward to hearing from our witnesses on the
opportunities and challenges presented by having an open Fuel
Standard. I also look forward to the panel talking about some
of the challenges that are faced in EPA permitting a defined
liquid transportation fuel, but then liability concerns and
restrictions that is addressing some of the concerns in H.R.
4345.
I appreciate all the witnesses for being here, and
particularly want to thank Don Althoff from the Flex Fuel U.S.
for rescheduling from earlier in the year to testify today.
And with that, Mr. Chairman, I yield back my time.
Mr. Sullivan. Thank you, Mr. Shimkus, and I yield to
Congressman Rush for 5 minutes.

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, for holding
this hearing and I want to thank all of the witnesses for being
here today.
Mr. Chairman, it is extremely important that both sides
work together to identify short and long-term strategies and
objectives for developing alternative fuels for vehicles. So 5
or 10 years from now, this country will not be subject to
fluctuating global gas prices due to unrest in the Middle East
or anyplace else in the world.
For too long now, we are seeing wildly fluctuating gas
prices due to a lack of a comprehensive policy to move us away
from imported oil and petroleum. Every year or two, we are back
in the same exact position where we were a few months ago,
discussing extremely high gas prices at the pump. We are no
closer to permanently solving this issue which has such a
devastating effect on the lower and middle income family's
budget who must, too often, choose between putting food on the
table or filling up their cars in order to go to work.
Mr. Chairman, we are willing to provide much-needed
direction, much-needed funding to develop alternative fuel
supplies. We can provide economical and practical benefits to
Americans by deciding the amount of oil we import, while also
permanently decreasing the price our families pay at the pump.
However, we all understand that before we are able to enjoy the
benefits that will also come from alternative fuels, we must
first invest in the research and development of these supplies.
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 Mr. Chairman, I look forward to today's hearing to
discuss both the opportunities and the challenges we face as we
attempt to transition from alternative fuels to power our cars
and trucks. The National Oceanic and Atmospheric Administration
informs us that the first 6 months of 2012 were the warmest
first half of any year on record in the lower 48 contiguous
States, and more than 170 temperature records were tied or
broken just in the month of June, according to the agency. Mr.
Chairman, as a representative from a corn-growing State, my
beloved Illinois, I look forward to hearing more about the
impact that this record-breaking heat wave has had on corn
crops and how it may impact the production of corn ethanol.
Mr. Chairman, I am very interested to hear from these
experts today on not only the impact of corn ethanol, but also
the opportunity for additional alternative fuel sources for
transportation, including biofuels, electricity, natural gas,
coal and liquids, and many others. That means if we are prudent
and we work together on both sides of the aisle, we can develop
a policy for alternative fuel production that would be to the
benefit of all our constituents and to the American people in
their homes.
Mr. Chairman, we have our work cut out for us, but I am
pleased that today we are taking the first step toward
understanding where we are and what we need to do in order for
us to move forward.
With that, I yield back the balance of my time.
Mr. Sullivan. Thank you, Congressman Rush.
Now I recognize Congressman Pompeo from Kansas for 5
minutes.

OPENING STATEMENT OF HON. MIKE POMPEO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF KANSAS

Mr. Pompeo. Thank you, Mr. Chairman. Thanks for holding
this hearing today on alternative fuels, and thank you for
inviting a panel with what I know will be a broad and diverse
set of views with respect to this.
I have to say when I hear us talk in Washington about
alternative fuels, I think you could sometimes substitute
alternative for consumer rejected or unaffordable or imaginary,
in normal, everyday, practical existence fuels. When we talk
about alternative fuels here, we often talk about government
mandate and subsidies. When we talk about coal and oil and
natural gas, we talk about relieving Federal burdens from the
EPA and others. We have very different views or very different
policy principles when we talk about these very different
potential energy sources. I, like no one, hope that we can find
the next great energy source and we can have a broad and
diverse array of those.
But when I hear us talk about alternative energies, it is
always about if the mandates goes away, so will my business. If
the subsidy goes away, so will my ability to make consumers
happy. All of these things are interventions at the Federal
that, in my judgment, often do enormous risk to consumers and I
know to taxpayers as well.
I have my own views on what will be the best next energy
source. I imagine most of the folks on this panel have their
own idea of what this would be, too, but that is not my role.
My role is not to decide which of these technologies is best
and which one will be successful. It is all of the great
innovators and engineers and technicians out there trying to
find that great next energy source that we ought to free to do
that without the Federal Government's intervention. I think
things like Solyndra, which is just a simple, single example of
where the government thought we had a good solution and we were
smarter than the average bear and we could direct consumers to
the right place. This demonstrates the absolute dangers of
Federal intervention in energy markets.
Sooner or later on all these energies we have got to take
the training wheels off and let all these energies compete in
an open space. With that, I yield the balance of my time to
Congressman Barton.

OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS

Mr. Barton. Thank you, Mr. Pompeo. Do I yield time to
somebody, too, or--OK.
Well first, I want to thank Chairman Whitfield and also
Chairman Sullivan for holding this hearing. I think this is the
23rd in the series of hearings on this. Today we are going to
look at alternative fuels. I would have to say that natural gas
or LNG should be one of those that we take a serious look at. I
have a company in my district called Green Energy Orefield
Services that is beginning to outfit trucks to run on LNG to
carry the various hydraulic fracturing products to and from the
gas and oil wells. I think this is a win/win.
I know there is quite a bit of controversy over biofuel
program in the Navy. I think it is appropriate for the Navy to
be doing some pilot programs on biofuels, but at the expected
cost of over $27 a gallon, I certainly think that we shouldn't
forget, again, LNG and natural gas and even coal to liquids,
for that matter, as alternative energy sources for our Navy.
Biofuels should and can play an important role in a balanced
energy portfolio, there is no question about that, but we
shouldn't forget the fuels that have made it possible for us to
have the greatest economy in the world, and that is our basic
hydrocarbon fuels that we are so adept at right now in
manufacturing and discovering and producing and transporting.
All in all, Mr. Chairman, I think this is a very good
hearing, and I look forward to hearing from the witnesses.
I still have a minute, so I am willing to yield to somebody
if there is another member that wishes--would like some time.
If not, I yield back to the distinguished chairman.
Mr. Sullivan. Thank you, Congressman Barton. Next I yield 5
minutes to the gentleman from California, Congressman Waxman.

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

Mr. Waxman. Thank you, Mr. Chairman. Today, the
subcommittee examines the opportunities and challenges
associated with the alternative fuels and vehicles. This topic
is important for the Nation's environmental and economic
health, and our national security.
Just a few years ago, nearly 60 percent of U.S.
transportation fuels came from abroad, and projections were
discouraging. Experts predicted higher oil consumption and more
imports far into the future. Carbon pollution for the
transportation sector was expected to grow and grow and grow.
Under the leadership of President Obama, we have reversed this
trend in a historic and fundamental shift.
In April of 2010, the administration finalized fuel
efficiency and carbon pollution standards for model year 2012
to 2016 cars and trucks. These standards will save consumers on
average more than $3,000 in fuel costs over the life of a new
vehicle. This is the net savings after accounting for any
increased vehicle costs. This is a good example of government
intervention that has been very successful.
In November, 2011, the Obama administration proposed to
expand this successful program to include model years 2017 to
2025. The benefits of this program to the Nation are profound.
Families will save $8,000 in fuel costs over the life of a new
vehicle. These savings will accumulate and consumers, as a
group, will save $1.7 trillion over the life of the program.
These standards will save 2.2 million barrels of oil a day by
2025. This will make our economy stronger and help ease our
national security challenges. It will also reduce our carbon
pollution by over 6 billion metric tons. That is as much as the
whole country emits in a year. This reduction is an important
step in our efforts to stabilize the climate.
These carbon pollution tailpipe standards are a win/win/win
for the Nation, improving our environment, economy, and
national security, but we have more work to do. American
families are still getting rip-sawed when gasoline prices
unexpectedly spike. The money we spend on oil abroad continues
to conflict with our foreign policy goals and national
security, and the wildfires, drought, heat waves, and extreme
weather events tell us that we must do more to address climate
change.
In March, the Intergovernmental Panel on Climate Change
released a report concluding that climate change already has
led to climate extremes and extreme weather events around the
world. As carbon pollution climbs and as our climate continues
to warm, these extreme weather events are likely to become more
frequent and more severe. Last year, 14 weather-related
disasters, each costing more than $1 billion, struck the United
States, a record number. This year has seen even more bizarre
weather, according to the National Oceanic and Atmospheric
Administration. More than 40,000 hot temperature records have
been set this year. The deadly combination of heat and drought
has resulted in more than 2.1 million acres burned in wildfires
so far. At the end of June, more than 113 million people in the
U.S. were in areas under extreme heat advisories. Some of those
are areas that vote Republican, as well as Democratic.
We are seeing the types of extreme events that scientists
have been predicting who are common with climate change. For
instance, Jonathan Overpeck with of the University of Arizona
recently stated, ``The extra heat increases the odds of worse
heat waves, droughts, storms, and wildfire.'' We cannot afford
to ignore climate change in the development of our energy
policies. The two are inextricably linked.
The good news is that as we increase our efficiency and
move towards alternative fuels, we not only reduce our
dependence on fossil fuels, we also have the opportunity to
reduce our carbon pollution. It is not a given that we will
make the right choices. Some will advocate today that we
abandon our efforts to cut carbon pollution. That would be a
serious mistake. Progress will not be easy, but it is
necessary. We need to continue our push toward alternative fuel
vehicles, whether they are plug-in electric drive commuter
vehicles, long haul natural gas trucks, or renewable fuels. The
Obama administration has made real progress on a seemingly
retractable problem. We are finally heading in the right
direction.
I look forward to hearing from today's witnesses, reading
their testimony, and I hope we can continue to build on this
progress.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Waxman follows:]

[GRAPHIC] [TIFF OMITTED] T1616.002

[GRAPHIC] [TIFF OMITTED] T1616.003

Mr. Sullivan. Thank you, Congressman Waxman.
Now we will move to our first panel, and I want to thank
our eight witnesses for being here. Thank you so much for
coming up to the Hill and presenting this. Each of you will
have 5 minutes.
We are going to hear today from Mr. Joseph Petrowski, CEO
of the Cumberland Gulf Group; Mr. Jack Gerard, President and
CEO of the American Petroleum Institute; Bob Dinneen, President
and CEO of the Renewable Fuels Association; Tom Tanton,
Executive Director and Director of Science and Technology
Assessment, American Tradition Institute; Richard Bajura,
Professor, Mechanical and Aerospace Engineering, Director of
National Research Center for Coal and Energy, West Virginia
University; Michael McAdams, President, Advanced Biofuels
Association; and Michael Breen, Vice President, Truman National
Security Project; and Felice Stadler, Director, Dirty Fuels
Campaign, National Wildlife Federation. First, we will go to
Mr. Petrowski. You have 5 minutes, sir.

STATEMENTS OF JOSEPH H. PETROWSKI, CHIEF EXECUTIVE OFFICER, THE
CUMBERLAND GULF GROUP; JACK N. GERARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, AMERICAN PETROLEUM INSTITUTE; BOB DINNEEN,
PRESIDENT AND CHIEF EXECUTIVE OFFICER, RENEWABLE FUELS
ASSOCIATION; TOM TANTON, EXECUTIVE DIRECTOR AND DIRECTOR,
SCIENCE AND TECHNOLOGY ASSESSMENT, AMERICAN TRADITION
INSTITUTE; RICHARD A. BAJURA, DIRECTOR, NATIONAL RESEARCH
CENTER FOR COAL AND ENERGY, WEST VIRGINIA UNIVERSITY; MICHAEL
J. MCADAMS, PRESIDENT, ADVANCED BIOFUELS ASSOCIATION; MIKE
BREEN, VICE PRESIDENT, TRUMAN NATIONAL SECURITY PROJECT; AND
FELICE STADLER, DIRECTOR, DIRTY FUELS CAMPAIGN, NATIONAL
WILDLIFE FEDERATION

STATEMENT OF JOSEPH H. PETROWSKI

Mr. Petrowski. [Inaudible.] Gulf Oil Group, and as part of
background, we are the Nation's eighth largest convenience
retailer of petroleum products and convenience items in Sover
13 States. Our wholesale oil division, Gulf Oil, carries and
merchandises over 350,000 barrels of petroleum products and
biofuels over 29 States, $13 billion revenue places us in the
top 50 private companies in the country. We employ 8,000
employees, and I would like to report successfully that we are
a growing company.
As part of, also, background, we like to say that our
company is fuel agnostic. We do not drill, we do not refine
petroleum products. What we care to sell are products that our
customers want to buy that are most economic for them to
achieve their desired transport, heating, and other energy uses
in a lawful manner.
We blend--in addition to selling petroleum products, which
is our primary product that we sell, we blend over 1 million
gallons a day of biofuels across our system, and just recently,
we have purchased 24 Class A trucks to begin to fuel on natural
gas to deliver our fuel products to our stations and stores.
While I like to say we are fuel agnostic, we are not
unbiased. We believe that a sound energy policy rests on four
bedrocks. One is that we have diverse fuel sources, and there
are two reasons for that. The future is unknowable. The new
shale technology that has taken over the industry in natural
gas was unheard of more than 2 decades ago. Technology and
events are beyond our abilities to understand where we are
going, and so to bet any of our future on one single source of
fuel would be a mistake. We believe diversity in all systems
ensures health and stability. And so we look for diversity in
fuel, not only by fuel type, but to make sure that we are not
concentrated in taking it from one region, particularly the
Middle East and unstable regions. So we do support that.
Number two, we have a bias. We want low costs and non-
volatile fuel. A million and a half customers pass through our
stores and stations every day. We see what the high prices do
to our consumers. In the State of Massachusetts where we are
headquartered, the per capita consumption is about $50,000 a
year. The average resident in Massachusetts uses about 2,500
gallons of fuel, both in home heating oil and in gasoline. The
average car uses about 600 gallons a year. A $1 rise in the
price of fuel takes almost 50 percent of discretionary income
away from that family. High fuel costs are the most regressive
form of taxation possible.
Number three, we believe in secure and domestic sources. I
think I heartened a few years ago, our net imports of BTU
products was approaching $1 trillion. Today, because we have
made advances in domestic drilling for oil from 4 million
barrels to almost 6, shale gas has increased dramatically from
65 BCF a day to 100 BCF, and because of better consumption and
conservation, we now use--our net imports are $400 billion, and
we believe in the next 3 years that this country, with the
right policies, can be a net exporter of BTUs, which will break
our dependence on Mideast oil.
Finally, we think that in any policy, the fourth bedrock is
that anything you put in place, we have to take into account
costs and externalities. We think House Bill 4345 is a large
step in the right direction. I do want to point out to all the
members that we have billions, hundreds of billions of dollars
invested in terminals, gas stations, barges, transportation,
and we have to live with the realities of the marketplace and
the particulars.
I have pointed out many times when people talked about the
XL pipeline that it is seven times more expensive for us today
to move petroleum product from Chicago to Philadelphia than it
is from the east coast of India to Philadelphia. And so we
think as we craft and design policy, understanding the external
cost is important.
Thank you.
[The prepared statement of Mr. Petrowski follows:]

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Mr. Sullivan. Mr. Gerard, you have 5 minutes. Sorry.

STATEMENT OF JACK N. GERARD

Mr. Gerard. Thank you, Vice Chairman Sullivan and members
of the committee. It is a pleasure to be with you today. As
mentioned, I am Jack Gerard, President and CEO of the American
Petroleum Institute. We appreciate the opportunity to present
our views on the Renewable Fuel Standard today. We represent
all sectors of America's oil and natural gas industry. We
employ 9.2 million Americans, responsible for 7.7 percent of
all the gross domestic product in the United States, and
contribute $86 million a day to the Federal Treasury.
API's more than 500 member companies include many of our
Nation's refiners, who are critical to our U.S. national and
economic security. U.S. refiners support over half a million
jobs, provide the vital products that Americans rely on daily.
It is these refiners who shoulder the principal
responsibilities for meeting the RFS requirements.
Over the past 7 years, the two RFS laws passed in 2005 and
in 2007 have substantially expanded the role of renewables in
America. Biofuels are now in almost all gasoline. While API
supports the continued appropriate use of ethanol and other
renewable fuels, the RFS law has become increasingly
unrealistic, unworkable, and a threat to consumers. It needs an
overhaul.
Most of the problems relate to the law's volume
requirements. These mandates call for blending increasing
amounts of renewable fuels into gasoline and diesel. Although
we are already close to blending an amount that would result in
a 10 percent concentration level of ethanol in every gallon of
gasoline sold in America, that which is the maximum known safe
level, the volumes required will more than double over the next
10 years. The E10, or 10 percent ethanol blend that we consume
today could, by virtue of RFS volume requirements, become at
least an E20 blend in the future. This would present an
unacceptable risk to billions of dollars in consumer investment
in vehicles, a vast majority of which were designed, built, and
warranted to operate on a maximum blend of E10. It also would
put at risk billions of dollars of gasoline station equipment
in thousands of retail outlets across America, most owned by
small independent businesses. I believe well over 60 percent of
retail establishments in this area are Ma and Pa operations.
The research on higher ethanol blends, including testing
performed by DOE's National Renewable Energy Laboratory, shown
an estimated half of existing service station pumping equipment
may not be compatible with just a 15 percent ethanol blend, or
E15. Vehicle research conducted by the Auto Oil Coordinated
Research Council shows that E15 could also damage the engines
of millions of cars and light trucks, estimates exceeding five
million vehicles on the road today. E20 blends may have
similar, if not worse, compatibility issues with engines and
service station attendants.
Automobile manufacturers, who I believe you will hear from
in the second panel, now advise car owners not to exceed the 10
percent blend amount. They say damage to an engine caused by
higher concentrations may not be covered by warranties. EPA's
premature approval of E15 thus raises substantial product
liability issues that we would like to thank Mr. Shimkus for
his leadership, as mentioned by Mr. Petrowski, in looking at
that liability question to help make it more feasible to
introduce these products into the market.
Despite the warning signs, EPA has already approved the
sale of E15. Apparently EPA finds it acceptable to let the
market, including consumers, sort out any problems that may
arise, whatever the cost.
The RFS law also requires increasing use of cellulosic
ethanol, an advanced form of ethanol that can be made from a
broader range of feed stocks. The problem is, you can't buy the
fuel yet because no one is making it commercially. While EPA
could waive that provision, it has decided to require refiners
to purchase credits for this nonexistent fuel, which will drive
up costs and potentially hurt consumers. Mandating the use of
fuels that do not exist is absurd on its face and is
inexcusably bad public policy.
Another problem with implementation of RFS is how EPA is
handling fraudulent renewable Federal credits, known as RINs,
that some refiners have purchased in good faith under a program
that the EPA created.
We believe that there is a solution and a resolution of
this challenge. We are working closely with EPA to fix it at
this time.
Thank you for the opportunity to share our views. As
mentioned, we believe biofuels are an important part of our
Nation's energy mix, but the current law and its implementation
is increasingly problematic and can hurt consumers. We need to
fix it.
Thank you.
[The prepared statement of Mr. Gerard follows:]

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Mr. Sullivan. Thank you, Mr. Gerard. Mr. Dinneen?

STATEMENT OF BOB DINNEEN

Mr. Dinneen. Thank you, Mr. Chairman and members of the
committee.
This is a timely hearing. Continued volatility in crude oil
markets, last spring's near-record gasoline prices, threats by
hostile nations to shut down key oil shipping routes, new
concerns about the environmental impacts of hydraulic fracking
and tar sands, these issues and others underscore our Nation's
desperate need to recommit to an energy future that embraces
alternative transportation fuels and vehicles, an energy future
that is truly ``all of the above,'' not just finite resources
from below.
One important alternative fuel, ethanol, is already helping
to address these national concerns. America's ethanol industry,
buttressed by a visionary Renewable Fuel Standard, is already
decreasing our reliance on foreign oil, already exerting
downward pressure on gasoline prices, already employing tens of
thousands of American workers, and already cleaning up our air.
As a result of the forward-looking nature of the RFS, the
industry is poised to make even more significant contributions
to our Nation's economic and environmental security in the
future. Simply put, the RFS is among the most successful energy
policies this Nation has ever adopted. It is working exactly as
intended. It most certainly does not need an overhaul.
As Congressman Shimkus had noted in his opening, from an
energy security standpoint, the RFS is most definitely
demonstrating its success. As he noted, when the bill passed in
2005, our Nation was 60 percent dependent on imported oil for
liquid transportation fuels. Today, as a consequence in the
growth in ethanol, as a consequence in ethanol now represents
10 percent of our Nation's motor fuel supply. As a consequence
of the RFS, we are now just 45 percent dependent on foreign oil
for our liquid transportation fuels.
Now, some at this table would suggest to you that that is
because we have increased the production of oil in this
country, and that is true. Over the last couple of years, that
is true. But 80 percent of the increased domestic production of
liquid transportation fuels has been ethanol since 2005. It is
absolutely ethanol that has driven those numbers to where they
are today.
I will tell you that I absolutely agree with many of you,
that we need to have an all of the above, all energy sources
energy policy in this country, but I will also tell you that we
cannot frack our way to energy independence. A study that EIA
produced a short while ago said that if you take the two
largest shale places in this country, the Bakken fields and
Eagle Ford in Texas, that that would get you 7 billion barrels
of oil, a big amount, absolutely. But when put in context of
our oil needs in this country, that represents 1 year and 4
months of supply. I will tell you that the need for domestic
renewable fuels will outlive the current fracking frenzy.
Ethanol today is already having a tremendous impact driving
down the price of gasoline. Mr. Shimkus noted a study that had
been done by Iowa State and University of Wisconsin that
concluded ethanol is helping to reduce gasoline prices by $1.09
a gallon when you look at last year's prices. If you don't like
the Iowa State study, how about a Louisiana State study in the
home of oil country that concluded ethanol was helping to drive
down the price of gasoline by some 84 cents a gallon, when you
look at 2011. Without a doubt, because ethanol is less
expensive than gasoline today, because ethanol is displacing
the need for 10 percent of our Nation's imports, we are having
a tremendous impact on gasoline prices.
Let me just say as well, one of the principle objectives of
the RFS was to drive investment in new technologies. It is also
doing that. Not as quickly as anyone would like, but I will
tell you that nobody anticipated the economic collapse of 2008
and the consequent freeze on lending that occurred. But the
next generation of biofuels facilities is happening today.
There are four cellulosic plants that are under construction
today in States like Florida, in Kansas, in Iowa, and
elsewhere. There are other biofuels operations that are moving
forward as well.
I look forward to working with this committee to talking
about some more of the issues that have arisen already, perhaps
in questions, and I appreciate the continued interest of this
committee to move this Nation's energy policy forward, but I do
trust that that means all energy sources, because we need them
all.
Thank you.
[The prepared statement of Mr. Dinneen follows:]

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Mr. Sullivan. Thank you, Mr. Dinneen. Mr. Tanton?

STATEMENT OF TOM TANTON

Mr. Tanton. Thank you, Mr. Chairman, members of the
committee. I am here to testify today about the strategic
importance of energy for transportation fuels. I am from
California, and I am here to help. But I am not here to help in
the way you might expect. I am here to give you a cautionary
tale.
In California, we have had almost 4 decades of energy
policies, many of which have been suggested to you today, many
of which you have considered. It hasn't worked. We remain
second highest per capita petroleum consumption in the country.
Our economy is worse than the rest of the country. Our
unemployment is worse than the rest of the country. Our rate of
foreclosures is worse than the rest of the country. These are
inextricably linked to our energy policies over the last 4
decades. Truckers are leaving California on one-way trips. They
are taking manufacturing away from us. They are taking
agricultural production away from us. It is unfortunate that
our energy policies have driven us to this point.
I have a few remarks to make with respect to the Open Fuel
Standard, H.R. 1687, but my comments should be viewed more
generally. What we have missed consistently in California, and
I think in the Nation, is as Mr. Pompeo mentioned, a consumer
perspective. When alternative fuels are more expensive, the
natural reaction is to subsidize the price differential, but
that doesn't take into account the fact that most alternative
fuels require more frequent refueling, and the time value of
that extra refueling is a consideration for most consumers.
The stated purpose of the Open Fuel Standard is to ensure
that new vehicles enable fuel competition so as to reduce the
strategic importance of oil to the United States, and it has in
it a ramp-up provision of mandated percentages of cars that can
use the variety of different fuels. I would suggest to the
Republican caucus that it not be all of the above, but in fact
be any of the above. Any of the above that satisfies consumer's
needs, desires, opportunities, and challenges.
In my view, the Open Fuel Standard replicates, in many
regards, California's failed Zero Emission Vehicle Standard,
which also had a ramp-up schedule, but in which was basically
just an electric vehicle mandate. In each case, they have
failed due to the lack of the consumer's acceptance of the
alternative subsidized or mandated by the government.
H.R. 1687 also fails or falls short in enabling real
competition. There is nothing today that precludes auto
manufacturers from selling alternative fuel vehicles, except
for one thing, and that is the consumer's acceptance of them.
Such vehicles are offered for sale. They are not sold in
numbers. Many of them have other strategic and important
strategic considerations. Electric vehicles require rare
earths. We are more dependent on rare earths from one country,
China, than we are on petroleum from a variety of countries.
There is not adequate time for the markets to evolve and bring
with them the technologies.
There is also no flexibility to account for changes in the
future. For example, the EIA estimates that our level of
imports will drop by 13 percentage points between now and 2035.
That in itself improves the strategic importance of petroleum
to this country. XL pipeline would as well.
We need more informed consumers, not informed with myths,
but informed with facts. They need to know that many of these
alternative fuels have with them indirect costs that are not
reflected in either the initial cost of the car or the price
differential of the alternative fuels. Electric vehicles, for
example, and plug-in electric vehicles are more expensive to
insure, reflecting the higher cost of replacement.
Bottom line is that government efforts must acknowledge
consumer perspectives, needs, and opportunities, not try and
overwhelm them. My recommendation is don't mention any fuel in
legislation or in standards. Base the standards, base the
legislation on performance and protocols and principles, and
rely on the free market wherever possible, which is everywhere.
Thank you for the opportunity to testify.
[The prepared statement of Mr. Tanton follows:]

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Mr. Sullivan. Thank you, Mr. Tanton. Next, Dr. Bajura, you
are recognized for 5 minutes.

STATEMENT OF RICHARD A. BAJURA

Mr. Bajura. Thank you, Mr. Chairman.
In my activities at West Virginia University, I have had
the benefit of working with the University of Kentucky on the
Consortium for Fossil Fuels Science. We believe that there are
more things you can do with coal than just simply generate
electricity.
We can generate alternative fuels such as jet, diesel, and
gasoline that are almost sulfur-free, have very few
carcinogenic compounds. They out-perform petroleum, and have
fewer particulate emissions. We do this by a process called
gasification, where we take coal and turn it into carbon
monoxide and hydrogen. These are very simple building blocks on
which we can construct anything chemically, aspirin, for
example, urea, and chemicals and gasoline. The other aspect is
a Fischer-Tropsch process, which converts this fuel--this gas
into a liquid fuel. These are known technologies. They are
fairly expensive, but in the age of high oil prices, we think
we can be competitive. We are now also faced with the challenge
of sequestering the carbon dioxide that comes out of these
processes. We do this by injecting CO2 into geologic
formations, or we use biomass, which in effect is using CO2
from the atmosphere instead of liberating new CO2 from the
ground. These processes are very effective. We can capture the
CO2 from these processes for as little as 15 cents a gallon.
We know that projections for the future are that costs for
petroleum will be in excess of $100, perhaps even up to $200 by
2035. With the technologies I described, we can reduce liquid
fuels at about $94 a barrel with carbon storage capability, and
$104 a barrel with 15 percent biomass in carbon storage. These
estimates are based on today's technology. They can be even
more improved by advanced research. We would also emit 25
percent less CO2 over the life cycle compared to regular
petroleum fuels.
The other aspect I would like you to consider is using the
CO2 that is captured. In an oil reservoir, we punch a hole in
the ground and the oil comes up by the pressure underground.
That is called primary. Next, we use water to flood the
reservoir and produce additional oil. That is called secondary.
We might leave as much as 70 percent of the oil in place. If we
do a tertiary process with CO2 injection, we can produce
additional oil, perhaps getting as much as 50 percent now of
the oil in place.
I would like to introduce you to a concept called CCUS with
EOR. This stands for using the carbon dioxide that is captured
from a process to produce oil through this EOR recovery
process. A study conducted by the National Coal Council last
month, which I chaired, showed that we have about $4 million
barrel per day capacity of oil that we could get with enhanced
EOR applications.
Consider this example. For example, if we said we wanted to
have a national program to produce 2.5 million barrels a day of
synthetic fuels, we would capture that CO2 and we would also
capture the CO2 from 100 gigawatts of advanced coal plants.
With this CO2, we can produce 4 million barrels a day in
enhanced oil recovery. That, coupled with 2.5 million barrels a
day that we are producing from the coal plants get us 6.5. By
2035, we are anticipating an import of about 7.4 million
barrels a day. That leaves us less than a million that we have
to import. In 2011, 61 percent of our trade balance was due to
imported oil. You can see the impact this would have on our
economy.
This case I described would yield benefits by 2030 of $200
billion in industry sales annually, $60 billion in taxes to
Federal, State, and local jurisdictions, and would create one
million jobs.
This CTL industry that we are discussing would also give us
some sense of security from things like hurricanes. If you
remember, we were knocked out of oil production with the
hurricanes that hit the Gulf several years ago. We can deploy
these plants into other regions, taking advantage of the oil in
place in States like Ohio, and bringing additional jobs to
those jurisdictions.
I focus today here on the benefits of this technology. We
need additional research that would improve our ability to
capture the carbon, to deploy these enhanced oil recovery
technologies better, and to buy down the cost of putting these
plants in place. It is very expensive to put a Fischer-Tropsch
plant in place to produce liquid fuels.
We know that we are going to depend upon petroleum and the
internal combustion engine for many years to come. I recommend
that we do these kinds of technologies that will help reduce
our costs of production and reduce the need to employ--import
foreign oil. Financial risks need to be brought down. We need
new technologies to recover oil more effectively, and we need
to encourage early movers to build these first-of-their-kind
plants.
I view that H.R. 2036, which Congressman Griffith has
introduced and three other members of this committee have
introduced, would be a very good place for us to use the CO2
technologies as a way to accomplish these goals.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Bajura follows:]

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Mr. Sullivan. Thank you, Mr. Bajura. Next, Mr. McAdams, you
are recognized for 5 minutes.

STATEMENT OF MICHAEL J. MCADAMS

Mr. McAdams. Thank you, Mr. Chairman. Vice Chairman
Sullivan, Ranking Member Rush, members of the committee, I am
delighted to be here with you today on behalf of the Advanced
Biofuels Association. Since our inception, we believed strongly
in technology neutrality. It has been our driving force.
The Advanced Biofuels Association represents over 45
companies deploying advanced renewable technologies that are
helping to create jobs and reduce dependence on foreign oil by
adding to our domestic fuels production capacity. The Advanced
Biofuels Association supports an all of the above energy
approach for the United States.
Today, I want to leave you with two points. First, the
Renewable Fuels Standard is the bedrock of our Nation's
renewable transportation fuels policy, and it is directly
responsible for the progress that has been made to date in the
advanced biofuels sector.
Second, as a result of this policy, a number of companies
have made significant investments in R&D, pilot and
demonstration phases, as well as commercial deployment.
Currently, a number of sophisticated manufacturing companies
have over a billion dollars of private capital ready to build
their first commercial facilities.
As you well know, uncertainty chills investment, and
uncertainty about whether the Congress might change the rules
at this critical time by changing the RFS would have negative
implications for those who have already invested in the future
of this country. This past has brought significant--the past
year has brought significant progress for our industry. We have
seen the top fighter planes in the Air Force, Navy, and Marines
fly using drop in jet fuels produced from a wide range of feed
stocks and technologies. We have seen U.S. major airlines fly
U.S. transcontinental flights--I was on it--and last year
alone, Lufthansa operated more than 1,000 flights in Europe on
a 50/50 blend of biofuels. Last week, the Air Force flew an A-
10 warthog on the first alcohol-to-jet fuel produced by U.S.--
in the U.S. by Gevo, a Colorado company.
As I look down the list of those testifying today, I doubt
a single witness would disagree that adopting a portfolio
approach to energy is in the Nation's best interest. Energy is
not a partisan issue. It is an issue of economic and national
security. Energy policy is a key driver in the future
prosperity of this Nation, and I applaud the chairman and the
committee members for holding a truly fact-finding hearing
today.
Biofuels, as you heard from my colleague, Mr. Dinneen, have
already made a significant contribution to our Nation's
transportation supply. America began our journey in renewable
fuels policy with ethanol in 1978. It took 20 years to deliver
the first 2 billion gallons of fuel. Since the adoption by this
committee of the Renewable Fuels Standard in 2005, we have seen
an explosion in gallons of U.S. renewable fuels. As a result,
the BP Statistical Review of 2012 released on June 15 now shows
the United States having 48 percent of the production of
biofuels worldwide.
It was only 5 years ago that this committee extended the
government's commitment to renewable transportation fuels by
passing the Energy Independence and Security Act. As you know,
the legislation challenged the industry to produce 36 million
gallons of fuel by 2022. In less than 5 years, we already have
new operating plants turning out hundreds of millions of
gallons of advanced biofuels. If you consider that it generally
requires 18 months to 2 years to site, permit, and build a
plant, that is simply a remarkable achievement, and many more
are on the way.
In speaking with members of Congress this year, I have been
asked where are the gallons? Is this another technology that is
always 5 years away? The answer is emphatically no. We are
putting steel in the ground and creating jobs for Americans all
over this country today.
So let me share with you a few examples. In my testimony, I
included a picture of the new Dynamic Fuels facility located in
Geismar, Louisiana. That has a name plate capacity of 75
million gallons. It is making 1 million gallons a week without
a tax credit in place, and it is selling it in a competitive
basis. Additionally, Neste Oil has built over 650 million
gallons worldwide, and expects to deliver 30 million gallons of
renewable diesel to the United States this year. With a name
plate capacity of 27 million gallons, last year my small
family-owned company, Triton, employed 15 people and used corn
oil as its base feed stock, and the list goes on. This year, we
will see Texas-based KiOR bring an 11 million gallon facility
in Mississippi, Gevo a 22 million gallon facility in Minnesota,
and additionally, companies like BP and DuPont have
demonstrated their technologies, purchased the land, and are
deep into engineering a design for the first cellulosic ethanol
plants.
My message is simple, that it has only been 5 years since
you passed the RFS. Too, the RFS is fundamentally working, and
we are just getting started.
Let me conclude by observing this new industry is helping
make America steadily more energy and economically secure. We
all watched the price of oil spike earlier this year and felt
its impacts. You have the ability to send a signal to industry
and markets that you stand behind the RFS. That signal, like
this hearing of a balanced portfolio approach, would be greatly
appreciated and we appreciate being here.
[The prepared statement of Mr. McAdams follows:]

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Mr. Sullivan. Thank you, Mr. McAdams. Next, Mr. Breen, you
are recognized for 5 minutes, sir.

STATEMENT OF MIKE BREEN

Mr. Breen. Thank you, Chairman Sullivan, Ranking Member
Rush, ladies and gentlemen. I serve as the Vice President of
the Truman National Security Project, and I am also proud to be
one of the leaders of Operation Free, a fiercely nonpartisan
coalition of over 1,000 patriotic veterans across the country,
who stand together in the common belief that our dependence on
oil as a single source of fuel poses a clear national security
threat to the United States.
To be clear, oil is an immensely important substance to our
economy and will remain so for the foreseeable future. Its
value goes far beyond its utility as a liquid fuel. Petroleum
is a key input in advanced manufacturing, pharmaceuticals,
agricultural products, and a host of other applications.
Unfortunately, however, a near total dependence on oil as a
fuel has eclipsed petroleum's other contributions. Our
dependence on oil as a single source of transportation fuel
poses a clear national security threat to the Nation.
Oil is a fungible, globally traded commodity with prices
set on a world market. In other words, global supply and global
demand set the market and drive the price, not American supply
and American demand alone. This has crucial implications for
policy. Since any potential increase in U.S. supply must be
considered in light of global demand.
Some claim that recent technological advancements will
solve our oil-related national security problems, eliminating
the need to develop alternatives, but this is a fallacy for at
least three reasons.
First, it is highly unlikely that we can drill enough here
in the United States to meet our needs, at least for any
appreciable length of time. Second, American families will
remain vulnerable to swings in gasoline prices, even if U.S.
oil imports drop dramatically. In 2000, truck drivers in the
United Kingdom went on strike over rising gas prices. The
United Kingdom was a net oil exporter at the time, but that
didn't protect British truckers from rising world oil prices.
The tough reality is that when it comes to the price we pay at
the pump, there is simply no such thing as foreign oil. Third,
global demand for oil is rising at a breathtaking pace, with no
sign of slowing. According to the EIA, America's oil
consumption is expected to grow by 11 percent over the next 2
decades. Meanwhile, China's oil consumption is expected to grow
by 80 percent, India's by 96 percent.
This is a market with clear winners and losers. The
winners, by and large, are non-free market countries, with
nationalized oil companies, many of whom are openly opposed to
the United States. According to the CIA, over 50 percent of
Iran's entire budget comes from the oil sector. As the price of
oil climbs, Iran's nuclear program and support for global
terrorist organizations are among the biggest winners.
Meanwhile, the losers are American service members facing oil
fueled uncertainties, Syrian revolutionaries facing Russian
supplied weapons, and American families at the gas pump.
Small wonder that Secretary of the Navy Ray Mabus recently
called the Navy's reliance on oil a ``strategic
vulnerability.''
Today, oil is a strategic commodity, but 2 centuries ago,
the world's top strategic commodity was not oil, it was salt.
Salt was the world's preeminent way of preserving food,
especially on long voyages. Wars were fought over salt,
kingdoms were built on it, and then salt was out-innovated by
an alternative technology, the ice box. Every one of us still
uses salt, but it no longer dictates the fate of nations.
When government sets aggressive yet maintainable standards
for private industry while providing real incentives for
innovation, there is nothing American businesses can't achieve.
That is the real strength of technology neutral standards, like
CAFE standards and the Open Fuels Standards Act, legislation
sponsored by two members of this committee, Congressman Shimkus
and Congressman Engel. There is nothing new or radical about
this, it has worked countless times before.
Next week, over 25,000 American sailors and Marines will
embark on one of the largest Naval war games ever conducted.
The exercise will be an opportunity to test a wide range of new
technologies produced by American companies, including
submarine-launched unmanned aerial vehicles, ``blue laser''
underwater communications technology, and the fuel for the
exercise itself, a 50/50 biofuel blend based on advanced algae
oils and recycled cooking oil. Navy pilots will fly the world's
most advanced combat aircraft at over twice the speed of sound,
powered by renewable American fuel.
We can and must follow the military's example. The credible
debate on oil dependence and national security is all but over.
There is simply no question at this point that single source
dependence threatens our future security and our prosperity. It
is time for Congress to act and to lead.
Thank you.
[The prepared statement of Mr. Breen follows:]

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Mr. Sullivan. Thank you, Mr. Breen. Next, Ms. Stadler, you
are recognized for 5 minutes.

STATEMENT OF FELICE STADLER

Ms. Stadler. Great, thank you. I am here today representing
National Wildlife Federation's four million members and
supporters who are united by a shared value for clean air and
clean water, and for open spaces that are safe havens for
wildlife and places where we go to seek solace.
I am here today under the assumption that we all share
these values, that we are working together to identify the best
course for our country when it comes to the energy choices we
make today.
We are at an energy crossroads, and now, more than any
other time, is when we need to put politics aside and choose
the path that will sustain and grow our economy, protect our
local water supplies, and prevent disastrous climate-related
weather events from increasing.
I would like to take a minute to share a personal story of
what my neighbors and I experienced nearly 1 week ago. I live
in Silver Spring, Maryland, and I share a street with elderly
residents, local business owners, government employees, with
Republicans, Democrats, artists, lawyers, and sportsmen.
I faced the ``derecho'' storm with a profound sense of fear
for my children. I prayed my kids wouldn't wake, that no tree
would fall on my house and that any destruction facing me in
the morning would be tolerable. We were lucky. Sadly, my
elderly neighbor down the street wasn't. She lost her life when
the top half of a giant oak tree crashed through her roof. And
my neighborhood was not alone.
As we know, the damage we have sustained from weather-
related disasters is being felt in communities across the
country. Fires in Colorado have destroyed over a thousand
homes, already costing taxpayers $40 million to fight. The
Poudre River, Colorado's only wild and scenic river outside of
Fort Collins, is running black, a toxic mix of ash, debris, and
fire retardant. In Florida, extensive flooding occurred last
month when Tropical Storm Debbie deluged parts of the State
with an astounding 26 inches of rain over a 72-hour period. The
heat wave has been lost on no one.
The weather extremes affecting us are exactly the sorts of
climate change impacts that scientists have been projecting for
years, so here is where we stand at a crossroads. Carbon
pollution is changing our climate; and our changing climate is
contributing to extreme weather; and in order to slow down this
devastating trend, we need to dramatically cut carbon
pollution.
This is an urgent matter. We must begin this downward trend
by 2020, just 8 years from now, if we are to have at least a 2
to 1 chance of keeping temperatures from rising to the point of
dangerous interference with the climate system. Yet, our carbon
emissions are still on a decidedly upward trajectory.
Faced with these stark climate-changing realities, the
National Wildlife Federation is propelled to ignite a national
call to move this country swiftly down an alternate,
sustainable, low-carbon fuels and electric generating path.
We are not naive to think that getting off high-carbon
liquid fuels will be an easy task. It will require a major
overhaul of our car and truck fleet; a major revamping of our
public transit systems; a major investment in sustainable,
renewable fuels; and a major shift in our fossil fuels
subsidies structure.
The good news is that we are making progress in a few
limited areas. Corn ethanol has shown what is possible, but it
is not the long term answer to our Nation's energy needs. We
need more support to get us to the next generation of biofuels
from non-food, perennial crops and wastes, that create
significant greenhouse gas reductions and not lead to other
major environmental problems.
New fuel economy standards are essential. Recent and
proposed fuel economy and greenhouse gas standards for cars,
SUVs, and pickups has the potential to cut about 10 percent of
total U.S. carbon pollution. In addition, steady expansion of
electric vehicle technology can take us even further, to a mass
market, high performance vehicle fleet that uses little oil and
produces near zero pollution.
Consumers can save money, communities and natural resources
will not stand in harm's way of climate-related impacts, and
American ingenuity can thrive. But this will only happen if we
are bold in our resolve to address the root causes of climate
change, the runaway carbon pollution that is generated by our
current fossil-intensive fuel mix. This is the energy vision we
need.
National Wildlife Federation looks to you for your
leadership at this critically important time, and Americans are
eager to learn of the solutions path you will lead them down as
you exert your authority and power as lawmakers.
Thank you for the opportunity to provide comments on this
important matter.
[The prepared statement of Ms. Stadler follows:]

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Mr. Sullivan. Thanks, Ms. Stadler.
Now we will move to the question period, and I will
recognize myself for 5 minutes.
Mr. Petrowski, the first one is to you. What are the costs
to gas station owners of complying with the RFS? Do you expect
those costs to increase in the years ahead, and if so, why?
What other current or proposed regulations pose challenges for
you? What is the impact of the RFS and other regulations on
your customers?
Mr. Petrowski. Well right now, the main threat we face on
the RFS is, as was mentioned, when we mandate the use of a fuel
that doesn't exist. We have to go out and purchase RINs. That
adds to the cost of gasoline. Ethanol, which has spent most of
this year actually below the price of gasoline, has not added a
lot of costs this year. Ethanol has been blended in and
accepted by our customers. Our customers are very, very price
sensitive. I mean, that is one thing that you know in the
retail business. A 2 to 3 cent differential between gas
stations will cause huge shifts in demand.
What I am worried about going forward, in addition to
higher blends than are mandated, our liability of our
equipment, our dispensers, private action lawsuits that are all
addressed by House Bill 4345, and I worry right now currently
the drought that we are experiencing in the Midwest, ethanol
has gone up 40 to 45 cents in the last 2 months and we may
reach a situation this summer where ethanol is a significant
premium to gasoline, and that will add to the cost of the
finished product. We have a price-resistant and price sensitive
customer.
Mr. Sullivan. Thank you. Mr. Gerard, from a refiner's
perspective, what are the problems created by the blend wall?
If E15 must be used, what legal risks do refiners face? Is
there any way under existing law to avoid the blend wall? What
do you feel you need in order to address the challenges posed
by the blend wall?
Mr. Gerard. There are a lot of answers to that, Vice
Chairman Sullivan, but let me just address it generally, if I
can.
First as to the blend wall, we have come to the blend wall
much quicker than anticipated. Back when the RFS was first
enacted, though I was not part of that debate, I think it was
expected in 2018, 2019, et cetera is when we had come to that
point of addressing it. What has happened today, if we go
beyond the blend wall, then we are pushed into other fuel
blends like E15. As I mentioned in my testimony earlier, recent
research we have done with the auto industry shows that E15 has
impacts on engine durability. The engines that we test with the
auto shows that as many as five million of our existing
vehicles would not be able to operate or would have adverse
impacts.
So there is issues associated with moving beyond the E10
blend wall, as mandated by the RFS. That is why we believe it
is critically important to come back and address that issue by
opening it up.
Looking at the other questions Mr. Petrowski talked about,
such as cellulosic, our guys are major investors in alternative
renewable forms of energy. In many ways, we lead the country in
investing these energies. But we have got to be realistic about
what it does, particularly to the consumer. When you talk about
impacts on local service stations, convenience stores, impacts
on autos, not to mention small utilities, boats, chainsaws--the
list goes on--we think we have got to step back and address
that and make sure we are thoughtful, because at the end of the
day, if we impact the consumer adversely unintentionally, we
are going to discourage the very use of the fuels that we are
trying to promote. So we think it is a serious issue that needs
to be looked at. RFS should be reopened to adjust for the
reality of what the marketplace shows.
Mr. Sullivan. Also, Mr. Gerard, what is the potential for
increased E85 use, and why has it not caught on so far?
Mr. Gerard. Well I think it really goes back to consumer
choice. As I understand it, it is about 4 percent of the
vehicles today that are E85 compatible or flex fuel vehicles.
Less than 2 percent of our service stations around the country
can provide it, and even flex fuel vehicle owners and users use
it less than 1 percent of the time.
So once again, it is a consumer question. If you make it
available out there and the consumer chooses not to buy it for
whatever reason, we need to be sensitive about that. We need to
make sure the policy is done in a way that we don't get the
rejection from the very people we are trying to convince to
new, better forms of energy, other forms of fuels.
Mr. Sullivan. Thank you, Mr. Gerard.
Mr. Tanton, the President has officially--occasionally
pointed to California energy and environmental policies as a
model for the Nation. Do you agree with him?
Mr. Tanton. No, I don't. I mean, people often point to
Hollywood models, but you know, we suffer from the Charlie
Sheen phenomenon. We have very many self-inflicted wounds.
We often hear during campaign season that we need to run
government more like business. In 40 years in California, I
have finally figured out what business we are in. We are in the
business of building stranded assets. We had a large corn-to-
ethanol facility. It went belly up. It is now just coming back
online, but what happens often in policy is we try to pick the
technology du jour, and tomorrow it is another technology. We
need to focus on constantly improving productivity, which is
what got this Nation to be the wealthiest nation on earth. We
need to practice our policy--focus our policies on principles
and process, not picking technologies.
Mr. Sullivan. Thank you so much. Next I recognize
Congressman Rush for 5 minutes.
Mr. Rush. I want to thank you, Mr. Chairman. Mr. Chairman,
I have a question I am going to ask both Mr. Dinneen and Mr.
McAdams to address. Under the Energy Security and Independence
Act, which passed out on the floor for many in 2007, contained
the RFS as a role of reaching 36 million gallons of renewable
fuels by the year 2022.
I want to ask each of these fine gentlemen, are we
currently on pace to meet that goal, and if not, what
additional steps are needed in order to make sure that we are
on pace to meet those objectives? And what are some of the
broader benefits to our economy that Renewable Fuel Standard
would bring? What would be the standard--what would the
standard have--the effects of the standard on future gas
prices? What type of an impact would meeting the goals of the
Renewable Fuel Standard have on jobs here in America? So first,
Mr. Dinneen, and then Mr. McAdams.
Mr. Dinneen. Congressman, thank you for that question and
the opportunity to respond. Look, I have been in this business
for 25 years, so I am the eternal optimist. I do believe that
the 2022 target of 36 billion gallons can be met, but it needs
to have some policy certainty to it. As Mr. McAdams noted, the
uncertainty created about the RFS or the uncertainty with
respect to tax incentives is going to have a big role in
determining whether or not those targets are met in the out
years. Clearly we are not meeting them early on, but that
really is a function of an economic collapse in '08 and the
consequent freeze on financing that occurred.
But I have been to half a dozen plants producing cellulosic
ethanol today from a variety of feedstocks. It really is not a
technological question, it has been how do you encourage the
financing to be given. It is happening today. Once the ethanol
industry is allowed to continue to grow and evolve, as I
believe that it can and it will, you are going to see
tremendous economic and energy benefits beyond what you have
today.
I am real proud of the ethanol industry today. It is an
industry that is responsible for some 400,000 jobs. It is an
industry that last year added $53 billion to our gross domestic
product. It is an industry that displaced the 477 million
barrels of oil last year. It is a tremendously successful
industry as it is. Those benefits will just expand further if
the ethanol industry is allowed to continue to evolve.
Mr. McAdams. Let me just echo what Mr. Dinneen said. I
represent more of the second and third generation parties, and
so I want to correct one myth. There is only one pool that has
been short of--yes, I have it on. There is only one pool that
has been short in terms of hitting the targets, and that is the
cellulosic pool. So let me take Mr. Gerard's comment on about
that pool.
So what the EPA has under your vision, when you wrote the
statute you allowed EPA to have flexibility to waive if the
pool was short. So you waived--the EPA waived over 95 percent
of the statutory mandate for the cellulosic pool. And so what
we are dealing with is less than 5 percent of the pool that was
kept in place. If you waived it back in, then you have
completely removed any certainty of the market to finance the
building of any plant that will build the fuel.
So that is why we have a dispute about it, and I would--
with Jack, thoughtfully--about you can't give it--you can't
give away 95 percent of the statute up front and then give away
the last 5 percent in the back or no one will believe that they
need to finance the building of these plants. The financing of
the building of these second generation plants is the big deal.
Jobs, here is a neat idea. All over the southeast, all over
the west, there are different feedstocks that will be available
for these new advanced technologies. Woods, different types of
trees that grow oil, different types of grasses, an enormous
amount of biomass that will be used in these different types of
platforms. They create new jobs. They create new farm
opportunities. Many of these feedstocks are grown on lands that
couldn't sustain row crops, so they have no other use but to
grow, for instance, maybe a pine tree. Now you can grow giant
Miscanthus or something else.
So you see not only on the technological deployment side an
opportunity, you also see on the rural development side an
opportunity with the advent of these new fuels. Thank you for
the question.
Mr. Gerard. Mr. Rush, could I respond to that?
Mr. Rush. Certainly.
Mr. Gerard. Thank you. Let me just add a little nuance to
what Mr. McAdams said, and generally we are in sync on these as
we work on these important alternative fuels. The--cellulosic,
it has not met its target. We agree on that. The EPA did waive
the 95 percent of it. The problem is there is 5 percent they
didn't waive. It cost the industry $15 million, merely because
EPA set a fictitious number out there. We sought a waiver after
it was already determined that there was no cellulosic produced
that year to meet the requirement of the RFS, and we were just
ignored and they said sorry, we decline your waiver.
So what has happened under the law is you have given EPA
almost a taxing authority. EPA could have mandated the $500
million under that--500 million barrels under the statute and
put a very significant tax on the oil and gas industry because
of that, or the obligated party.
So that is where we think we need to open this up and take
a close look at it. We are not trying to discourage what is
trying to be accomplished in a broader energy policy here.
Where we take great issue is when a statute mandates
essentially a fan of fuel, and then you have the EPA,
supposedly Environmental Protection Agency, that has almost
unfettered discretion to decide how much they are going to
charge the obligated parties each year. It is absurd. It is
outrageous. It is bad public policy. That is what we are trying
to address, not to discourage the advanced biofuels. We
understand that. Again, our industry are major investors in a
lot of those, as I think most on the panel here know.
Mr. Sullivan. Thank you, Mr. Rush. Next, Mr. Shimkus, you
are recognized for 5 minutes.
Mr. Shimkus. Thank you, Mr. Chairman, and again, to the
panel. I appreciate your coming in. I wish I had 5 minutes for
each one of you. I am sure our visitors wouldn't like that, but
I sure would.
Let me go first to Mr. Petrowski. You know, EPA has
approved the E15 for sale, so what are your hurdles?
Mr. Petrowski. We need some liability protection.
Mr. Shimkus. What do you mean by that?
Mr. Petrowski. A private action--if a customer comes in,
even though the EPA has deemed E15 usable, and he puts it in
his vehicle that does not warranty anything above E10, we do
not want to be held responsible for that private action. It
is--if we have a dispenser or an underground tank, we need to
have the manufacturer and our insurance certificate warranty
that it is OK to have E15 in there. We don't want to be excused
from handling fuel properly and from things that we do that are
our fault, but we don't want to try to comply in putting E15 in
our equipment and then be held liable for that later.
Mr. Shimkus. What about E85?
Mr. Petrowski. We have 70 E85 stations within the Gulf-
Cumberland network. Special equipment was used----
Mr. Shimkus. And let me interrupt. In my congressional
district I have--I can travel throughout my now--my 30 county
area and always fill up at an E85 location anywhere in my
congressional--but it is primarily the independent marketers.
Why is that? Do you have any idea why it is more the
independents than----
Mr. Petrowski. I really don't--again, the retailer cares to
sell the most volume he can and get his customer to come in,
especially coming into our stores. And do remember, 85 percent
of the gas stations in the United States are owned by
independents and major oil is down to 10 to 15 percent. We had
a very successful E85 program when it was priced accordingly.
As the price spread between conventional gasoline or RFG 10
percent blend and E85 now, we lost demand for the E85. It is
simply a matter of price.
Mr. Shimkus. Great, thank you.
Let me--can I ask to put now--giving credit to Bungee, we
are going to put up a slide, a picture of a kernel of corn, and
I do this because a lot of times the debate on food fuel or
anything else, or cellulosic, people don't really understand
what occurs with a kernel and they think well, the whole thing
goes.
So first I would like Mr. Dinneen to talk about the
component parts of a kernel, and then Mr. McAdams, I will segue
to you really talking about next generation cellulosic, based
upon a National Research Center, you know, announcement about a
month ago.
Mr. Dinneen?
Mr. Dinneen. Well not being a farmer myself, the corn
kernel is not necessarily my wheel house, but I will tell you,
in the production of ethanol, we are just using the starch
component of that corn kernel, and what is left behind is a
very high protein, high fiber, high mineral content feed
product that then goes to cattle and poultry markets across
this country.
Mr. Shimkus. So it is called distillers dry grains after
the processing of the kernel, and distillers dry grains is
really a major component in feed products for livestock. And I
do this for my colleagues and friends who are concerned about
the corn--the food fuel debate on livestock. The distillers dry
grains is a commodity product sold after the refinery process,
is that correct?
Mr. Dinneen. Yes. In fact, last year, the ethanol industry
produced some 36 million metric tons of distillers dry grains
that was then fed across the country, and to put that in
context, 36 million metric tons is enough feed to feed every
cattle fed on a feed lot in this country.
Mr. Shimkus. Well, and I would also say that we have--we
produce so much distillers dry grains that we are exporting
distillers dry grains to other countries throughout the world,
China, in particular, in their feedstock, so again, addressing
the food fuel debate.
Mr. McAdams, we talk about cellulosic, and I am not sure
you followed the National Corn to Ethanol Research announcement
where they talked about research demonstrated proof of the
viability of generation 2.0 ethanol, and it is basically from
the bran portion of the kernel, and that is why we have the
kernel up there.
Mr. McAdams. Well you also can use this stock in the----
Mr. Shimkus. Pull that microphone closer. I think that----
Mr. McAdams. You can also use this stock in the leaves. So
when you are looking at cellulosic technologies, you have
different types. Thermal chemical, which is gasification at
different degrees, can use a range of different feedstocks.
Prevalent in the southeast, for instance, in the woody biomass,
woodchips, so you have a company like Sun Drop, I see you have
Louisiana members here, that is going to build a 50 million
gallon facility in Louisiana using wood chips and rice hulls,
and they are going to turn it into synthetic gasoline with an
MGA Exelon technology, again, to the partnership that Jack was
talking about across the range.
You have Enios using grasses, you have other people with
synthetic biology now that can take cellulosic sugars, that is,
extracting say, 40 or 50 percent of the sugar out of various
compounds, either grasses or woods. Now you use bacteria, you
modify the DNA bacteria and the bacteria literally spits out an
oil, a gasoline, a jet fuel, exactly as if it came out of the
barrel oil through a refinery. It is amazing technology that is
coming----
Mr. Shimkus. Thank you very much. Thank you, Mr. Chairman.
Mr. Sullivan. Thank you, Mr. Shimkus. Next, Congressman
Green from Texas, you are recognized for 5 minutes.
Mr. Green. Thank you, Mr. Chairman.
Mr. McAdams's and Mr. Dinneen's testimony that he thinks
that the RIN fraud situation is being overblown, but I am
hearing that this is a real problem that the industry groups
affected parties are working hard to solve this issue. First,
do you agree with Mr. Dinneen on this overblown--that it is
overblown?
Mr. McAdams. I can understand--honestly, I can understand
why Bob feels that. Ethanol does not have the same issue as the
D-4 RIN pool. I can tell you, I have six members that
effectively shut down in November when EPA announced the fraud
that took place in Maryland and Texas. They completely shut
down. Why? They are small operators. They make what is called a
D-4 RIN credit, which is the biomass-based diesel pool, and for
them to sustain their operations, they had to be able to sell
the RIN credits. They went through--not to get too detailed,
but they went through a RIN separation process. That created an
issue with respect to whether the major oil companies felt safe
with their RINs, given the fact that they got stuck for $60
million, so we are, as Mr. Gerard said, we are working very
closely with EPA and API to try to range the risk of the
various opportunities, the various buckets of RINs, so that we
can have a more reliable system and stand the OFS up so that
you have surety and liquidity in the marketplace.
Mr. Gerard. So Congressman, I would be glad to put a little
context around that comment, if you would like.
Mr. Green. Well let me finish with my question, though. Do
you take those RIN frauds seriously then, it sounds like?
Mr. Gerard. I think all of us in the biofuels industry do
not want to have fraud in our market, and so yes, we do take it
seriously. And so the issue here is how do you de-risk the
current market.
Mr. Green. Well, again, you know, I know you are trying to
work on it, but we haven't had much success on our subcommittee
with EPA wanting to step up to the table. Hopefully they are.
Bob, I know you wanted to get in.
Mr. Dinneen. I appreciate that. Look, all I was trying to
point out is we have had 29 billion RINs that have been issued,
and 140 million of those, all D-4 RINs, have been found or
alleged to be fraudulent. The lion's share of this program are
D-6 RINs, ethanol RINs, and there has not been any suggestion
of an issue with those RINs. So you are talking about half of 1
percent that deserves a serious response, and the RFA is indeed
working with the API and others to identify an appropriate
response. But I think the response needs to be focused on where
the problem is, and people ought not get too disturbed about
the integrity of the whole program, because I think the whole
program has----
Mr. Green. Let me get Mr. Gerard to respond to that.
Mr. Gerard. Let me just very briefly respond, and I
appreciate what Bob is saying. However, back to what Mr.
McAdams said, these RINs are in buckets. When you look at the
bucket on the biodiesel area where we found the fraud, it is 5
to 12 percent of the market. That is a serious problem, as
those who buy the RINs and then EPA turns around and says well
gee, you bought a fraudulent RIN, so go buy another one. So we
have come back to the EPA and say let us create a process here
where we can certify a mechanism to make sure we are not
promoting or allowing fraud in the RIN process. It is that
simple, but it is a serious issue. Five to 12 percent of the
market in the biodiesel area has been determined or estimated
to be fraudulent. That is a problem for those of us buying the
RINs.
Mr. Green. So are you--is API and Mr. McAdams and the
renewable fuels folks actually working with EPA, and what is
the response from EPA?
Mr. Gerard. Well Mr. McAdams and I are working together. I
think today Bob and company haven't really thought it was their
issue because in their space, in their bucket of RINs, there
doesn't appear to be a problem, not yet. We hope there never
is. We are working with the EPA. They have been slow to respond
with solutions, but in combination with the White House and
EPA, we are hopeful we can get a resolution by the end of the
calendar year, so going in to 2013. We have got certainty in
the program because you can appreciate, those buying the RINs
will look to those we have got most confidence in, and that
discourages some of the smaller plants and others that are
trying to get into the market.
Mr. McAdams. Let me drive that home, just real quickly. Let
me put money on the table.
So in the D-4 RIN pool, the D-4 RIN credit today is $1.20.
For a small producer, $1.20 represents this whole margin. That
is his cash flow in his business. If Mr. Gerard's numbers don't
believe the D-4 RIN pool is valid and that there is more fraud
in it and my guys can't sell that $1.20 RIN, they can't
operate. And that is why we have to have quality assurance in
the D-4 pool.
Mr. Green. And that is a concern that I have, because that
$60 million, believe me, the folks at the pump paid for that,
and so that is just an additional adding to our gasoline costs.
Mr. Chairman, I know I am out. I wish I had more time for
Mr. Dinneen because I have a line of questions, so I don't know
if we will have time to do a second round, but thank you.
Mr. Sullivan. Thank you, Congressman Green. Next we
recognize Congressman Burgess from Texas for 5 minutes.
Mr. Burgess. Thank the chair for the recognition.
On the RIN issue--and I wasn't going to devote any time to
this, but we are having a subcommittee hearing in Oversight and
Investigations on this issue. I have several small producers in
my district in Texas who were, in fact, harmed very badly by
this and their margin was cut to the point where they are
likely out of business, and there is a significant dollar
involvement that they will be looked to to make good on, and it
is rather startling to think that we set up a program that had
all of the good aspects of retailing of--securities and product
of the energy market, and probably an object lesson for all of
us. But I would just--an open invitation, if any of you have
things that you would like to share with my office, we are
going to be looking into this in detail during the Oversight
and Investigations Subcommittee that will probably be in this
very room.
Mr. Gerard, I wanted to ask you a question on the--you
know, I do travel some and travel by automobile, and when I go
out of the Dallas/Ft. Worth immediate metroplex area, of
course, we are under some air quality considerations where
ethanol blends are mandated in our fuels that we sell over the
summer, but sometimes when you get out to east Texas or even a
State like Oklahoma or Arkansas, there will be a gas station
that will put a big placard up that says no ethanol in my gas.
And I always rejoice when I find those stations, because I am
going to get extra miles per gallon out of my little Prius when
I fill up. But is that day coming to an end where those
retailers are going to be able to have ethanol-free gas? Your
comments that under the current mandates that that 10 percent
volume will have to be in every gallon of gas that is sold, and
what did you say, by 2020 there will have to be a 20 percent
volume?
Mr. Gerard. Well, if you look at the mandates in the
Renewable Fuel Standard, it could grow to essentially--and this
is projection--an E20 standard. And what I mean by that, when
you get to the 36 billion gallons that were talked about by
2022 in the current construct, that is about where it is
projected to go. In fact, some people believe it will go higher
than that.
So the more you mandate that, the less likely you are to
find pure, conventional gasoline. I imagine there will be some
creative folks out there, and Mr. Petrowski has probably seen
some of them in the industry, who may try to avoid some of that
or to offer it as an alternative, but at the end of the day,
the more you mandate, the less likely it is you will see some
without a blend, without fuel mix.
Mr. Burgess. And of course, it is troubling as a consumer
but also, I mean, I guess because of the--of 10 percent ethanol
I spend a lot of time at my lawn mower repair shop, Lowery's
Motors, in Lewisville, Texas, and he said that the ethanol in
gasoline had been very good for the lawn mower repair business
or the small engine repair business, because he gets a lot of
business. Is that observation accurate?
Mr. Gerard. Very much so. In fact, particularly in the
small business area, motor boats and others, I noticed just the
other day on a boat system around the gas cap, you know,
nothing beyond E10. Toyota and the other individual companies
now will tell you that it is unlikely they will warranty
anything that goes beyond E10, and there are actually gas caps
on their automobiles this year that do that.
So it is a serious issue. The warranty question is a
serious question, and perhaps more so even in the small
engines, to your point, the lawn mowers, the other engines. And
that is why we believe you have got to go back and look at
these questions. Let us be thoughtful about energy policy. We
need all of the above, but we don't need to mandate and push
something that creates problems for consumers that could cost
them hundreds of millions of dollars.
Mr. Dinneen. I am sorry, if I could just add here----
Mr. Burgess. Well no, because I have an----
Mr. Dinneen. Just to corroborate an interesting point
though----
Mr. Burgess. Let me just--I will give you a chance to
follow up, but just a moment. In the last Congress, we should
have had a hearing on this and we didn't. What we had was a
briefing. We had a briefing down in the committee room, but the
difference between a briefing and a hearing is there was no
record. C-SPAN wasn't on and some very good questions were
asked about what was the testing that went into the E15
regarding older engines and smaller engines. And it really was
a series of finger pointing by the Environmental Protection
Agency and Department of Energy. We had asked who is in charge
here and it was this sort of activity. That is why I am so
grateful we are having this hearing today. We should have had
one in the last Congress before we got so far down the road on
this. But we are putting people's investments at risk,
certainly the retail gas outlets are going to be under some
difficulty from liability concerns, and we have a
responsibility to do this correctly. Unfortunately, in the last
Congress we found it necessary not to.
I also just need to point out, Mr. Tanton, I hope you gave
us the upbeat version of your testimony? Is that right?
Mr. Tanton. Staying in California requires that one is an
eternal optimist.
Mr. Burgess. Well, in a joint Economic Committee hearing
that we had here just before the break, the green jobs
phenomenon was looked to actually cost jobs. Is that something
that you have experienced in your State as well?
Mr. Tanton. Yes, and you are referring to the studies out
of Spain, Italy, Denmark----
Mr. Burgess. Right.
Mr. Tanton [continuing]. Germany? Yes.
Mr. Burgess. One green job equals three lost regular jobs.
Mr. Tanton. Yes, we haven't enumerized it yet, but it is
not a positive.
Mr. Burgess. All right, thank you.
Mr. Sullivan. Go ahead for a second.
Mr. Dinneen. Thank you, Mr. Vice Chairman.
Congressman, your points are all well-taken, of course, but
you had teed up that question--that series of questions to Mr.
Gerard suggesting that your own lawn mower was having
difficulties with E10. I just wanted to point out that all
small engine manufacturers warranty up to E10, and Mr. Gerard's
answer indicated that above E10 might be an issue, and that
could be true. I agree with you that there probably should have
been a hearing to discuss the testing that had been done before
E15 was approved, because I think the record would have shown
that there was an exhaustive amount of testing. The Department
of Energy and EPA did more than 100 vehicles, more than 6
million miles, 12 trips to the Moon and back, testing on E15.
They did not do testing on older vehicles or small engines,
older vehicles in part because it is difficult to test for the
full life of a vehicle on vehicles that have already been
beyond their full useful life.
And so in an abundance of caution, EPA did not approve the
use of E15 in those older vehicles or for small engines. We
support that action. We do think that there was enough on the
record to demonstrate that older vehicles would not have seen a
problem as well, but again, in an abundance of caution, EPA has
limited E15 so that those engines for which it is not
appropriate would not be able to use it.
Mr. Burgess. So the retailer is going to have to rush out
and say no, no, you can't fill your 2000 year automobile with
this tank because you need to use the tank around the corner? I
mean, this was the problem. We had that--we had a briefing and
not a hearing. There is no record. I promise you, that was a
series of finger pointing.
Mr. Chairman, I thank you for your indulgence. I am going
to yield back, but it was not the proper way to go about this.
We have an obligation to people to do this correctly. I yield
back.
Mr. Sullivan. Mr. Gerard?
Mr. Gerard. I will be very brief, Mr. Vice Chairman. My
apologies. I just can't let that entirely stand. I am not sure
how long the research went that EPA did to the Moon and back. I
will tell you it was very limited research and it was conducted
on the basis of catalytic converters. It wasn't engine
durability. We, in combination with the auto industry, with DOE
and with EPA, were doing a comprehensive analysis on engine
durability. We told the EPA, let us wait until we get our
research done. Let us look at this before we make a final
decision. They rushed ahead. Our research now shows that two of
those engines essentially failed of the eight we tested, and
puts at risk five million autos in the current fleet as a
result of the E15 decision. That is what the actual research
shows on engine durability.
So we believe, again, we should have more research. We have
been doing this in collaboration with DOE and EPA, and we
shouldn't rush into these issues. That is why we got to take a
look at the RFS.
Mr. Dinneen. But one of those engines also failed on E0, so
it suggests that there maybe is an issue with the vehicle
technology, not the fuel----
Mr. Sullivan. OK.
Mr. Dinneen. And one of the failures was about a component
of the vehicle that was under recall----
Mr. Sullivan. We have got to move on.
Mr. Gerard. So let us suggest we need more research, Mr.
Vice Chairman, and I think we agree on that as opposed to
rushing head on into policy decisions without careful
consideration.
Mr. Sullivan. Thank you, sir.
Mr. Gonzalez, you are recognized for 5 minutes.
Mr. Gonzalez. Thank you very much, Mr. Chairman. I am going
to ask each of the witnesses for a yes or no answer. I would
appreciate if you would give me a yes or no answer. It goes
directly--it ties right in to what my colleague from Texas was
pointing out about E15 and the mandate of increasing ethanol
blends.
This question is going to be predicated on two points. One
is fact and the other is just an assumption in worst case
scenario, but the fact would be that the following
manufacturers will not warrant their vehicles if you exceed
E10: Chrysler, Ford, General Motors, Mercedes Benz, Honda,
Mazda, Toyota, Nissan, Volkswagen, Volvo, BMW, Hyundai, Kia. I
don't know who that--I don't know, I guess that leaves out
Ferrari, Maserati, Lamborghini, but I assure you, they probably
would not warrant their engines either.
The second--that is fact, unless it has been updated and
they have reversed their positions. I don't think that is going
to happen. The other is the assumption is that EPA was just
wrong and Mr. Gerard was right. They didn't conduct the
research as they should have to arrive at that particular
conclusion and mandate.
Do you believe that it would be proper for Congress--now we
are talking judiciary, but we will work with judiciary--to pass
a law that would immunize the producer, the supplier, and the
retailer of E15 from liability by the consumer? Just a yes or
no, is that a good thing for Congress to do?
Mr. Petrowski. Yes.
Mr. Gerard. Yes.
Mr. Dinneen. Yes.
Mr. Tanton. No.
Mr. Bajura. No.
Mr. McAdams. No.
Mr. Breen. I don't know.
Ms. Stadler. I don't think that is going to make sense.
Mr. Gonzalez. All right. Does it make sense for Congress to
pass a law that will allow the consumer who, in fact, suffers
some damage as a result of a miscalculation or inappropriate
testing by the Federal Government that requires a mandate for
the supplier to supply, the retailer to obviously make
available, something they put in their gas tank that destroys
their engine, should that consumer have a remedy against the
Federal Government to make them whole again? Yes or no.
Mr. Petrowski. Yes.
Mr. Gerard. If you are going to mandate the fuel, the
government should take responsibility. They are the mandater of
the fuel.
Mr. Dinneen. Yes.
Mr. Tanton. I got to think about it more.
Mr. Bajura. Yes, but more importantly, every November.
Mr. McAdams. I don't think that is a proper role.
Mr. Breen. Yes, I have to think about it.
Ms. Stadler. Yes, I am going to pass.
Mr. Gonzalez. If you think this--I mean, from the point of
our constituents, your customers, come on. They have to put
something in their engines that is mandated by someone out
there in authority, and then everyone escapes liability. I
believe liability instills accountability. It is called human
nature, and if we don't have that, then EPA or even the private
sector can do whatever they want without any consequence. And
that is what we are seeing today.
I am a supporter of what EPA does most of the time. In this
particular case, they did move quickly, prematurely. If I have
the manufacturers of these vehicles telling you they are not
going to warrant this, how is it fair for us to impose that
kind of consequence on the consumer? We are all concerned about
the producers, we are all concerned about the suppliers and the
retailers. Is anyone talking about the consumer? Why wouldn't
all of you say look, if the Federal Government is requiring you
to do something, you shouldn't be held liable for any
unintended consequence? Why aren't all of you all saying to the
American people that if we force something on you and you have
no choice but to use it, and it basically destroys your only
means of transportation, someone should be held liable. Believe
it or not, that is the basis of our American jurisprudence, is
liability, believe it or not. It instills responsibility and
accountability. That is what has been missing.
Now I am going to tell you, we do have a piece of
legislation out there when it comes to the producers,
suppliers, retailers, and so on. Mr. Green and I have a piece
of legislation out there that views it from the consumers'
viewpoint and will allow them a remedy. I do think all of us
need to be acting, you know, going in that particular direction
so that we move forward, and I know that we are going to have
conflicts among many of you as to what is the proper blend and
such, but at a minimum, we should be looking at this incredibly
important question.
Thank you for your testimony today, and I yield back, Mr.
Chairman.
Mr. Green. If the gentleman would yield just 1 second?
Mr. Gonzalez. I think I have got a second.
Mr. Green. I know our committee passed a bill that would
not provide it, but the bill you and I have that would actually
follow up just like we did on vaccines that the Federal
Government mandates, we take the responsibility, why wouldn't
we do that though on my 2002 Blazer I like to drive at home. So
thank you.
Mr. Sullivan. Mr. Olson, you are recognized for 5 minutes.
Mr. Olson. I thank the chairman, and good morning to the
witnesses. Hope you all had a happy 4th of July.
Before I start with my questions, I just want to be sure we
all have the facts, because every one of us is entitled to an
opinion, but none of us are entitled to their own facts. Here
are the facts about the American energy future.
Our Nation thrives because we have cheap, reliable sources
of energy, American fossil fuel energy. We will be a fossil
fuel Nation for at least the next 25 years minimum. We have
limited abilities to recover the oil and gas we have in our
country. Now for most of the past century, we only got about 25
percent of the oil and gas out of the ground that we knew was
down there, but we didn't have the technology to do that.
Enter the American entrepreneur. In two techniques,
directional hydraulic drilling--I am sorry, directional
drilling, horizontal drilling, and hydraulic fracturing.
Because of those two techniques, our energy portfolio has
changed dramatically. We actually have a chance--I have been on
this planet for about 50 years now. We have a chance to become
energy independent, or at least depend upon North American
sources of energy, Canada and Mexico, and it is because of
these two techniques.
We have got shale plays happening all over this country.
North Dakota last month became the second largest producer of
oil and gas in America. North Dakota. They got ahead of Alaska
with that pipeline. My home State is still number one, I am not
worried about that.
None of us in this room could have foreseen these
technologies and what it is doing for our country 20 years ago.
None of us could see that. And so I want to tell everybody in
this room, never, ever underestimate the power of the American
entrepreneur in a free market system.
And that is what concerns me about the RFS, because it
interferes with the American innovator in the market, and
forces them to pursue technologies that the government wants,
not that the market supports.
So my first questions are for you, Mr. Gerard and Mr.
Tanton. A civil--we are stuck with the RFS, and I really want
to get rid of it. I mean, again, it is the government choosing
winners and losers, but assuming that we are stuck with the
program as it currently is, given the increase in volume of
ethanol mandate each year, shouldn't we diversify the sources
from which we can produce ethanol to include abundant and cheap
fossil fuels developed right here at home in America?
Mr. Gerard. Well, if you allow fossil fuel production to
meet the mandate, that could be one option, of course. But let
me just add to your earlier comment on technology. One of the
overlooked technology developments in the country today is in
the oil and gas spaces you commented, our deep water drilling,
hydraulic fracturing, horizontal--it is a whole new game and we
shouldn't overlook that as we, once again, consider the energy
future of the United States. So those would be options.
Mr. Olson. Yes, sir. Care to comment, Mr. Tanton?
Mr. Tanton. Yes. We need to diversify our sources,
including the sources for renewable fuels. There has been a lot
of talk today about cellulosic ethanol requirement. It is very
simple to make cellulose into an alcohol fuel. It turns out as
wood alcohol, methanol. You know, if I was going to make one
tweak to the RFS, I would allow cellulosic methanol to compete,
as well as cellulosic ethanol. But you can also make methanol
out of natural gas, and of all the resources that have been--
become available, expanded, I think perhaps natural gas is the
one.
Now I sort of bad-mouthed California energy policy. We are
considering passing a hydraulic fracturing ban in California.
For those of you from California or any influence in
California, please help me stop that. California is the third
largest refining State in the Nation. We are about to lose 30
percent of our refining capacity because of this so-called Low
Carbon Fuel Standard, which was passed as part of our Global
Warming Act.
Mr. Olson. You kind of led to my next questions for you,
Mr. Dinneen. I mean, you noted in your testimony that the
Renewable Fuels Association's main mission is to drive expanded
production of the U.S. American made corn-based ethanol.
Mr. Dinneen. Just ethanol.
Mr. Olson. OK, exactly. But there are examples out there in
this world, Brazil has an ethanol mandate but it is sugar-
based. Mr. Tanton, this wasn't coordinated but I have got a
company in my district that select these natural gas to make
some sort of--ethanol. So do you support extending the RFS
beyond corn-based ethanol?
Mr. Dinneen. I think the RFS envisions that there are going
to be a wide range of renewable fuels that will compete, and I
would inform Mr. Tanton, including methanol if it is produced
and can be done so competitively. The fact of the matter is,
corn-derived ethanol today is the lowest cost alternative fuel
that is out there. We are less expensive than Brazilian
ethanol. Brazilian ethanol still comes in, it does compete, but
the RFS is not an ethanol mandate. It is a renewable fuels
mandate. It empowers the kind of entrepreneurship that you are
seeking, because Mike's members and some of my members are
looking for ways to evolve this industry to new feedstocks and
new technologies. It is really an exciting time to be in the
industry, because you see that evolution occurring before our
eyes.
But one thing that would undermine that, however, is to
repeal the underpinnings for that development. And if you
choose to move the Renewable Fuels Standard away from its
foundation of a renewable fuel to allow for non-renewable
technologies to compete, then you are going to drive investment
there. Then you are picking winners and losers. I think that
there is certainly a role for some of those nonconventional,
you know, petroleum fuels and if there are programs that you
can develop in addition to the RFS to encourage those, have at
it. We would support it. But the RFS was designed as a
renewable fuel program, and I think it should stay as such.
Mr. Olson. And the chairman has given me about 2 minutes
extra time, so I thank him for that, and I yield back.
Mr. Sullivan. Thank you. Next yield to Ranking Member
Waxman for 5 minutes.
Mr. Waxman. Thank you, Mr. Chairman.
It is a good thing when we are less dependent on foreign
oil. It is a good thing that we can have lower costs for our
fuels, but the elephant in the room is climate change. And this
year, the United States has experienced record heat waves
across the country, debilitating droughts, and forest fires
that threaten our communities in the West.
Two weeks ago, Rex Tillerson of the Exxon Mobil
acknowledged that burning fossil fuels is warming the planet
and changing our climate, and I was pleased to hear Mr.
Tillerson acknowledge this serious threat. Mr. Gerard, does the
API agree with Mr. Tillerson that the burning of fossil fuels
increases the temperature of the planet?
Mr. Gerard. I think there are two responses to that, Mr.
Waxman. First is, as you know, Mr. Tillerson is an important
member of ours and we have a broad diversity within our group.
I will say the general consensus is they recognize it as a
challenge, but what they have done as industry is they have
stepped forward and their single largest industry investors in
forms of energy that are zero carbon emitting or low carbon
emitting technologies.
Mr. Waxman. That is helpful. So the association does not
necessarily agree with Mr. Tillerson? They have different
views?
Mr. Gerard. No, our membership has different views,
particularly different views as to how you would address it.
Some support a carbon tax, you know, we had some that supported
your----
Mr. Waxman. Well before--we have those who support one
thing or another. Presumably those who support one position or
another recognize there is a problem and that we have global
warming.
Dr. Bajura, you aren't a climate scientist but you are the
director of University Energy and Environmental Center. You are
an expert on coal. I understand that you have acknowledged that
fossil fuel pollution is responsible for climate change. In a
presentation you gave to the National Coal Council, you stated
that carbon management must be an integral part of coal-to-
liquids technology. Dr. Bajura, I have a simple question for
you. Is climate change a hoax?
Mr. Bajura. I don't want to get involved in the issue of
climate change is a hoax. We are concerned about CO2 emissions
and if we are looking at the effect of CO2 emissions, it is a
greenhouse gas. We have learned that in our fundamental science
and engineering. It could contribute to climate change.
Mr. Waxman. Unfortunately, the House Republicans seem to
think climate change is a hoax. They voted to deny this science
and to repeal any authority to address the problem.
Ms. Stadler and Mr. Breen, I want to ask you about whether
our energy policies should be rooted in science or in denial.
Particularly Mr. Breen, can you explain from a national
security perspective how climate change should inform our
energy policy?
Mr. Breen. Absolutely, and thank you for the question.
There is a pretty strong emerging consensus among many
national security leaders, including most of the most prominent
think tanks in the field, that climate change is a dire
national security threat. It is what the Pentagon calls an
accelerant of instability or a force multiplier of instability.
It creates the conditions that lead to insurgency, terrorism,
interstate warfare, large mass migrations of people. We are
already seeing some of this happening, that according to even
the most conservative climate projections, is set to increase,
especially in some of the most volatile areas in the world
where our military is the most active, including central Asia.
It is a huge problem.
I am not a climate scientist, but according to all the
research I have seen, 95 percent of climate scientists do
believe that climate change is real and as a military officer,
if I were informed that 95 percent of my intelligence told me I
was facing a lethal threat, if I didn't act I would be
committing unconscionable military malpractice.
Mr. Waxman. Well military matters are handled by
government. It is not left to private entrepreneurs to figure
out what the military strategy ought to be for national
security. Energy policy should be, in some ways, directed by
our government. Not to--and we should not expect that private
entrepreneurs are going to risk their profits in order to
develop some technologies that may help our attention to the
climate change issue when it is not profitable for them.
Ms. Stadler, can you explain what our energy policy should
look like if we want to be guided by science, and do we have
the luxury of time to establish such a policy?
Ms. Stadler. Well, we are running out of time, so I don't
think we can sit around and think we have another decade to
figure this out. I know this is going--is a debate that has
been dragged on for multiple decades. There is strong
scientific consensus that we are nearing a tipping point and
that we really need to start ratcheting down carbon pollution,
and if we don't, we are going to see more extreme storms and
weather events like we have already seen.
In terms of how we develop fuels policies, you know, we
believe that we need to--not just when it comes to fuels, but
energy policy more broadly, we need to evaluate them based on
their ability to drive down carbon pollution. So when we talk
about all of the above, we don't think that works when we are
in this time of a tipping point.
Mr. Waxman. Well all of the above is unfortunately the
direction we have to take, because no one is going to stop
using coal. No one is going to stop using oil. But what we need
are alternatives and market incentives to develop the
technology that will allow us to use oil and coal and other
fossil fuels and take the carbon out of it, because our focus
has to be, I think, on this climate change threat. It is not
going to happen with the free market responding to it, because
there is no competition to try to achieve what is a national--
international goal by entrepreneurs, unless they can also make
money. So we have got to give them the financial incentives to
accomplish that goal.
Thank you very much, Mr. Chairman.
Mr. Sullivan. Gentleman's time is expired. I recognize the
gentleman from Kansas, Mr. Pompeo, 5 minutes for questions,
please.
Mr. Pompeo. Great. Thank you, Mr. Chairman.
You know, if folks back in Kansas were listening to this
hearing this morning, they would be amazed, talking about D-4
RINs and mandates and liabilities and fining companies because
they don't buy a product that doesn't exist. I mean, they would
be floored, I just have to tell you.
Mr. Dinneen, you talked about RFS. Did you say there need
to be no changes in the RFS? Did I understand that correctly?
You said not to make broad sweeping changes. Does that go to
say that you think there ought to be no changes in the RFS as
well?
Mr. Dinneen. I think it has been a tremendously successful
program. I think one of its successes is founded upon the fact
that this committee gave EPA tremendous flexibility in
addressing some of the issues that have arrived.
Mr. Pompeo. So is that no changes----
Mr. Dinneen. Yes, no changes.
Mr. Pompeo. No changes. So in spite of the fact that a
product doesn't exist, you think we should penalize companies
for not purchasing the product?
Mr. Dinneen. The product does exist. It is being produced
today. It is not being commercialized as rapidly as we would
like, but EPA has had the authority to reduce the cellulosic
requirement, and they have done so.
Mr. Pompeo. Right, it is amazing. You all talk about having
reduced 95 percent of the requirement, is that right? What a
stunning statement, to say that they have reduced it by--what a
mess we made.
Mr. Dinneen. It was a pretty stunning recession, I agree.
Mr. Pompeo. I guess we are just not as smart on this side
of the podiums as we thought we were.
You also talked about how price sensitive consumers are. In
fact, in Wichita, you can flip the radio on in the morning and
they are advertising which gas station has the lowest price
that morning by 2 cents, you know. They will talk about--I hear
it all the time. Why are--do I not hear from my constituents
screaming for E15 and E85 if it is such a good thing to lower
consumer prices? I will tell you what, my constituents don't
hesitate to call me when there is something they want. Tell me
why I don't hear that very often.
Mr. Dinneen. Well, I think there are going to be some
constituents that will want it, absolutely.
Mr. Pompeo. But I am telling you, in my experience--I have
only been here 18 months, I will concede that--but I don't hear
it. I was in four parades this week, and not a sole asked me
about, sir, please, bring me E85.
Mr. Dinneen. Maybe your constituents don't want to have
choice, but I think most consumers----
Mr. Pompeo. No, I promise you they do.
Mr. Dinneen [continuing]. Around the country want to have
the option to utilize E15 if it is a lower cost, if it is
appropriate for their vehicle, and we are not talking about
mandating E15, and Mr. Gerard's repeal, he talked about E20,
were are not talking about mandating E20. We are talking about
giving consumers the choice to use it.
Mr. Pompeo. That is just not right. You are not talking
about giving them a choice, you are talking about a mandate.
You are talking--you are not--I am happy--E100, knock yourself
out. If you are prepared to give up the mandate here this
morning, I am prepared to advocate for E100. Deal? I mean, you
talk about choice, but it is fundamentally misleading to say
that the consumers aren't looking for just--you are looking for
a government mandate for your product.
Mr. Dinneen. For 100 years, we have had a government
mandate for gasoline. What we are doing right now is trying
to----
Mr. Pompeo. Sir, if you will point me to statute----
Mr. Dinneen [continuing]. Create incentive for other
alternatives.
Mr. Pompeo. If you will show me the statute mandating
consumer's use of petroleum products, I will be happy to
withdraw my previous comment. You can't. You can't point to it.
I have asked your organization before for that very statute,
and you can't point to it. I don't want to get into an
argument. It is true.
Mr. McAdams, you talked about financing. Why wouldn't--
should we not just have government financing? You said you
can't get these things financed because there is uncertainty
about the RFS. Just have a government loan program.
Mr. McAdams. I didn't suggest that.
Mr. Pompeo. No, you didn't. I am suggesting it would be
easier and cleaner----
Mr. McAdams. I suggested there needs to be a partnership
and vision with the advanced biofuels industry with the Federal
Government, much like we had with the aircraft industry or we
wouldn't have airplanes today; much like we had with the space
program or we never would have put a man on the moon; much like
we did with the internet, or we wouldn't have the internet.
There is a partnership that can take place between the
Federal Government and this innovative technology----
Mr. Pompeo. Right. I am suggesting an even deeper
partnership. Why don't we just give you the money, or loan it
to you at a really cheap rate that you couldn't get any place
else because the market just won't accept your product?
Mr. McAdams. I am not going to sit here and defend the Loan
Guarantee Program. I am not so sure that model worked very
well. After all of my members looked at the Loan Guarantee
Program, in all honesty, they were only awarded one. Most of--
felt the transactional rates weren't right.
Mr. Pompeo. Mr. McAdams, you agree it is the same effect.
We are lowering the cost of financing. You want a mandate to
lower the cost of financing. There is--it is different, the
economics are slightly different, but the outcome for
industries that are demanding Federal mandates is largely the
same.
Mr. McAdams. I don't know what the combination between tax
policy, grant policy is. I just know that we went through a
very difficult period of time from 2008 to date----
Mr. Pompeo. The whole economy did. So did our consumers,
who were having to pay the tax bill----
Mr. McAdams. Absolutely.
Mr. Pompeo [continuing]. For your mandates and your
subsidies.
I want to ask one other question. So we have this
restriction on RFS that only certain things--I have had several
folks come into my office and talk about products like Mr.
Olson was talking about that don't fit today's mandate. Another
way to open this up, you complain about cheap natural gas. It
is--that causes problems because natural gas--because you
can't--you don't have enough price differential. Why not just
put an enormous tariff on imported oil? Solves Mr. Breen's
problem. We won't be taking oil from nasty companies. I am not
advocating, I am just asking Mr. Dinneen or Mr. McAdams, why
not just put an enormous tariff on imported oil and let
everyone compete across that spectrum? We would obviously raise
the price for gasoline.
Mr. McAdams. If history serves me, I believe it was Bob
Dole that suggested an import tariff, and it didn't receive
much support.
Mr. Pompeo. Would you advocate for that?
Mr. McAdams. I wouldn't.
Mr. Pompeo. Mr. Dinneen, would you?
Mr. Dinneen. I wouldn't, but I think it does point right to
the issue that we have here, is that you don't have a free
market when it comes to energy.
Mr. Pompeo. I am past my time. Thank you, Mr. Chairman.
Mr. Burgess. [Presiding] The gentleman's time is expired.
Chair recognizes gentlelady from Florida, Ms. Castor, for 5
minutes.
Ms. Castor. Thank you, Mr. Chairman. Thank you all on the
panel for being here today.
I do believe that the overarching goals of the Renewable
Fuel Standard are very important, and I think that they are
goals that while we may not have our constituents demanding E85
at the pump, they do believe that it is important to reduce
greenhouse gases and the Renewable Fuels Standard proposes as a
goal by 2022, a greenhouse gas emission reduction of over 138
metric tons. We do hear our constituents clamoring for ways to
reduce the risk of these extreme weather events tied to climate
change. They can't do it by themselves, and they need
leadership out of the Congress to do it. I think that is an
important goal, and we are all struggling for how to get there
and provide that leadership.
I think our constituents also believe that it is important
to provide our country with greater energy security, and that
means greater domestic sources, and this is one in the all of
the above category, that really challenges how we get to the
second generation. I am frustrated by it, but you know, we
are--the American people are kind of impatient and this is a
goal that was set in 2005, 2007. It is 2012, and gosh, we
haven't seen the second generation of biofuels emerge. That is
frustrating. And I hear people say well, be patient. But you
know, we are hearing a lot more now, a growing chorus saying
this is impacting our ability to have affordable food. The
relying so much on corn has not--while maybe people were
willing to say up front OK, we will do that to kick this off,
we have got to make that transition now off corn-based ethanol
into the second generation. I have heard some discussion here
today, and Mr. McAdams, I wish you would get a little more
specific with financing and how we move into the advanced
biofuels and beyond the corn-based ethanol that is competing
with food.
Mr. McAdams. Well, let me give you an example why one size
doesn't fit all. So if I am BP or DuPont, I can still finance
the building of a cellulosic plant. I am a big entity, I have
my own draw and capital. That is something I can do, and both
of those companies are looking at building their own plants. If
I am a smaller, innovative company, I don't have that line. So
for instance, one of my companies, Sun Drop Fuels, has adopted
a different model, so they went to Chesapeake, a natural gas
company, because they are going to use natural gas as part of
the feedstock in their plant. And so Chesapeake is going to
help build this plant, along with the State of Louisiana. The
State of Louisiana has put up $450 million worth of bonds to
build this plant, to create this new 50 million gallon
cellulosic gasoline plant.
And that is one point I want to make to Madam
Congresswoman, is this is not all about ethanol. Most of the
people that I represent make hydrocarbon drop-in fuels. So most
of the technologies I am talking about are sugar-based fuels to
gasoline, diesel, or jet fuel. Our wood-based fuels to
gasoline, diesel or jet fuel, they are not going to make
ethanol. They are going to make a fungible fuel which we will
partner with the oil industry with, that will move through the
existing infrastructure, does not need infrastructure changes
and does not need changes to the engines. We will not have a
lot of these subsidiary issues.
So I think there is a bright future there, but my answer on
what do you need, which is why I appreciated Mr. Pompeo's
questions, it depends on who you are trying to help and what
the scheme looks like. It is a tax piece, is it depreciation? I
can tell you, if a big oil company wants to partner with one of
my members and you give them accelerated depreciation, that is
a lot more appealing than other forms of tax structure. So it
depends. Multiple limited partnerships just offered by Senator
Kuhns, another interesting model, then used very well by the
independent oil industry. We don't have multiple lending
partnerships in the biofuels world. We don't have intangible
drilling costs in the biofuels world.
So when you look at energy policy, you have got to create a
level playing field across the whole sector, because we are
going to use oil and gas for the next 30 to 40 years. And we
ought to also have the same kind of optionality for advanced
biofuels and cellulosic biofuels that we have given to the
inherent incumbent----
Ms. Castor. And I think that you said here in the U.S. we
are a leader globally when it comes to advanced biofuels, but
are there some lessons we can take from what is happening in
other countries when it comes to the advanced biofuels?
Mr. McAdams. I think we can look from other companies for
guidance, OK, and the concept that we have a free market, well,
go talk to China or Brazil. They are financing the building of
a lot of innovative technologies. We are developing the IP in
the United States. I got two companies building their first
plant in Brazil. Why? The federal government of Brazil sees a
future there and they are helping fund the building of the
plant. We are not doing that here. We are arguing about whether
or not the Department of Defense can, you know, help glide a
limited amount of money to build three plants.
Mr. Burgess. Gentlelady's----
Mr. McAdams. Brazil is building them all over the country.
Ms. Castor. Thank you very much.
Mr. Burgess. Gentlelady's time is expired. Recognize the
gentleman from Virginia, Mr. Griffith, 5 minutes for questions.
Mr. Griffith. Thank you, Mr. Chairman.
Dr. Bajura, one of the greatest benefits of coal-derived
fuels is the ability to provide our military with a more stable
domestic source of energy. I was happy to hear you mention my
bill, H.R. 2036, in your testimony, the American Alternative
Fuel Act of 2011, which would repeal Section 526 of the 2007
Energy Bill. This section effectively sets us on a course to
rely even more on unstable regions where many of our military
personnel are now deployed. Do you believe the potential to
source military fuel from domestic resources, such as liquid
fuel derived from coal, is a national security issue?
Mr. Bajura. Yes, sir, I think it is, and it makes sense for
us to have a diversity of supplies. The Department of Defense
wants to ensure that it has the ability to have fuel to fund
all of its operations. I think another thing that could be
benefitted by having the Department of Defense program put in
place is we talked about $4 a gallon petroleum, we talked about
$27 a gallon renewable fuels, but at the war theater, a gallon
of fuel might cost $300. If we had coal-to-liquids or
gasification in Fischer-Tropsch technologies, we might be able
to produce that fuel right there at the theater, and that would
reduce the cost of transporting it, which is another advantage
to the Defense Department.
I would also----
Mr. Griffith. Hang on, sir, before you go on, can you
explain that in a little bit more detail for all of us folks
and at home who are watching?
Mr. Bajura. Well, what we are doing----
Mr. Griffith. Why would it cost so much at the war theater
and what makes it advantageous to perhaps have that technology
in that theater?
Mr. Bajura. You want to ensure a security of supply, not
only getting it there but the quality of supply. If you bought
something elsewhere, would you know that it wasn't
contaminated, for example. So you want to ensure security. So
we take our own fuel to the theater. If we made our fuel there,
it would be cheaper. Using gasification Fischer-Tropsch, we
could produce it with materials that are there in that country.
Mr. Griffith. All right. Go ahead.
Mr. Bajura. I would also--one other comment to you, Section
526 is based upon an assumption of the amounting of greenhouse
gases emitted in 2005 when we set a baseline for petroleum
production. We are outmining the Department of Defense by
alternative fuels, say, from coal, but yet if we import fuel
from Venezuela, for example, petroleum, it doesn't have the
same greenhouse gas content. It is emitting more, but we are
allowing them to import the fuel but on our own industries to
make the fuel here.
Mr. Griffith. And you believe that with using the coal
gasification we can actually reduce the greenhouse gas in the
total process of that fuel, is that correct?
Mr. Bajura. I think in doing coal gasification, for
example, we have the ability to capture the CO2 there. If we
produce Fischer-Tropsch fuels, as I commented earlier, we use
biomass, we can sequester the carbon that is generated and as a
result, we have fewer emissions than with regular petroleum.
Mr. Griffith. OK. What role do you believe long-term
contracting authority for the Department of Defense could play
in the development of a robust alternative fuels industry?
Mr. Bajura. Long-term contracting is--it was proposed--was
designed to provide some guarantees for a company that builds a
plant. We are talking big bucks here if you are saying it is
$100,000 per daily barrel of output and you need 25,000 barrels
a day, you are talking billions of dollars. There is a lot of
risk in investing in a technology like that. We might say the
elements are known, but putting such a big plant together is
very costly. The price of oil is dynamic. I think it is
important for us to have the floor and ceiling for prices, and
as that legislation was proposed, we were even looking at ways
where the Federal Government would not have to pick up the cost
if it were a higher price--if the fuel production was cheaper
than on the market, it would be beneficial.
I think this is important that we ensure that development
of the technology, once it is developed and proven, then I
think industry will step in and do it.
Mr. Griffith. And so part of what you are saying is--and I
think I am correct in interpreting this--is that if we use that
research capability, then we put it into the field, if somebody
is going to invest the billions of dollars in putting something
into the field, it might need something longer than a 5-year
contract from the military to feel comfortable in putting that
money into the investment. Is that a correct statement?
Mr. Bajura. That is correct. That is why I want to do a
long-term contract, because you look at a coal plant and you
have got a 20-, 30-year repayment cost for your capital
contents. And we need that stability.
Mr. Griffith. And so 20 years is more rational than a 5-
year?
Mr. Bajura. Most definitely.
Mr. Griffith. All right. Thank you very much, and I believe
my time is up. I yield back.
Mr. Burgess. Gentleman yields back his time. I recognize
the gentleman from New York, Mr. Engel, 5 minutes for
questions, please.
Mr. Engel. Thank you very much, Mr. Chairman. I am very
happy that this hearing includes legislation that I have long
championed, the Open Fuel Standard Act, H.R. 1687. Every
President for the past 40 years has pledged to free ourselves
from the dangers of oil dependence, and you know, our
transportation sector is the reason why we are still dependent
on oil. Only 1 percent of U.S. electricity is generated from
oil, but virtually every car and truck and bus and train, ship
and plane manufactured and sold in America runs on oil, and for
the most part, they cannot run on anything less. It is by far
the biggest reason why we send $400 billion per year to hostile
nations and we know that money winds up funding terrorists in
their efforts to harm us.
What frustrates me in conversations about oil dependence
are usually dominated by calls to drill more or use less. Both
can be helpful, but neither is even close to sufficient.
Between 2000 to 2008, drilling increased by 66 percent, and yet
gas prices tripled. OPEC merely responded by decreasing its
supply, keeping the overall amount of oil in the market the
same. So I believe we need a game changing way to alter this
dynamic.
My colleague, John Shimkus, and I believe that the cheapest
way and most effective way to do this is to allow fuels to
compete in every new vehicle sold in the U.S., and that is why
we have worked together to write the Open Fuels Standard Act.
It has 28 sponsors in the House, 16 Democrats and 12
Republicans, and our bill would simply require new vehicles to
be able to operate on non-petroleum fuels, in addition to or
instead of petroleum-based fuels. Any kind of fuel would
qualify: natural gas, alcohol, hydrogen, biodiesel, plug-in
electric, fuel cell, anything other than just plain gasoline,
and we are simply looking to open the fuel market to
competition so that consumers can choose whichever fuel they
want at any given price.
Mr. McAdams, you mentioned and you talked about Brazil. I
travel to Brazil, and it has long frustrated me that in Brazil
fuel competition is a regular part of life. Not here, but in
Brazil. Drivers pull into a fueling station and they get to
choose which fuel they want to buy. Drivers make the choice,
not the government, not the oil companies, and as a result,
when global oil prices spiked in 2008, Brazilians simply
purchased more ethanol than gasoline and were largely
unaffected. But the American consumer cannot be as smart or as
shrewd as the Brazilian consumer, because our cars cannot run
on anything but oil, and that would change if we passed our
Open Fuels Standard Act.
And I want to just say before I ask my question, the United
States Energy Security Council, really smart people, former
Secretary of State George Schultz, former Secretaries of
Defense Bill Perry and Harold Brown, former Secretary of
Homeland Security Tom Ridge, former Chairman of the Federal
Reserve Alan Greenspan, former Director of the CIA Jim Woolsey,
they are all part of this and they stress that we need to break
oil's monopoly over our transportation sector by opening the
fuel market to competition from sources other than petroleum
and fully support Mr. Shimkus's and my bill.
So let me say, Mr. Petrowski, your testimony made
references to four bedrock points. One was the need for diverse
fuel sources, which I clearly support, and another was a
concern over externalities. Your written testimony provides
more detail in what you mean by that, but I just want to ask
you simply would you be willing to sit down with Mr. Shimkus
and myself to discuss how these externalities would be impacted
by the Open Fuel Standard?
Mr. Petrowski. Sure, I would love to. I would love to sit
down. As I stated in my written statement and oral statement,
we believe in diversity. I would caution, I would not exclude
petroleum. Again, we may be on the verge of seeing ethanol
spike for a short period of time this summer if we don't get
sufficient rain and relief in the Midwest. You do not want to
lock the industry into one fuel, whether it is ethanol or
petroleum. Flexibility and optionality is the key to survival.
Mr. Engel. I agree with you.
Mr. Breen, your testimony mentioned that the price for oil
was set by the global market and when the price of oil spikes,
it spikes for everyone. You mentioned that in '08 when the
price of oil went to $147 per barrel, truckers in the U.K. went
on strike over the high cost of fuel and that happened even
though the U.K. was self-sufficient, thanks to the oil it
produces in the North Sea. And the global price spikes impacted
them like everybody else. So contrary to popular belief, only 9
percent of U.S. oil supply comes from the Persian Gulf, yet the
U.S. economy is affected by spikes in oil prices when the
Persian Gulf destabilizes. So since '05, we have been producing
more and more oil while consuming less and less, so we
increased our production, decreased our demand, yet American
motorists paid more for fuel than any other year. Clearly
something is wrong in our approach. I would like--Mr. Breen, do
you agree?
Mr. Breen. I do. I think we have got to remember that this
is a globally traded commodity. Like many, many other globally
traded commodities, there are spikes and decreases in the
price, depending on what the global demand and the global
supply looks like. I think the key point is the point that you
made and the point that your bill makes, which I very much
endorse, which is that flexibility and optionality is, as Mr.
Petrowski said, are absolutely key. It is not that oil is not
incredibly important to our economy and unlikely to be so for
the foreseeable future, it is. It is that we need to have
choices. It is that we can't be blocked into a single--the
behavior of a single commodity that determines our national
destiny. That is the issue.
Mr. Engel. I couldn't put it better myself.
Thank you. Mr.----
Mr. Burgess. Gentleman's time has expired.
Mr. Engel. Oh, I am sorry. Thank you.
Mr. Burgess. The chair will recognize the gentleman from
West Virginia, Mr. McKinley, 5 minutes for questions.
Mr. McKinley. Thank you, Mr. Chairman.
Dr. Bajura, if I could focus back a little bit on some of
your remarks and some of your testimony and things that you had
submitted. There is--from the Energy Information Agency that
suggested that there are about 18 billion short tons of coal
recoverable assets in America. Is that--do you agree with that?
Mr. Bajura. I think that is a reasonable number, yes.
Mr. McKinley. And what would--so that we can relate to it,
at the current burn rate that we have in America, what would--
how many years would that provide us for service in this
country?
Mr. Bajura. We are currently consuming about 1.1 billion
tons a year of coal, so that would be 18 years.
Mr. McKinley. So we have--you say we have 18 years left of
coal? I don't think that is correct.
Mr. Bajura. I don't think that is right either.
Mr. McKinley. Thank you.
Mr. Bajura. I think we have like 250 years of coal.
Mr. McKinley. Thank you. Do your math and--but so do you
think the Federal policies are helping us or hurting us in the
coal production?
Mr. Bajura. I think we have coal at the resource that we
could continue to use. We generate much more electricity from
coal than we do from renewables. I think it would be worthwhile
for us to make more investments in coal----
Mr. McKinley. Well that is what I want--that is where I am
really headed towards, Doctor, is trying to get us over into
that--first identifying what we have and then how we can use it
so that we are not importing it.
But the--you are aware, perhaps, with the National Energy
Technology Laboratory in Morgantown, just nearby where you
work, also in Pittsburgh, that the President has thumped his
chest that he was good for all of the above and he was going to
help innovate--how to innovate, be creative, but yet, you are
aware he slashed the clean coal technology and the research
into alternative fuels there at the NETL by 41 percent. Are you
aware of that?
Mr. Bajura. Yes, I am, sir, and I had done some homework on
the recommendations for funding for a fossil energy program of
all of the five energy programs, nuclear, renewable, science,
and things of that sort. Coal has taken, by far, the biggest
hit, roughly say 33 percent in terms of requested funding and
allocated funding since the last 2 years. I think we do need to
use coal in the future. I think with technology we can answer
the concerns people have about carbon sequestration, taking
coal, putting the CO2 in the ground, making electricity. There
are no----
Mr. McKinley. I think some of the things you said are very
innovative, and I have had a chance to read your report that
you submitted last year.
But let us go back to how we are, as engineering and
scientists in America, how we are competing, what we are doing
compared to the global market with China and perhaps India as
well, with the CTO and SNG, what are we doing? Are they
outperforming us? What kind of investments are they putting
into coal-to-liquid?
Mr. Bajura. China is making investments in coal-to-liquid
technology. They don't have much as a petroleum-based resource,
and so they are making these investments, and they are doing
them with government support. They are taking very big steps
whereas we are taking smaller steps. They have no concerns
about demonstrating a technology that hasn't been extremely
well proven, because they are willing to put the money behind
it. We are not funding our programs well enough that we can do
demonstration programs. I think if we did demonstration
programs, we could also hasten this technology into our
marketplace. I am concerned that with the way the Chinese are
developing their technologies in advanced coal electricity
plants and coal-to-liquids, coal-to-chemicals plants, we may
wind up buying our technology from China if we don't make
investments here in this country to develop these technologies
ourselves.
Mr. McKinley. Do you subscribe to the fact that perhaps
with the fact that they are developing in such a rapid way in
the production of coal because they wrapped in at 3 billion
tons of coal production a year? Are they just ignoring the
environment, or do they have a different view on it than we do?
Are they going to be--could we anticipate they are going to
have bad weather conditions in the years ahead because they are
producing coal--burning coal?
Mr. Bajura. My observations about China is they are going
to come lately, so to speak, to the aspect of global climate
change. But what I have seen in terms of the technology and the
discussions I have had with the people from China, their
managers of their coal plants are very concerned about meeting
environmental standards. They are doing everything they can to
deploy new technologies to capture the criteria pollutants, and
they are making great strides in terms of doing carbon capture
and sequestration. For example, they built a large coal-to-
liquids plant that produces 25,000 barrels per day of liquid
fuels. They are capturing the CO2 that comes from that.
Roughly, that is like 3 million tons a year of CO2 and they are
planning to inject it underground. To actually doing that with
the plant, we are were not able to go forward with our plant,
the Mountaineer plant in West Virginia because we couldn't get
the financing to make it happen. While China might be late to
the game, I think they are aggressively pursuing not only
developing the technologies, producing the products, but they
are also taking advantage and doing what they can for the
environment.
Mr. McKinley. Unfortunately my time is expired, but thank
you very much for coming here today.
Mr. Burgess. The gentleman's time has expired. The chair
recognizes the gentleman from Massachusetts, Mr. Markey, for 5
minutes for questions.
Mr. Markey. Thank you, Mr. Chairman, very much.
This is a very important hearing, and because it focuses
upon what became a consensus after the first oil embargo, which
was that it was critical for the United States to not have
American produced oil be exported to foreign countries. And
that is an almost 40-year policy now, a consensus that we had
reached. And with few exceptions, that has been consistent with
American policy over the last 37 years, to keep American crude
oil in America, to supply fuel for Americans.
So Mr. Gerard, you were quoted last month as saying that
you support the lifting of restrictions on the exportation of
American crude oil and that that needs to be a serious
consideration, that we start increasingly exporting our crude
oil. My problem is that even with Americans paying an average
of $3.38 for a gallon of gasoline, that the large oil companies
want to send our resources to foreign countries. With American
men and women on the ground in the Middle East, fighting and
dying to protect oil supply lines, I don't think that it is
really good for the American Petroleum Institute to say that we
should be sending American crude oil abroad, otherwise, we
should just change the name of the institute to the World
Petroleum Institute, not the American Petroleum Institute,
because it is not about America anymore. Because I just don't
think that we are advancing American security, American
employment, and American economy if we are thinking about this
oil supply is anything other than something that should be used
here in the United States, given the vast amount of oil that we
still import into our country on a daily basis. Exporting oil
just doesn't make any sense. It actually goes counter to our
goal to reduce our total dependence upon imported oil.
Mr. Breen, do you think it is a good idea to export
American crude oil as long as there are American soldiers that
are dying to protect foreign oil overseas? Shouldn't we keep
our domestic resources right here at home so that fewer
Americans will have to give their lives so that we can put
gasoline into our cars and our trucks?
Mr. Breen. I think, Mr. Markey, the--my sort of central
point standard is that it is a global market and so when we
talk about American production, even if we are talking about
American exports, we have got to ask ourselves, are we going to
be able to produce enough to meet global demand, which is
skyrocketing? Again, you know, Chinese demand is supposed to go
up 80 percent in the next 2 decades, Indian demand 96 percent
in the next 2 decades. So I think it is highly unrealistic to
imagine that we are going to be able to produce enough to touch
that, especially in a global market where many of the dynamics
are dictated by OPEC in cartels that will just lower their own
production.
Mr. Markey. Well as you know, since President Bush left
office the amount of imported oil in the United States has
dropped from 57 percent down to 45 percent. My goal would be to
see it just keep going lower and lower, the percentage of oil
that we import. Do you think that would be a good goal for the
United States?
Mr. Breen. Absolutely.
Mr. Markey. You think exporting crude oil advances that
goal?
Mr. Breen. Probably not.
Mr. Markey. That is what I am saying. That is the goal that
I would have, to make sure that we don't see that occur,
especially since we are now at our highest level of production
in the United States in 18 years, highest level of production
of oil in 18 years right now, today, in the United States of
America. And that is quite an achievement for the Obama
administration. I mean, Obama really has embraced ``drill baby,
drill.'' I mean, he is just incredible. Eighteen-year high,
something the United States never achieved by the Bush
administration. In fact, it kept going down during the Bush
administration, so let us give this guy credit, all of us. He
deserves a lot of credit.
Mr. Gerard. Mr. Markey, can I comment on that?
Mr. Markey. About the exportation? I would like you to
comment on the exportation of crude oil, if you could.
Mr. Gerard. I am anxious to see which quotes you are
saying. I am not aware that I ever said that as it related to
crude oil.
But we have strongly opposed approaches like you have
advocated at others to get in the business of managing the
marketplace and denying exports, be it natural gas and----
Mr. Markey. If I may just interrupt you, you said it is a
serious consideration that as America's changing energy--call
for more supporters of domestic oil and gas production, and
possibly an eventual shift of U.S. energy export policy.
American Petroleum Institute President Jack Gerard told Roiters
in an interview. ``It is a serious consideration as we continue
to produce more and more in this country,'' Gerard said, at the
API's Washington, DC, office----
Mr. Gerard. Absolutely, it is a very serious consideration.
The very reason it is a serious consideration is due to modern
technologies, that is why we are driving down the amount of
imported oil in this country.
Mr. Markey. Right.
Mr. Gerard. There are two reasons. Number one, the
economy----
Mr. Markey. Well should we keep the oil here?
Mr. Gerard. Well, why don't we--let us produce our resource
here.
Mr. Markey. That is what I am saying. Should we--if we
produce the resource here, should we keep it here? That is the
question. Yes.
Mr. Gerard. We would love to work with you to expand the
development of U.S. oil production----
Mr. Markey. I am saying but if we produce it here, should
we keep it here?
Mr. Gerard. Absolutely, until we can produce enough to fill
our market and then allow the market to work on a global
basis----
Mr. Markey. So you don't think we should export crude oil
until we achieve that goal of filling our own market, is that
what you are saying?
Mr. Gerard. As you know, today we export less than 1
percent, and that is generally in a trader market. As you know,
that is the current public policy and has been for----
Mr. Markey. But should that be--should we continue the
policy of keeping the crude oil here----
Mr. Gerard. Yes, we should focus on adding to the supply to
get----
Mr. Markey. But should we keep it here if we do add to the
supply?
Mr. Gerard. The marketplace will dictate that and it----
Mr. Burgess. Chair would instruct that the gentleman's time
has expired. The witness has answered the question.
Mr. Gerard. I would be happy to come visit with you.
Mr. Markey. He has not answered the question.
Mr. Burgess. The chair recognizes the gentleman from
California, Mr. Bilbray, 5 minutes for questions, please.
Mr. Bilbray. Thank you, Mr. Chairman. Mr. Chairman, I just
want to clarify the history. There was a reference to the
development of the aircraft being a government-subsidized
endeavor. I think if you remember your history--well, the
partnership was you had one government-financed effort here on
the Potomac, and you had one private enterprise of two bicycle
makers in the Midwest. The fact is, Langley was highly
subsidized by the Federal Government and spent more time
worrying about getting his government subsidy than developing
the wind tunnels that could develop a successful aircraft,
where the bicycle makers were the ones who actually developed
it. So there is a perception that government involvement helps
to move technology along the times. History again and again--
and I can talk about environmental stuff--have proven that
government intervention and control actually can divert those
resources and the development of aircraft really is an example.
On the dome of the Capitol, you do not see in that relief
Langley's painting on the wall, you see the Wright Brothers
chasing the airplane. So I think that we have got to learn from
our mistakes.
Now, I would ask Mr. McAdams, do you believe that we should
be fuel neutral?
Mr. McAdams. Yes, sir.
Mr. Bilbray. OK. Do you believe that we should make sure
that our standards are fuel neutral?
Mr. McAdams. Yes, sir.
Mr. Bilbray. Now, if I can get 100 miles on one fuel with
this much, and 100 miles with this much, do you think we should
be giving our mandates and our benefits based on volume or
based on BTUs?
Mr. McAdams. Well, our association specifically when we
went into the RFS----
Mr. Bilbray. I want to know--don't go around. Should it be
based on how much energy or how much volume?
Mr. McAdams. We support energy density as a key component
of the Federal policy, and we did in the RFS too, and----
Mr. Bilbray. Excuse me. Last I checked, aren't we at 10
percent by volume?
Mr. McAdams. You are talking about ethanol. I am talking
about hydrocarbon based----
Mr. Bilbray. I am talking about across the board, do you
think that we should--our standards should always be based on
percentage of BTU rather than volume of the fuel itself?
Mr. McAdams. I think that is a novel policy in terms of
performance-based. Our association specifically supported
energy density as a component in the RFS----
Mr. Bilbray. OK. Do you believe that this should get the
same benefits as this if the same amount of energy is contained
in each?
Mr. McAdams. That is certainly a policy a lot of my members
would endorse.
Mr. Bilbray. But you can't--you wouldn't endorse it at this
time?
Mr. McAdams. Well, I don't know what you are talking about.
Are you talking about a tax policy, are you talking about RIN
credits?
Mr. Bilbray. Mandate 10 percent by volume is a pretty clear
definition. Now, if I put 10 percent of something that has only
70 percent of the energy in of something that has 100 percent.
Let us-- you know, we can get into it, but the fact is BTUs is
what the consumer--you want to give the consumer choice. When
they buy--fill up their tank, don't they have the right to know
that they are getting the same amount of mileage, quality,
performance out of what they are putting in the tank----
Mr. McAdams. I don't have a problem with that. Most of my
guys make 124,500 BTU molecule----
Mr. Bilbray. OK.
Mr. McAdams. That is identical to a molecule coming out of
a barrel of oil through a refinery.
Mr. Bilbray. OK, and when we get into our environment, per
emissions, we have been going to--don't you think it is a
little absurd that we continue to give a per gallon emission
standard rather than a per mile or per BTU? In other words, we
are back to this issue that when you have unequal fuel
potential, don't you think our support, our mandate, and our
environmental regulation should reflect the reality of how much
mileage you get out of that fuel, not just how much of the fuel
is there?
Mr. McAdams. I think you have a series of regulations
across the board that are incumbent regulations that need to be
looked at to recognize the new molecules that will come into
the market.
Mr. Bilbray. OK. I am just getting back to the fact that in
California--let us move over to in California we ran into a
situation with the liability issue, didn't we, Mr. Tanton?
Mr. Tanton. Yes, we did.
Mr. Bilbray. We actually had boat owners suing the oil
companies for putting ethanol into their fuel system, right?
Mr. Tanton. Correct, and I think those were misdirected.
They should have been aimed at the Air Resources Board and the
elected officials who mandated that ethanol.
Mr. Bilbray. Well, as a former member of the Air Resources
Board, I so agree with you. The question really comes down to
is that we got into that conflict, nobody is talking about
would you, Mr. Tanton, leave your lawn mower with E10, let
alone E15, with gasoline in it? Would you actually leave your
lawn mower without burning out all the fuel before you put it
away for the season?
Mr. Tanton. No, I would not, and I think we need to keep in
mind that people keep their lawn mowers longer than they keep
their cars.
Mr. Bilbray. Well, how much I use my lawn.
Mr. Chairman, I appreciate that. Can I ask for one thing?
This is a hearing but I would ask that we have a hearing about
the fact that we don't even talk about natural gas being the
alternative to traditional oil for the next 10 to 20 years that
consumers could have. And we totally--both sides ignore that
natural gas option, and I will say it again. In 1992, I drove a
natural gas car. It is compatible with the use of traditional
fuels, or renewable fuels, and it is the orphan child of energy
options out there, and it is the one thing that can break the
monopoly of oil companies of the solid oil companies where we
get into it. And I wish both sides of the aisle would finally
admit it, but we need to have a hearing separate on that issue,
because they have been left out in most of these hearings.
I yield back.
Mr. Shimkus [presiding]. And I think my colleague looks at
the Open Fuel Standard, and that would address some of the
concerns of being able to use and not let the market--let the
competition dictate the fuel.
So I would like to ask unanimous consent--and Mr. Cassidy
be recognized for 5 minutes. Before I give him that time, there
are votes called. It is a vote to adjourn. I am willing to miss
it. It is a stupid vote. So if we can get someone back from the
Minority, I will try to keep moving on. But Mr. Cassidy,
without objection, you are recognized for 5 minutes.
Mr. Cassidy. Thank you. First, for my colleague, Mr.
Bilbray, actually House--my bill, 1712, promotes the use of
natural gas as a transportation fuel, so I hope to see you as a
cosponsor.
Mr. Tanton, I really enjoyed your testimony. I always
figure that California is the cutting edge of Democratic
policy, and I see how poorly you all have done. I say, ``Well,
what a tremendous State, how you can screw up even
California?'' I also say I really like your attachment, your
excerpt from Prop 87: ``Energy security should come from
shifting to a system of manageable risks.'' That is a great
quote. Now Mr.----
Mr. Tanton. Feel free to use it.
Mr. Cassidy. I will. I will steal it and from henceforth
not attribute it.
Mr. Engel mentioned in the Open Fuel Standard bill, what is
your feeling--because you are little bit kind of annalistic
about the ability of government to be positive. On the other
hand, what do you think about the Open Fuel Standard bill?
Mr. Tanton. I think the Open Fuel Standard bill is a good
idea, but perhaps not implemented very well. I would be glad to
work with the authors to improve it. It is, in many ways,
identical to programs we have had in California over the past 4
decades. There is no consumer perspective. While it aims to
allow for competition on the fuel side, it does so by
denigrating competition on the vehicle side.
Mr. Cassidy. Now let me ask you, because there is a little
bit of a chicken and egg. If you don't create the potential to
use an Open Fuel Standard, then you can never have an Open Fuel
Standard.
Mr. Tanton. Certainly, but every one of the vehicles that
are called out in the Open Fuel Standard bill, have been or are
available today. I mean----
Mr. Cassidy. Now let me ask you----
Mr. Tanton. There was an earlier question about natural
gas.
Mr. Cassidy. Yes, let me go there.
Mr. Tanton. OK.
Mr. Cassidy. Again, I am not challenging, again, you and--
because of California's issues.
Mr. Tanton. OK.
Mr. Cassidy. Now in Idaho--I believe it is Idaho, they
actually have a disseminated way to distribute natural gas. A
utility has it and regular customer can go up and pump natural
gas.
Mr. Tanton. OK.
Mr. Cassidy. I am told they are shipping natural gas
vehicles from around the country to be resold in Idaho because
there is actually a market for them. If you will, the
infrastructure was there so now people purchase cars, so you
have to have one or the other lead the way and then the other
follows. It makes sense to me that you would at least--that
somehow you have to break ground and allow one to lead the way.
Mr. Tanton. OK.
Mr. Cassidy. Now so with that said, you agree to that it
sounds, but you would still take issue with the Open Fuel
Standard, what seems to me is just a way to break ground and
help it lead the way?
Mr. Tanton. I agree that a portfolio is important.
Achieving the portfolio needs to recognize that consumers have
diverse needs, diverse wants, have different risk perspectives.
What is in the best interest of my retirement portfolio may not
be in the best interest of Dr. Bajura's retirement portfolio.
Everybody's portfolio is different. I find that when government
subsidizes or mandates, which is, in effect, the same thing, a
particular technology, even if it a menu of technologies,
something goes awry.
Mr. Cassidy. OK, I think I have your point and I am running
short on time, so let me go to Mr. Gerard.
Mr. Tanton. I will try to make my answers shorter next
time.
Mr. Cassidy. OK. Mr. Gerard, I actually met with folks from
a major oil company regarding the use of methanol, because
obviously produced from natural gas, a way to domestically
supplement. We have the experience from California where E85
cars can run. I was told by one of their engineers--they are
very nice. They brought somebody in from their testing
facility--that EPA will not approve the use of the chemicals
required to make methanol immiscible in gasoline. So sure,
methanol itself is environmentally OK, but the chemicals used
to make it mixable or miscible with the gasoline is not. Is it
your understanding, this man's understanding, that EPA is a
major roadblock in using products such as E85?
Mr. Gerard. I would have to check on that specific case,
Congressman. I would be happy to do so, but clearly, EPA is
driving a lot of the energy policies I talked about earlier on
cellulosic mandates and others. There is a lot of discretion,
and that is one of the reasons we think the RFS needs to be
open so we can deal with some of that discretion so you, as
those elected officials, drive the policy and not the
regulators. But I will look at the specifics of that case. I
don't have an answer for you right now.
Mr. Cassidy. OK. Ms. Stadler, would you approve--would you
agree with the Open Fuel Standard?
Ms. Stadler. Right now we have not--the organization has
not taken a formal position on the Open Fuel Standard. We
firmly believe that we need to look at shifting investments to
getting sustainable, renewable fuels into the marketplace, but
specifically with respect to that piece of legislation we have
not taken a position.
Mr. Cassidy. I yield back. Thank you for your generosity,
Mr. Chairman.
Mr. Shimkus. You are more than welcome. We really thank the
panel. We really need to have more hearings like this. Of
course, I was bouncing between two, just to make sure the
debate is out there so we can ask these questions, hopefully
eventually get to some consensus, and as far as I am concerned,
we are all friends and allies here, even our friend from the
far right, as I am looking at Ms. Stadler, because of the
positive things she said about ethanol. So I was happy with
that.
So we will just keep working together. We do want energy
security. We want to decrease our reliance on imported crude
oil. There are a lot of options to go to, our own natural
resources and things. But the plan now is to dismiss the first
panel, and if my colleague is going to stay, we are going to
empanel the second panel and try to move through opening
statements while the other members come back from the vote.
Just an announcement while we are doing this, there is
going to be another series of votes at 1:30, so that is why we
are trying to expeditiously get through the second panel.
We would like to call the second panel in the hearing room
to order, and welcome you all for coming. You have sat through
a pretty extensive first panel, so that might encourage more
questions. Hopefully my colleagues come back. Obviously for
full disclosure, we are in a vote series so--but hopefully they
will get back in time to participate.
So on the second panel we have--and the way I like to
operate, I will introduce you all first and then we will go
from left to right and have your 5-minute opening statement.
And remember that your full testimony is submitted for the
record.
So joining us on the second panel is Mr. Gregory Dolan,
Executive Director, Americas/Europe Methanol Institute. We
welcome you. Next is Mr. Donald Althoff, Chief Executive
Officer, Flex Fuel U.S. I don't know if you were there for my
introductory comments, but we do appreciate the bouncing around
and being able to make it. Mr. Shane Karr, Vice President of
Federal Government Affairs, the Alliance of Automobile
Manufacturers; Mr. Thomas Hassenboehler, Vice President of
Policy Development and Legislative Affairs for America's
Natural Gas Alliance; and Ms. Mary Ann Wright, Vice President
of Global Technology Innovation, and the Chair of the Electric
Drive Transportation Association, Johnson Controls,
Incorporated. Again, your full statements are in the record.
You are going to be recognized each for 5 minutes, and we will
start with Mr. Dolan.

STATEMENTS OF GREGORY A. DOLAN, ACITNG CHIEF EXECUTIVE OFFICER,
METHANOL INSTITUTE; DON ALTHOFF, CHIEF EXECUTIVE OFFICER, FLEX
FUEL U.S.; SHANE KARR, VICE PRESIDENT, FEDERAL GOVERNMENT
AFFAIRS, ALLIANCE OF AUTOMOBILE MANUFACTURERS; TOM
HASSENBOEHLER, VICE PRESIDENT OF POLICY DEVELOPMENT AND
LEGISLATIVE AFFAIRS, AMERICA'S NATURAL GAS ALLIANCE; AND MARY
ANN WRIGHT, VICE PRESIDENT, GLOBAL TECHNOLOGY AND INNOVATION,
POWER SOLUTIONS DIVISION, JOHNSON CONTROLS, INC., AND CHAIR,
ELECTRIC DRIVE TRANSPORTATION ASSOCIATION

STATEMENT OF GREGORY A. DOLAN

Mr. Dolan. Thank you. It is a pleasure to be here today,
and thank you for inviting me to testify on behalf of the
Methanol Institute, representing methanol producers,
distributors, and related technology companies from around the
world. I am here today to talk about the global experience of
methanol fuels and offer some insight into how the U.S. can
once again regain its position as a leader in transportation
innovation.
In the late 1970s, when high gasoline prices driven by
instability in the Middle East led to long lines at the pump,
our country began to explore new alternatives in earnest. At
that time, the State of California looked at the range of
alternative fuels that can reduce the economic burden of oil,
and also provide environmental benefits for consumers.
California at that time determined that methanol offered the
best range of benefits. California launched the Nation's first
large scale alternative fuel demonstration program, placing
nearly 18,000 methanol-fueled vehicles on the roads and
establishing a network of 100 methanol fueling stations.
America was leading the way in transportation innovation with
the methanol experiment.
Methanol is the most basic form of alcohol, and is
naturally occurring in the environment. Methanol is readily
biodegradable and it is much more environmentally benign than
gasoline. Commercially, methanol can be made from anything that
is or ever was a plant. It can be made from natural gas and
coal. It can also be made from forest thinnings, biomass,
municipal solid waste, even CO2 itself. We have members at our
trade association around the globe that are actively producing
these second generation biofuels at the commercial scale today.
Worldwide, methanol demand exceeds 15 billion gallons per year,
while generating $35 billion in economic activity and 100,000
jobs.
California not only chose methanol for the wide
availability of different feedstocks to produce it, they also
selected methanol for its low cost and excellent performance.
With its high octane rating and efficient burning performance,
methanol is most often associated with racing fuels.
But the low cost of methanol is its most impressive
feature. For the past 5 years, the wholesale cost of methanol
has ranged from $1.05 a gallon to $1.15 per gallon. If you were
to sell methanol fuel as M85 at the pump today, adding
distribution, retail taxes and markup, plus 15 percent
gasoline, and accounting for the difference in energy content
of methanol, consumers would still pay just $3 a gallon at the
pump without any incentives, almost 40 cents a gallon cheaper
than the national average of gasoline, which today is $3.38 a
gallon.
Alcohol fuels also have the lowest cost fuel
infrastructure, with pumps costing just 20 to $60,000, and
because you can get significant margins from selling methanol
at the pump, there is room for investment for retail fueling
infrastructure.
California's experiment continued for a number of years,
but ultimately prices for gasoline were brought back down
towards historic norms and consumers and governments quickly
forgot about the stinging pains of high prices and continued
business as usual.
The question on everyone's mind as we gather here today is
ultimately, How do we implement meaningful, long-term change
that will have a significant impact on our dependence on
foreign oil, help reduce costs at the pump, and be a bridge to
the next generation of energy innovation? Other countries are
answering that question by taking on methanol. In China, a
methanol mix of about 8 percent of their transportation fuel
pool and they use domestic feedstocks to meet that demand. The
Chinese have buses, taxis, trucks, and passenger vehicles on
the road that are running on a wide range of methanol fuels.
China's powerful National Development Reform Commission
considers coal-based methanol to be a strategic transportation
fuel. Between 2005 and 2011, China increased its methanol
production capacity from 1.5 billion gallons a year to 15.5
billion gallons.
There are no technical hurdles to the use of methanol as an
alternative fuel. We know what materials to use in the cars. We
know how to make those cars run efficiently. The first flexible
fuel vehicles that Ford built ran on both ethanol and methanol.
Lotus Engineering has been building tri-fuel engines. We also
know that the cost to add a flex fuel capability to a new car
is just $150.
A recent study by MIT noted that methanol was the liquid
fuel most efficiently inexpensively produced from natural gas.
The U.S. is currently experiencing a boom in natural gas
production, and then is creating a resurgence in the domestic
methanol industry. We have seen--right now a plant is being
reopened in Beaumont, Texas, that had been mothballed for years
because of the lower natural gas costs. LyondellBassell has
announced it is reopening a plant in Texas; so is Celanese.
Methanex is moving a plant from Chile to Louisiana to take
advantage of the lower natural gas prices.
Now Congressman Shimkus and Congressman Engel have
introduced legislation would take the first step in our path
away from oil dependency. They have developed the Open Fuel
Standard Act, H.R. 1687. The legislation would require that an
increasing percentage of vehicles sold in the U.S. be capable
of running on alternative fuels and technologies, in addition
to or replacement of gasoline. This means that electric
vehicles, natural gas vehicles, fuel cell vehicles, biodiesel,
and of course, alcohol FFVs will all qualify under this
standard. The bill is about competition and economics. It is
not about dictating what alternatives should move forward. The
Open Fuel Standard Act would ensure that new vehicles on the
road are no longer dependent on oil-derived gasoline. By
embracing choices offered by the Open Fuel Standard Act,
Congress has a chance to take action that will help serve as a
bridge to new technologies and new solutions at no cost to the
Federal Government. The Open Fuel Standard Act is an all of the
above strategy for our passenger car fleet.
Thank you for your attention.
[The prepared statement of Mr. Dolan follows:]

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Mr. Shimkus. And thank you. Now Mr. Althoff, you are
recognized for 5 minutes.

STATEMENT OF DON ALTHOFF

Mr. Althoff. Thank you, Mr. Chairman, and thanks for
continuing to invite me back. We think this is an important
dialogue and we have lots to contribute.
Most people probably weren't aware, but actually today
there is an EPA-certified street legal E85 flex fuel conversion
kit on the market today. Flex Fuel U.S. LLC has developed the
first Federal EPA-certified product which legally converts
existing cars and light duty trucks to run on any combination
of ethanol and gasoline, up to E85. The conversion system is
low cost, it is easy to install, factory warranties are
maintained. We have had successful pilots in some of the most
demanding testing done on any vehicles in the country at DOE
and at the EPA.
While we are a new company, we have hundreds of these
vehicles converted. We have got millions of miles running. They
have delivered trouble-free and exceptional performance, and
with the average vehicle life lasting longer than 15 years, it
would take way too long to reach economies of scale if we only
relied on new vehicle technology to get us where we want to go.
So we see retrofitting as a bridge, a bridge that helps us
achieve our ultimate fuel solution faster. Existing retrofit
systems are cost effective and should be a serious
consideration today.
We support the Open Fuel Standard because the new
legislation would have a significant impact on what I believe
is the most critical area in building a sustainable, economic
alternate fuel marketplace, which is creating economies of
scale. For any alternate fuel approach to be economically
competitive against gasoline, a large percentage of the
vehicles on the road must be alternate fuel, the fuel supply
chain must be large, efficient, and competitive. In most
alternate fuel policy debates, the old ``chicken or the egg''
dilemma surfaces. If there were enough vehicles available, the
retailers would add fuel, or if the retailer would just add
fuel, the car companies would build more alternative vehicles.
This has been true for all the alternative technologies coming
forward. This legislation resolves this dilemma by creating a
large flex fuel fleet, or alternate fuel fleet in the
marketplace.
We also support the standard because the legislation can
create scale in the marketplace at very low cost, versus other
alternative fuels, that is, for flex fuel. The incremental cost
to produce alternate fuel vehicles is very low. Several
credible studies conclude that the incremental cost is less
than $100 a vehicle. Retrofitting existing vehicles with our
EPA-certified system can also be accomplished at a very low
price. With scale, the retrofit can be done for under $500 a
vehicle, and is available for tens of millions of vehicles on
the road today.
Another advantage, as the number of flex fuel vehicles on
the road grows, we will also see more competition to build
better flex fuel vehicles and to see more aggressive pricing at
the retail sites. These are subtle but important aspects.
Today, most flex fuel vehicles are built without an ethanol
sensor, which reduces the cost for the builder but has done--
was done so at the expense to performance. So when we think
that there is high demand for the product, that the product
will be engineered to a higher quality and a higher standard.
I would also like to emphasize that the economics work for
ethanol blends today. The payback on the investment to build or
convert a flex fuel vehicle could be as short as 1 year, in
some markets. This may surprise some people, but the facts bear
it out. In Chicago, the average spot price differential for E85
has averaged 22 percent less than gasoline for the last 4
years. It has been 20 percent lower in 2012, even when the
blender credit has been taken away. A properly designed flex
fuel vehicle should have a fuel economy loss of 15 to 20
percent. We did a major test in the city of Chicago on 26
police vehicles with millions of miles driven that had a fuel
economy loss of 18 percent. So in this example, you are saving
somewhere between 4 to 6 percent on your fuel costs every year
on every vehicle. So the economics work.
Now although we see a lot of advantages for it, we do
believe there are some areas where the legislation could be
enhanced, or new policies created. We think they are simple and
pragmatic, but they would enable us to achieve our goals in a
faster pace.
First, we believe that retrofitting existing vehicles is
critical for the overall program. As I said earlier, with the
average life of 15 years, it simply will take too long to get
there. The other thing that retrofitting provides is it allows
you to target where you convert. One of the interesting things
today is demand of vehicles tends to say where the flex fuel
vehicles end up. There are more flex fuel vehicles in
California and it has the fewest number of E85 pumps in the
country. So this method of allocating isn't very--doesn't
create economies of scale and make the system work.
The last piece that we would like to see is we believe that
there needs to be some incentives for marketing and promoting
the fuel. We believe that there is not strong public and
consumer perception today, but that is mostly based on
inaccurate data around the quality of the fuel, the fuel
economy that is out there, and the pricing for the product.
So we believe with those two simple enhancements, the fuel
can go even further to make a big difference in the market.
Thank you.
[The prepared statement of Mr. Althoff follows:]

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Mr. Shimkus. Thank you. Now the chair recognizes Mr. Karr
for 5 minutes.

STATEMENT OF SHANE KARR

Mr. Karr. Thank you, Mr. Chairman.
Mr. Shimkus. Sometimes they just have to be pulled closer.
That is the problem.
Mr. Karr. My name is Shane Karr, and I am representing the
Alliance of Automobile Manufacturers today. We are a trade
association of 12 light duty vehicle manufacturers, OEMs,
representing roughly 3/4 of the market, the new car market by
volume every year. I appreciate the opportunity to offer our
views on the challenges and opportunities with alternative
fuels.
I want to start by saying that auto makers have invested
$200 billion over the last decade in R&D on fuel efficiency and
other features. We are perennially back and forth with
pharmaceuticals for the largest R&D investors on an annual
basis.
Today, consumers have more than 270 models that get over 30
miles per gallon, and we are working on, as you all know, a
variety of additional technologies that will improve fuel
economy and reduce gasoline consumption.
But the fact is that none of us have a crystal ball. None
of my members have a crystal ball. And ultimately, consumers
over a long period of time with their vehicle purchase choices
are going to decide which technologies are the right ones for
them.
Given that fact, while we agree that alternative fuels are
an important component of an energy security and independence
strategy, we strongly believe that legislation mandating a
particular vehicle technology or fuel or set of fuels would be
a mistake. Vehicle production mandates--there are two problems
with vehicle production mandates. They divert resources that
could otherwise be used on other fuel-saving technologies, and
they reduce the incentive for manufacturers to innovate.
I do want to say that we agree with you, Mr. Shimkus and
Mr. Engel, that E85 FFVs are an important and worthwhile
technology. As you know, my guys make them. We sell a little
over a million a year. There are approaching 12 million on the
roads today. They are clearly a piece of the puzzle, but their
effectiveness in actually displacing gasoline consumption,
which I understand is the goal of the Open Fuel Standards Act,
has been relatively small thus far, and it--frankly, it is a
function of fuel price, availability, and consumers'
willingness to use the fuel.
We hear all kinds of different numbers about the cost to
manufacture FFVs, but--and everyone talks about a per car cost.
I would just remind folks that we are selling about hopefully
14 million vehicles in the U.S. this year, so even $100 a car
quickly gets you over $1 billion in costs to consumers for this
technology. The other thing that is particularly relevant to
this committee is to know that emission standards in
approximately 40 percent of the United States, California and
the States that follow California, are about to be increased,
and that increase in emissions standards is somewhat
problematic with FFV technology. It is not insurmountable, but
it is likely to make FFV technology more expensive.
The other important point to note is that the Open Fuel
Standard, as Mr. Dolan has highlighted, requires vehicles to
run on E85, which is ethanol, and M85, which is methanol. You
know, while we certainly have built vehicles that can run on
methanol in the past and we could do it again, the fact is
there are no production facilities in the U.S. making methanol
in commercial--you know, for transportation use in commercial
quantities right now. There are a number of other significant
issues that would have to be further studied and addressed if
we were going to go in that direction.
What we are open to are prospective policies that, you
know, reflect a comprehensive commitment to make new fuel
successful in the marketplace, and those are policies that
address production and distribution equally with vehicles and
consumer acceptance. There, you know, we are looking at the
timing and availability of new fuels coinciding with the
availability of vehicles that can run on them. This really is a
far preferable approach to introducing fuels and then trying to
retroactively fit them in the marketplace. Above all, we would
want the opportunity to build vehicles that deliver the best
fuel economy, performance, and most cost effective compliance
to improve the value proposition for our customers.
I will just close by saying, you know, it is worth
stressing again that competition is the best driver for
technology innovations. My guys are placing bets on a variety
of advanced technologies in alternative fuels. Ultimately,
consumers will have the final say in determining which
technologies and fuels will succeed or fail in the marketplace,
and that is how it should be.
[The prepared statement of Mr. Karr follows:]

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Mr. Shimkus. Thank you very much. Now I would like to
recognize Mr. Hassenboehler for 5 minutes.

STATEMENT OF TOM HASSENBOEHLER

Mr. Hassenboehler. Thank you, Mr. Shimkus, members of the
subcommittee. My name is Tom Hassenboehler, and I am here on
behalf of America's Natural Gas Alliance. ANGA is an
educational and advocacy organization dedicated to increasing
appreciation for the environmental, economic, and national
security benefits of North American natural gas. ANGA's 30
members include many leading North American independent natural
gas exploration and production companies.
As has been discussed with the advent of new technologies
and the advancement of shale gas production, the recoverable
natural gas resource base in the U.S. has increased
dramatically in recent years, and the U.S. has now surpassed
Russia as the world's top producer of natural gas. In addition,
crude oil and natural gas prices in the U.S. have diverged
since about 2009. The EIA projects this trend to continue and
the gap to widen through 2035. These developments present a
tremendous energy security and environmental opportunity for
the U.S. to increase its use of natural gas as a transportation
fuel.
ANGA works to promote a policy environment that increases
market-driven use of natural gas as a transportation fuel. We
support efforts to encourage a substantial transition of fleet
vehicle to natural gas through policies that encourage natural
gas vehicle conversions and original equipment manufacturer
production. ANGA also supports significant expansion of natural
gas fueling infrastructure along key transportation corridors
throughout North America.
These targeted efforts represent the most prudent and
efficient means to encourage the development of economies of
scale within this market, while decreasing emissions,
dramatically reducing exportation of domestic capital, and
advancing U.S. energy security. Similarly, ANGA is aware of the
current challenges in this economic climate and the
responsibility at all levels of government to be conservative
in its expenditure of public funds. ANGA's efforts emphasize
the importance to maintain parity among alternative
transportation fuel policies, as has been discussed.
One region where ANGA has had recent success is the Texas
Clean Transportation Triangle, or the CTT. The goal of the CTT
is to develop sufficient natural gas stations and initial fleet
users to transform heavy duty trucking in Texas. On July 15,
2011, Texas Governor Rick Perry signed into law Senate bill
385, a first of its kind legislation designed to help create a
sustainable network of natural gas refueling stations along the
interstate highways connecting Houston, San Antonio, Austin,
and Dallas/Ft. Worth. The legislation allocates funding from
the Texas Emissions Reduction Plan, as well as private sources,
to support the development of new stations and the deployment
of NGVs. Similar broad stakeholder efforts are now underway in
other parts of the country, especially in areas of shale gas
production like the Marcellus or Rocky Mountain regions.
Another example of NGV momentum is the bipartisan effort
underway by Oklahoma governor Mary Fallin and Colorado governor
John Hickenlooper. Last fall, they announced a high level
initiative to use NGVs in State fleets by aggregating vehicle
purchase numbers. Since then, the governors of 11 additional
States have signed the NGV MOU. The governors recently sent a
letter to 19 auto manufacturers with plants in the U.S.,
pushing for the increased production of more affordable
compressed natural gas vehicles. As an incentive, the governors
reaffirmed their commitment to buy CNG vehicles for their
respective State fleets.
While these efforts are encouraging, still less than .1
percent of domestic natural gas in 2010 fueled our Nation's
vehicles, and this remains true, despite the fact that there
are over 12 million NGVs worldwide today in other parts of the
world, and that number continues to grow. Only about 1 percent
of those 12 million vehicles are here in the U.S., despite our
resources.
At the Federal level, ANGA supports efforts to cerate a
level playing field among alternative fuel policies. We agree
that it takes all of the above alternative fuels to enhance our
energy security. However, current levels of support for NGVs
are not on par with other alternatives. We encourage the
committee to take a comprehensive technology and feedstock-
neutral approach when evaluating current levels of Federal
support for alternative fuels among all areas of the Federal
Government, including Executive Branch, Federal fleet
performance, Federal agency regulatory programs such as CAFE
and EPA greenhouse gas standards, existing mandates such as the
RFS, and research and development programs.
ANGA appreciates the efforts of Congressmen Shimkus and
Engel, and the other cosponsors of the Open Fuel Standard Act.
While we are encouraged by this discussion the legislation is
helping to create, we are concerned that this mandate on auto
makers will not create the level playing field for fuels that
is paramount to ANGA. We do look forward to continuing to work
with Mr. Shimkus and the committee on constructive policies
that do help to level the playing field and contribute to
greater energy security through the increased use of natural
gas.
Thank you.
[The prepared statement of Mr. Hassenboehler follows:]

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Mr. Shimkus. Thank you. Now we would like to ask Ms.
Wright, you are recognized for 5 minutes.

STATEMENT OF MARY ANN WRIGHT

Ms. Wright. Thank you. On behalf of the over 25,000 Johnson
Controls employees who live in work in your States, and the 115
Electric Drive Transportation Association members really
appreciate the opportunity to be here today. I am going to
focus on three things. One is just an overview of the
powertrains available in the marketplace. Number two is where
are we in the advanced battery space in the United States, and
number three, where do we go next in terms of establishing the
U.S. as a competitor in clean vehicle technology.
I would turn your attention to the slide that I put in your
deck to just give you an overview--and I think we are going to
put it up on the screen, to give you the spectrum of powertrain
technologies. I can do----
Mr. Shimkus. She is trying. She is getting there. She was
sleeping.
[The first slide appears after Ms. Wright's prepared
statement.]
Ms. Wright. The powertrain technologies, you go from the
left to the right, you see the internal combustion engine,
which we have had around for over 100 years, burns gasoline,
diesel, and some of the ethanol fuels that we have talked about
today, getting more and more efficient. Really interesting
space called the start/stop, and what this does is combine a
more robust battery with that efficient gas engine to deliver 5
to 20 percent fuel efficiency at a much more attractive value
equation. And then, of course, we have the hybrids like the
Prius, the plug-ins like the Volt, and the all electric
vehicles like the Leaf, that compliment this spectrum, and two
important things that you need to take away from this, one is
this spectrum of portfolio--powertrain portfolios gives
consumers a choice while delivering fuel efficiency, and number
two, all of them need batteries.
Which brings me to my next point, and that is where are we
in our advanced battery industry? If we think about staying
competitive with advanced vehicle technologies, the U.S. needs
to continue to develop its manufacturing and technology
capabilities in advanced batteries. We have laid the foundation
over the last couple of years, but we are really catching up to
the Pacific Rims, which have for decades been making
significant investments in R&D manufacturing and supply chain
development. As a result, they dominate the market for consumer
electronics and advanced batteries for vehicles.
In the fall of 2010, Johnson Controls opened the first high
volume domestic lithium ion battery manufacturing plant in
Holland, Michigan. This plant was established with the help of
the ARA matching grant, and I will tell you, this plant would
not have been built in the United States had it not been for
that program. By the end of this year, we will transfer the
production from our French manufacturing facility to the U.S.
to support our global customers. These batteries will be made
in Michigan and exported to Europe for assembly and
distribution throughout the world.
If we could turn to the next graphic, please?
[The second slide appears after Ms. Wright's prepared
statement.]
Johnson Controls is also investing hundreds of millions of
its own dollars to establish an advanced battery industry in
the United States. We have shored up many existing domestic
suppliers and have brought Pacific Rim suppliers to the U.S.,
who are providing Johnson Controls as well as other
manufacturers with equipment and materials. When we built the
manufacturing facility in Michigan, over 85 percent of the
equipment and the infrastructure was sourced through U.S.
companies, and the map on the screen shows the locations of our
suppliers, many of whom are in your States, for our lithium ion
battery industry, which is also creating additional U.S. jobs.
When we think about where we need to go from here, we need
to develop a viable and competitive domestic advanced vehicle
technology industry, which includes not only batteries, but
also electric motors, drives, controls, and software. It is
critical for the long-term health of the U.S. economy that our
national energy security and continue the position as source of
global technology leadership. The Electric Drive Transportation
Association, along with its membership, brings together the
entire value chain of electric drive to speed technology and
infrastructure advancements, and are helping to shape the
market through consumer education, public outreach, and
productive policy shaping.
Well, what role does the government play? It is critically
important of continued Federal support for research,
development, and deployment for these technologies. The
Department of Energy is successfully promoting innovation in
transportation through public-private partnerships, leveraging
private sector investments to accelerate technology
breakthroughs, manufacturing capability, and deployment of
electric vehicles and infrastructure. They are helping to fund
bioresearch and development activities to advance vehicle
electrification, bring down electric vehicle costs, and
increase range and fast charging capabilities.
The bottom line is that global competition in this industry
will continue to be incredibly intense, particularly from the
Pacific Rim, and we have to make sure that we are effectively
competing with long-term commitment, focused investments, and
continued public-private cooperation and collaboration across
the industry.
In conclusion, clean technology is about implementing
proven technologies that large number of consumers are willing
to purchase to improve fuel efficiency and reduce emissions
across many types of vehicles. Our collective challenge is
whether we make the right investments and decisions to
domestically provide the advanced technologies and systems for
these vehicles. As a country, we can make the choice to pursue
energy security and build a domestic industry for advanced
vehicle technology, or we can watch our current dependence for
energy resources shift from the Middle East to Asia.
Thank you.
[The prepared statement of Ms. Wright follows:]

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Mr. Shimkus. Thank you very much, and I thank the second
panel for your statements. I would now like to recognize myself
for 5 minutes.
You know--and Eliot is still here. I think the main focus
of the Open Fuels Standard was to be technology and feedstock
neutral. I mean, I think that is the whole focus. We can bring
in electric vehicles and hybrid operations, and you see that
quite a bit, what better option--and the start and stop option.
So you have a start and stop option with a diversified liquid
transportation fuel mix that is compatible in internal
combustion engines, but also is hybrid so that you can go to
electric. I mean, you talk about the overall savings and
changing the dynamics. I thin, Mr. Karr, that addresses your
concern on R&D in the future, but we are all in this together.
I think we all can benefit if we can move forward, and so my--I
have got a couple of questions I am going to ask, and then we
will see how the rest of the--my colleagues, and you can see
they are starting to come back, which is all good.
Mr. Dolan, what is the cost of methanol today, relative to
gasoline?
Mr. Dolan. Well, the wholesale cost of methanol today in
the Gulf Coast is about $1.08 a gallon. Now when you look at
methanol, it does have a lower energy content than gasoline so
it takes roughly 1.7 gallons of methanol as N85, which is 85
percent methanol and 15 percent gasoline, to give you the same
energy content or range as a gallon of gasoline. So even
accounting for the lower energy content, adding distribution
and retail markup and taxes, we are still looking at a pump
price to the consumer of about $3 a gallon. So you have got a
margin today of about 38 cents a gallon that could be used for
investment and infrastructure.
Mr. Shimkus. Would these come down if we moved on a public
policy and there was a possibility of the economies of scale?
Would you imagine that would happen?
Mr. Dolan. Yes, and we are already seeing some of that take
place today. Right now, there is about 280 million gallons of
methanol production in the U.S. Most of that production is used
for the chemical industry as a feedstock for hundreds of
products that touch our daily lives, but within the next 3
years, we are going to see that number increase to a billion
gallons.
Mr. Shimkus. Let me go quickly. What about consumer
acceptance issues, do you think that will be of concern?
Mr. Dolan. Well, when methanol was used in the past as N85
and a lot of fleet experiences, not only in California and
other parts of the world, there were surveys that were done by
fleet administrators. And they said uniformly that the methanol
fuel operated very well for their consumers and their members.
Mr. Shimkus. Thank you. Mr. Althoff, what is the typical
cost for you to convert a vehicle to flex fuel?
Mr. Althoff. Today it is about $800 a vehicle, but as we
grow in scale we think we can get it down to about $500.
Mr. Shimkus. And you made--and I was distracted when you
talked about--what did the EPA decide or announce today? In
your opening statement I think you talked something about the
EPA?
Mr. Althoff. Oh, I was saying that the technology is EPA
certified. The technology can be placed on any light--any car
or light truck that is street legal, maintains the warranty----
Mr. Shimkus. And for full disclosure, Mr. Engel has been
pushing me on the Open Fuel Standard, but you all came down and
drove, what is it, a Doge Hemi--a big Dodge Charger came down
and with the technology involved with the sensor read and the
oxygen content, and it was very impressive and not overly
engineered with it right on the engine.
Mr. Althoff. And today Chrysler doesn't make a flex fuel
Dodge, so this is the only way you can get--and we created this
model for law enforcement, so we have got Dodge Chargers that
in flex fuel service today in Illinois and Iowa.
Mr. Shimkus. And let me move to Mr. Karr. It is my
understanding dealerships will often charge the same amount for
a flex fuel vehicle as they do a standard model. Ford, for
example, has mass produced FFVs in the past. Given this
demonstrated ability in the past to produce and do so at
similar costs, what hurdles or technological barriers do you
believe are out there?
Mr. Karr. One thing I definitely want to make clear is
that, you know, from a technological standpoint we can do it
and we are doing it. And today, anybody who wants to buy a flex
fuel vehicle can buy a flex fuel vehicle.
Mr. Shimkus. But the point of the question is the
automobile manufacturers and retailers are selling vehicles
that the consumer may not even know are flex fuel. The
capability is there, and not even this prepared question, but
my new GMC Terrain, I knew it because I could recognize the
signal, but they didn't market it. When they sold the vehicle
then they went through you could use this. But our point is,
this is something we think we could do.
I guess if the deadlines in the Open Fuel Standard cannot
be met, what do you believe is a realistic deadline?
Mr. Karr. I think the question is less one about deadlines
than about, you know, where do you want to go?
Mr. Shimkus. We know where we want to go, so yes. Let me
move to--and I am burdening my colleagues. Let me move to Tom
for a second. Talk about liquid versus dry natural gas and
using liquid in internal combustion engines. Can you?
Mr. Hassenboehler. Well, I mean, there really are no
differences in dry natural gas in an internal combustion
engine. The same performance enhancements that can be done for
liquid fuels can be done for natural gas vehicles. In fact, in
the new CAFE regs that are currently pending, we make some of
those same arguments that fuel economy--it is all about
optimizing performance for the particular fuel, and if it is a
dedicated fuel, it can be optimized on a similar level.
Mr. Shimkus. Great, I appreciate it.
Now I would like to turn to my colleague from Illinois, Mr.
Rush, for 5 minutes.
Mr. Rush. To each of you, in regards to alternative fuels
and our ability to realistically meet new demands for the
alternative fuels safely, what is the status of our
infrastructure? Are we on track, and if not, what will it take
for us to be on track? Are we--as we move forward in
supplementing initial fuels--alternative fuels? Do each one of
you want to take a stab at it?
Mr. Dolan. Sure, I can jump in. On the methanol side, we
have had not only the experience in California where they had
100 fueling stations, but we now have a lot of experience in
China where they are using, by last count, about 2 billion
gallons of methanol was used in transportation fuel in fuel
dispensers selling M85, M100, and M15. So the technology is
there. We know how to do it. We know the materials to use in
those pumps that cost about $20,000 to $60,000 per pump for
methanol, similar to the cost for an ethanol fueling facility.
Mr. Althoff. On the ethanol side, it is growing, especially
in the Midwest, but is still not as robust as it needs to be.
The good news is a large piece of the supply chain is in good
shape, so most of the gasoline retailers can haul ethanol
around in their trucks, 100 percent compatible there. Retail
gas stations are relatively low cost to convert, typically the
traditional three tank retail outlet can add E85 or a blender
pump for $75,000. So I think what is missing is either the
support to put the infrastructure in place, or a way to build
scale on the vehicles so that there is demand for it.
Mr. Karr. Your question is a very good one, and I think the
important context is to remember we use about 130-odd billion
gallons of gasoline a year. So when you are talking about
making significant shifts to alternative fuels, you are talking
about very significant investments, both in resources and time.
It has taken us over 30 years to get to 10 percent with
ethanol, and so you know, we just need to go into that. It is
not that we can't do it, it is just that we need to go into
that with kind of eyes open understanding with the broader
context of, you know, the U.S.--the fuel pool and the motor
vehicle pool situation.
Mr. Hassenboehler. I would agree on the natural gas side.
While there is momentum, the challenges are still enormous, so
competing with over 120,000 gasoline stations. There are
currently 1,000 CNG stations in the U.S. with about 94 that are
currently planned all over the country, and we are trying to
develop corridors around that. And then on the LNG side, we
have got 53 LNG fueling stations with another 100 that are in
the planning stages as well.
Ms. Wright. And on the battery side, it is really beautiful
because we are very fuel agnostic. You mentioned start-stop,
which is complimentary to a gas or a diesel engine, or natural
gas or any other fuel that you want to build, but as you think
about higher levels of electrification where electricity is
your fuel, 80 percent of all the charging is done at home
today, and there is over 4,000 fueling infrastructures in place
now. The technology--this is an area where the technology is
really progressing quite quickly to help be able to recharge in
a timeframe that is acceptable to a customer, similar to what
they do in a gas station today.
Mr. Rush. So what I am seeing from each of you is that we
have a long way to go, except in the battery area. We have a
long way to go in terms of helping to bring the infrastructure
on par with what we think the future of alternative fuels is,
and should be. What do you suggest that we in Congress do in
relation to that?
Mr. Dolan. I think one solution is the Open Fuel Standard
Act. We have got the chicken and the egg conundrum here where
the retailers aren't going to be putting any infrastructure
until the vehicles are capable of using alternative fuel. The
Open Fuel Standard Act would break that by having the cars
capable of running on something other than gasoline, and then
you have the ability with the free market competition to
determine which fuels and which technologies can really make it
in the marketplace. We think methanol would offer some real
economic advantages to the consumer.
Mr. Althoff. Yes, I would double down on the Open Fuel
Standard as well, and also talk about some focus in where it
goes. So although the gasoline market is huge, and to take a
big piece of it into alternate fuels would be significant, 85
percent of the ethanol that the U.S. consumes is made in the
Midwest. I mean, that all can move around the U.S., you just
need to change the retail sites to be able to accommodate it.
And that is a relatively low cost, compared to other components
in it, and it also creates another revenue stream for the
retailers. So you know, if the focus were to start in the
Midwest where the fuel is abundantly available, the big
transportation pieces are in place, and we could get the
vehicles out there to create demand. So the retailers put it on
their lots and they price it competitively, I think the
competition will take over and it will grow itself.
Mr. Shimkus. The gentleman's time is getting close.
Mr. Rush. My time isn't up. Thank you.
Mr. Shimkus. Thank you. Now the chair recognizes the
gentleman from Texas, Mr. Olson, for 5 minutes.
Mr. Olson. I thank the chair and would like to welcome the
second panel. Thank you for your patience, your persistence
through the votes.
My initial question is going to be for you, Mr. Karr, and
you, Mr. Hassenboehler. I hope I pronounced that correctly,
sir. I apologize if I didn't. But you both in your testimony
seem concerned about government mandates, like the RFS
standards replacing market driven policies, and I assure you, I
share your concerns. I have an example of a market driven use
of natural gas for transportation which works. It is my home
school district, Clear Creek Independent School District there
in the--right around the NASA and the Johnson Space Center.
With a generous private sector donation from BP, they purchased
43 school buses powered by compressed natural gas, CNG. And to
add to this, they had their own refilling facility right there,
so the buses go out with the bus driver during the day, make
their runs, come back at night, park it up. Nobody is on-site
there. They get out, open the door, plug the thing in, shut it
off, go home, come up the next day, take it out and do it
again. What it has done for the school district, you can
imagine the price of natural gas now, they are saving $300,000
a year because they are converting compressed natural gas. That
is money that is not being spent on transportation for diesel
fuel or fossil fuels. That is money that is now being spent in
the classroom.
So there are private sector examples out there, and I just
want to talk about, you know, what are some of the lessons
learned from the RFS that we can use as we can look for ways to
encourage use of domestic natural gas for transportation, like
the Clear Creek Independent School District has done? Mr.
Hassenboehler, you first, sir.
Mr. Hassenboehler. Some of the lessons from the RFS, you
know, I think looking back from 2005 when natural gas supply
and demand was in a much different state than it is now, you
have the advent of shale gas production, hydraulic fracturing
which has really revolutionized the natural gas industry in
this country. You have got a much more robust industry that can
actually meet some of this new demand from transportation;
however, you have got existing mandates and existing policies
that favor one fuel over the other. They aren't technology
neutral. You know, what we would recommend is going through the
entire Federal Government, looking at all the different
pathways to--that the government incentivizes alternative fuel
use and just strike it when it says one over the other, and
just put alternative fuels. Let everyone compete and then if
you want to send a policy signal to get off foreign oil or use
more domestic resources, let that be the real driving signal,
not pushing one over the other.
Mr. Olson. Mr. Karr?
Mr. Karr. I think the primary lesson that we have learned
is that we have to pay attention to implementation. You know,
at the time I think we thought that large part of the renewable
fuel pool would go into the E10 and the national, and the rest
would be picked up in E85, and that obviously did not develop.
So now, even the first panel spent a lot of time talking about
the blend wall. I will tell you all, you know, we ran the
numbers really just this past week in preparation for this
hearing. If the flex fuel vehicles that are already on the road
today, if the owners of those vehicles were using E85 once out
of every three times that they go to the pump, so 1/3 of the
time that they go to the pump, we wouldn't be having a
conversation about the blend wall. With E10, not even with E15,
with E10.
So, you know, I don't necessarily know the answer, you
know, exactly why the E85 uptake hasn't been what we expected
in 2005 and '06 and '07. A lot of my guys expected it to be
more significant than it has been. But it is definitely an
issue that, you know, we have to look at going forward.
Mr. Olson. Thank you. One more question. Is our country
globally competitive in the manufacturing of natural gas
vehicles? Do you think other countries do a better job?
Anybody?
Mr. Hassenboehler. I would defer to the Auto Alliance
there, but certainly most of the auto manufacturers who operate
in the U.S. produce natural gas vehicles overseas. There are
some that have shown renewed interest in doing so going
forward, and so I would leave it at that and defer to the Auto
Alliance on anything else.
Mr. Karr. Yes, I think he is right, you know, most of the
production has been focused overseas, based on the markets. But
as others have indicated, you know, a lot of my guys are taking
a second look at the U.S. market on the basis of all the
natural gas here. I am certain the heavy duty guys are moving
quickly and the light duty guys are looking to expand their
offerings as well.
Mr. Olson. Thank you. That is my last question, but Clear
Creek Independent School District is a great example of private
sector money to utilize compressed natural gas. One thing to
mention, my home State of Texas now is building what they call
the energy corridor or natural gas corridor with--Houston to my
region where I live, up to San Antonio/Austin, up to Dallas/Ft.
Worth, building the CNG facility, so maybe if we can get some
long haul trucks going on there and eventually get passenger
vehicles and build it out. That is our future. Natural gas will
be the transportation fuel for our future.
Thanks for the time, and I yield back.
Mr. Shimkus. The gentleman yields back his time. The
gentleman will be proud to hear that I drove a natural gas big
Ram pickup just in the last 2 weeks ago here. If you missed
that opportunity, that was a great experienced produced. So we
are just for all of the above and for energy security.
Mr. Olson. If you drive a pickup truck, Mr. Chairman, you
are welcome in Texas.
Mr. Shimkus. It was a big one, so--it wasn't even a baby
one.
Chair now recognizes the other gentleman from Texas, Mr.
Green, for 5 minutes.
Mr. Green. Thank you, Mr. Chairman. Feedstocks for
alternative fuels are weather dependent and subject to weather
conditions. Just look at the current drought plaguing the
Midwest. The news reports nightly show how the price of corn is
going to go up and affect food prices and other industrial
feedstocks. That is why I am a huge supporter, like my
colleague and neighbor from Texas, of natural gas. Natural gas
vehicles are currently most widely used alternative fuels
incorporated in government fleets, and given the continued
discovery of natural gas plays around our country, I think we
seriously need to look at how we can support these vehicles.
Mr. Hassenboehler, I would like to ask you some questions.
Last summer Texas Governor Rick Perry signed into law the first
of its kind legislation designed to help create a sustainable
network of natural gas refueling stations along interstate
highways connecting Houston, San Antonio, Austin, and Dallas.
We may not be able to get our fast train from--in the Texas
triangle, but we might be able to get natural gas facilities on
those. Can you briefly describe the program?
Mr. Hassenboehler. Yes, I had it in my testimony but I can
just briefly say that it is----
Mr. Green. Repetition means that we learn.
Mr. Hassenboehler. It is based on--it is a sustainable
network of fueling stations that connects the four major
corridors. The legislation allocates funding from the Texas
Emissions Reduction Plan to support the development of new
stations and deployment of NGVs. It was a broad stakeholder
effort. It is a combination of State dollars, highway dollars,
congestion mitigation dollars, and private funding to really
take and transform, plan a few areas of real development of
real stations across--you know, near access for the highways.
And this is really designed to get the LNG and the CNG trucks
on the road, that will eventually lead to more medium duty and
light duty vehicles to penetrate as well.
So right now, we are working through it. They just had a
grant from--a grant program that actually--I believe there was
about 100 applicants that actually signed up for some of these
stations, and so we are going to wait and see how they develop,
but we are very optimistic and it is a very successful program
so far.
Mr. Green. Given the initial success so far of the program,
what would a greater effort like the Natural Gas Act mean for
expanding use of natural gas vehicles, not just in Texas but
around the country?
Mr. Hassenboehler. Well certainly if we had consistency
within Washington with the tax code generally on what
alternative fuels are going to be extended, which incentives
are going to be extended, that would allow for greater planning
for some of these end users to invest in their alternative
fuels. Similar efforts can be looked at recently in the highway
bill, the Congestion Air Mitigation Air Quality Program,
allocated funding towards natural gas and electric vehicle
charging infrastructure. Those are great ways to help
incentivize and move forward the program. So it is not just the
tax code or cost saving issues, there are other ways of doing
it besides costing money.
Mr. Green. Well, and it seems like--I know my colleague
from Illinois has a preponderance of E85 stations in his
district. I think I have one that is not in our district, but I
only know of one in the Houston area. So are we going to end up
being location emphasis, I guess, because obviously in the
Midwest you are going to see more corn-based ethanol with E85,
whereas in an oil and gas area you will see more options for
natural gas. Those stations that the State envisions along
those corridors, that is both for over-the-road trucking but
also for individual vehicles.
Mr. Hassenboehler. Yes, they are opening--they are
prioritizing public access stations and yes, especially in
areas of shale gas production and along the Marcellus, the
Rocky Mountain regions, they are doing similar initiatives to
really--it is a great way for the public to see the tangible
benefits of the increased natural gas production is it touches
everyone to be able to fuel their vehicle with natural gas.
Mr. Green. Well, in the air emissions I know that is why
some of the funding has come from the air reduction emissions
from natural gas vehicles. We are talking about reinventing the
wheel. I know in the 1960s I had an electrical contract with
three trucks who used CNG in his trucks and obviously his
maintenance went down and, you know, but he was doing it just
for the savings because at that time gas was pretty low, too,
as we are seeing now that with the discoveries in natural gas.
Can you discuss how current levels of Federal support for
natural vehicles are not on par with the other alternatives?
Mr. Hassenboehler. Well, the Nat Gas Act certainly brought
that debate up, you know, and that was focused on the tax code
and whether tax policy--currently there are still incentives
for some other alternatives over NGVs, but beyond that, you
have got programs--you got R&D programs, you have got CAFE
credits, you have got, you know--you can look at the Renewable
Fuel Standard as another example. Many of these programs--it
depends on how you define a mandate, depends on how you define
a program, but if one were to take a look at a technology
neutral, feedstock neutral approach across the Federal
Government's programs, both from the R&D side to the grant side
to the mandate side, the Clean Air Act side, I think you could
do better than what is currently existing now.
Mr. Green. One last question, I know I am over my time, Mr.
Chairman. What do you think the Open Fuel Standard mandate on
auto makers would not create a level playing field for natural
gas?
Mr. Hassenboehler. The main concern with that, I mean, ANGA
is not supporting mandates, but we--the main concern that we
share is with the Auto Alliance is the timeframes are not on
par. It is the lowest cost option for compliance would likely
lead to flex fuel and compliance, and that isn't something that
would cerate a level playing field, in our opinion.
Mr. Green. OK. Thank you, Mr. Chairman.
Mr. Shimkus. Thank you. Now the chair recognizes the
gentleman from New York, Mr. Engel, for 5 minutes.
Mr. Engel. Well thank you, Mr. Chairman.
First of all, let me say what a pleasure it has been
working with you on our Open Fuel Standards bill. I have been
pushing this for many, many years and I must say that I feel
progress is being made, and much of it is through your good
work, so I want to thank you for that.
You know, some are criticizing the Open Fuel Standard as a
mandate, when it reality it is just the opposite. It is opening
the market up to competition, in contrast, doing nothing to--is
equivalent to mandating a monopoly by a single fuel whose price
is set by a foreign cartel. OPEC and the car manufacturers have
essentially told us that we have no choice. We will drive on
oil. The object is to break that.
I must tell you, Mr. Karr, I am really infuriated over the
automobile manufacturers. When Democrats were in the Majority,
we passed a bill in this committee and on the floor that the
comprehensive bill--which we tried to put an Open Fuel Standard
in the bill and were fought tooth and nail. This was the so-
called Cap and Trade bill. Tooth and nail by the automobile
industry--I mean, given the way that we bailed out the
automobile industry, I would think that there should be a
little bit more of an open mind from the automobile industry
about the Open Fuel Standard. I think Mr. Shimkus's point about
how people are buying flex fuel cars, but it is not being
marketed as it. So people have it, they don't know that they
have it really. It hasn't been a factor in them buying it
because it is sort of the best kept secret in town.
You talked about estimates of what it would cost to
manufacture cars at the beginning with flex fuel cars.
Massachusetts Institute of Technology says $90 per car. Former
Director of the CIA Jim Woolsey cites General Motors as saying
it is $70 per car. One expert, Dr. Robert Zugren, who has run
extensive tests, has concluded it is 41 cents per car. In any
case, we are talking about $100 or less. I do not understand
why there is opposition, and quite frankly, I think the
automobile industry is being quite ungrateful in terms of that
they would have been gone if we didn't bail them out. I
supported the bailout. I voted for it. I was criticized for it,
because I think it is important to have a vibrant and strong
American automobile industry. But frankly, I do not understand
the opposition. If you worked with us, if you don't like the
dates, if you think it is mandating too much, I can tell you
Mr. Shimkus and I will adjust those dates. We are not looking
to penalize the automobile industry, but on the other hand, the
arguments that you are using and to some degree that I have
heard today from Mr. Hassenboehler, are arguments that anybody
uses to oppose any kind of change or anything that is new. If
you worked with us, we would work with you. We would modify our
bill. The goal here is not to penalize you guys. The goal here
is to make--give Americans choices, so the choices are bring
down cost and if the American consumer, you know, can do more.
We talk about, you know, China was mentioned before by Mr.
Dolan. I agree with Mr. Dolan's testimony, obviously. China is
taking notice. It is already blending 15 percent methanol in
its automotive fuel, and auto makers there, like Sherry Dealing
and Shanghai Maple, have all introduced vehicles that are
capable of running on methanol. And methanol is so much less
costly per mile than gasoline that illegal fuel blending is
rampant in China. The Chinese have buses, taxis, fleets, and
passenger vehicles on the road that are running on M15, M85,
and even M100 fuel. That is, of course, a concern for me.
So Mr. Karr, I would like you to answer this. I hope you
don't think I am attacking you personally. By the way, you have
a great name for your position. But I am just really
frustrated.
Mr. Karr. Sure. Let me start by saying that, you know, I
admire you and the place that you come from, and the fact that,
as you say, you have been on this for multiple Congresses, and
I know that your intentions are pure and I know that your goal
is to, again, reduce the dependence on oil. Fair. Let us take
that as a starting premise.
The question is if we mandate, you know, E85 and M85
capable vehicles, does that get you to your goal, and the
experience to date is no. Again, we don't even produce methanol
as a transportation fuel in the United States, so literally if
every vehicle today was capable of running on methanol and gas
prices shot to $10 a gallon, there is no methanol for people to
switch to.
Mr. Engel. But let me just tell you, that is like what came
first, the chicken or the egg? It is like on our side
sometimes, we argue against drilling in Alaska because we say
well, we are not going to get that oil for another 10 years, so
why should we even bother with that? Well, 10 years has passed.
If we had done it 10 years ago, we would have the oil. So those
arguments don't really cut water in my estimation.
Mr. Karr. The thing about--I mean, I think it was OK to
make the chicken and the egg argument, you know, 7 or 8 years
ago, but the fact is we do have States in the Midwest, like
Minnesota, where there are more than 400 E85 pumps. You know,
Mr. Shimkus can hit one any place in his district. We are still
seeing E85 usage at basically the equivalent of one tank full
per year. So again, I don't have all the answers. I don't know
necessarily why the E85 uptake hasn't been better, hasn't been
even what we as manufacturers projected it would be, but we are
kind of past the chicken and the egg argument----
Mr. Engel. But let me just ask you this. I know my time is
up. Hasn't hydrofracking changed the game here in the United
States? We are now producing more natural gas than we can use.
Mr. Karr. We talked to natural gas manufacturers.
Obviously, my guys want to know what to build and they want to
know what direction the market is going, and what we hear is
what you are hearing here and what you are seeing in
legislation in terms of the Nat Gas Act. The focus is all on
LNG and CNG, and not making natural gas into methanol. I don't
know why that is, necessarily, but--well, I suppose LNG and CNG
are significantly cheaper, even than methanol from natural
gas----
Mr. Engel. I will stop, I promise. MIT, there was a study
called ``The Future of Natural Gas,'' and it determined that
the most economic way to utilize natural gas in transportation
is to convert it to the liquid fuel methanol. We should stop
fighting it and we should go with the flow. It will be better
for the American consumer, and it will reduce a U.S. need for
foreign oil.
Mr. Shimkus. I want to thank my colleague for his passion,
and I am glad he is on my team. I will just segue real quick
and say on the retail locations, if you listen to SIGMA, their
folks, recertification of the--and liability issues are one of
the inhibiting reasons for that.
So I would like to turn to my colleague from California,
Mr. Bilbray, for 5 minutes.
Mr. Bilbray. Thank you, Mr. Chairman, and thank you for
giving the lead-in. I hope my colleague on the other side of
the aisle, both of them recognize that government
obstructionism is a major challenge to innovative technology.
The gentleman from New York was talking about methanol.
Methanol has been outlawed in my home State of California. It
was outlawed for environmental reasons. In fact, I have the
latest greenhouse gas regulation, AB 32, is going to outlaw
domestic ethanol from being brought into California. They are
going to import the ethanol from Brazil. So there is this
issue.
Mr. Karr, what is the largest automobile market in the
United States?
Mr. Karr. California is roughly 10 percent of the total
U.S. market.
Mr. Bilbray. OK. And my--I just want to point out that we
need to look at what we are doing for obstruction. I mean, and
this goes way back to a lot of stuff. I mean, California has
some of the most restrictive environmental regulations, has--
the air is twice as clean now as it was in the '60s with twice
the population. We also have the highest gas prices in America,
with the environmental regulation. But when someone sits here
and says that available domestic supply doesn't affect price,
let me remind everybody, we have--we import more in California
from overseas than any other State, and it is reflected in the
price of gasoline.
So I want to go back over to the natural gas issue. In '92,
I was driving a natural gas vehicle, and unlike electric, when
I ran out of natural gas I didn't have to stop and recharge, I
flipped a switch and went to gasoline. One of the government
barriers I saw at the time in the '90s was that the public
utilities commissions were not allowing the public utilities to
rate base the home dispensing pumps. And I bring this up, in
California, 85 percent of the homes are plumbed with natural
gas. People park their cars 3 feet from their water heater in
their garage, but we have not figured out how to allow the
consumer to fill up at home.
With that barrier that people couldn't lease the home
dispensing pump--what was the price of the home dispensing
pump--do you know what the price was around before the company
went under?
Mr. Hassenboehler. Three thousand, roughly.
Mr. Bilbray. Yes, so my frustration is while we spend half
a billion dollars subsidizing thin film photovoltaic
technology, we ignored the fact that we had a 3-foot gap that
not 20 years from now, 30 years from now, but could give the
consumer the choice today to either fill up at home while they
are sleeping with 100 miles range of natural gas, or go to the
gas station. But we have sort of taken natural gas and it has
been the orphan fuel out there, and that flexibility was a
Federal--I mean, a local or a State government regulatory
obstructionism. And oh God, I hear about the safety of it being
at home, and I always say we will burn a candle next to the
pump so it will be just like a water heater.
I just want to raise that issue that the government
barriers to the next--giving consumers choices is a major
problem, even in California where my scientists developed the
algae strains to produce true gasoline, true diesel, the State
employees who developed that technology have to leave
California to go into production, because they couldn't get the
permits under--for 7 to 10 years. That is the kind of urgency.
There is no urgency at us changing government regs to be able
to get into it.
The electric car issue, what percentage of future vehicles,
efficient electric vehicles do you think are going to be using
rare earth brushless motors?
Ms. Wright. So I want to be sure that I understand your
question, you want to know what percent----
Mr. Bilbray. What percentage do you think is--you know, are
we dependent on that cutting edge technology for efficiency?
Ms. Wright. Well, today's motors depend upon the rare earth
and for the magnetic motors. There is significant research
going into alternative materials to allow us to get away from
these rare earth----
Mr. Bilbray. Right, isn't it true that Toyota, because of
the embargo, is now thinking of going over to the traditional
AC, which doesn't have the efficiency, loses efficiency
substantially?
Ms. Wright. Yes, the AC brushless type of a motor.
Mr. Bilbray. Mr. Chairman, this is another issue where I
say that if we want to have wind generation, if we want to have
electric cars, then both sides of the aisle have got to be
willing to say we need to open up our public lands for mining
so this country has the resource to be able to do the
environmentally responsible thing. If there is one slogan that
I want this committee to know why I wanted to come back here,
as an environmental regulator, both sides have to understand
that environmental regulations are standing in the way of
environmental options, and we both should take the
responsibility. This is something that we can't point fingers
at the auto industry or the oil industry or the electric car
industry. We should look at what are we doing, more than just
writing checks and subsidizing, what are we doing to make our
regulatory system compatible with innovative technology, rather
than opposing it?
And I will leave you with one example. You had an
automobile that was designed to get 110 miles to 115 miles per
gallon. The Federal Government would not give them a grant or a
loan guarantee because it had three wheels, not four, and the
government regulation said it is not a car if it doesn't have
four, even though it carried two persons, two golf clubs, and
two surfboards--in California, which is important. I just hope
that all of us on both sides of the aisle look at this of what
isn't government doing to make--give the consumer the choice? I
don't blame the Federal Government--I mean, don't blame the
private sector for not giving the choices if we are not willing
to meet--you know, change the way we operate. That is why we
need the rare earth, we need to allow natural gas to be an
option. We need to be able to have the technologies being
available before we start mandating more. Maybe we should
mandate ourselves.
Ms. Wright. So you raise a really important point, and that
is not just on the rare earth, but it is just the materials we
are using for any of our advanced technologies. And I think
this is where the Department of Energy should be getting some
credit in terms of engaging the universities and national labs
and the private industry to come together to collaborate on
what are the scientific breakthroughs that we need in order to
ensure that we don't become dependent upon materials that are
in places where it may not be friendly to U.S. interest.
Mr. Bilbray. Mr. Chairman, let me point out, too, that
every study that we did at AR Resources Board show that it was
better to burn the natural gas in the car than it was to burn
it at the power plant, generate electricity, and transform--I
think even the electric car people understand that. And so we
really have missed not just an economic opportunity, but an
environmental one that if you are going to generate
electricity, to generate--to run the electric, you want a zero
emission generator and use natural gas at onsite, which is very
low technology, as the auto industry knows, but that home
dispensing is absolutely an essential part. I yield back.
Mr. Shimkus. Gentleman's time is expired. Previously we
asked unanimous consent for Mr. Cassidy to have questions in
the first panel. I ask that again. Hearing no objections, Mr.
Cassidy, you are recognized for 5 minutes.
Mr. Cassidy. I want to thank Mr. Engel to the oil state
caucus. Thank you all for being here. Great, great committee.
Let me just first promote a bill I have, 1712, which actually
seeks to promote the use of natural gas as a transportation
fuel. In this bill, we say that the independents who are
currently finding the natural gas will not lose their
independent tax status if they were to invest in the
infrastructure to use natural gas as a transportation fuel. It
is agnostic how they do that. It can be methanol, it can be
gas-to-liquids, it can be methanol. But nonetheless, I would
encourage you all to look at that, and if you support it, let
us know.
Mr. Karr, I am kind of a methanol guy. I do look at this,
and so--and there is actually a question of fact here. Frankly,
I am hearing different things from you than your fellow
panelists. So let me just kind of go through some stuff where I
think--first we heard that FFVs were being produced at the same
cost as non-flexible fuel vehicles, and yet you mentioned it
will cost $1 billion more, and yet Shimkus tells us that his
FFV cost no more than a non-FFV. So where is the discrepancy
between----
Mr. Karr. Not produced--and I don't think Mr. Shimkus
produced either, he said sold, which is true in a lot of cases.
Manufacturers are essentially eating the difference or dealers
are eating the difference. The--as I say, the numbers kind of
range--and the numbers are going to vary a little bit for very
large manufacturers who are going to be able to produce a
little more cheaply.
Mr. Cassidy. So economy of scale begins to work, so
theoretically it is $1 billion, but in reality that may come
down to either negligible or something the industry would find
acceptable?
Mr. Karr. You know, even if you are talking about $50 on a
per vehicle basis, at 15 million vehicles, you know, you get up
to----
Mr. Cassidy. I understand that, but it also helps you meet
your CAFE standards, so there are some benefits.
Let me ask you as well. You also mentioned--I think this is
a little disingenuous as a guy from Louisiana, there is no
production facilities in the U.S. making methanol for use as a
transportation fuel. I will say, by 2014 there will be a plant
in Louisiana making large scale methanol, and I have a friend
who actually takes petrochemical plants and moves them overseas
or back here, dependent upon the price of natural gas. I think
the market would quickly respond. I just mention that not as a
question, but an observation.
Mr. Karr. Out of curiosity, because I did see that
announcement, and you know, a lot of this is--Greg and I have
had multiple conversations about kind of where they are going,
and I just wasn't clear whether they--that company intends to
actually make methanol as a transportation fuel or whether they
were going to----
Mr. Cassidy. I think they are going to make it for the
market. Yes, they are going to make it for the market. I mean,
they are not owned by some vertically integrated plastic maker,
are they going to sell it to the highest bidder, but I also
know my friend Rotenberg, you give him a plant someplace else
to move back here, he will do so and all of a sudden our cheap
natural gas as an input is going to change that.
You mentioned the environmental issues regarding methanol.
What I read previously about methanol in California is that--
first of all, methanol is that if it gets into water, it
typically dissolves. It is CO, water is H20. It quickly
disperses and is not an environmental risk. Then you also
mentioned the formaldehyde, so I found a Web site, whatever it
is worth, that on the whole, methanol is actually a better,
cleaner burning fuel. Greenhouse gas is comparable to gasoline,
nitrogen oxide, usually comparable or less, particulate matter,
significantly less than diesel, formaldehyde, much higher but
still low. So although it is much higher, it is still low. And
then it goes on about these other things, which it is either
the same or a little bit less, relative to ground level ozone,
for example. Now do you feel as if the environmental hazards of
methanol would be so damning that we could not consider its
use, or do you have different facts than what this----
Mr. Karr. No, no, and to be clear, you know, I am not
necessarily making a representation about the environmental
benefits or not of methanol; rather, we have a practical
problem, which is that we have emission standards that we have
to certify to, and that is where the formaldehyde----
Mr. Cassidy. So then let me go to my next question----
Mr. Karr. Sure.
Mr. Cassidy [continuing]. Because this I kind of open up to
the panel. You may have heard my previous question to the
previous panel. I was told by a fellow from the major oil and
gas company exactly what you wrote in your testimony, Mr. Karr,
that the testing required to get this through EPA is so onerous
and long, hoops to jump, et cetera, that he was just like--it
was like existentialism, like he couldn't live until tomorrow
if he had to face, you know, having to go through EPA's hoops
on this issue, saying that they are still testing the E85 and
they have been doing that for 15 years.
Now I see a lot of heads nodding. Would we say we have met
the enemy and it is EPA, or what would we say about that? Mr.
Karr, start with you and then work down towards Mr. Dolan.
Mr. Karr. Mr. Althoff can speak kind from even more
personal experience. Again, we have made tremendous
environmental strides in terms of emissions from vehicles, and
that is a good thing. So I am, you know, not going to say that
that is a bad thing. The fact is that we as auto makers have to
certify our emissions systems to last for what would be the
effective life of the vehicle. It is a very long time and we
are, these days, certifying extremely low emissions levels. And
yes, that is a difficult thing and you do have to do it, you
know, with each different fuel.
Mr. Cassidy. And with each different engine, or can you say
this engine is only tweaked, so therefore, it is OK? Mr.
Althoff?
Mr. Althoff. So it can be a challenge. Our experience was
that they weren't very flexible, so we--the EPA's first flex
fuel vehicle they ever tested in their own labs was our
retrofit kit. They had never, at that point, tested any of the
major auto maker's vehicles. We ran it at an independent lab,
it ran great. We sent it to the EPA and it failed. We brought
it back, we worked on it. About 9 months later we figured out
the problem, and the problem was that they never made the fuel
before, so what they did was they took mead alcohol and mixed
it with 85 percent gasoline and ended up with an off-spec fuel
that didn't actually start very well. That was 9 months of
working with the EPA to get to that point.
I mean, I think that if they were more flexible and more
open to it, I think that would be a big advantage. One of the
studies that talked about $100 per vehicle--and now I am in Mr.
Karr's territory--said that $80 of it was for the EPA
certification cost, even though the auto industry self-
certifies to get the certificate from the EPA, they pay a fee
per car. And then the one study I read said that $80 out of the
100 was the EPA's fee to certify the car, even though they
never tested the car, never made it into their labs.
So I think that in this space, it would behoove them to
figure out a new pricing mechanism to really help with the cost
side of it.
Mr. Cassidy. Mr. Chairman, could I indulge and have Mr.
Dolan respond, and I will be through?
Mr. Dolan. I just wanted to suggest one other potential
environmental benefit of legislation like the Open Fuel
Standard Act. The OFS calls for the introduction, among other
technologies, vehicles that can operate in alcohols up to 85
percent. A recent paper published by Ford indicated that, you
know, in the U.S. we haven't increased our octane for our
transportation fuel in 30 years, and they suggested one way of
doing that is to going to higher levels or mid-levels of
alcohol, going from E10 to 20 or 30 percent alcohol. What that
will do is increase the octane of the fuel. Once you increase
the octane of the fuel, the auto makers can increase the
compression ratio of the vehicles, they can take greater
advantage of turbo charging, and significantly increase the
fuel economy of today's vehicles. That will not only help them
meet the CAFE requirements, but will also help introduce more
alcohol fuels in the marketplace to meet the RFS requirements
as well.
Mr. Cassidy. Thank you. You all have been a great panel. I
appreciate it. Thank you for your indulgence.
Mr. Shimkus. Thank you very much. We want to thank the
second panel. We also want to ask unanimous consent that three
letters that have already been viewed by the Minority, one from
Growth Energy, one from American Fuel and Petrochemical
Manufacturers, another one from Celanese, be submitted for the
record. Without objection, so ordered.
[The information follows:]

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Mr. Shimkus. Again, thank you very much. The hearing is
adjourned.
[Whereupon, at 2:07 p.m., the subcommittee was adjourned.]