Biofuel Programs and Biofuel Infrastructure

U.S. Senate Committee on Energy and Natural Resources:

“Thank you all for coming today to discuss biofuels, and biofuel infrastructure issues. It is important that we consider this issue now for two main reasons.

“First, unrest in the Middle East and the associated high oil prices are a daily reminder of the cost of our reliance on foreign oil. Libya’s oil production is shut in for the indefinite future, and oil prices might well remain over $100 per barrel for some period. These high oil prices, and the resulting high gasoline prices, endanger our national and global economic recovery. It makes sense to make sure we’re doing all we can to make our economy less vulnerable to dramatic changes in oil prices.

“In my view, the key to making our economy less vulnerable to oil price increases is to use less oil. Renewable biofuels are the best near-term option for replacing oil in the transportation sector. Increased use of biofuels, combined with fuel efficiency gains and increased domestic oil production, have together reversed years of increasing dependence on imported oil, and have actually lowered our petroleum imports. According to the Energy Information Administration, U.S. dependence on imported oil peaked in 2005. I think we can all agree that we should keep moving in the direction of reducing our dependence on imported oil.

“Second, even as we have a renewed sense of urgency to shift away from reliance on oil, renewable fuels are facing financing and infrastructure constraints that could prevent them from reaching their full production potential. The financing constraints are shared by many clean energy technologies and are not limited to renewable fuels. Sen. Murkowski and I authored legislation in the last Congress to address those policy challenges through the creation of a Clean Energy Deployment Administration. I hope the Committee can focus again on that policy proposal in the near future.

“The infrastructure issues, however, are specific to the renewable fuels industry. We’ve maxed out our capacity to absorb ethanol into our gasoline pool. This is true of traditional corn-based ethanol, but also true of emerging cellulosic ethanol – which is the advanced biofuel that is expected to be the first to enter the marketplace. Cellulosic ethanol is made from woody biomass, waste materials and grasses, and the inedible parts of agricultural crops; cellulosic ethanol does not compete with the food supply. It also improves the environmental footprint of our transportation sector by a much wider margin than corn-based ethanol. With the market for ethanol saturated by corn-based ethanol, there is now no market for new gallons of cellulosic ethanol to fill. We have reached what is called the ‘blend wall.’

“We have three broad options for continuing to replace oil consumption with renewable fuel consumption, and staying on track to satisfy the requirements of the 2007 Renewable Fuel Standard.

· The first would be to increase the market for high level ethanol blends, of 85 percent ethanol and 15 percent gasoline. That’s ‘E85.’

· The second would be to use ethanol in mid-level blends, which are higher than the current 10 or even 15 percent ethanol, but still significantly less than 85 percent ethanol.

· The third would be to move forward with renewable fuels other than ethanol.

“Sens. Harkin, Johnson, Franken and Klobuchar have helped to initiate our discussions on this topic with the introduction of S. 187, the Biofuels Market Expansion Act of 2011. S. 187 chooses the first option that I outlined – maximizing the market penetration of E85, through a mandate for cars and pumps that are compatible with E85. While I understand the motivation to maximize our infrastructure’s compatibility with ethanol, I am concerned that the necessary infrastructure build-out associated with this approach might prove daunting, and ultimately risks creating stranded assets that are not fully utilized going forward.

“I’m concerned about over-shooting the mark on maximizing E85 infrastructure is because I am hopeful that infrastructure-compatible “drop-in” fuels – such as algae-based biocrude or biobutanol — will emerge to fill much of our renewable fuel requirements in the future. For the medium and long term, I believe that fuels that can be dropped into our existing infrastructure are the best fit for the country. I note that my home state of New Mexico has great potential to be a major producer of advanced, infrastructure-compatible fuels.

“But I’m not suggesting that we can simply put our renewable fuels policy on hold while we wait for these drop-in fuels to come to market. As best we can tell right now, ethanol from cellulose is likely to be the next renewable fuel to enter the marketplace. I note that the overwhelming majority of the grants and loan guarantees made by the Department of Energy and the Department of Agriculture have been for cellulosic ethanol. It seems to make sense that we would be working to ensure that there is a market for cellulosic ethanol.

“It is appropriate to explore a middle ground approach to this infrastructure issue. If ethanol can fuel more than 10 percent of our transportation needs in the near term, then we should explore a path toward enabling it to do so. However, we should not go so far in locking our infrastructure into ethanol as the renewable fuel of choice that we prevent different, and perhaps even better, renewable fuels from coming to market in the future.

“There’s obviously a balancing act. But we are just beginning to realize the benefits that come from diversifying our transportation fuel away from oil. I think it makes sense to consider a range of options that keep us on this path toward increased energy, environmental, and economic security.”