November 13, 1997
Hearing on Renewable Transportation Fuels
Testimony of R. James Woolsey
Mr. Chairman, members of the Committee, I was honored at the invitation to appear before you today to discuss the implications of new developments in biofuels technology for our security -- in many senses of the word -- and how we might most effectively make such technology serve our needs.
The Wall Street Journal published a piece that I wrote on this subject on October 24, and with your permission I would submit it as an attachment to this testimony. Today I will skip over most of the points made in the article except to state its central thesis: that genetic engineering has now made possible the development of new biocatalysts and microbes that are able to break down cellulosic biomass (grass, trees, aquatic vegetation, many organic wastes) to form ethyl alcohol (ethanol); that the ability to use biomass instead of feed grains as a feedstock for ethanol looks as if it makes possible, once the process is industrialized, further modest reductions in the cost of ethanol production that would be sufficient to make it directly competitive with gasoline as a transportation fuel; that since there are no substantial investments necessary in wholly new types of vehicles or fuel distribution systems to use ethanol to substitute for up to 85% of gasoline, it appears plausible to begin promptly a steady movement toward it and other biofuels and away from fossil fuels for transportation; and that this transition has such substantial advantages for virtually the entire world except for some oil-exporting states -- in the reduction of international tensions, reduction of global warming gases, some improvements in air quality and added income for, particularly, farmers world-wide -- that it should be encouraged by the U.S. government's policies and purchases.
Although my friend, Bill Holmberg, first introduced me to biofuels issues some fifteen years ago, Mr. Chairman, I only came to investigate the potentially enormous effects of the recent work on genetic engineering of biocatalysts and microbes over the last year. This process was initiated by your invitation to testify before this Committee in the fall of 1996. I became further convinced of the importance of spelling out these implications in some detail when I was invited early last summer to speak at a conference largely attended by experts from Harvard and M.I.T. on energy and security. One expert told the group confidently that there was nothing new in the field of alternative fuels because it had been exhaustively reviewed during Project Independence; another expert said with equal confidence that ethanol had the major disadvantage of being of much lower octane than gasoline. Many at the conference seemed to focus on pipeline routes as the key strategic question in the field of energy.
Well, Project Independence is now years out of date -- eons in the fast-moving world of genetic engineering. One good reason, well-known as long ago as the 1920's, to use ethanol in internal combustion engines is that it prevents knocking. And while oil pipelines and tanker routes are, today, of substantial strategic importance, surely an even more fundamental issue is whether we might be able to begin to make them, and indeed oil itself, considerably less important. If genetic engineering makes it possible to use biomass feedstocks to further reduce the cost of ethanol by a fraction of what it has already been reduced in the last decade, then we might look forward to a day when there would be a substantially different attitude toward the Mid-East's perpetual crises than there is now. If all that the leaders of Iraq or Iran could threaten were to occupy oil fields that supplied the world with a substance, gasoline, that was needed as a 15% additive to biofuels in temperate climates for cold-weather starting, such threats would barely make the back page of the newspaper's business section -- a rather substantial strategic change from today's world.
It would, of course, take a long time to get to that point, Mr. Chairman. But trends are important in matters of this kind and, if they are clear, they can influence behavior and the weight of events well before change fully takes place. Would a rogue nation in the Mid-East be likely to go to war in order to control additional capacity to produce a substance that was on a clear path toward becoming merely a 15% additive to biofuels, the principal transportation fuel? And not only is gradualism in these matters not a disadvantage, Mr. Chairman, there are important reasons why it is an advantage that a transition from gasoline and diesel oil to biofuels could be slow and steady. This would give the oil-based sector of the world's economy time to diversify and adjust -- time to amortize investments in oil refineries, for example.
I believe that the implications of such a transition to biofuels may be compared in a way to the process that was begun when, in the mid-1960's, we began to produce integrated electronics circuits from silicon. At first, most people who noticed the development at all probably saw only the prospect of somewhat cheaper electronics. But what had in fact begun was nothing less than the democratization of the information market. Silicon chips first cracked the foundations of companies built around main-frames, then of empires. The late Albert Wohlstetter only exaggerated slightly when he wrote in the 1980's, addressing the people of the Soviet Union, that "The Fax Will Make You Free." The democratization of the production of transportation fuel may be no less dramatic and positive in effect.
We should realize that there is a long history behind the use of ethyl alcohol as an automobile fuel. In the mid-1920's, when the new higher-compression-ratio automobile engines began to knock on the gasoline then available, there was a period of time when it appeared as if alcohol's anti-knock quality would lead to its being used in substantial amounts as a gasoline additive. Three things intervened: the discovery that very small amounts of tetraethyl lead would serve the same purpose (there was much less concern about lead's toxic qualities in the 1920's than developed in the 1970's when we "got the lead out"); concern about illegal consumption of alcohol (we were in the middle of prohibition); and concern about excessive demands being put on the feed grains markets, and a consequent escalation of food prices. Only the latter issue has been relevant in recent years, and it is addressed by the recent genetic engineering work that frees us from the need to use feed grains for alcohol production.
To move forward and give effect to the creativity that has now made it possible for cellulosic biomass to be used to produce ethanol as a transportation fuel, Mr. Chairman, I would suggest that it is time for the government to take steps to help initiate a biorefinery industry that can then be sustained by the marketplace and can take full advantage of this new technology.
The existing capacity in this country to produce and distribute around 1.5 billion gallons of ethanol annually has been created by the hard work of grain farmers and their colleagues in the ethanol industry. The cost of using feed grains in ethanol production is today partly offset by the co-production of enhanced animal feeds. But as commercial operations develop using cellulosic biomass as a feedstock, the cost of producing sugars for fermentation from biomass should, in time, drop below the cost of producing them by using feed grains. I see no incompatibility of interest here. It would seem likely to me that existing ethanol plants might at first be best situated to take advantage of this new technology by accommodating a side-stream of production using cellulosic biomass as feedstock. In time many production facilities that rely on biomass as a feedstock may turn out to be small and community-based -- producing in the range of thousands of barrels a day rather than tens of thousands. Should this scale of operation turn out to be efficient, such facilities might be especially important engines of economic development in developing countries.
Whether in this country or abroad, however, it seems to me particularly important that farmers may be able to look toward the availability of a cash crop grown on land that would otherwise lie fallow; indeed some biomass crops such as switchgrass replenish the soil. Other possible feedstocks for ethanol in the future could consist of agricultural residues such as stover or bagasse, or forest residues and other organic wastes. Even aquatic biomass may one day become a cost-effective feedstock.
I would point out, Mr. Chairman, that the advantages of biomass fuels are not limited to their use in the internal combustion engine. When Secretary of Energy Pena recently announced what he termed a breakthrough technology in automotive fuel cells, Mr. Jeffrey M. Bentley, Vice President of Arthur D. Little, Inc., the inventor of this new fuel cell concept, stated that, although a variety of liquid fuels could be used by the fuel cell to produce hydrogen, "ethanol provides higher efficiencies, fewer emissions and better performance than other fuel sources, including gasoline." He added that, "[w]here ethanol is available, it will be the fuel of choice by consumers."
Moreover, Shell International has recently set forth a scenario in which renewable fuel sources will expand to become the world's primary energy resource by the latter half of the next century. The use of biomass to generate electricity plays an important role in that scenario and in the report, "Scenarios of U.S. Carbon Reductions", prepared for DOE this past September by an Interlaboratory Working Group from five leading national laboratories. One major reason is that the CO2 produced by using fuels produced from biomass is CO2 that has been fixed very recently in the photosynthesis process. Thus no new CO2 is added to the atmosphere, contrary to the case when fossil fuels are burned, since the latter process releases CO2 that was fixed by plants millions of years ago, became oil, and would otherwise stay underground. As the Interlaboratory Report puts it, "[t]he most recent estimates indicate that ethanol derived from cellulosic feedstocks (as opposed to grain) produces less than 1% as much greenhouse gas emissions on a fuel cycle basis as conventional gasoline or diesel fuels." And in the production of electricity, the same report indicates "improvements in biomass power conversion as well as feedstock production and processing could reduce the cost of electricity from biomass to about 3-4 cents/kWh. This would make biomass power very economical in comparison to other mainstream electricity sources."
For transportation use, in spite of the cost reductions in ethanol produced from biomass that will come about due to the breakthroughs in genetic engineering, it will not be directly competitive with gasoline on an unsubsidized basis until oil reaches around $25 a barrel -- this is in part because of ethanol's lower energy content. For the reasons set out in the attached article from the Wall Street Journal, however, I believe that a substantial increase in demand for oil is likely. Thus, Mr. Chairman, the question in my mind comes down to this: In view of biomass-generated ethanol's substantial advantages in reducing air pollution, its very sharp advantages in reducing global warming gases, and the positive impact on international security and economics (for most of us) of moving away from reliance on a few oil exporting states in the Mid-East and toward reliance on the world's far more numerous and broadly distributed farmers, is the nation willing to pay something to begin to industrialize the process of producing ethanol from biomass even before such an oil price increase occurs?
I believe that the chance of seeing $25-a-barrel oil is quite high. But even if this should not come to pass, in my view the environmental, global warming, international security and economic effects of moving toward ethanol and away from gasoline would alone justify the relatively modest cost of hedging against oil dependence. The cost is relatively modest because, unlike many other energy initiatives, very little investment in infrastructure is needed for this undertaking, either for new methods of fuel distribution or for vehicles of radically new design. I believe that the nation, indeed the world, could reasonably regard the cost of encouraging the industrialization of this production process as an insurance premium that in time will reduce the risks of both international conflict over energy, especially in the Mid-East, and global warming -- and will enhance air quality in the bargain.
Let me suggest, Mr. Chairman, how the government might take some positive steps toward this end. If we take a leaf from the book of the Defense Department's very successful implementation of the Goldwater-Nichols Act and the concept of jointness, so praised by General Shalikashvili recently upon his retirement, I think we might get some useful hints. Many parts of the federal government -- USDA, DOE, EPA, the TVA, and several national laboratories -- have much to contribute to this effort. But I confess that my impression of the current situation from an outside perspective is very much like that of some aspects of the Grenada operation in 1983, prior to most of the recent DoD reforms. I'm speaking particularly of the U.S. Army officer in Grenada who couldn't communicate directly with the Navy ship that he could see offshore, and so was reduced to using his calling card in a Grenada phone booth to call Norfolk and have his message relayed. In short, we need not only a clear mission to work toward, but a way to get the components of the executive branch to work together.
I would suggest the following.
This Committee and other interested government officials might first consult on a concrete set of objectives. For purposes of discussion, let's say that those who take part in this process determine that a reasonable goal for commercialization of the new technology might be the production of a few tens of millions of gallons of biofuels from cellulosic biomass by the year 2000 and a few billion gallons a year therefrom by 2005.
One would then need a mechanism to ensure that government policies contributed steadily toward both production and efficient use. One possibility would be to give the responsibility to a single Cabinet Department, such as the Department of Energy or the Department of Agriculture. The problem is that several departments' and agencies' responsibilities would be involved in any such effort, and it is not uncommon for one cabinet department or agency to give little attention to the objectives of another. For example, if a policy were set forth that the entire government should, wherever possible, purchase the sort of flexible fuel vehicles now on the market and use increasingly large shares of ethanol in them, someone would need to ensure that EPA does not abandon the effort to encourage the production of such vehicles and that the parts of the government which purchase large numbers of vehicles, such as DoD, give this objective a high priority wherever possible. This might suggest the wisdom of instead assembling a small team from the best people at each agency and laboratory, giving it a strong Director, and locating it somewhere in the Executive Office of the President. Another approach would be to designate a lead agency and to use an executive order to put some teeth in that agency's authority. However it is done, only strong leadership that can extend, on at least a few issues, across the entire government would be capable of harmonizing the policy, resource allocation, and procurement decisions that could make such an evolution a reality.
But, Mr. Chairman, nothing in the world of public policy is perfect and free of cost. That is certainly true of the course I have suggested as well. Let me close by addressing three often-stated objections to such an effort by the government.
To those who say that action by the government such as I have described is unwise because it would involve the government's picking winners, and that only the market can do that, I would say the following: If the government spends a few tens of millions of dollars helping commercialize a production process that later turns out to be unnecessary -- because permanent peace breaks out in the Mid-East, because cold fusion provides us all with limitless energy, because global warming fears turn out to be totally unfounded, or for any other reason -- then it would turn out that we would have paid a modest insurance premium to cover a contingency that did not materialize. Governments have done worse things.
To those who say that if we burn a fuel mixture that is 85% ethanol we will need about 25% larger gasoline tanks in cars to get the same mileage on a full tank, that this may lead to a demand for environmentally undesirable larger cars (and that there are better ways to combat air pollution than burning ethanol in internal combustion engines in any case), I would say: the effect of the gap in energy content is likely to be mitigated over time, but the main point is that smaller cars and better mileage per gallon are chiefly desirable as a way of dealing with problems caused by fossil fuels. Isn't the larger goal, making a decisive move away from such fuels, worth at least as much support in the interest of the environment as, say, recycling? Nothing in what I have suggested would hinder other efforts to improve air quality, e.g. developing fuel-cell-powered cars, and for some recent breakthroughs in automotive fuel cells, ethanol would be the fuel of choice in any case.
To those who say that we should not damage economic growth in dealing with concerns about the environment, global warming, and dependence on the Mid East, I would say: Fine. Don't. That is a good reason for society to spend only the modest amount required to begin commercializing the production of biofuels from biomass rather than the vast amounts required for the infrastructure changes needed to implement almost all other approaches to these issues. In the case of biofuel production from biomass the market will do most of what needs to be done. But I would also suggest that the economic fruits of supplying the world's transportation fuel would be far more broadly distributed among nations and among individuals if those who work the land began to replace, as fuel producers, the owners of oil resources in a few oil-exporting states. By any reasonable measure such an evolution should be regarded as economically positive.
Thank you, Mr. Chairman, for the opportunity to testify today. If it would be helpful, I would be pleased to submit some additional and more detailed suggestions on a few of these points within the next two weeks or so.