Mr. Chairman and members of the Committee, it is an honor to be asked to testify before you today on this important subject.
The near trebling of oil prices in the last year has led to the price of gasoline and diesel fuel moving steeply upward to the neighborhood of $2 a gallon, to consumer and truck driver protests, and to increasingly hard times in rural America as the fuel costs of farming climb sharply at a time when commodity prices are badly depressed. In the meantime California and other states, and now EPA as well, have moved against MTBE being used as an oxygenate in reformulated gasoline due to its toxic effect on our water supplies, necessitating a search for a way we can preserve past gains in cleaner air while not sacrificing clean water.
Meanwhile Saddam Hussein sits and smiles as the price of his oil - as well as that of his neighbors' (which, he doubtless believes, he may again be able to seize) -- skyrockets, giving him more to spend on his military forces, including longer range ballistic missiles and weapons of mass destruction. He can be confident that within the next decade or two - the period during which most independent assessments of reserves suggest that world petroleum production will begin to decline - the world's sharply increasing demand for petroleum will increasingly have to be satisfied by him and his neighbors, to their great profit.
On another front, larger numbers of scientists are becoming concerned that humanity must do something to reduce the pollution caused by petroleum products and the emission of man-made greenhouse gases that contribute to global warming. There is great and understandable resistance in many countries to spending vast sums to re-tool the world's industrial infrastructure to deal with this distant but important problem, but it is worth noting that several major companies such as Daimler-Chrysler and Ford have substantially softened their critique of the global warming phenomenon.
In the developing world many nations ever more heavily into debt as the sharply climbing prices they must pay for imported oil substantially exceed what they can earn from their exports of low-priced agricultural commodities. Subsistence farmers and their families in many of these countries remain mired in terrible poverty.
Although all these serious problems may at first seem unconnected, Mr. Chairman, they in fact all have essentially the same cause - over-dependence by the rest of the world on petroleum-derived products that will increasingly have to come from the very troubled and unstable Middle East.
There are many dimensions to this problem. Some of the very promising solutions, for example, involve reprocessing all sorts of organic wastes (not only biomass but also, for example, used tires) into various forms of energy. In today's hearing we are focused on the problem created by the toxic nature of MTBE as a gasoline additive. But I want to stress that there is always a temptation in government to deal only with the problem immediately at hand - in today's Washington that would have to be consumer and trucker ire at high fuel prices and avoiding backsliding on clean air standards as we move away from MTBE. There are palliatives available - jawboning OPEC, drawing down the Strategic Petroleum Reserve, repealing the 4 cents/gallon gasoline tax, exploring for oil in wildlife areas, or increasing the production of starch-derived ethanol. But we have to take the long view with respect to solutions, and such short-term steps are not going to have a decisive effect even on the immediate and politically salient matters, much less the long-term problems set out above: dependence on the Middle East, greenhouse gas emissions and other environmental degradation, and rural poverty.
We must find solutions that can have a decisive impact on the underlying cause of the these problems and that, at the same time, require as little disruption as possible in people's lives and as little a drain as possible on our national resources. We need, in short, to maximize our independence from oil, increasingly Mid-East oil, while minimizing the need to make huge changes in our national infrastructure.
Why do I say that focusing on increasing the use of starch-derived ethanol does not meet this test of dealing with underlying causes? It is important to realize that developing a starch-derived ethanol industry has been a positive thing for the country. The subsidy which the government provides has made possible the birth of this industry, but as long as the ethanol industry is centered on using only the tiny share of the world's plant life that comprises starch and natural sugar, it will never grow to reach even toddler stage - it might grow from one per cent of the gasoline market to two per cent, but not much more. It will never even reach adolescence, much less adulthood. And, in such a case of perpetual infancy, the subsidies will also probably need to continue for many years, unless gasoline prices get very high indeed.
The small industry that the ethanol subsidy has brought into existence provides replacement, nationally, for around one per cent of the U.S. gasoline supply. It is mostly concentrated in the Mid-West. Ethanol reaches the consumer there in the form of E-10, or gasohol (10 per cent ethanol, 90 per cent gasoline). There has been substantial resistance in other parts of the country, however, to extensive use of this starch-derived ethanol for three reasons.
First, those who care about clean air (I take it, all of us) know that, although ethanol burns very cleanly and ten percent replacement of gasoline by ethanol in a fuel tank means less pollution out the tail pipe, that is not the only way pollutants get into the atmosphere. Because of the way most major producers blend gasoline, if the percentage of ethanol in a car's tank is below about 22%, there is a slightly higher vapor pressure in the tank than with gasoline alone, and thus there is a risk that, in the summertime in some climates, some of the pollutants that are in the gasoline are more likely to be carried out into the atmosphere by vaporization and will thus add to ozone pollution.
By blending gasoline differently (removing butane and pentane) as is done already by two oil companies, Getty and Tosco, this evaporation problem can be prevented and mixtures of gasoline and ethanol, from whatever source, can be made compatible with our having no backsliding on air quality. Another possibility, envisioned in Senator Daschle's bill, would be to permit areas where there are high ozone levels in the summer (and where oil companies choose not to remove butane and pentane) to forgo gasoline additives during those months by obtaining credits from areas with low ozone levels where ethanol can be used year-round, such as the Mid-West. And of course flexible fuel vehicles (of which there are hundreds of thousands on the road already) can burn fuel mixtures with over 22% ethanol and for these mixtures there is no vapor pressure problem.
A second source of opposition faced by starch-derived ethanol is less remediable. In this country corn provides almost all of the starch for ethanol and thus there is a certain amount of understandable corn-envy outside the Mid-West. -- a natural resistance to paying a federal subsidy for a product when the financial benefits of its use flow almost entirely to the states that produce large amounts of corn and to the small number of companies that process most of the corn into ethanol. The prospect of corn-derived ethanol's needing a subsidy into the indefinite future gives this objection added power.
Third, corn- or any other starch-derived ethanol requires petroleum products for cultivation and fertilization of the basic crop, and this has led some to emphasize that the amount of energy required to produce corn-derived ethanol makes it a poor bet as a substitute for gasoline. The New York Times has estimated that it takes about seven gallons of oil to produce eight gallons of corn-derived ethanol. It may reasonably be argued that use of no-till agricultural methods, and taking account of the fact that other corn-based products in addition to ethanol are typically produced in today's ethanol plants, would change these numbers by a gallon or so for the better. But such a recalculation would not be likely to counter the critics' central concern.
For ethanol made from cellulosic biomass, however -- essentially anything that grows or has grown, including much of urban waste - the latter two above objections don't exist.
Cellulosic biomass is essentially everywhere, not just in the Mid-West. If we can use it, something like 80-90 per cent of plant life and plant products, to make transportation fuel and other forms of energy we will not be restricted to using the tiny share of plant life represented by starch or naturally-occurring sugar. The promise of biomass as a source of energy has an analogy in the possibilities that were created when we began to be able to make integrated circuits out of sand instead of being restricted to making them out of metal and plastic.
Professor Lee Lynd of the Thayer Engineering School at Dartmouth has estimated that by using only a portion of the country's agricultural residues we could increase by about a factor of eight the amount of ethanol we produce today. Some agricultural residues, such as rice straw, must be removed from fields and disposed of in any case, and thus often have a negative cost (or "tipping fee"). For other agricultural wastes there is normally a low cost to collect and transport them to an ethanol plant. For these other wastes and for dedicated crops, such as switch grass, Professor Lynd estimates collection and transportation costs of around $40 a ton on average. Since a ton of cellulosic biomass contains nearly half the energy of a ton of petroleum, this means that the raw material for biomass ethanol -- even using dedicated crops or the more difficult-to-collect forms of residues - would be available at about the equivalent cost of oil when oil costs $10-13 per barrel. Thus, even considering the need for processing improvements for biomass-derived ethanol, one can look forward, after a transition period in which a subsidy would be needed, to an infinite and renewable supply of raw material for transportation fuels at costs quite competitive with oil if oil stays at or above today's prices.
The amount of energy required to produce biomass-derived ethanol is quite small, as is the amount of CO2 emitted in the life-cycle of growth, production and use. On such a life-cycle basis, the 1997 Five Laboratories Study by DOE indicated that a vehicle powered by biomass ethanol emits well under one per cent of the CO2 emitted by one powered by gasoline and about one per cent of the CO2 emitted by a battery-powered vehicle (when the electricity therefor is made by burning fossil fuels) or a vehicle powered by corn-derived ethanol (because of the petroleum used in fertilizing, cultivating, etc.).
So those who have built the corn-derived ethanol industry have made a good start in moving us toward a world in which carbohydrates can begin to replace hydrocarbons. But their efforts have been, to carry the computer analogy further, the equivalent of the commercialization of the main-frame: hugely important, but only the first step. Now the transportation fuel equivalent of the first silicon chip is about to start coming off the production lines, and those in today's ethanol business have to decide their course of action. Do they want to continue to try to be, over the long run, a dominant share of a tiny subsidized market? Or do they want to help lead the nation and the world into a major technological and commercial development - one with immense promise in a whole range of ways -- and become instead important participants in what can, in time, become a huge free market?
As this Committee considers Senator Daschle's bill, I hope it will keep these factors in mind, and give adequate encouragement to the transition to a future in which biomass is used on an increasing scale to produce transportation fuels and other energy. Such a development can only come about if it becomes apparent to all the potential participants in the ethanol market that the future is with biomass. In my judgment, this should suggest to the Congress that ethanol made from biomass should be encouraged at least twice as much by the relevant formulae in the bill as ethanol derived from starch. I would have preferred a performance-based standard that focused on petroleum replacement and renewability, but this bill is a good vehicle for an important purpose, and if there is sufficient long-term encouragement of biomass use for ethanol production, it seems to me that the most important national objective will be met.
Strong government encouragement of the use of biomass for ethanol production will, I believe, help the country move decisively in this new and promising direction. There have now been exciting developments of genetically engineered biocatalysts that can break biomass down into various sugars and ferment the latter to produce ethanol. I would point out that those who make ethanol today from corn are free to begin to use these technologies to move into producing biomass-derived ethanol as well as other products from biomass, such as cattle feed. The same is true of corn farmers as suppliers of the raw material for ethanol - they would be able to have new cash crops in addition to corn, namely switch grass, stover, and fiber of various sorts.
Mr. Chairman, major positive political changes such as a move toward biomass-derived ethanol, first as a replacement for MTBE and then increasingly as a replacement for gasoline, can occur only when people have the will to form new political coalitions to bring such steps about. I have spoken all over the country on this issue in the three and a half years since you first asked me to address renewable fuels and energy security before this committee: to farm groups, ethanol industry groups, environmental coalitions, organizations focused on American and Israeli security issues, and academic conferences. And of course last year I was honored to be your co-author for an article on the subject in Foreign Affairs: "The New Petroleum."
I believe that the time is right for a major coalition to come together behind the sharply increased use of biomass for ethanol production. It doesn't matter that many of the people who have reason to support such a shift haven't worked together in the past: that's what makes politics so fascinating in this ever-changing country. With my tongue only slightly in my cheek I would say that what we potentially have is a coalition between the cheap hawks (i.e. those interested in national security, but who want to fight no more wars in the Mid-East than absolutely necessary), the do-gooders (i.e. those interested in improving rural prosperity in developing countries), the farmers, and the tree-huggers. In one way or another, Mr. Chairman, that should sweep up nearly all of us.
(Mr. Woolsey practices law in Washington D.C. with the firm of Shea & Gardner. He has served in various positions in the federal government, most recently as Director of Central Intelligence 1993-95. He currently serves as Chairman of the Advisory Committee of the Clean Fuels Foundation and also serves on several corporate boards, including BC I Corporation; BCI and another company whom he represents, Changing World Technologies, Inc., are involved in the conversion of biomass and other organic materials into useful products, including ethanol.)