Peak Everything, Overshoot, & Collapse

House 112–159. July 10, 2012. The American energy initiative part 23: A focus on Alternative Fuels and vehicles. House of Representatives.

[ Excerpts from this 210 page transcript follow ]

MIKE BREEN, Vice President of the Truman National Security Project.   I am 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. Our modern military cannot operate without access to vast quantities of oil. This lack of alternatives means that oil has ceased to be a mere commodity. Oil is a vital strategic commodity, a substance without which our national security and prosperity cannot be sustained.

Until and unless we develop alternatives, the United States has no choice but to do whatever it takes in order to obtain a sufficient supply of oil.

We share that sad and dangerous predicament with virtually every other nation on earth.

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. 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.

Small wonder that Secretary of the Navy Ray Mabus recently called the Navy’s reliance on oil a ‘‘strategic vulnerability.’’

Our near-total dependence on oil as a fuel has eclipsed petroleum’s other contributions, threatening our prosperity and security.

Recent technological advancements such as horizontal drilling and advanced hydraulic fracturing promise to increase domestic production, allowing us to reach supplies of oil that were until recently prohibitively remote or impossible to obtain. These advances have led some to claim that the United States is suddenly capable of producing enough oil domestically to meet our needs, and that this will solve our oil-related economic and national security problems, eliminating the need to develop alternatives.

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, especially for any appreciable length of time. The US consumes over 20% of the world’s oil, but has about 3% of the world’s reserves. The American economy consumes 18.8 million barrels of petroleum per day, while producing about 5.6 million barrels of crude per day. Simply put, we cannot drill our way out this problem.

Truman National Security Project. 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. For every $5 rise in the price of a barrel of crude oil, Putin’s Russia receives more than $18 billion annually, Chavez’s Venezuela an additional $4.9 billion annually, and Ahmadinejad’s Iran an additional $7.9 billion annually: Indeed, according to the CIA, over 50% of the 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. Of course, even as the military expends tremendous resources defending oil supplies, our forces rely on oil to operate. Even as the dynamics of the global oil market drain American coffers and empower the enemies of democracy and the free market, they also serve to undermine our military’s ability to confront those same enemies. Virtually every major weapons system in the US military arsenal relies on oil to operate, from fighter aircraft to ground combat vehicles to the Navy’s surface fleet. Without it, even our most advanced fifth-generation fighter aircraft and fearsome main battle tanks are rendered useless. The losers in this game are equally clear. They are the Syrian resistance movement, being gunned down as we speak with bullets supplied by Putin’s oil-rich Russia. They are the American Soldiers and Marines who have spent the last decade confronting terrorists in Iraq and Afghanistan armed with Iranian weapons, purchased with oil money. They are everyday Americans, who struggle to pay at the pump even as our nation sends about $1 billion dollars a day overseas for oil. Small wonder, then, that oil is the single largest contributor to our foreign debt, outpacing even our trade deficit with China. In every case just mentioned, American national security is significantly threatened.

It should be no surprise that the US military spends tremendous time and resources safeguarding global oil supplies. Given the tremendous vulnerabilities in the global oil supply chain, this is no easy task. So great is the effort expended by our military on securing the supply of Middle East oil, a RAND study estimated that removing the mission to defend oil supplies and sea routes from the Persian Gulf to the US would save between 12 and 15 percent of the entire defense budget – over $90 billion dollars annually.

Recently, Secretary of the Navy Ray Mabus called the Navy’s reliance on oil a “strategic vulnerability.” And, in testimony to the Senate Armed Services Committee, he stated, “We all know the reality of a volatile global oil market. Every time the cost of a barrel of oil goes up a dollar, it costs the Department of the Navy $31 million in extra fuel costs. These price bites have to be paid for out of our operational funds. That means that our sailors and Marines are forced to steam less, fly less, and train less.” A $10 dollar increase in the price of a barrel of oil costs the Department of Defense an estimated $1.3 billion-almost equal to the entire procurement budget for the Marine Corps.   In fiscal year 2011 alone, the Department of Defense was left with a $3 billion budget shortfall because of rising fuel prices. Fortunately, our military leadership has not been idle in the face of this challenge. The U.S. Navy is committed to reducing petroleum use by 50% by 2015, with the goal of40% of total energy consumption from alternative sources by 2020. In 2010, the Navy conducted the first flight test of the “Green Hornet” an F/A-18 strike fighter powered by a 50% biofuel blend derived from the Camelina plant. This week, the Navy will evaluate a similar 50% blend under combat conditions during large-scale exercises in the Pacific. Advanced biofuels are performing well in the field, and costs are coming down. In fact, the Deputy Chief of Naval Operations predicts that advanced biofuels will be cost competitive with conventional fuels no later than 2020.

Today, oil is a strategic commodity – its supply dictates the march of armies and the fate of nations.

We can and must follow the military’s example. The credible debate on oil dependence and national security is over – there is simply no question at this point that single-source dependence threatens our future security and prosperity. It is time for Congress to act, and to lead.

References

• S. Energy Information Agency. “United States Analysis Brief.” (July, 2010). http://205.254.135.7/countries/country-data.cfm?fips=US&trk=1#pet
• Report from Brookings. Sandalow, David. “Ending Oil Dependence: Protecting Notional Security, the Environment and the Economy.” (February, 2007
• Energy Information Administration, Office of Energy Markets and End Use, “World Petroleum Consumption, Annual Estimates, 1980-2008”
• Powers, Jonathan. “Oil Addiction: Fueling Our Enemies.” Truman National Security Project, February 17, 2010.
• CIA World Factbook. “Iran.” CIA, February 21″, 2012.
• RAND Corporation. “Imported Oil and U.S. National Security.” P. 74 (2009)
• “Mabus Defends Navy Alternative Energy Plan.” Sea power Magazine.
• Remarks by the Honorable Secretary Ray Mabus, Senate Armed Services Committee, March 15″‘ 2012 CNA Report on “Powering America’s Defense: Energy and the Risks to National Security” (May 2009)
• Q&A with Rear Adm. Philip Hart Cullom” CHIPS Magazine.

Mr. Shane Karr, Vice President of Federal Government Affairs, the Alliance of Automobile Manufacturers. 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.   The Alliance is a trade association of twelve car and light truck manufacturers including BMW Group, Chrysler Group LLC, Ford Motor Company, General Motors Company, Jaguar Land Rover, Mazda, Mercedes-Benz USA, Mitsubishi Motors, Porsche Cars, Toyota, Volkswagen Group and Volvo Cars. Together, Alliance members account for roughly 3 out of every 4 new vehicles sold in the U.S. each year.

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 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. 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 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% 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 and is likely to make FFV technology more expensive. The other important point to note is that the Open Fuel Standard requires vehicles to run on E85, which is ethanol, and M85, which is methanol. 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 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 policies that 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. 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.

Ultimately, consumers will determine which of these investments were wise. Given the absence of a crystal ball, and the reality that consumers will manifest their choices over a long window of time, we believe it is imperative that government not get in the business of picking technology winners and losers. Government should set performance-based standards and let auto engineers decide how best to meet them. Consumers should choose winners through their collective purchasing patterns. 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. Without meaningful alternative fuel use, the energy security implications of any particular alternative fuel technology are marginal at best, and possibly less impactful than other technology applications aimed at reducing oil consumption.

Vehicle production mandates divert significant resources that could be applied to other fuel saving technologies and reduce the incentive for manufacturers to innovate. The U.S. is on pace to consume around 132 billion gallons of gasoline this year, which is down because of the relatively higher price of gasoline, the vastly improved fuel efficiency of new vehicles, and the slowing pace of broader economic recovery. As it happens, the renewable fuel standard (RFS) requires blenders to purchase 13.2 billion gallons of com ethanol this year, almost exactly 10 percent of the total gasoline pool, which will be taken up almost exclusively by E10, leaving virtually no room for higher level blends.

The U.S. is already the world’s largest producer by far of com ethanol. No one – not even the ethanol industry — is suggesting that the US should divert more of its arable land to produce additional feedstock for com ethanol. Continued production efficiencies will result in higher yields, but those will be incremental, not exponential. We won’t have the option of importing it in significant quantities (which arguably defeats the energy security goal anyway), given that the second largest ethanol producer in the world is Brazil, which itself has a shortage that will continue as long as sugar prices remain high. And we still wouldn’t have pipelines to ship ethanol around the country efficiently and cheaply or the compatible pumps at fueling stations. So, a number of very significant factors in addition to vehicles would need to change to make the theoretical notion that consumers could buy more ethanol- if they wanted to – a reality.

The Open Fuels Standard Act H.R. 1687 calls for 95 percent of vehicles to be alternative fuel vehicles beginning in model year 2017. Although the bill defines alternative fuel broadly, it is generally understood that the least expensive compliance path would be to build vehicles that meet the current requirements for flexible fuel vehicles (FFVs).

This is why the Open Fuels Standard Act (H.R. 1687) is supported primarily by the ethanol producers. Let me start by saying automakers agree with the sponsors of H.R. 1687 that FFVs, currently defined as vehicles capable of running on any blend of gasoline and ethanol up to 85 percent (E85), are an important and worthwhile technology. In fact, there are already close to 12 million E85 FFVs on U.S. roads, and we will probably sell another million this year. However, only about 2% of gas stations have an E85 pump, and most are concentrated in the Midwest, where most com ethanol is produced. This makes sense, because keeping production close to point-of-sale is the most affordable approach. But even in states where E85 pumps are concentrated, actual sale of E85 has been low and stagnant. For example, in 2009 Minnesota had 351 stations with an E85 pump (the most of any state) but the average FFV in the state used 10.3 gallons ofE85 for the whole year.

It is worth noting that achieving compliance with the vehicle production mandates in H.R. 1687 by producing E85 FFVs would cost consumers well more than $1 billion per year by the most conservative estimates. And these conservative estimates are severely understated for the vehicle mandates of the bill for two reasons: (I) H.R. 1687 requires a new kind of tri-fuel FFV that can run on gasoline, ethanol, methanol, and any combination of the 3 fuels, and which does not exist today; and (2) it will be more expensive to produce tri-fuel FFVs that can comply with H.R. 1687, especially with the forthcoming California Low Emission Vehicles (LEV III) and federal Tier 3 emissions standards along with very aggressive fuel economy/GHG emission requirements through 2025.

The Methanol Experience

In the late-I 980s to mid-90s, automakers produced a limited number of light-duty vehicle models that could run on an 85% blend of methanol in gasoline (M85). This was undertaken in response to a series of California initiatives to increase the availability of methanol fuel and M85 FFVs across the state. It should be noted that vehicle changes to accommodate methanol (then and now) are distinct from ethanol FFVs. Larger valves, greater hardening efforts associated with parts, and software changes to allow the vehicles to run effectively are some of the unique modifications necessary to allow vehicles to run on alternative fuels – and they are different for each alternative fuel involved.

The California methanol effort was abandoned for a variety of reasons. The largest was that methanol was finding its way into water supplies and its toxicity was considered a significant health concern.

But from a vehicle perspective, there were also concerns.

• Methanol contains 50 percent less energy content than gasoline. Drivers had to refuel twice as often and consumer acceptance was low.
• The fueling infrastructure was very expensive, and retailers were unwilling to mortgage their futures on an unproven fuel.
• Today, there are no production facilities in the U.S. making methanol for use as transportation fuel in commercial quantities.
• The U.S. currently imports over 80% of its methanol needs and the additional imports required to fuel an M85 compatible fleet would be counter to efforts to bolster U.S. energy independence and security.
• There are no pipelines to ship it around the country and methanol cannot be shipped using conventional oil and gas pipelines due to its highly corrosive nature.
• There are no pumps available at fueling stations (ethanol pumps would not be certified for methanol, which is more corrosive and much more problematic if it leaks and contaminates our ground water).

Emissions Standards and Alternative Fuels

Because ethanol is a renewable fuel and can have fewer carbon emissions, it does not perform as well as gasoline when a cold engine is started, and methanol is even worse. While California has added flexibilities to its LEV III requirements that may enable automakers to engineer E85 FFVs to comply with these standards over time, they will be more expensive than FFVs today. Even if methanol is eliminated from the equation, the cost of making E85 FFVs will increase. As emission standards continue to be tightened – which is happening as both California and EPA work to create new LEV III and Tier 3 standards respectively – designing vehicles to meet those requirements on two fuels will be very challenging and costly – adding a third fuel could dramatically increase costs. It is worth noting that engineering a vehicle to run effectively and efficiently on two fuels means that it cannot be optimally tuned to run on either, so it is a compromise design to start with. This situation is compounded substantially when you add a third fuel. Furthermore, today’s E85 FFVs do not comply with the most stringent state emissions standards and testing requirements. California and states that have adopted California regulations, which effectively governs 40% of the U.S. vehicle market, will require virtually all vehicles to certify to the most stringent standards in the coming years under its LEV III program.

It should also be noted that if manufacturers were required to design FFVs to be capable of meeting these emission standards on methanol, the challenges become far greater on all fronts – exhaust emissions, evaporative emissions, durability and test burden. Because burning methanol produces much higher levels of formaldehyde, an air toxic, a whole new development effort focused on meeting stringent formaldehyde standards would be needed. The high volatility and permeation rates of methanol blends bring into question the feasibility of meeting evaporative emission standards (we last produced methanol vehicles before the introduction of real world test procedures in the 1990s). The corrosive nature of methanol leads to durability concerns for fuel system components. Additionally, thousands of additional tests per year would be required, which include more expensive and time-consuming measurement techniques for methanol and formaldehyde, impacting both the need for additional manpower and lab equipment. Simply put, the future emission standards were not developed taking into account the challenges of methanol.

The availability of new fuels should coincide with the availability of the vehicles that can run on them, so there is a market for both. Such a prospective approach is a far preferable alternative to retroactively introducing fuels into a market that has not been designed, certified or warranted to run on them.

Past Experience with M85 Flex-Fuel Vehicles (FFVs)

In the late 1980s to mid-90s, automakers produced a limited amount light-duty vehicle models that could run on an 85% blend of methanol in gasoline (M85). This experiment was in response to a series of California initiatives to increase the availability of methanol fuel and M85 FFVs across the state. Below is a generic list of components and modifications automakers may have utilized in the late 80s and 90s to transform a vehicle into a M85 compatible FFV.

It is important to note that these vehicles were produced prior to the implementation of the federal Tier 2 vehicle emissions program or enhanced evaporative emissions standards. The Tier 2 program resulted in vehicles emitting 99% fewer smog-forming emissions compared to vehicles in the 1970s. EPA and California are currently in the process of implementing new Tier 3 and LEV III vehicle emissions standards respectively that will require automakers to significantly lower the remaining 1% of smog-forming emissions. Because of the unique nature of methanol, the M85 FFVs produced in conjunction with this CA program would not have been able to meet the Tier 2 emissions targets, much less the pending aggressive Tier 3 and CA LEV III requirements.

Generic List of Vehicle Components and Modifications Utilized in pre-Tier 2 M85 FFVs:

• Fuel Pump Speed Controller
• Canister Purge Valve

• Engine Modifications:

1. Piston Ring chrome plated face to resist corrosion and wear.
2. Exhaust Valve & Seat material upgrade to resist corrosion and pitting.
3. Engine Oil- formulated to reduce the tendency of methanol to remove anti-wear additives from the oil. Also contains additives to reduce corrosion and wear due to higher acidity of blow-by gases.
4. Throttle Body – changes made to allow canister purge at idle.

• Wiring Assemblies – modifications required for component additions.

• Electronic Control Module (ECM) – changes required for specific methanol inputs and outputs:

1. Fuel Composition
2. Fuel Temperature
3. Fuel Tank Level
4. Prom and Software Changes

• Fuel Injector Driver Module
• Ignition Coil- high secondary current ignition coil for improved cold start.
• Fuel Rail Assembly – material changes for methanol compatibility to injectors, pressure regulator, and rail coating.
• Pipe Assemblies – material changes for methanol compatibility.
• Variable Fuel Sensor Assembly – monitors fuel composition (% of methanol) in fuel line.
• Catalytic Converter – revised catalyst loading for emissions control.
• Low Fuel Light – added because of decreased driving range with methanol.
• Fuel Sender Control Module – interrupts current through fuel level sender to reduce galvanic attack in methanol environment.
• Fuel Tank – stainless steel required for corrosive methanol environment.
• Solder -silver solder required for methanol compatibility.
• Flame Arrestors – stainless steel required to prevent fame propagation from fill door to fill tank.
• Fuel Hose and Vent Hose – revised for decreased fuel.
• Fuel Fill Pipe and Vent Extensions stainless steel required for corrosive methanol environment.
• Fuel Fill Pipe – modified vent pipe to provide canister clearance.
• Canister – increased capacity evaporative canister required because of higher vapor pressures of low methanol blends.
• Canister Bracket – unique bracket to reposition large canister.
• Fuel Cap – gasket materials modified for methanol compatibility
• Fuel Sender and Pump Assembly:

1. Higher flow pump to account for reduce energy density
2. Extensive material changes for methanol compatibility

JOHN SULLIVAN, OKLAHOMA. 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.

JOHN SHIMKUS, ILLINOIS. Ethanol has been a great success at this time. Ethanol produced 14 billion gallons in 2011. U.S. oil and imports dropped to just 45% 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. 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.

BOBBY L. RUSH, ILLINOIS. 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.

JOE BARTON, TEXAS. 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.

Tom Tanton Executive Director, American Tradition Institute’ President T2 and Associates

Various vehicle types, such as electric vehicles, pose their own strategic concerns, such as Rare Earth metals needed for batteries and catalysts.

Consumers will face additional, unquantified, costs from purchase of qualified vehicles in addition to higher first costs, further compounded by conflicting policies. With respect to electric vehicles, for example, EPA’s promulgation of revisions to Maximum Achievable Control Technologies (MACT) and various states’ renewable portfolio standards increase the cost of electricity (necessary for recharging EV) by up to 40%, making the consumer’s going forward cost to own an EV even more prohibitive and less competitive. Extension of the Production Tax Credit (for electricity from renewable sources) will further distance consumers from an electric vehicle market. Electric vehicles and hybrids are also more expensive to insure.

California consumes 44 to 45 million gallons of gasoline and 10 million gallons of diesel fuel per day. The demand for transportation fuels increased nearly 50% in last 20 years. The number of refineries producing gasoline in California dropped from 32 in mid-1980s to 14 today. California imports 3.5+ million gallons of gasoline and components per day. Transportation fuel infrastructure is at capacity and not keeping up with rapidly growing population and demand. Future energy needs will be addressed through growing levels of imports. Local and regional congestion and air quality programs will influence future energy supplies. Permitting issues impact future energy supplies, including renewable fuels.

Total gasoline, diesel, and jet fuel demand is forecast to grow by 13.5% to 42.8% by 2030, depending on economic vitality. By 2025, imports of crude oil into CA rise 37% to 65.2% (151 million to 266 million barrels per year) while transportation fuel imports increase by 199.7 million barrels per year by 2025 in high fuel demand case. Pipeline exports from CA to NV grow by 28.7 to 36.3 million barrels per year by 2025, an increase of 50.4% to 63.7%. Exports from CA to AZ increase by 29 million barrels per year (59 percent) by 2025.

A Brief History of California Efforts to Encourage Alternatives

Since 1976, California has had numerous programs-incentives and mandates-to broaden the use of Methanol or Ethanol (twice), including as an oxygenate replacement for MTBE, Natural gas Electricity ‘flexible fuel’ vehicles, and Transportation Demand Reduction As of 2009, California had just over 136,000 alternative fuel vehicles, out of 826,000 nationwide.

136,000 represents less than one-half of one percent of the state’s vehicles, even after 30 years of incentives, mandates and other programs. Programs were initially predicated on petroleum security, but more recently have focused on either air quality and/or greenhouse gas emissions. The mechanisms have changed little, other than becoming more complex.

Methanol: California led the search for petroleum fuel alternatives with initial interest focused on methanol. Ford Motor Company and other automakers responded to California’s request for vehicles that run on methanol. In 1981, Ford delivered 40 dedicated neat methanol fuel (M100) Escorts to Los Angeles County, but only four refueling stations were installed. The biggest technical challenge in the development of alcohol vehicle technology was getting all of the fuel system materials compatible with the higher chemical reactivity of the methanol, and avoiding corrosion stemming from water absorption. Methanol was even more of a challenge than ethanol but some of the early experience gained with neat ethanol vehicle production in Brazil was transferred. The success of this small experimental fleet of M100s led California to request more of these vehicles, mainly for government fleets. However, longer-developing problems combined with high cost ultimately killed the program. At the time, almost all methanol was produced using natural gas as a feedstock, with an approximate 25% loss in energy content in the conversion from gas to methanol. Natural gas prices had increased and supplies decreased, leading to noncompetitive prices and short supplies. Ligno-cellulose based methanol (i.e. “wood alcohol”) was only available in limited quantities as is true today.

Ethanol: The earliest ethanol program in California followed the initial methanol program, and began in the mid-1980s, but suffered from anemic consumer demand and little availability of ethanol fuel. The demand and supply for ethanol fuel (produced from corn) was stimulated by the discovery in the late 90s that methyl tertiary butyl ether (MTBE), a mandated oxygenate additive in gasoline, was contaminating groundwater. Due to the risks of widespread and costly litigation, and because MTBE use in gasoline was banned in almost 20 states by 2006, the substitution of MTBE opened a larger market for ethanol fuel. This demand shift for ethanol as an oxygenate additive took place at a time when oil prices were rising. By 2006, about 50% of the gasoline used contained ethanol at different proportions (generally about 5-10%), and ethanol production grew so fast that the US became the world’s top ethanol producer, overtaking Brazil in 2005. This shift also contributed to a sharp increase in the price of corn-dependent foods including beef and dairy. In 2008, Governor Schwarzenegger proposed and the California Air Resources Board is now implementing, a Low Carbon Fuel Standard (LCFS) to reduce the carbon content of transportation fuels by 10%. Though purportedly a market-based mechanism, the LCFS is anything but, because consumers are not willing buyers of the mandated product. It is an alternative fuels plan. Under the plan, transportation fuel sold in California would be subject to a ceiling on the amount of carbon it can emit per unit of energy. The limit takes into account the carbon produced throughout the fuel’s entire life cycle, from production through consumption, albeit imperfectly.

One anticipated beneficiary of the new standard was ethanol, which has several major downsides:

• Fuel will be less efficient. Ethanol contains about 34% less energy per gallon than gasoline, which greatly reduces the number of miles traveled per gallon.
• Fuel will be more expensive. The reduced efficiency mentioned above increases the effective price per gallon.
• In addition, ethanol must be transported by truck or rail because it is too corrosive for pipelines
• These increased transportation costs contribute to higher prices at the pump.
• Food will be more expensive. Skyrocketing com prices, driven by the clamor for ethanol, are squeezing California milk producers because of the increased cost of cattle feed, reported the California Farm Bureau. In addition to increasing the costs of animal feed, the high price of corn has encouraged farmers to switch from other grains, such as wheat, to corn, thus raising the costs of other grains because of reduced supply.
• Energy savings will be illusory. When transportation, refining, and farming costs are factored into the production of ethanol for fuel, the energy savings is negligible. In fact, ethanol often requires more energy to produce than it yields.

http://www.api.org/~/media/files/oil-and-natural-gas/pipeline/aopl_api_ethanol_transportation.pdf

Water and biofuels fuel quality

Small amounts of water enter pipeline system s from fuels, terminals and tank roofs. This is generally not a problem during pipeline transportation of refined petroleum products, because the water can sepa rate in a tank and can be drained off. Unlike petroleum products, ethanol has an affinity for water, which can be picked up as ethanol flows through the pipeline network. The water-ethanol mixture has the potential to separate from petroleum products wit h which it may be mixed,resulting in degraded fuel quality. This can be managed by taking steps to cover tanks and remove excess water at certain points in the supply and distribution system.

“Trailback” and jet fuel quality

Most pipelines that carry re fined petroleum products carry several different products in separate “batches”. For example, a products pipeline might move regular unleaded gasoline, premium unleaded gasoline, diesel fuel, jet fuel, etc. The addition of biodiesel fatty acid methyl esters (FAME)can cause a “trailback” of small amounts of the biodiesel into jet fuel. This leads to a concern of degraded jet fuel quality , as jet fuel standards currently do not allow for any measurable level of biodiesel. One pipeline company has begun transporting biodiesel in certain pipelines that do not carry jet fuel. However, most products pipelines carry jet fuel and are unlikely to cease doing so. More work must be done to eliminate the concerns of “trailback” by jet fuel users. Jet engine manufacturers, federal regulators and fuel producers are working to determine if it is safe to have biodiesel in jet fuel, and at what levels.

Other fuel quality issues

Some biofuels can strip lacquers and deposits from internal pipeline surfaces and carry them as impurities. These impurities can clog filters in the supply system, requiring change outs, and in vehicles, impacting vehicle drivability and requiring maintenance. This is a concern when biofuels like ethanol are first introduced into a system, but once impurities have been removed becomes a lesser issue. Stress Corrosion Cracking Another challenge experienced in biofuels transportation by pipeline is Stress Corrosion Cracking (SCC associated with ethanol movement and storage in pipelines and storage tanks. Research, largely funded by pipeline companies, has made great strides in addressing this problem. Industry/government research by Pipeline Research Council International, Inc . (PRCI) 1 has found that ethanol-gasoline blends containing 15 percent or less by volume of ethanol (E-15 and below) can be transported without causing SCC in existing pipelines without any design or operation al modifications. PRCI also found that higher ethanol-containing b lends (E-20 and above and fuel-grade ethanol can be transported without SCC when certain commercial inhibitors are added. The efficacy of commercial inhibitors to mitigate SCC must be assessed prior to their use.

Biofuels and Materials

Biofuels can also impact materials used in gaskets, o-rings, and seals used in fuels transportation and storage systems. Elastomers can experience swelling, shrinking and cracking when exposed to biofuels. Polymers that are often used for coatings may also be degraded by biofuels. Biofuels may also corrode certain non-ferrous metals used in gauges, meters, valves, and pumps. Any part of the supply system that will be converted to biofuels service needs to be assessed for materials compatibility and may need to be refitted with materials that are resistant to the effects of biofuels.

Dedicated biofuels pipelines

Some pipeline companies are proposing to build dedicated biofuels pipelines to connect biofuels-producing areas with large gasoline-consuming markets , with government loan guarantee assistance. Biofuels-producing areas are often far from areas that are major gasoline-consuming areas. Also, biofuels production facilities are relatively small and spread out, requiring a gathering network to aggregate sufficient throughput for a pipeline. In addition to government assistance, pipelines would need robust markets and assurance s that supplies would be available over a long period of time, in order to finance such a project.

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Consumers have recognized ethanol’s limitations. Ethanol has lower energy content than gasoline so the miles traveled per gallon is reduced. This increases the effective price per gallon, and increases the inconvenience of refueling. The more frequent refueling can add over twenty cents per gallon to the effective cost, to account for the additional refueling time. For a vehicle with an 18 gallon tank, that is filled up once every two weeks with gasoline, it would have to be refilled every nine days if using pure ethanol. Ethanol at $2.00 per gallon has the work capability of gasoline costing $3.03 per gallon.

California does not have an adequate fuel supply infrastructure for bio-fuels such as ethanol, methanol or biodiesel and must rely on imports, typically from other countries. While biofuels may provide for some air quality benefit, they do little for energy security if demand expands greatly.

Electric Vehicles: California’s Zero-Emission Vehicle mandate, first enacted in 1990, required that by 1998, 2% of the vehicles sold in the state by large automakers had to be zero-emission (i.e. electric) vehicles. That mandate was set to increase to 5% of vehicle sales by 2001, and 10% by 2003. But it was obvious that the technology to satisfy the ZEV mandate and consumer needs was not forthcoming. In 1996, the mandate was modified to allow automakers to sell more conventional (but “super-low-emitting”) vehicles in order to get credit for meeting their ZEV mandate targets. In 2001, the mandate was further modified, to allow large automakers to satisfy their obligations if they sold just 2% “pure” zero-emission vehicles, 2% “advanced technology partial zero emission

Most recently, the ZEV mandate was further modified, and now mandates that “at least 15.4% of all cars sold by any major automaker doing business in California will have to be either fully electric, a plug-in hybrid or be powered by a hydrogen fuel cell by 2025.” Electric-vehicle technology is still unable to satisfy the demands of consumers. The all-electric Nissan Leaf, with a limited range of about 73 miles per charge sells for about $35,000. Further compounding the initial cost is battery replacement, which can occur after about five years and represent 30 to 35% of the initial cost.

Electric hybrids are also more expensive to insure. Online insurance broker Insure.com shows that it costs $1,308 to insure a Honda Civic but $1,486 to insure a Honda Civic Hybrid. Similarly, it costs $1,270 to insure a Toyota Camry but $1,517 to insure a Toyota Camry Hybrid; $1,619 to insure a Chevrolet Volt but only $1,267 for the same-size gas-powered Chevrolet Cruze; and $1,512 for the Nissan Leaf but only $1,240 for the comparable Nissan Versa 14. Annual Insurance Premiums for Hybrids vs. Gas Powered Cars $1.800 $1.600 $1.400

Californians are likely to purchase fewer new cars and to continue driving their old cars longer, partly due to the continuing economic malaise. A recent CARB staff analysis suggests that the ZEV program will only very modestly reduce emissions (and petroleum use) from the vehicle fleet, not including likely slower fleet turnover. The emissions and petroleum use resulting from longer use of older cars will overwhelm the reductions from new ZEVs.

In California, most natural gas transportation fuel is consumed by transit buses and garbage trucks. Both of these applications are partially driven by fleet rules (such as the CARB Transit Rule and SCAQMD Fleet Rules 1192 and 1193), and they also benefit from financial incentives (such as the 8 Carl Moyer Program, and Energy Policy Act, and Federal Highway Bill provisions). Common heavy-duty natural gas applications include Class 8 tractor-trailer operations such as warehouse-to-retail distribution of grocery and other products.

As recent as a decade ago, nearly all major domestic and foreign OEMs offered dedicated and/or bi-fuel CNG vehicles as part of their product line. All but Honda have dropped their NGVs from the U.S. market. Interestingly, almost all OEMs manufacture NGVs for non-U.S. markets. Consumers are not looking to buy light-duty natural gas vehicles.

Early California programs encouraged school bus operators, for example, to convert fleets to natural gas. School districts were paid subsidies to purchase new buses. However, the buses that were replaced (typically diesel fueled) were not retired, but sold to other school districts unable to participate in buying “new” buses. While these ‘middle age’ buses were more efficient compared to their same-size older buses, many school districts ended up with larger, and more fuel intensive, buses negating any net savings of emissions or petroleum.

Flexible Fuel Vehicles As an answer to the early lack of refueling infrastructure, Ford began development of a flexible-fuel vehicle in 1982, and between 1985 and 1992, 705 experimental FFVs were built and delivered to California and Canada, including the 1.6L Ford Escort, the 3.0L Taurus, and the 5.0L LTD Crown Victoria. These vehicles could operate on either gasoline or methanol with only one fuel system. Legislation was passed to encourage the US auto industry to begin production, which started in 1993 for the M85 FFVs at Ford. In 1996, a new FFV Ford Taurus was developed, with models fully capable of running on either methanol or ethanol blended with gasoline.

Today, the vast majority of alternative fuel vehicles, and a large percentage of all vehicles, are flexible fuel capable. Most consumers continue to preferentially fill with gasoline, even when given free choice.

Myth: We need alternatives to replace petroleum for energy security.

Reality: Energy security is an important goal. Energy security however, does not mean trading one set of risks for another. Heavy emphasis on reducing petroleum usage is as likely as not to create a less secure energy system for three simple reasons:

“Feedstocks for alternative fuels are weather dependent and subject to weather conditions. Much of the corn and other crops grown in the U.S. are grown with natural rainfall, and without irrigation. This subjects the crop supply to annual variability due to natural weather patterns. Further, devastating hurricanes and tornadoes have pummeled crops in several of the past few years. Moving our energy security to a system that includes crop-dependency on weather simply trades one form of insecurity for another. Energy security should come from shifting to a system of manageable risks, not the weather.

“Fuel will be competing with food demands for the major feedstock of alternative fuel production in the near to mid-term. According to the US Department of Agriculture, farmers will need to plant 90 million acres of corn by 2010 in order to keep up with the already rising demand for ethanol fuel while maintaining current demands for livestock and exports. Speaking to the Senate Environment and Public Works Committee, the Agriculture Department’s chief economist, Keith Collins, said the explosive growth in demand for corn for ethanol may have dangerous side effects. He said the thirst for ethanol may lead to high food prices and reduce soybean supplies. He also said land set aside for conservation may have to be utilized for ethanol production, estimating up to 7 million acres of land — most in the Midwestern states — now idled under the Conservation Reserve Program would need to be planted to grow corn and soybeans.

Energy ‘independence’ is not the same as energy security. Consumer activists expect independence to bring down the high price of gas and heating oil. Environmentalists hope it will promote “renewable” sources of energy. And global strategists think it will weaken anti-American oil-producing regimes. But energy independence itself is not a desirable goal. It merely brings to the field of energy the stagnant isolationism of North Korea and the nationalistic mindset that destroyed the recent Doha round of world trade talks. What the U.S. needs is a greater reliance on free markets in energy, at home and abroad.

Moreover, burdening California companies with more taxes will increase California dependence on oil from socialist regimes. National Oil Companies (NOCs) manage over 90% of the world’s oil. And 16 of the 20 biggest oil firms (ranked by reserves) are government owned. According to The Economist, ‘those with misgivings about oil–that its price is too high, that reserves are running out, that it damages the environment, that it is more a curse than an asset for countries that produce it”- must focus on NOCs, and not so-called “Big Oil” companies like Exxon Mobil, Chevron, BP, and Royal Dutch Shell.

Richard A. Bajura Director, National Research Center for Coal and Energy 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.

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.

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.

However, we will need next-generation technologies to continue competing successfully with oil.

Therefore, federal investments are recommended for advanced research in fuels development and deployment, for next-generation EOR technologies, and for buying down the first-of-a-kind costs for pioneer plants.

The gasification process results in a mixture of carbon monoxide and hydrogen gases, which are the simple chemical compounds that serve as building blocks for multiple plastics and polymers used in products ranging from household goods to industrial-grade materials. Gasification and F-T plants must be built at large scale to operate economically. Large scale means high capital costs for such plants. If we don’t reduce risk and uncertainty in costly systems such as CTL – EOR operations, bankers will not provide the financing.

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.

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. GERARD. 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% 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.

Mr. BREEN. 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% of climate scientists do believe that climate change is real and as a military officer, if I were informed that 95% of my intelligence told me I was facing a lethal threat, if I didn’t act I would be committing unconscionable military malpractice

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 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, 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.

Mr. GRIFFITH. 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, 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.

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. 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 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. ENGEL. 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%, 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. 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 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.

Mr. PETROWSKI. As I stated in my written statement and oral statement, we believe in diversity. 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. BREEN. Flexibility and optionality 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. MARKEY. 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. The 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, 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.

We are now at our highest level of production in the United States in 18 years 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. CASSIDY. 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. Donald Althoff, Chief Executive Officer, Flex Fuel U.S.   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.

Mr. Thomas Hassenboehler, Vice President of Policy Development and Legislative Affairs for 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. 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.

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.

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.

As of June, 2012, there are currently 53 LNG fueling stations in the U.S. serving over 3,300 LNG vehicles. Of the 53 LNG fueling stations, 36 are located in California.

CNG is ideal for light and medium duty vehicles and any heavy-duty fleets whose operations remain more local, such as municipal operations, refuse collection, and some delivery applications. There are two types of CNG stations: fast-fill and time-fill. A fast-fill station is more expensive than time fill. But it is excellent for retail sales and supporting fleets that require speedy fueling similar to conventional fuels. A time-fill station is less expensive, but works best for fleets that return to central locations and are parked for extended periods – generally overnight — such as a refuse hauling fleet Time-fill fueling is also available for passenger vehicles. with home fueling appliances that connect to the home’s gas line and fuel CNG-powered vehicles over a multi-hour timeframe.

LNG vehicles provide the best commercially available technology for heavy-duty fleets with high fuel use and long-distance travel demands. This is because cooling gaseous natural gas to make liquid takes up about 1/600th the original volume, meaning trucks can carry more energy in their tanks as LNG versus CNG. LNG is dispensed in fast-fill stations via mobile or permanent stations. Mobile stations, which consist of an insulated LNG tank and dispensing equipment built on a trailer that can be parked, provide an ideal option for off-road fueling and remote locations without pipeline access to natural gas. Mobile stations can also provide important fuel support until permanent LNG stations can be built.

Diesel fuel use is rising. Our consumer economy relies on heavy-duty trucks and fueling networks to transport our nation’s goods and drive our economy. Due to growing demand over the last several decades, the number of trucks – and associated diesel consumption – is increasing. Of the 4.8 million heavy-duty trucks (Class 7 & 8) on our roads, 4.2 million run on diesel. These heavy-duty trucks consume over 70% of all diesel in the United States. By 2035, the number of heavy-duty trucks will increase by almost 70%.

The average annual mileage per heavy-duty tractor in the United States is 69,000 miles, which equates to approximately 11,700 gallons of diesel per vehicle each year (assuming 5.9 mpg). Using the national average fuel consumption for a heavy duty tractor, the current annual diesel consumption for heavy-duty tractors is approximately 30 billion gallons of diesel per year, or 82 million diesel gallons per day.

At the federal level, ANGA supports efforts to create a level playing field among alternative fuels policies. We agree that it takes “all of the above” alternative fuels to enhance our energy security. However, current levels of federal support for NGVs are not on par with other alternatives.

Ms. Mary Ann Wright, Vice President of Global Technology Innovation, and the Chair of the Electric Drive Transportation Association, Johnson Controls, Incorporated.

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.

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.

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.

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

This spectrum of technologies, from moderate to high vehicle electrification, provides a continuum of market opportunities which will increase fuel economy and reduce emissions. The range of gas savings for each type of vehicle is: Start-Stop 5-10% Advanced Start-Stop 10-20% Mild Hybrid 12-20% Full Hybrid 25-50% Plug-in Hybrid 40-60% Full EV 100%

There is a lot of market and industry investment in electric vehicles but the internal combustion engine, which continues to become more fuel and emissions efficient (complimented by advanced battery technology) is going to be with us for many years to come. Due to electric drive range limitations, lack of installed charging infrastructure and challenged economics, PHEVs and EVs will continue to have limited near-term market penetration in the United States.

Early adopting consumers are willing to accept these limitations, as they are motivated by attributes other than cost and performance.

In Europe, OE commitments to commercialize Start-Stop vehicles are already well established, and the new vehicle build for Start-Stop is expected to reach 70% of new vehicle production by 2016. Globally, annual production is expected to grow from 3 million today to 35 million in that same time frame. Manufacturers are just now beginning to market this technology in the United States. It offers a quick and efficient way for the industry to achieve 2015 CAFE standards with accessible technologies while hybrid and electric alternatives continue to develop and mature. If properly supported, Start-Stop vehicles could achieve 40 percent of the new vehicle market in the United States within the next five years, which would represent significant fuel savings and C02 emissions reduction. Johnson Controls has invested $140 million to convert our existing lead acid battery plant near Toledo, Ohio into a plant which will produce new Absorptive Glass Mat (AGM) batteries for Start-Stop and high efficiency internal combustion vehicles. The plant will begin production later this year with capacity to produce 6 million AGM batteries for North American auto makers.

Federal Government Support

Finally, let me conclude by emphasizing how important it is that we continue federal support for research, development and deployment of the type being conducted by the Department of Energy’s Vehicle Technologies Programs and Advanced Research Project Agency – Energy (ARPA-E). These programs have successfully promoted innovation in transportation through public-private partnerships, leveraging private sector investments. Working with the diverse stakeholders in the electric drive industry, the DOE is helping to accelerate technology breakthroughs, promoting investment in manufacturing capability, and speeding deployment of electric drive vehicles and infrastructure. The Advanced Vehicle Technologies Programs along with the Advanced Research Projects Agency – Energy (ARPA-E) help fund vital research and development activities, which we participate in to advance vehicle electrification, bring down electric vehicle costs, and increase range and fast charging capability. Continued R&D support is vital if we are to stay in the technology race with our foreign competitors.

With respect to tax credits to promote electrified vehicles, it is important to continue with targeted, time-limited and performance-based incentives. Credits such as the $7500 tax credit for vehicle purchase, Section 30B credit for clean, efficient hybrid and battery electric medium and heavy duty vehicles will help promote savings on fuel expenses for large fleets, as well as for small businesses. The expiration of Section 30C alternative fuel vehicle refueling property credit in 2011 has lead to uncertainty around renewal which is damaging to consumers and businesses planning to invest in plug-in vehicles and charging equipment.

Mr. SHIMKUS. 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.

Mr. DOLAN. 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.

Mr. KARR. 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. 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. While there is momentum, the challenges are still enormous, 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.

Mr. RUSH. So what I am seeing from each of you is that 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.

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. GREEN. 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. GREEN. 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. ENGEL.  I have been pushing for the Open fuel standards bill for many, many years and I must say that I feel progress is being made. 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. 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. 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. 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.

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 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. 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.

Mr. ENGEL. But let me just ask you this. Hasn’t hydro-fracking 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, but—well, I suppose LNG and CNG are significantly cheaper, even than methanol from natural gas.

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.

Mr. BILBRAY. 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. BILBRAY. 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.  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.

AFPM, the American Fuel & Petrochemical Manufacturers (formerly National Petrochemical & Refiners Association) respectfully submits this letter for the record regarding the House Energy and Commerce Subcommittee on Energy and Power hearing titled, “The American Energy Initiative: A Focus on Alternative Fuels and Vehicles, Both the Challenges and Opportunities,” AFPM is a trade association representing high-tech American manufacturers of virtually the entire U.S. supply of gasoline, diesel, jet fuel other fuels and home heating oil, as well as the petrochemicals used as building blocks for thousands of products vital to everyday life. Our primary principle is that free markets, not mandates, should and can drive sensible integration of alternative fuels into the consumer marketplace.

Impending “Blendwall” limits are soon to reach a point where the mandated amounts of renewable fuels blended into the fuel supply will soon reach the limits of what fuel and vehicle infrastructure can handle, which is known as the “blendwall.” Our businesses will not be able to blend the amount of ethanol mandated under the RFS without significantly causing consumer disruption. The blendwall will be reached when nearly all of the gasoline in the U.S. contains 10 percent ethanol and a portion ofE8S (fuel containing 8S percent ethanol, 15 percent gasoline) is sold for use in Flex Fuel Vehicles (FFVs). Unfortunately, recent increases in CAFE standards compound this problem. According to analysis by the National Association of Convenience Stores (NACS), by 2022 every gallon of fuel sold in the United States will need to contain nearly 40 percent renewable fuels to legally meet both the RFS and CAFE. In particular, NACS found that because CAFE standards will cause fuel demand to drop while the volumetric mandates ofthe RFS will continue to rise, obligated parties will likely be mandated to force more biofuels into an infrastructure unable to accommodate higher blends. Such a scenario would cause significant problems for consumers and their vehicles, which underscores the unintended consequences of government crafting fuel policies in a vacuum.

Natural Gas as a Transportation Fuel In addition to the problems with the RFS, AFPM has concerns with proposals to create massive subsidies and mandates for further use of natural gas as a transportation fuel. A recent IHS CERA report found that low natural-gas prices make natural gas powered vehicles economical in the transportation sector without federal incentives, and that any upfront investment costs could be recovered in three years. Moreover, natural gas is an important feedstock for petrochemical manufacturing, power generation, and many other products such as fertilizer. Distorting the market through mandates and subsidies will have unintended consequence, much like the

RFS. Markets, not mandates and subsidies, should determine the highest and best use of our natural resources. AFPM looks forward to working with you and the other members of Congress to find common sense solutions to the use of alternative fuels in the fuel supply in a manner that does not pick winners and losers through government mandates and subsidies.

In November 2010, Celanese announced that we had developed a new advanced technology, branded TCX·, that converts basic hydrocarbons such as natural gas Into ethanol. While the science behind this conversion Is not new, Celanese was able to build upon Its Industry-leading expertise In acetyl chemistry to develop a process that is highly efficient and cost-competitive.

When Congress updated the RFS under the Energy Independence & Security Act of 2007 (EISA), It significantly Increased the mandate for blending of renewable fuels. Congress, however, did not account for predictable technological advancements In the fuels market. Under the current framework, qualifying fuels must be produced from renewable biomass and must fit into one of a few narrow fuel categories.

A rigid approach falls short of a true “all of the above” energy strategy. Celanese believes that If ethanol produced using a variety of feedstocks like natural gas were eligible to compete on a level playing field in the current fuels market, it could substantially Improve energy security In the u.s. by diversifying ethanol production. It also could help reduce the negative effects of diverting food and feed crops to the fuel market. In addition, natural gas to ethanol technology offers greater energy efficiency in the conversion of feedstocks to fuel while using substantially less water than traditional fermentation technology and producing almost no waste.

Currently, most eligible fuels are made from agricultural crops grown primarily in the Midwest. Regions that cannot efficiently grow these crops are at a significant cost disadvantage. The current RFS also creates logistical Issues by effectively requiring these fuels to be transported from a largely centralized location to blending facilities across the country, which can be time-consuming, complex and expensive. Broadening the eligibility requirements of the RFS would level the playing field, enable all regions to participate in their transportation fuel future and reduce the Infrastructure development needed. For these reasons, Celanese and a broad cross-section of agricultural, small business and community based organizations from all over the US Joined together to support H.R. 3773, the Domestic Alternative Fuels Act, Introduced by Rep. Pete Olson (R-TX). This legislation would broaden the eligibility requirements of the RFS to allow innovative, home-grown, new fuel technologies like natural gas to ethanol to compete with corn-based ethanol. We believe this is the appropriate approach given the mature nature of the corn-based ethanol industry and the generally accepted view that the advanced blofuel segment needs considerably more time to develop. Finally, expanding the ellgiblflty requirements for feedstocks and manufacturing processes will help advance the science and technology needed to meet the country’s growing energy needs. It Is no secret that the advanced blofuels mandated under the RFS have been slow to commercialize.

 

BOB DINNEEN.   President & CEO, Renewable Fuels Association.

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.

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.

Certainly, increased oil production from fracking has played a role, but a little context is needed. At the same time new fracking wells are ramping up in North Dakota and Texas, old conventional oil wells are running dry in Alaska, California, and Louisiana. So, while total U.S. oil production has been on the upswing the last three years, it is still well below the levels from the 1990s and even below the levels from the first several years of the new millennium.

We need to be mindful of just how long hydraulic fracking can sustain our nation’s insatiable appetite for crude oil. After all, the “tight oil” in the Bakken and Eagle Ford shale formations is a finite resource, just like the oil sitting under the deserts of Saudi Arabia, the jungles of Venezuela and Nigeria, and the deep waters of the Gulf of Mexico.

A 2011 report by the Energy Information Administration (EIA) estimates that 7 billion barrels of oil are technically recoverable from the Bakken and Eagle Ford formations, the two largest active shale plays in North America. That may sound like a lot of oil- and it is. But the U.S. oil refining industry processed 5.4 billion barrels of crude oil in 2011. That means if near-term oil demand is consistent with 2011 levels, our nation’s two largest shale plays have enough technically recoverable crude oil combined to last us about one year and four months.

Energy Information Administration. July 2011. Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays. http://205.254.135. 7/analysislstudies/usshalegas/pdflusshaleplays. pdf

 

Biodiesel RIN fraud has been described by some biofuel critics as “rampant,” “systemic,” and “widespread.” However, a closer look reveals that such descriptions of the situation are nothing more than salacious hyperbole. In truth, the fraudulent activity was very isolated and resulted from the actions of just three bad actors in the biodiesel space. The U.S. Environmental Protection Agency (EPA) effectively identified those bad actors, investigated the fraud, and pursued appropriate enforcement action. In other words, the bad apples were quickly rooted out of the barrel. Meanwhile, the vast majority of other participants in the RFS program were properly generating RINs without any problems whatsoever.

Here are a few statistics for context. Since the RFS2 program began in July of2010, nearly 29 billion RINs have been generated (this includes all RINs for all types ofbiofuels). Of that amount, 140 million RINs have been shown or alleged to be fraudulent. That means less than 0.5 percent of total RINs generated have been fraudulent or alleged to be fraudulent. Further, all of the alleged fraudulent RINs have occurred within the biodiesel space of the RFS, which constitutes a relatively smaller share of the program. “Renewable fuel” RINs the type associated with corn ethanol- have comprised the overwhelming majority of RINs generated under the RFS, accounting for 26 billion RINs (nearly 90 percent of the total). Those 26 billion ethanol RINs have been generated without a single one of them being purposely fraudulent.

The RFS requires the consumption of36 billion gallons of renewable fuel by 2022. In the Regulatory Impact Analysis that accompanied the RFS2 final rule, EPA suggested ethanol could account for as much as 33.2 billion gallons of the 2022 requirement. This level of ethanol would represent 25.4 percent of projected gasoline demand in 2022, according to data from the EIA. This means the average gallon of gasoline in 2022 would need to contain 25 percent ethanol in order to comply with the RFS2. However, only FFVs are currently approved to consume gasoline blends containing more than 15 percent ethanol by volume. The U.S. automakers have made good progress toward increasing their production ofFFVs, and the “Detroit Three” have stated their commitment to provide one-half of their sales of model year 2012 and later vehicles as FFVs. Today, an estimated II million FFVs are on American roadways. While that’s a good start, it represents just 5 percent of the light-duty automotive fleet. Without a doubt, a larger population of FFVs will be needed to consume the volumes of ethanol likely to be produced to meet the RFS’s long-term requirements.

Additionally, the RF A has joined with leaders from other alternative fuel industries to press Congress to enact the Open Fuel Standard (OFS), a visionary piece of legislation introduced by Representatives John Shimkus (R-IL) and Eliot Engel (D-NY). The OFS would require that a certain portion of passenger vehicles sold in the U.S. be alternative fueled vehicles capable of running on something other than just petroleum-derived gasoline. The OFS does not dictate what types of vehicles are to be sold, only that an increasing percentage of the passenger car fleet sold in the U.S. be capable of running on non-petroleum sources, such as electricity, ethanol blends, hydrogen, biodiesel, natural gas, or other sources. Not only would the OFS greatly enable fuel competition and reduce the strategic importance of oil to the United States, but it would also facilitate compliance with the long-term goals of the RFS2.

 

As part of their ongoing effort to undermine the RFS, opponents of biofuels have highlighted the lack of cellulosic and advanced ethanol commercially available in recent years. They have suggested that the slower-than-expected commercialization of cellulosic and advanced ethanol is evidence that Congress should step in and reform the RFS. While scale-up is occurring more slowly than anticipated, the advanced and cellulosic biofuels industry is now in the process of building new plants, modifying existing production facilities with emerging “bolt-on” technologies, and introducing new product streams that will allow the renewable fuels sector to become more profitable, diversified and efficient. These are not “phantom fuels,” as some would have us believe. In fact, it was reported just last week that the first cellulosic biofuel RINs were generated by an ethanol facility in Upton, Wyoming, a small town in the heart of the state’s oil patch. Several billion dollars have been invested in advanced biofuels development with the expectation that Congress and the Administration

Also see: Distribution – why it is so hard to add E15 or E85 at a gas station

Jack Gerard, President and CEO of the American Petroleum Institute. 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.

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.

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.

To date, E85 has faced low consumer acceptance as FFV owners use E85 less than 1% of the time. The fuel economy of an FFV operated on E85 is approximately 25-30% lower than when fueled with gasoline due to ethanol’s lower energy content. Also, less than 2% of retail gasoline stations offer E85, which has high installation costs. In 2010 and 2011, EPA approved the use of E15 for a portion of the motor vehicle fleet in order to accommodate the RFS law’s volume increases. We believe these actions were premature and unlawful, and present an unacceptable risk to billions of dollars in consumer investments in vehicles. They also put at risk billions of dollars of gasoline station pump equipment in scores of thousands of retail outlets across America, most owned by small independent businesses. E15 is a different transportation fuel, well outside the range for which the vast majority of U.S. vehicles and engines have been designed and warranted. E15 is also outside the range for which service station pumping equipment has been listed and proven to be safe and compatible and conflicts with existing worker and public safety laws outlined in OSHA and Fire Codes. EPA should not have proceeded with E15, especially before a thorough evaluation was conducted to assess the full range of short- and long-term impacts of increasing the amount of ethanol in gasoline on the environment, on engine and vehicle performance, and on consumer safety. Research on higher blends was already underway when EPA approved El5 in 2010 and 2011. In response to the passage of EISA in 2007, the oil and natural gas industry, the auto industry, and other stakeholders, including EPA and DOE, recognized in early 2008 that substantial research was needed in order to assess the impact of higher ethanol blends including the compatibility of ethanol blends above 10% (E10+) with the existing fleet of vehicles and small engines. Through the Coordinating Research Council (CRC), the oil and auto industries developed and funded a comprehensive multi-year testing program prior to the biofuels industry’s E15 waiver application. API worked closely with the auto and off-road engine industries and with EPA and DOE to share and coordinate research plans. Yet, EPA approved the E15 waiver request before this research effort was finished and the results thoroughly evaluated. The potential for harm from that decision is substantial, as suggested by the results of various research studies, including testing performed by DOE’s National Renewal Energy Laboratory and by the CRC, have been completed to date. The DOE research shows an estimated half of existing service station pumping equipment may not be compatible with a 15% ethanol blend. The CRC research shows that E15 could also damage the engines of millions of cars and light trucks.

E20 may have similar, if not worse, compatibility issues with engines and service station equipment.

JOSEPH H. PETROWSKI. Gulf Oil Group, We are the Nation’s eighth largest convenience retailer of petroleum products and convenience items in over 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,

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.

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.

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.

America’s love affair with the automobile is not going away. Neither is the need for transportation fuels that underpin the economy and create jobs. In a country as vast as ours with a density of79 people per square mile (as opposed to the Netherlands with 1300 people per square mile), the cost of transport is central to economic health.

When total national energy costs exceed 16% of GDP a recession or worse is almost always the result. The United States’ current accounts trade balance for all energy products recently exceeded $1 trillion dollars, and while it has currently been reduced to one half that amount on an annualized basis we look forward to the day when the United States is a net energy exporter. Not only will that be positive to GDP and job growth, but it will position us to revitalize our industrial production, especially in energy-intensive industries with an eye toward value added product exports. And no policy would be more beneficial for the spread of world democracy

Our industry is dominated by small businesses. In fact, of the 120,950 convenience stores that sell fuel, almost sixty percent of them are single-store companies – true mom and pop operations. Many of these companies sell fuel under the brand name of their fuel supplier. This has created a common misperception in the minds of many policymakers and consumers that the large integrated oil companies own these stations. The reality is that the majors are leaving the retail marketplace and today own and operate fewer than 2% of the retail locations. Although a store may sell a particular brand of fuel associated with a refiner, the vast majority are independently owned and operated like mine. When people pull into an Exxon or a BP station, the odds are good that they are in fact refueling at a small mom-and-pop operation.

THE BLEND WALL AND THE NEED FOR A CONGRESSIONAL FIX. Since the enactment of the Energy Independence and Security Act (EISA) of2007, we have heard much about the impending arrival of the so-called “blend wall” – the point at which the market cannot absorb any additional renewable fuels. Most of the fuel sold in the United States today is blended with 10% ethanol. If 10% ethanol were blended into every gallon of gasoline sold in the nation in 2011 (33.9 billion gallons), the market would reach a maximum of 13.39 billion gallons. However, the 2012 statutory mandate for the RFS is 15.2 billion gallons. Meanwhile, the market for higher blends of ethanol (E85) for flexible fuel vehicles (FFVs) has not developed as rapidly as some had hoped. Clearly, we have reached the blend wall.

EPA recently authorized the use ofE15 in certain vehicles. However, this has so far done very little to expand the use of renewable fuels, due largely to retailers’ liability and compatibility concerns, as well as state and local restrictions on selling E15. Congress can do something immediately to mitigate other obstacles preventing new fuels from entering the market. H.R. 4345, the Domestic Fuels Protection Act of 2012-currentiy before the subcommittee on Environment and the Economy-addresses three of these obstacles: infrastructure compatibility, liability for consumer misuse of fuels, and retroactive liability of the rules governing a fuel change in the future.

The reason the retail market is unable to easily accommodate additional volumes of renewable fuels begins with the equipment found at retail stations. By law, all equipment used to store and dispense flammable and combustible liquids must be certified by a nationally recognized testing laboratory. These requirements are found in regulations of the Occupational Safety and Health Administration. Currently, there is essentially only one organization that certifies such equipment, Underwriters Laboratories (UL). UL establishes specifications for safety and compatibility and runs tests on equipment submitted by manufacturers for UL listing. Once satisfied, UL lists the equipment as meeting a certain standard for a certain fuel. Prior to 20I0, UL had not listed a single motor fuel dispenser (aka a gas pump) as compatible with any fuel containing more than 10% ethanol. This means that any dispenser in the market prior to early 20lOis not legally permitted to sell E15, E85 or anything above 10% ethanol – even if it is able to do so safely.

If a retailer fails to use listed equipment, that retailer is violating OSHA regulations and -may be violating tank insurance policies, state tank fund program requirements, bank loan covenants, and potentially other local regulations. In addition, the retailer could be found negligent per se based solely on the fact that his fuel dispensing system is not listed by UL. This brings us to the primary challenge: if no dispenser prior to early 20I0 was listed as compatible with fuels containing greater than ten percent ethanol, what options are available to retailers to sell these fuels? In order to comply with the law, retailers wishing to sell EI0+ fuels can only use equipment specifically listed by UL as compatible with such fuels. Because UL did list any equipment as compatible with E10+ fuels until 2010, only those units produced after that date can legally sell E I 0+ fuels. All previously manufactured devices, even if they are the exact same model using the exact same materials, are subject only to the UL listing available at the time of manufacture. (UL policy prevents retroactive certification of equipment.)

Practically speaking, this means that a vast majority of retailers wishing to sell EIO+ fuels must replace their dispensers. This costs an average of $20,000 per dispenser. It is less clear how many underground storage tanks and associated pipes and lines would require replacement. Many of these units are manufactured to be compatible with high concentrations of ethanol, but they may not be listed as such. Further, if there are concerns with gaskets and seals in dispensers, care must be given to ensure the underground gaskets and seals do not pose a threat to the environment. Once a retailer begins to replace underground equipment, the cost can escalate rapidly and can easily exceed $100,000 per location.

The second major issue facing retailers is the potential liability associated with improperly fueling an engine with a non-approved fuel. The EPA decision concerning EI5 puts this issue into sharp focus for retailers. Under EPA’s partial waiver, only vehicles manufactured in model year 2001 or more recently are authorized to fuel with E15. Older vehicles, motorcycles, boats, and small engines are not authorized to use E15. For the retailer, bifurcating the market in this way presents serious challenges. For instance, how does the retailer prevent the consumer from buying the wrong fuel? Typically, when new fuels are authorized they are backwards compatible so this is not a problem. In other words, older vehicles can use the new fuel. When EPA phased lead out of gasoline in the late I 970s and early 1980s, for example, older vehicles were capable of running on unleaded fuel newer vehicles, however, were required to run only on unleaded. These newer vehicle gasoline tanks were equipped with smaller fill pipes into which a leaded nozzle could not fit – likewise, unleaded dispensers were equipped with smaller nozzles. E 15 is very different: legacy engines are not permitted to use the new fuel. Doing so will violate Clean Air Act standards and could cause engine performance or safety issues. Yet there are no viable options to retroactively install physical counter measures to prevent misfueling.

Retailers could be subject to penalties under the Clean Air Act for not preventing a customer from misfueling with E15. This concern is not without justification. In the past, retailers have been held accountable for the actions of their customers. For example, because unleaded fuel was more expensive than leaded fuel, some consumers physically altered their vehicle fill pipes to accommodate the larger leaded nozzles either by using can openers or by using a funnel while fueling. We may see similar behavior in the future given the high price of gasoline relative to ethanol. As in the past, the retailer will not be able to prevent such practices, but in the case of leaded gasoline the EPA levied fines against the retailer for not physically preventing the consumer from bypassing the misfueling counter measures. To EPA’s credit, they have asserted in meetings with NACS and SIGMA that they would not be targeting retailers for consumer misfueling. But that provides little comfort to retailers. EPA policy can change in the absence of specific legal safeguards. Additionally, the Clean Air Act includes a private right of action and any citizen can file a lawsuit against a retailer that does not prevent misfueling. Whether the retailer is found guilty does not change the fact that defending against such claims is very expensive. Further, the consumer may seek to hold the retailer liable for their own actions. Using the wrong fuel could void an engine’s warranty, cause engine performance problems or even compromise the safety of some equipment. In all situations, some consumers may seek to hold the retailer accountable even when the retailer was not responsible for the improper use of the fuel. Once again, defending such claims is expensive.

An EPA decision to approve E15 for 2001 and newer vehicles is not consistent with the terms of most warranty policies issued with these affected vehicles. Consequently, while using E15 in a 2009 vehicle might be lawful under the Clean Air Act, it may in fact void the warranty of the consumer’s vehicle. Retailers have no mechanism for ensuring that consumers abide by their vehicle warranties – it is the consumer’s responsibility to comply with the terms of their contract with their vehicle manufacturer. Therefore, H.R. 4345 stipulates that no person shall be held liable in the event a self-service customer introduces a fuel into their vehicle that is not covered by their vehicle warranty.

General Liability Exposure Finally, there are widespread concerns throughout the retail community and with our product suppliers that the rules of the game may change and we could be left exposed to significant liability. For example, EI5 is approved only for certain engines and its use in other engines is prohibited by the EPA due to associated emissions and performance issues. What if E 15 does indeed cause problems in non-approved engines or even in approved engines? What if in the future the product is determined defective, the rules are changed and E 15 is no longer approved for use in commerce? There is significant concern that such a change in the law would be retroactively applied to anyone who manufactured, distributed, blended or sold the product in question.

Contrary to popular misconception, fuel marketers prefer cheap gasoline. The less the consumer pays at the pump, the more money the consumer has to spend in our stores, where our profit margins are significantly greater.

FELICE STADLER. National Wildlife Federation. We represent 4 million members and supporters.

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.

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 path.

1. Coal to liquids wouldn’t be on this path-From well to wheel, CO2 emissions from coal-derived fuel is twice as high as conventional petroleum-derived fuel.
2. Canadian tar sands wouldn’t be on this path-Producing oil from tar sands emits 2-3 times the carbon pollution of conventional oil.
3. Western oil shale wouldn’t be on this path-While still in the R&D phase, it is estimated that retorting oil shale will emit up to two times more greenhouse gas emissions than that from conventionally produced gasoline.

We’re not naive to think that getting off high-carbon liquid fuels (including conventional oil and gas) will be an easy task-it will require a major overhaul of our car and truck fleet; it will require a major revamping of our public transit systems; it will require a major investment in sustainable, renewable fuels; it will require a major shift in our subsidies structure-to level the playing field between the oil and gas giants and the companies trying to get efficient, renewable technologies into the marketplace.

Mr. Gregory Dolan, Executive Director, Americas/Europe Methanol Institute. The Methanol Institute, represents methanol producers, distributors, and related technology companies from around the world.

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

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.

In China, a methanol mix of about 8% 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 STUDY PUBLISHED IN 2010, RESEARCHERS AT THE MASSACHUSETTS INSTITUTE OF TECHNOLOGY CONCLUDED THAT METHANOL WAS THE ‘LIQUID FUEL MOST EFFICIENTLY AND INEXPENSIVELY PRODUCED FROM NATURAL GAS: AND THEY RECOMMENDED METHANOL AS THE MOST EFFECTIVE WAY TO INTEGRATE NATURAL GAS INTO OUR TRANSPORTATION ECONOMY.

MICHAEL J. MCADAMS, Advanced Biofuels Association. I represent 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. 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. 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.

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.   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.

I look down the list of those testifying today, I doubt a single witness would disagree that in order to secure America’s energy and economic security, we need a wide portfolio approach to our nation’s energy policy. Energy is not a partisan issue. [t is an issue of economic and national security. It is the lifeblood of an active, vibrant economy that provides plentiful employment for its people and ultimately leads to a high gross national product and sustainable middle class. Energy policy is a key driver in the future prosperity of this nation,