Statement of the National Corn Growers
Before the Subcommittee on Conservation,
Credit, Rural Development and Research
April 25, 2001

PDF of Testimony

Thank you Mr. Chairman, my name is Lynn Jensen, and I am the Chairman of the National Corn Growers Association (NCGA) representing 30,000 direct members and the more than 300,000 corn farmers throughout the Nation who make check-off payments each year.  We are pleased to appear before you today to provide our views on ethanol and the current energy situation.  As you know, our nation is again facing another energy crisis.  We read daily press reports about the possibility of higher prices for gasoline this summer and about the poor decisions gasoline marketers made last year that caused price spikes in many areas of the country.  Today, I want to spend the majority of my time outlining for you and the Members of the Subcommittee our views on how ethanol and other renewable fuels can increase the supply of fuel while providing economic opportunity for hundreds of rural communities across the country.

Ethanol continues to be a major focus of NCGA policy and research activities.  Thousands of farmers are now invested in cooperatives that produce 40 percent of the 1.6 billion gallons of ethanol made in 2000 from 600 million bushels of corn.  Moreover, there are dozens more ethanol projects in various stages of development throughout the Corn Belt that are attracting additional farmer-investors.  Ethanol is simply the biggest value-added success story in agriculture today.

Background

Ethanol is an alcohol produced primarily from grain using a process almost as old as civilization itself.  Today, however, ethanol production has come a long way from the wineries of ancient Greece or the stills of Prohibition.  Fuel ethanol is produced on a mass scale utilizing millions of bushels of grain annually in the process.  While the fundamentals of ethanol production have remained constant, the process technology has become quite sophisticated.  There are now two general types of processing facilities, known as wet mills and dry mills that produce fuel-grade ethanol in the United States.

Wet mills are also commonly known as corn refineries.  These facilities produce starch, ethanol and corn sweeteners, along with corn oil, corn gluten feed and corn gluten meal.  Both corn gluten feed and meal are sold into the animal feed market.  Dry mills use simpler technology to produce ethanol and distillers dried grains (DDG) that are also sold as a high-quality feed ingredient.  So, one of the myths about ethanol production, that it is taking corn and wasting it to produce fuel, is immediately dismissed when you look at the array of products that come out of ethanol plants.  Products for both human and animal consumption are co-produced with ethanol.  Producing ethanol simply utilizes the relatively low-value starch in the grain while leaving behind vitamins, minerals, fiber, oil and protein to be utilized in higher-value markets.

Ethanol production is becoming more efficient.  Modern technology makes it possible to build a state-of-the-art, cost-effective dry mill ethanol plant for about $1.15 per installed gallon of annual production.  Most of the new ethanol production capacity is dry mill technology using a farmer coop business structure.  However, technological improvements throughout the industry have driven the cost of producing ethanol down dramatically.  A 1986 report by the USDA Office of Energy predicted that the cost of producing ethanol in 1995 would be $2.11 per gallon.  Instead, those costs were about $1.15 per gallon in 1995, and industry surveys now suggest that the industry average production cost is in the range of $0.95-to-$1.10 per gallon.  Therefore, Mr. Chairman, research is making a difference, costs are coming down, and they will continue to come down as long as this Committee and the Congress support expanding energy supplies and finding new uses for corn and other commodities.

Ethanol facilities are not only cost effective; they are energy efficient.  A recent study by the Argonne National Laboratory found that for every 100 BTUs of energy used to produce ethanol, 135 BTUs of ethanol are produced.  That is because corn plants are really very efficient solar panels that are grown using very efficient agronomic techniques.  USDA analysis has found that corn farmers use about half the energy to produce a bushel of corn than they did just 25 years ago.  Therefore, the myth that it takes more energy to produce a gallon of ethanol than is contained in the ethanol itself is just that: a myth.

Because the energy balance for ethanol is positive, 1.35-to-1, that means the greenhouse gas benefits of ethanol are also positive.  The Argonne report provides an analysis of ethanol’s greenhouse gas emissions compared to gasoline.  Using ethanol produces 32 percent fewer emissions of greenhouse gasses than gasoline for the same distance traveled.  That is, the analysis considers the difference in the energy density of ethanol compared to gasoline.  If engines are optimized to use ethanol, mileage will increase along with greenhouse gas benefits.  Ethanol also reduces the emissions of other harmful pollutants like carbon monoxide, and ethanol displaces components of gasoline that produce toxic emissions.

Ethanol is a clean, energy efficient, environmentally friendly fuel that is produced at highly efficient production facilities that create jobs and economic opportunity for rural communities where they are located.  Since the introduction of these new dry mill technologies, the additional opportunity for farmer ownership in ethanol cooperatives has increased.  That is why we believe that ethanol is a win-win, because it is good for the environment and good for the economy.

Last year, ethanol production set a new record, utilizing more than 600 million bushels of corn, or about 6.5 percent of the crop to produce 1.63 billion gallons of fuel ethanol.  Corn demand created by ethanol kept valuable farmland resources in production, adding as much as $3 billion to the income of our corn farmers.  While ethanol is an unqualified success today, our members continue to be concerned about the future of the industry and our ability to attract support for ethanol and other renewable fuels as part of the Administration’s energy policy.  That is why NCGA has established an Ethanol Task Force to help develop a strategy that uses market analysis as the basis for sound legislative strategy.  We have also established partnerships with other farm organizations that have a similar interest in renewable fuels. 

Certainly, there will be energy legislation in the 107^th Congress.  Several bills have been introduced and the White House is expected to release the outlines of a comprehensive energy strategy in the near future.  The very first item on our ethanol/energy agenda for the 107^th Congress is to give renewables like ethanol and biodiesel a significant role in the national energy policy.  This is critically important for the future of farmers and rural communities because of the new economic opportunities that an expanding renewable energy industry will provide.

While we strongly support the development of renewable energy across the nation, we also support working within the current regulatory framework to provide refiners and blenders of gasoline and diesel fuel with the greatest possible flexibility so that supplies of fuel that are critical to the economic health of the nation continue to expand.  These measures would include, but are not limited to regulations that recognize the benefits of reducing carbon monoxide emissions, or the greater flexibility that comes with allowing refiners to use full oxygen averaging in their reformulated gasoline production.

The Current Situation

The 1990 Clean Air Act Amendments established a comprehensive program to clean up the nation’s gasoline supply in an effort to significantly reduce ozone smog and toxic air pollution throughout the country.  Specific requirements were established for the most polluted cities under the reformulated gasoline (RFG) program. 

The RFG program established both general requirements and performance standards for all gasoline certified and sold as RFG.  In addition, anti-dumping requirements prohibit dirty components removed from gasoline to make RFG from being dumped back into conventional gasoline, thereby making the conventional gasoline dirtier.  One of the important general requirements of the RFG program is the oxygen requirement. This provision has been the lifeblood for creation and expansion of the ethanol industry.  RFG is required to contain 2-percent oxygen by weight on average.  Oxygenates like ethanol and methyl tertiary butyl ether (MTBE) provide oxygen for clean burning, and clean octane to replace other components of gasoline that contribute to ozone smog formation and toxic emissions. 

Ethanol has only been used in about 15 percent of the RFG produced on an annual basis since the RFG program was implemented in 1995, despite the fact that the ethanol industry is capable of producing enough ethanol to replace virtually all of the MTBE used in the program today.  Nonetheless, NCGA has strongly supported the RFG program and the oxygen requirement.  That is why we are particularly disturbed when some have suggested that without MTBE, the RFG program with an oxygen requirement is no longer necessary.  NCGA does not support piecemeal changes to the RFG program.  Such changes would undo the delicate balance achieved by the combination of the general requirements and performance standards resulting in both environmental backsliding in our most polluted cities and economic devastation for rural communities.

We continue to support maintaining the environmental benefits of the fuel programs affecting every gallon of gasoline consumed in the Unites States today as provided by the general requirements and performance standards of the RFG program and the anti-dumping requirements for conventional gasoline.  Additional environmental benefits that may result from using renewable fuels should be supplemental to the benefits already accounted for in these programs. 

We also recognize that improvements in both vehicle and fuel technology will continue to reduce emissions from automobiles in the future.  Currently some are advancing the argument that clean fuels are possible without using ethanol or other biofuels.  While this is certainly not true today, it may be tomorrow.  NCGA has done extensive analysis on the use of oxygenates in California gasoline, and we have concluded that completely removing oxygenates from the gasoline pool in California would be detrimental to air quality throughout the state and would likely have a negative impact on gasoline supply.  We believe the same is true for the nation as a whole.  The current RFG program, without an oxygen requirement, would not deliver equal environmental benefits and gasoline supply would be significantly smaller.  This is a situation that cannot benefit the environment or consumers.  For these reasons, NCGA will not support any legislation aimed at changing the RFG program unless it is part of a comprehensive reauthorization of the Clean Air Act fuel programs and related titles.

However, the renewables issue is about much more than clean fuel.  It is also about rural development, energy security and the efficient use of our natural resources and the investments of thousands of farmers in value-added agriculture.  That is why NCGA supports developing a comprehensive national energy strategy that includes a renewable fuel content standard, and provisions that encourage the development of value-added agricultural industries.

Policy Recommendations

NCGA has established an Ethanol Task Force, of which I am a member, in part to develop a legislative strategy on ethanol issues in the 107^th Congress.  The Task Force has developed a 6-point plan that outlines our legislative goals for ethanol.

1. Support a renewable fuels content standard in the energy bill that will likely move through Congress.  NCGA has been working with other agriculture groups and the ethanol industry to develop a proposal that would establish a renewable fuel standard of 0.8 percent beginning in 2002 and growing to 1.7 percent by 2011.  If all of the requirements were met using ethanol, the standard would require about 2 billion gallons of ethanol in 2002 and slightly more than 5 billion gallons in 2011.  These are goals that are easily met by current and planned production capacity.
   
   
2. NCGA supports efforts that achieve an orderly elimination of MTBE from the gasoline supply while preserving adequate gasoline supplies for consumers.  Eleven states and the city of Chicago have all recently banned MTBE use within these borders.  An additional 14 states are considering similar legislation in their current legislative sessions.

3. The gasoline supply system is under stress and needs more flexibility in order to maintain adequate supplies at reasonable prices. NCGA is committed to working in the regulatory and legislative arenas to provide flexibility for refiners and blenders under clean air laws.  For example, we believe allowing refiners the greatest flexibility to average their oxygen content requirement in RFG would provide significant flexibility for refiners.  Full oxygen averaging is allowed under current law and would only require a relatively simple administrative change.  We have heard our fuel customers call for flexibility and are willing to work with them.  However, let me be very clear:  Proposals to eliminate the oxygen standard are not part of our flexibility plans!

4. Biofuels like ethanol and biodiesel provide energy, economic, environmental and energy security benefits.  We believe these products should have assessed tax rates that make them preferred in the market because of these benefits.  Ethanol and biodiesel production facilities that are farmer-owned add value to agricultural commodities and economic opportunity in rural America.  Tax rates and benefits for these facilities should also be encouraged.  We especially support the changes in the Small Ethanol Producer Tax Credit like those contained in H.R. 5279 introduced in the 106^th Congress that will make it available to more types of cooperative business structures than is currently the case.  Congressman Thune has assured me that he intends to reintroduce this legislation in the near future.  In addition, we are also concerned that some states are being penalized with regard to Highway Trust Fund receipts when they use ethanol.  To alleviate this problem in part, we support changes in the tax code that will direct all revenue from ethanol-blended gasoline that currently goes to deficit reduction into the Highway Trust Fund.
   
   
5. While recognizing the need for flexibility, NCGA maintains a strong commitment to the environmental and policy goals of the Clean Air Act Amendments.  That is why we have strongly supported proposals that recognize the environmental benefits of ethanol, especially efforts to tighten requirements on aromatic content in gasoline and toxic emissions.  This principle is central to our position that changes in the oxygen requirement must be accompanied by other changes in gasoline composition if environmental backsliding is to be avoided.
   
   
6. We support the newly established CCC program that is part of the USDA biofuels initiative.  This program could be responsible for the addition of more than 245 million gallons of additional ethanol production this year.  And by reducing the cost of that production, the program increases energy supplies at a lower cost while creating additional demand for farm commodities.  This limits budget exposure from loan deficiency payments and provides overall savings in government outlays.  This program needs to be continued on a long-term basis and should be authorized in the farm bill.
   
   

NCGA also supports additional efforts by the Congress and specifically the Agriculture Committee and this Subcommittee, to do more to encourage value-added agriculture.  As I said at the opening of my testimony, Mr. Chairman, ethanol is the biggest value-added success we have in agriculture.  What will be the next ethanol and how are we going to find it?  NCGA has developed a strong and committed research agenda that is aimed at finding and commercializing the next ethanol, but we also need the help of the Federal research establishment if we are going to make these breakthroughs and commercialize these new products and processes.  We need more innovation in programs that help farmers invest in the industries of the future, industries based on the carbohydrate economy.  NCGA will work with the Members of the Subcommittee to make value-added agriculture a reality in the next farm bill.

Finally, Mr. Chairman, NCGA believes that the Congress is faced with a difficult set of policy choices regarding energy and environmental policy.  Our approach is to decouple them legislatively because making energy policy inside the Clean Air Act is politically difficult at best.  Rather we support a two-track approach.  First, the development of a comprehensive energy strategy that includes a renewable fuels requirement that complements the current oxygen requirement in the RFG program.  Then, if necessary, we would support a comprehensive reauthorization of the Clean Air Act where new developments in fuel and vehicle technology can be considered through the critical lens of analysis that our environmental policy demands.  Such a course would provide the renewable fuels industry the necessary signals needed to attract additional investment while maintaining the environmental benefits of current law that has provided millions of Americans with cleaner air.

Mr. Chairman, this concludes my statement.  I will now be happy to answer any questions you or the Members of the Subcommittee may have.

ST. LOUIS OFFICE

WASHINGTON D.C. OFFICE