STATEMENT
Of the Honorable Nydia M. Velázquez, Chairwoman
United States House of Representatives, Committee on Small Business
Full Committee Hearing: “The State of the Renewable Fuels Industry in a Struggling Economy”
March 4, 2009

In his joint address to Congress last week, President Obama made it clear that there can be no economic recovery without energy independence. Entrepreneurs are already leading that charge. Small biofuels producers are not only addressing climate change, but are helping to end our reliance on foreign oil. Just as importantly, they are creating new jobs and ushering in a stronger, greener economy.

The U.S is now home to 176 biodiesel plants, up from just 9 in 2001. Ethanol facilities are also on the rise. Thirty-one new plants opened in the last year, with facilities spanning 26 states across the country. These businesses are generating jobs for thousands of Americans and breathing new life into rural economies. On top of that, they are making serious strides in developing cleaner, sustainable oil alternatives—last year, production for biodiesel alone reached 690 million gallons.

But despite their recent progress and enormous potential, many of these businesses are now struggling to survive. With the price of oil relatively low, the country has been lulled into a false state of complacency. The call for renewable fuels—which once rang loud and clear—has since died down. Meanwhile, the growing recession has also taken its toll. For biofuels entrepreneurs, the effects have been nothing short of devastating.

Perhaps the greatest problem plaguing the renewable fuels industry is the diminished focus on energy prices. With oil hovering around $40 a barrel, demand for renewable fuels has fallen off considerably. Profits are down and, to make matters worse, so are investments. Most of us know it is only a matter of time before gas prices go up again. Unfortunately, many venture capitalists now view renewable energy as a long-term investment--one that few are willing to make in this uncertain economy.

For the biofuels industry, dwindling investor interest has been compounded by the recession. Credit is drying up, and banks aren’t making loans. Even lending through the USDA’s Farms Service Agency—traditionally a lender of last resort—has been jeopardized. Applications for FSA lending have shot up 200 percent since last year. The agency is now worried about meeting demand in the coming fiscal year.

The results of these drop-offs will be dire. Already, new construction for ethanol plants has slowed dramatically. At the same time, more than 25 facilities have closed nationwide, idling almost 2 billion gallons of fuel capacity. Businesses that have managed to survive are straining to meet even basic obligations like feedstock expenses.

Many biodiesel and ethanol providers committed to these contracts when grain and vegetable costs were at a premium. Though prices have plummeted, businesses are still locked in at record rates.

Two weeks ago, President Obama signed the American Recovery and Reinvestment Act into law. That bill includes more than $70 billion in energy measures. But while provisions within the stimulus will encourage greater use of renewable fuels, they will not address every challenge. That is why we are here today—to discuss viable fixes to the problem. Already, a number of potential solutions have been raised, from increasing the blend wall for ethanol to extending targeted tax incentives. In this afternoon’s hearing, we will examine a few of those suggestions.

When oil hit $147 a barrel last summer, biofuels looked like the best way out of a full blown energy crisis. Today, they are the best way out of a dormant energy crisis. These businesses are not only creating new jobs, but they are working to ensure we are not caught in the crosshairs when gas prices go up again. That’s more than energy independence—that’s economic independence, and that’s the new energy plan this country needs.