Testimony of Roger Johnson
Agriculture Commissioner
House Bill 1309
Senate Transportation Committee
Lewis & Clark Room
February 28, 2003

Chairman Trenbeath and members of the Transportation Committee, I am Agriculture Commissioner Roger Johnson. I am here today to offer testimony on HB 1309, which as amended, now only relates to a corporate income tax credit for a portion of the cost of retrofitting a facility for producing or blending diesel fuel containing biodiesel fuel.

HB 1309, in its original form, required that diesel fuel contain 2% biodiesel by July 1, 2007, provided that plants in this state have a production capacity that exceeds five million gallons and provided that a federal incentive is in place that reduces the price of fuel containing biodiesel by 2%.

I would urge this committee to amend the engrossed version of HB 1309 and add back in 2% biodiesel requirement in diesel fuel into this legislation. These provisions are certainly appropriate and should seem to provide ample "ramp up" time and appropriate predictability for the industry.

Biodiesel is the name for a variety of ester-based oxygenated fuels made from soybean oil or other vegetable or animal fats. Biodiesel can be used as a pure fuel and as a blending stock with petrodiesel. According to the ND Soybean Council, 25 retail locations in North Dakota currently offer biodiesel for sale to their customers.

Although biodiesel can be made from vegetable or animal plants, North Dakota's focus is primarily on biodiesel produced from soybean oil. Soybeans are a plentiful cash crop in North Dakota, with Cass County as the #1 soybean producing county in the country (2001).

Based on statistics compiled by the North Dakota Soybean Growers Association, approximately 3% of North Dakota's soybean production would be processed and utilized as biodiesel if the 2% biodiesel requirement in diesel fuel was put in place. North Dakota's annual diesel usage is approximately 162,422,000 gallons. The ND State Fleet's annual diesel usage is 900,000 gallons.

Biodiesel can be substituted for petroleum diesel in virtually any standardized diesel engine. And, used in small percentages (as proposed in this legislation) biodiesel can dramatically increase the lubricity of diesel fuel. Since the implementation of EPA regulations that require reduced sulfur content in diesel fuel from 5000 to 500 parts per million, significant wear problems have emerged in high-pressure diesel fuel pumps. These problems are expected to increase as EPA attempts to phase in an additional sulfur content reduction of diesel fuel to 15 parts per million by 2007. Biodiesel may very well be the best lubricity additive on the market, thus becoming an even more important renewable fuel. (A copy of "Commonly Asked Questions," compiled by the National Biodiesel Board (February 2002) is attached for your information.)

We can and must do more to promote the production and usage of renewable fuels such as biodiesel. The US marketplace is too often overlooked by agriculture as we focus on acquiring new international markets. Biodiesel and ethanol are great examples of new demand as opposed to displaced demand often resulting from new international markets. Both are important, but new demand results in a bigger pie, not just a bigger piece of the old pie.

I believe that a combination of the 2% requirement and corporate tax credits will provide appropriate incentives and requirements for the use of biodiesel in the state of North Dakota. I would urge this committee to amend the first engrossment of this legislation to include a 2% requirement for biodiesel in diesel fuel, contingent on the conditions set forth in the original legislation. Chairman Trenbeath and committee members, I would be happy to answer any questions you may have.