COSTS AND BENEFITS OF A BIOMASS-TO-ETHANOL PRODUCTION INDUSTRY IN CALIFORNIA

1. COSTS AND BENEFITS OF ABIOMASS-TO-ETHANOL PRODUCTION INDUSTRY IN CALIFORNIA Pat Perez- Energy Commission May 8, 2001 23rd Symposium on Biotechnology for Fuels and Chemicals Breckenridge, Colorado

2. Purpose of Presentation Discuss why California is looking at biomass-to-ethanol opportunities Present Major Findings and Recommendations from March 2001 Study Present Key Challenges & Uncertainties Facing Ethanol Industry

3. State Budget Directive FY 2000/01 (Chapter 52) Determine the economic costs and benefits of a biomass-based ethanol production industry Assess the impact on consumer fuel costs from an in-state ethanol production industry and from imports Evaluate the impact on rice straw burning Provide recommendations on future steps

4. Why is California Looking at an In-state Ethanol Industry? Need to replace MTBE in Gasoline No MTBE after December 31, 2002 Capture economic and environmental benefits for California’s citizens Reduced wildfire risk Reduced air emissions from fires and agricultural burning Reduced landfilling of waste materials Lower dependence on imported ethanol

5. Major Study Findings • What are the economic impacts? • $1 billion over 20-year period, assuming state government incentives totaling $500 million for a 200 million gallon per year industry. • What is the impact on rice straw burning? • Rice straw burning in California will be curtailed in the near future under current air quality regulations. • Ethanol production would provide rice growers with an option to plowing rice straw into the ground to meet air quality regulations.

6. Major Study Findings • What are the potential impacts on consumer fuel prices? • Near-term: Uncertainty in securing adequate supplies of ethanol to meet needs could lead to escalating ethanol market prices with resultant increase in the cost of gasoline to consumers. • What are the potential forest and emission impacts? • Reduction in the frequency and intensity of forest fires and improved forest health. • Reduced emissions from wildfires and agricultural burning.

7. Major Findings - Economic Impacts State Cost (Assumed) Economic Forest Air 20% Capital, $0.40/gal Base Case (10% Capital $0.20/gallon) No State Cost, High Ethanol Price ($1,000) $0 $1,000 Personal Income ($ million NPV) over 20 years

8. Major Findings - Price of Ethanol Delivered to California 2.20 Near term price with US Ban on MTBE (45 U.S. facilities) 2.00 1.80 Ethanol Price ($/gal) 1.60 Long term price (75 production facilities) 1.40 1.20 1.00 400 600 800 1000 1200 1400 Ethanol Supply ( Million gal/year)

9. RecommendationsState Investment in Cellulosic Ethanol • The state should co-fund activities to advance commercially unproven technologies towards market readiness on an accelerated schedule. • The state should provide technical and financial support for one or more biomass-to-ethanol production projects to verify technical and economic performance of commercial scale demonstration facilities.

10. RecommendationsState Investment in Cellulosic Ethanol • The state should fund activities to enhance the availability and quality of cellulose resources for ethanol production. • The legislature should direct an appropriate state agency to develop and implement a market incentives program to increase the certainty of markets for California produced ethanol.

11. RecommendationsOther Steps to Foster Cellulosic Ethanol • Facilitate the communication among stakeholders for harvesting of forest materials for ethanol feedstock. • Develop appropriate revisions to state laws affecting use of agricultural and municipal waste and residues for ethanol feedstocks. • Siting, permitting and environmental impact assessment assistance to prospective biomass ethanol projects.

12. RecommendationsExploring Opportunities for Conventional Ethanol Production • The legislature should direct the Energy Commission together with the California Department of Food and Agriculture to study the costs and benefits, assess state resources, and determine appropriate forms of state support (if needed) for this type of ethanol industry.

13. RecommendationsMitigating Consumer Fuel Price Impacts • Due to the potential for price increases in ethanol imported into California with MTBE phase-out in California by December 31, 2002, actions are appropriate to reduce impacts on consumer’s fuel costs: • The legislature should direct the Energy Commission to explore means to increase the state’s ethanol import options, balance ethanol demand growth with available supplies, and limit ethanol price fluctuations.

14. RecommendationsExamining Other Renewable Fuel Options • California’s potential biomass energy opportunities include a variety of other approaches to producing liquid fuels, other forms of energy and co-products from waste and residual materials and agricultural commodities: • The state should continue to actively explore other technological paths that offer attractive means of supplying portions of the state’s future energy needs from renewable biomass resources.

15. Key Issues and Uncertainties • Ethanol Supply Issues • Federal Action on California Request for Waiver to Oxygenate Requirement • Can the U.S Ethanol Industry Meet California’s Needs by January 1, 2003? • Ethanol Demand • California could use over 40% of the Nation’s total ethanol capacity in 2003 • Ethanol from California cellulose biomass will not be available until 2004 - 2005

16. For More Information about Biomass-to-Ethanol Activities... Call Pat Perez, Project Manager Biomass-Ethanol Project • (916) 654-4527 • (916) 653-4470 • pperez@energy.state.ca.us or visit our web site at: www.energy.ca.gov/mtbe/ethanol/