Strategic Directions in Socio-economic Issues

1. Strategic Directions in Socio-economic Issues September 1, 2014 Paul Willems, TVP Energy BiosciencesEBI Associate Director

2. Outline • Socio economics in EBI • Big picture energy context & where do biofuels fit in • Going after climate change • Energy efficiency • Electricity • Transport • The case for biofuels • Policy • Biomass availability • Land availability • Economics Land use Agricultural Intensification

3. EBI socio-economics agenda • Be the trusted source for science underpinning policy • Not involved in any lobbying • We provide data, policy analysis and tools for policy implementation • Open to collaboration with other institutions with similar values • Enable ‘biofuels done well’ and avoid repeat of GMO introduction • Thinking ahead about tomorrow’s issues • Funded by BP, but not an agent of BP

4. Oil supply and cost curve Availability of oil resources as a function of economic price Source: IEA (2005)

5. Energy use grows with economic development energy demand and GDP per capita (1980-2002) US Australia France Russia S. Korea UK Japan Ireland Greece Malaysia Mexico China Brazil India Source: UN and DOE EIA

6. - industry - transport - buildings - power Rapid Demand Growth Across All Sectors Global Energy Demand Growth by Sector (1971-2030) Energy Demand (bnboe) Key: Source: IEA WEO 2004

7. Key: - oil - coal - modern renewables - hydro - nuclear - gas Fuels Mix Projected to Remain Similar Global Primary Energy Supply by Fuel*: 2030 2002 * - excludes traditional biomass Source: IEA 2004

8. Source : IPCC 4 report, 2007

9. Natural Gas Reforming Syngas Conversion • FT • Oxygenates • Chemicals Fuels Gasification Coal Chemicals Power Generation Biomass Enzymatic/Biological Conversion Electricity Refining Processes -coking • hydro-treating • novel thermal processes Extra Heavy Oil CO2 for EOR/Storage CO2 Capture the fungibility of carbon Primary Energy Conversion Technology Products

10. Energy efficiency opportunitiesUS example

11. Lower Carbon electricity via natural gas

12. US natural gas resources & production

13. Vehicle pathways (US$)

14. Vehicle pathways with biofuels(US$)

15. Enthusiasm for biofuels EU “The Biofuels Directive” • 2003 – Biofuel blend target of 5.75%2 by 2010 • 2007 – New blend target of 10%2 • Blenders subsidized by ~160 cpg • Farmers protected by ~60 cpg import tariff “Climate change” • 130 g/km CO2 reduction by 2012 • 95 g/km by 2020 • Ability to address multiple policy objectives • Relative ease of introducing liquid fuels at scale into existing fuel pool / infrastructure / vehicles • Technology solutions to support sustainable growth Agricultural Support Energy Security GHG Reductions US • 2007 Energy Independence and Security Act • Gasoline blend target of 36B1 gal by 2022 (21B gal produced from LC feedstock) • Blenders subsidized by 51 cpg • Farmers protected by 54 cpg import tariff Brazil • 1970: Petrobras tasked to diversify energy sources • Tax incentives to encourage investment • Deregulated in 1990s • Industry now self sufficient 1. 23% of gasoline pool 2. By energy content not volume Source: IEA, EU Policy, USDOE, BP Biofuels and BCG team analysis

16. Significant growth potential World biofuel penetration – consensus range Volume blpa 19% Penetration of gasoline & diesel demand in 2030 11% announced regulation

17. Actual penetration will depend on a range of factors Constraint type Bioethanol Biodiesel Economic Economics of ethanol vs. gasoline Economics of ethanol under different carbon prices Timing of LC commercialisation, and production cost of LC versus conventional ethanol Economics of biodiesel vs. ethanol Economics of biodiesel vs. diesel/oil price Potential technological breakthrough in biodiesel production Supply Ability of market to grow engineering capacity, production capacity, infrastructure, logistics, distribution Trade flow restrictions (tariffs, quotas) Timing of LC commercialisation Debate on food vs. fuel, sustainability Potential technological breakthrough in biodiesel production Vegetable oil supply limitations Vehicle fleet ability to absorb ethanol Ability to get past E10 FFV growth Mandated demand levels as ‘floor’ Debate on food vs. fuel, sustainability Mandate levels in key markets Vehicle fleet ability to absorb biodiesel Demand

18. A spectrum of possibilities Feedstocks corn, sugar cane, energy grasses Agricultural practices intensity, fertilizers, water use, social impacts etc Process optimization pretreatment, conversion, renewable fuel use Biofuels done badly Biofuels done well Greenhouse gas balance well-to-wheel emissions Economic competitiveness versus gasoline, diesel, with/without subsidies Fuel quality Performance in engines, energy density

19. Land

20. Other crops Nonarable 6.9% 34.4% Forest & Savannah 30.5% Cereal 4.6% Pasture & Range 23.7% Global Land Use AMBIO 23,198 (Total Land surface 13,000 M Ha) Courtesy of Chris Somerville

21. US Agricultural land use has declined http://www.ers.usda.gov/briefing/Baseline/crops.htm

22. A Billion acres of agricultural land has been abandoned globally

23. Some biomass species can be grown on saline land, not suitable for agriculture Region Area (106ha) Africa 69.5 Near/ Middle East 53.1 Asia and Far East 19.5 Latin America 59.4 Australia 84.7 North America 16.0 Europe 20.7 Saline soils (FAO) Spartina growing in salt water (yield ~ 22 tons/ha)

24. Land Use • How much land is available, given the changing definition of ‘crops’? • How do we achieve proper land management policies globally? • All human activity has land use implications. How do we understand biofuels in the proper context? • Is the concept of indirect land use changes a useful policy instrument?

25. Biomass

26. US Biomass inventory = 1.3 billion tons Wheat straw 26 B gals ~ Corn stover 6.1% Soy 19.9% 6.2% Crop residues 7.6% Grains 5.2% Manure 4.1% Urban waste 2.9% Perennial crops 35.2% Forest 12.8% From: Billion ton Vision, DOE & USDA 2005

27. Crop yields have been strongly increased but biomass yields have not Average European forest yield Average Indiana corn yield Source: European Forest Institute (www.efi.fi) Indiana Agricultural Statistics Service

28. Global grain production with and without yield enhancements 2000 1500 1000 500 0 1964 1974 1984 1994 2004 Year Million Hectares Data from worldwatch

29. Future crops expand notion of ‘arable’ land

30. High yield decreases transportation and land costs 500,000 gal/day scenario Richard Hamilton, Ceres

31. Food and Fuel

32. Will long-term food price trend reverse? D. Dijk, Rabobank (2007)

33. Developing economies want feed & food

34. Global soybean imports

35. Agricultural intensification • How much yield improvement can be achieved over time in both agriculture and livestock operations through application of modern technology? • How much yield improvement could be achieved if we could simply apply existing technology to all applicable acres worldwide? • What are the environmental implications of crop and livestock intensification from a soil, water, air, habitat and biodiversity perspective? • What are the right government policies to promote both agricultural productivity and environmental quality?