GRANDFATHERING.

7. GRANDFATHERING. • For those ethanol facilities fired by natural gas or biomass or a combination thereof which were in operation before or that commenced construction after December 19, 2007 but before January 1, 2010, the grandfathering provision is without expiration, and the grandfathered volume includes a 5% tolerance above operating capacity: • Today’s rule defines permitted capacity as 105% of the maximum permissible volume output of renewable fuel allowed under operating conditions specified in all applicable preconstruction, construction and operating permits issued by regulatory authorities (including local, regional, state or a foreign equivalent of a state, and federal permits) If the capacity of a facility is not stipulated in such air permits, then the grandfathered volume is 105% of the maximum annual volume produced for any of the last five calendar years prior to 2008. [p.49.]

8. Future Expansion after January 1, 2010. EPA is determining that ethanol produced from corn starch at a new facility (or expanded capacity from an existing) using natural gas, biomass or biogas for process energy and using advanced efficient technologies2 that we expect will be most typical of new production facilities will meet the 20% GHG emission reduction threshold compared to the 2005 baseline gasoline. [p.18.] Models are estimating that approximately 681 million gallons of biodiesel can be produced from nonfood grade corn oil from extraction by 2022 in the Control Case. [p.356.] 2 Technology enhancements likely to occur in the future [include] the addition of corn oil fractionation or extraction technology, membrane separation technology, combined heat and power and raw starch hydrolysis. [p.21]

9. Renewable Biomass Compliance EISA prohibits the generation of RINs for (any) renewable fuel made from feedstock that does not meet the definition of Renewable Biomass, which includes not meeting the associated land restrictions. There are seven kinds of feedstock which qualify as renewable biomass: Planted crops and crop residue; Planted trees and tree residue; Animal waste material and animal byproducts; Slash and pre-commercial thinnings [of forests]; Biomass obtained from the vicinity of buildings at risk from wildfire; Algae; and Separated yard or food waste [part of Municipal Solid Waste (MSW)]. Aggregate Compliance Approach. For item (1) above, Planted crops and crop residue: EPA is deeming renewable fuel producers using domestically grown crops and crop residue as feedstocks to be in compliance with the Renewable Biomass requirement, and those producers need not comply with the record-keeping and quarterly reporting requirements as established for the non-crop based biomass sector [items (2) through (7) above]. [p.30]

10. Restrictive Definition of “Agricultural Land”. This statutory choice of definition of eligible lands for renewable biomass feedstocks is seen as restrictive. It excludes rangeland. It excludes any kinds of cropland, pastureland, and CRP not in cultivation or cleared before December 19, 2007, and not continuously under cultivation since that time. Following is a list of the nine types of land, the acreage of each, and the total from the 2003 USDA-NRI survey: Cropland & pastureland 367.9 million acres (includes all row crops) CRP land 31.5 Subtotal 399.4 million acres (agricultural land) Other Pasture land 117.0 (not actively managed) Range land 405.1 Forest land 405.6 Other rural land 50.2 Developed land 108.1 Water area 50.4 Federal land 401.9 Total land 1937.7 million acres (all land in lower-48) The USDA-FSA database adopted in the Final Rule shows for 2007 a subtotal of 402 million acres of eligible agricultural land, of which 365 is cropland and 37 is CRP.

13. Categories of Transportation Fuel Consumed in the US, including RINless Biofuel. Renewable fuel producers using feedstocks from domestic planted crops and crop residue will be presumed to meet the renewable biomass provision. Under this "aggregate compliance" approach, these producers will be generating RINs for all their renewable fuel. [p.100] Fuel producers whose fuel does not qualify as renewable fuel under this program because it does not meet the 20% GHG threshold (and is not grandfathered) can still produce biofuel but will not be allowed to generate RINs. Transportation fuel consumed in the U.S. will therefore be comprised of three groups: [1] fuel subject to the standards (gasoline and diesel), [2] fuel for which RINs are generated and will be used to meet those standards, and [3] RINless biofuel. [p.100]

14. Categories of Transportation Fuel Consumed in the US, including RINless Biofuel, continued The volume of RINless biofuel is likely to be small compared to the volume of renewable fuel with RINs since RINs have value and producers currently have an incentive to generate them. However, if in the future RIN values should fall—for instance, if crude oil prices rise high enough and the market drives up demand for biofuels—the incentive to demonstrate compliance with the renewable biomass definition may decrease and there may be an increase in the volume of RINless biofuel. Under such circumstances it may be appropriate to reconsider whether RINless biofuel should be designated as an obligated volume subject to the standards. [p.101]

15. Economic Impacts. The net benefits will total between $13 and $28 billion per year. Corn price will rise 8.2% and soybeans by 10.3%, leading to increased farm income of $13 billion—but with increased food costs of $10 per capita. Corn exports will decline by 8% and soybeans by 14%. EPA does not provide an analysis of soybean oil and meal supply-demand, and the question of how soybean crush could increase enough to enable an annual 1 billion gallon biodiesel standard without the soy complex “drowning in meal” is not clear.

16. California’s Low Carbon Fuel Standard (LCFS) Pursuant to AB32, the Global Warming Solutions Act of 2006, the California Air Resources Board (CARB) issued proposed regulations for its LCFS in March, 2009. The regulations show midwest ethanol as non-complying after the year 2012. The Obama EPA, in July, 2009—reversing an earlier decision by the Bush EPA—granted California a waiver of the federal Clean Air Act (CAA), permitting the State to enact its own LCFS under AB32. The Obama EPA waiver excluded the CAA’s RFS from its finding, ruling that California’s exceptional air and water quality problems would be specially affected by global warming. The CARB LCFS regulations were made final in December, 2009, and January, 2010.

19. California’s Low Carbon Fuel Standard (LCFS), continued The Renewable Fuels Association (RFA) and others filed lawsuits seeking a permanent injunction of the California LCFS, on the grounds that the elimination of the California market for midwest ethanol violates federal law, specifically the supremacy and interstate commerce provisions of the US constitution, and the grandfathering clauses of EISA 2007. Some republicans in California are seeking to place on the November, 2010, state ballot an initiative to revoke AB32 until such time as the state’s unemployment rate returns to 5% (vs. 12.3% presently). From a practical standpoint, it is not clear how the state’s non-attainment regions under the CAA will import enough ethanol (over a billion gallons at E-10) to serve as the required chemical oxygenate, nor how the state’s obligated parties will generate enough RINs for compliance with RFS2 without actually importing midwest ethanol.

20. Clean Air Act Waiver for E-15 Clean Air Act Section 211(f) prohibits use in motor vehicles of any fuel or fuel additive which is not substantially similar to fuel and fuel additives utilized previously to certify emission levels of vehicles and engines. Ethanol at 10 percent in gasoline (E-10) was given a waiver of Section 211(f) in 1978. Growth Energy and 54 ethanol makers requested a waiver of Section 211(f) for ethanol at up to 15 percent of gasoline (E-15) on March 6, 2009. EPA replied to Growth Energy’s request on December 1, 2009, acknowledging that: “The EPA Administrator may grant a waiver for a prohibited fuel or fuel additivr if the applicant can demonstrate that the new fuel or fuel additive will not cause or contribute to engines, vehicles, or equipment failing to meet their emissions standards over their useful life.”

21. Clean Air Act Waiver for E-15, continued EPA replied further to Growth Energy: “Although all of the studies have not been completed, our engineering assessment to date indiactes that the robust fuel, engine and emissions control systems on newer vehicles (likely 2001 and newer model years) will likely be able to accommodate higher ethanol blends, such as E15.” Should our results remain supportive and provide the necessary basis, we would be in a position to approve E15 for 2001 and newer vehicles in the mid-year [2010] timeframe.” Problems: How to handle 20% cars older than 2001 Re-doing RFG regulations which limit oxygenate to 10% (Possible new, lower ozone limits expands RFG) Re-doing state regulations and ASTM standards for eqpmnt Splash blenders vs. integrated refiners re opportunity margin Likely to require 2 to 4 years for significant impact on ethanol demand.

23. “We know that our planet’s future depends on a global commitment to permanently reduce greenhouse gas pollution. We know that if we put the right rules and incentives in place, we will unleash the creative power of our best scientists, engineers, and entrepreneurs to build a better world.” [Speech at United Nations, September 23, 2009, reported in NYT.] We should pass legislation that would make “the best use of resources we have in abundance, through clean coal technology, safe nuclear power, sustainably grown biofuels and energy we harness from wind, waves and sun.” [Speech at MIT, October 24, 2009, reported in NYT.] Large farmers are well positioned to replace [farm] payments with alternate sources of income from emerging markets for environmental services, such as carbon sequestration, renewable energy production, and providing clean air, clean water, and wildlife habitat.” [Obama Budget, Feb-09.] OBAMA’S POLICY on ENERGY and the ENVIRONMENT

24. In HR 2454, “Offsets reduce the cost of compliance for covered entities which results in smaller increases in allowance prices that are the passed on to consumers—including farmers—as increased energy prices.” “Offsets are a potential income source for agricultural producers and forest landowners through changes in land management practices (e.g., reduced tillage, increased fertilizer efficiency, afforestation/tree planting), animal management (e.g., dietary modifications), and manure management (e.g., biogass capture).” “The ability to generate and sell offsets provides an additional source of farm income which can more than compensate for any loss in income due to higher energy costs [from nationwide/worldwide compliance].” ENVIRONMENTAL SERVICES—Also known as GHG Offsets(from Testimony of USDA’s Chief Economist, 12-3-09)

25. In HR 2454, the 17% reduction of GHG emissions by 2020 (from the current approximate 6,000 million metric tons per year) would be facilitated by creation of up to 1,000 million metric tons per year of domestic offsets and another 1,000 MMT of international offsets. USDA estimates that with a a carbon price increasing to $16.31 per ton in 2020, some 148 MMT of domestic offsets could come from agriculture—132 MMT of which would be from afforestation of 8.5 million acres of pasture and 6.0 million acres of cropland. Devotion of this much pasture and cropland would reduce crop production, raise crop prices, and enable a $2.4 billion increase in gross farm income by 2020, which would be passed on to consumers in slightly higher food prices. If the programs are extended to the year 2050, then some 422 MMT of domestic offsets could come from agriculture, enabling a $30 billion increase in farm income, from land use changes of 35 million acres of cropland and 24 million acres of pasture—and greater increases in food price. ENVIRONMENTAL SERVICES—Also known as GHG Offsets, CONTINUED(from Testimony of USDA’s Chief Economist, 12-3-09)

26. Yes, many people, and their elected representatives, are true (quasi-religious) believers, including many academic modelers But no, economically and politically We don’t have the money to execute a “grand plan” No genuine “world government” is in place to oversee the plan; in fact the world is at war in many regions We cannot agree to massive financial transfers to China and India to “help,” on the order of $200 billion per year. We face political instability ourselves without continuing solid economic growth, as crude oil price in IEA forecast hits $190/bbl. Cap & Trade vs. Blue Sky AssumptionsIs the World Ready to Save the Planet?—It Costs Only $10 Trillion and We Get Most of It Back!(per the IEA)