By Kristine Klavers Hart Energy Consulting

1. Biofuels Policy Developments Focus on USA & Brazil By Kristine Klavers Hart Energy Consulting

2. All about Energy

3. Provides data, analysis and reports globally on the following biofuel topics: Production and consumption; Production capacity and technologies; Quality specifications and regulations; Taxation, incentives, subsidies and related fiscal policies; Trade and tariff information; Government policy, legislation and regulatory developments affecting the biofuels arena. Analysts serve as a resource, facilitator, networker for our members Provides a neutral forum to discuss current issues through members-only Briefings and other fora NOT an advocacy group! We do not take positions but strive to present the best information available on the global biofuels market! What is the Global Biofuels Center?

4. Global Biofuels Center Members

5. Undercurrents: Global Population, Income, Mobilization, Vehicle and Product demand Global Fuel Quality Developments Biofuel Developments Focus on USA and Brazil Conclusions Presentation Overview

6. Our World is Changing Rapidly! • In 2006 Asia replaces North America (US and Canada) as Largest Refined Product Market in the World! • China and India hold 40% of all Global Population – Refined Product Markets Subsidized • China becomes 3rd largest global automaker in 2006 – replacing Germany • 2007 China to be Largest Contributor to Global GHG Emissions • New Trade Investments – China Changes the World • Middle East – China / Asia • South America – China • Even Canada – China / Asia • West – East shifts to North – South • …………..More Rapidly than we can Comprehend – or Fully Analyze!

7. More of Everthing! Total Passenger Miles Traveled / Region Real GDP Growth, 1990 v. 2006-2015 More Income More Travel World Petroleum Product Demand More Vehicles Bigger Demand Vehicle Per Person Source: International Fuel Quality Center (IFQC)

8. Increased Urban Air Pollution • 40% of urban pollution comes from transportation; commercial vehicles are the biggest problem • 99.8% of these vehicles use conventional liquid fuels today

9. Climate Change • Global energy-related CO2 emissions will increase by 55% between 2004 and 2030 • The fastest annual growth in emissions occurs in the transport sector, averaging 1.3% annually • Industrialized nations highest per capita emissions of GHG yet Developing countries over 3/4 of the increase in global CO2 emissions between 2004 and 2030

10. Recognize the Differences

11. Fuel Quality Still the Basis Lead Removal Volatility Controls & Oxygenate Introduction ------ Cat. Converters Initial Benzene & Sulfur Reduction Olefin & Aromatic Content Limits Sulfur Elimination & Additional Composition Controls ------ Advanced Emission Control systems Introduction of Renewable Fuels (Biofuels) Objective: Control Emissions of Traditional Air Pollutants Objective: Energy Security & CO2 Reduction Current Status Japan W. Europe L.America Africa North America Middle East Most Asia Pacific

12. Lead Phase Out Success? • Leaded gasoline represented 57% of gasoline pool in 1990 and 40% in 1996. • Today, leaded gasoline represents just 8% of the pool. 1996 • 21 countries still use leaded gasoline, the bulk in CIS, Middle East and parts of Asia and Africa. • Only 1 country in Western Hemisphere still using leaded gasoline (Cuba). January 2006 Source: International Fuel Quality Center, 2006

13. Sulfur Down to Ultra Low Limits Source: International Fuel Quality Center, June 2006

14. Stricter Emissions Specifications Overview of Current and Future Heavy Duty Diesel Vehicle Emission Limits, (g/kWh) Emission Limits for Gasoline Vehicles (EU) Source: Renault, 2003

15. Energy Security: Peak oil Supply Diversification = renewable energy, new energy sources (Synthetic fuels, Tar sands, ….) Demand Growth & Shift: Primary energy demand growth projected at ~ 50% by 2030. By 2030 ~65% global energy from hydrocarbon energy Developing countries economic growth & purchasing power booming Climate Change: An international policy priority Link between GHG & climate change undisputable Regulatory impacts: EU emissions trading scheme, US State regulation, EU/CARB low carbon standard etc.. Environmental Policy Requirements: Local emissions to air, water and soil Water usage Clean fuels New World Energy Challenges Challenge: Meet demand & reduce environmental footprint!

16. The Role of Biofuels

17. Regional Biofuels Policy Review • US & Canada • RFS finalized, AFS to increase biofuels usage. New round of energy legislation being considered by congress will increase biofuels production and use further. • Low carbon fuels • US: Biofuels as foreign policy? • Canada proposing own RFS • Renewable diesel, palm biodiesel a problem • Biodiesel quality unacceptable • Cellulosic much hyped, R&D not funded • Boutique “Biofuels” in the states • Europe • Largest user of biodiesel in the world. 2010 Biofuels Directive will not be met. • Looking at sustainability criteria • Germany largest biodiesel market. New taxes squashed the market. • Capitalizing on potential of ETBE • Non-mandatory biofuels targets now, will change • Tax incentives v. mandates • Leading rapeseed oil producer • Latin America • Brazil world champion for ethanol • To grow market in Brazil, huge infrastructure investments needed • Flexi-Fuel Vehicle market exploding!! • Venezuela: Proyeto Etanol?? • Argentina: Will become huge biodiesel exporter!! • Ethanol programs aim to support failing sugar industry and boost soy, palm • International Biofuels Forum • Africa • Interest from several countries to start domestic programs • Brazil to help with expertise • South Africa in lead • Asia • Lots of trials/pilot projects • Huge opportunity for palm producers in Indonesia, Malaysia • Generally seem to set specs first before wide introduction • Japan looking at ETBE • China 3rd largest global ethanol producer, exported to US in ’06 • APEC Biodiesel quality standards

18. 1st Generation Biofuels Vegetable Oils from Trans-esterification Biodiesel Hydrotreatment Sugars from Fermentation Ethanol • Drivers for development of Biofuels • Energy Security • Rising Oil Prices • Global Warming • Rural Development

19. Biofuels Production Capacity 87% U.S. 96% Brazil Source, Global Biofuels Center, 2007

20. Renewable Fuels Outlook 2020 • Alternative liquid transportation fuels expected to grow at 7.3%, from 2.3 to 5 million BPD. • Biofuels expected to grow at 15% pa, from 430 BPD to 2.2 million BPD. • With mandates, biofuels could grow to higher levels • Feedstock diversity will become increasingly important with coal, NG and renewable playing a bigger role

21. Summary of Major, Current Trade Flows Ethanol Biodiesel Palm

22. Common Biofuels Feedstocks E=Ethanol, B=Biodiesel • Europe • E: Sugarbeets, wheat • B: Rapeseed • North America • E: Corn, barley, wheat • B: Soy, canola, cooking oil, tallow, palm Recent GBC analysis shows more than 100 feedstocks currently in use or contemplated for biofuels production! Prime Feedstock Growing Area • Latin America • /Caribbean • E: Sugarcane, corn • B: Soy, palm • Asia • E: Sugarcane, corn • B: Palm, jatropha, cooking oil, tallow, coconut • Africa • E: Sugarcane • B: palm, jatropha

23. Ethanol Blending Limits for

24. B100 for blending Biodiesel Blending Limits

25. Selected Ethanol Excise Tax Incentives Source: Global Biofuels Center, April 2007

26. Selected Biodiesel Excise Tax Incentives Source: Global Biofuels Center, April 2007

27. Region: U.S.

28. Energy Policy Act of 2005 included RFS RFS (Renewable Fuels Standard) Cellulosic ethanol R&D Extended biodiesel tax credit, created new tax credit for lifted oxygenate requirement in RFG President’s Alternative Fuel Standard (2007) 35 billion gallons of alternative fuels by 2017 Includes CTL, BTL, cellulosic ethanol, CNG, biodiesel President’s Executive Order now directing EPA to issue new regulations International initiatives: Biofuels as foreign policy Brazil-US Ethanol Initiative for Latin America International Biofuels Forum US-EU-Brazilian Partnership Public Policy Activities

29. Higher ethanol blends: “E10+” (e.g., E12, E15) 30 billion gallons by 2020, 60 billion gallons ethanol by 2030 EPA still reviewing Minnesota E20 petition Extension of ethanol and biodiesel tax credits Drop ethanol import tariff (“biofuels foreign policy”) Biodiesel producers promoting B5 in 5 (2012) Tax credit “loopholes” lead to new export opportunities Palm oil criticized as a feedstock in the US – has nothing to do with sustainability! Efforts to block “renewable diesel” by biodiesel competitors Biodiesel quality still a big problem in the U.S. Public Policy Discussions

30. RFS Percentage Standards Source: Compiled by GBC citing EPA RFS Final Rule, page 33.

31. California’s Low Carbon Fuels Standard Source: NRDC, June 2007.

32. RFS will be increased to 10 vol% of US gasoline by 2012-2015 or 15-16 billion gallons/year Higher level ethanol blends to start at E12-15, increase to 20% over time Ethanol and biodiesel tax credits will be extended to 2015 Ethanol tariff will be reduced post 2009, but not eliminated Biodiesel could see a mandate, likely B5, by 2010-2012 Renewable diesel will take off in the U.S., tax credit will be extended and stay at current level What Do We Expect?

33. Ethanol Production Growth Billion gallons/year Source: Compiled by the Global Biofuels Center, citing US EIA and RFA Data, February 2007.

34. China a newentrant! About an 80% increase in imports over 2005! Ethanol Imports, 2004-2006 Source: Compiled by Global Biofuels Center citing US EIA data, March 2007.

35. Ethanol Sales & Demand Range Source: Hart Energy Consulting, “Outlook and Impacts for Renewables in North American Refining and Gasoline Markets: 2006-2015,” 2006.

36. Biodiesel Production Growth Source: *Global Biofuels Center estimate (2006), National Biodiesel Board (1998-2005), February 2007.

37. Biodiesel Demand 2006-2015 Source: Hart Energy Consulting, “Outlook and Impacts for Renewables in North American Refining and Gasoline Markets: 2006-2015,” 2006.

38. Region: Brazil

39. Ethanol in Brazil Source: Petrobras, April 2006 • Support of agriculture & rural economies: • 0.5 M m3 can create 20,000 direct and 60,000 indirect jobs • Feedstocks: sugarcane • Energy independency: • Uses 15 ML of ethanol annually = 40% less fossil fuel consumption in transportation sector • Market share of ethanol in light vehicles 33% (2006)

40. Two Goals: “Our proposal is that other countries start producing ethanol. To become a commodity, we have to have several suppliers in the global market.” Brazil will always be the low-cost producer, it can afford to help get other countries in Africa, Asia and Latin America into the global market to “commoditize” it. Increase sugarcane/ethanol production capacity and double exports by 2010 2010 Goal: 6.1 billion liters produced Top export markets: U.S., Japan, Sweden Ethanol in Brazil

41. Brazilian Ethanol Production Source: Global Biofuels Center, June 2007 citing data from UNICA

42. Internal Fuel Consumption, 2006 Source: Petrobras, June 2007

43. FFV Market Revolution • FFVs account for almost 80% of all new vehicles sales => will comprise 25% of fleet by 2010 • Consumers want to decide the fuel at the station; fuel price is one of the most important factors

44. Brazilian Ethanol Exports Source: Global Biofuels Center, June 2007 citing data from SECEX and UNICA

45. Top Ethanol Export Markets, 2006 Source: Global Biofuels Center citing data from SECEX and UNICA, June 2007

46. Infrastructure development huge issue Despite P. Lula’s reforms, slowest economic growth in Latin America, 3% because of it Logistics (Sound familiar?) New capacity in outlying regions present issues to get ethanol out of countryside and into the marketplace Need additional terminaling, storage and ports Exports cannot be doubled without addressing these issues Permitting can take two years with legal squabbles New legislation proposed to make would allow national, state or city governments right to issue permits based on project size, rather than project location With expansion plans come sustainability questions Where will new land come from? Concerns about clearing the Amazon. Land costs increasing, along with labor and transport – but could be offset with increased efficiency of new plants Potential Roadblocks

47. Petrobras’ Infrastructure Plans Source: Petrobras, June 2007

48. B2 mandate to take effect next year, B5 in 2013 200 million gallons required, 450 million gallons of capacity (36 plants) to come online early next year Puts Brazil in a position to export, along with Argentina B5 mandate may be moved up to 2010 Social plan problematic and inefficient Aim was to benefit 360,000 families in poor, rural northern region of Brazil Only 2,500 families in program so far Castor receives best tax advantage as feedstock Small-time production impractical for large-scale program Soy shaping up as top feedstock Will be used by Petrobras in H-Bio and biodiesel units around country Company investing $300 million in biodiesel an H-Bio fuel Brazilian Biodiesel

49. Moving toward creation of a global biofuels market – Brazil leading the way, addressing barriers to “commoditization”. How are policymakers preparing for the coming of a global biofuels market? How will policy framework evolve to support increased biofuels usage? Biofuels expected to solve a host of policy dilemmas – can it? Countries grappling with affording fiscal incentives for the long term versus instituting mandatory targets. Mandatory targets are coming! Product quality and addressing potential technical issues is an important issue that must be ensured for successful biofuels program! Some countries integrating of second-generation biofuels, R&D ongoing Sustainability concerns: Issue will continue to grow in importance in coming years Future Considerations

50. Quality, Storage, Transport, Logistics Diesel Cloud point, Water, Oxidation Stability, Specifications Rail or truck to terminals, not yet biofuels pipeline shipments Environment, Climate Change and Green House Gas Emissions Increased Evaporative Emissions…Air quality Increased demand of Water Impact of increased Use of Fertilizers and Pesticides, Other sustainable agriculture processes? avoiding industrialized monoculture…. Habitat protection What’s the proper lifecycle analysis? Net energy balance? Surface and groundwater issues Soil quality Waste management practices Limiting deforestation? Food v’s fuel Public Policy Framework Subsidies, Mandates, Taxation Issues to Be Solved