ARB Staff Preliminary Review of the Expert Workgroup Near Term Recommendations

1. ARB Staff Preliminary Reviewof the Expert WorkgroupNear Term Recommendations Expert Workgroup Meeting November 5, 2010

2. Basis for the Preliminary Review • Updated Purdue modeling • Expert Workgroup recommendations • Independent contractor (John Reilly and Steve Berry) assessments of Purdue modeling

3. Preliminary Staff Review • Review is preliminary and is subject to change based on additional analysis and public comment • Preliminary review intended to provide blueprint for approach to revising the land use change numbers • ARB staff continues to evaluate other recommendations not addressed in this presentation

4. Preliminary Review of Purdue Analysis • The new Purdue analysis included three distinct modeling approaches for estimating LUC • Staff supports the Expert Workgroup recommendation that ARB use the “Group 2” simulation methodology • This recommendation incorporates an update of the economic baseline from 2001 to 2006

5. Preliminary Review of Purdue Analysis Other updates in the new Purdue analysis • Cropland pasture in U.S. and Brazil • Energy sector supply and demand elasticities • Treatment of co-products • Structure of the livestock sector • Productivity of new cropland • Yield response to higher crop prices • Emission factors Staff proposes to support updates one through five above.

6. Yield Response to Higher Crop Prices • The Elasticity subgroup recommends adopting the updated value from the Purdue report • Professor Steve Berry recommends using a very low response of yields to prices • ARB staff will re-evaluate the response of yields to price used in modeling for the LCFS

7. Emission Factors • The Emission Factors subgroup has recommended a more comprehensive and spatially explicit set of carbon stocks and emission factors be developed • Staff agrees with this recommendation and is initiating a contract to develop the carbon stocks database

8. Other Near Term Recommendations ARB staff supports the following additional near term recommendations: • Revise the sugarcane ethanol and soy biodiesel land use change values using the updated GTAP model • Adopt a consistent set of model inputs for all biofuel pathways • Re-evaluate the distillers grain co-product credit • Gain a better understanding of changes in food consumption predicted by the new model version • Provide further justification for the choice of 30 year annualization and continue to evaluate other time accounting methodologies and time horizons • Continue to update/improve the land pools considered as accessible in GTAP

9. Indirect Effects of Other Fuels • The subgroup recommends performing an analysis, including but not limited to economic modeling, of the marginal barrel of oil • ARB staff is finalizing a contract with the objective to develop a research plan to quantify the potential market effects of conventional fuels • Recommendations from the Indirect Effects subgroup will be considered in developing the research plan

10. Proposed Timetable for Staff Analysis • November – December, 2010: Solicit assistance for LUC modeling using GTAP • November, 2010 – February, 2011: Finalize proposed near term revisions to LUC analysis • January – March, 2011: Complete revised LUC analyses for corn and sugarcane ethanol, soy biodiesel • March and April, 2011: Conduct public workshops on revised LUC analyses • May, 2011: Present recommended LCFS amendments including revised LUC values to the Board