1. Energy Producing States Coalition December 2, 2012 Steve Higley Manager, Outreach American Fuel & Petrochemical Manufacturers Washington, DC Impending Regulations: Costs and Consequences

2. Page 2 A blizzard of stationary source regulations threatens U.S. refining and petrochemical operations, American jobs, and our nation’s economy. Regulations of major concern include: Renewable Fuels Standard (RFS) Low-Carbon Fuel Standard (LCFS) Tier 3 Gasoline Standards 2013 Ozone NAAQS revisions Greenhouse Gas Regulations Some are conflicting; some will be impossible to meet; all will have significant consequences.

3. Page 3 Federal Renewable Fuels Standard (RFS2): Requires 36 billions of biofuels to be blended into the fuel supply by 2022 Mandated volumes divided into 4 major categories:  Total renewable fuels  Advanced biofuels  Biomass-based diesel  Cellulosic biofuel

4. Page 4 Two large barriers make it difficult to meet RFS2: 1. The amount of ethanol that can be blended into gasoline  Current law caps ethanol in gasoline at 10%  Addition of greater volumes of ethanol will be difficult without:  increasing the blending limit for standard vehicles, or  expanding the use of E85 in flex-fuel vehicles  EPA granted “partial waivers” to allow E15 (gasoline with 15% ethanol) use only in vehicles MY2001 and newer  Legal challenge lost on standing, but some judges in opinion concurred EPA action was illegal

5. Page 5 Two large barriers make it difficult to meet RFS2: 2. The types of biofuels required under the standard  Nearly all of the ethanol sold in the U.S. is made from corn  However, RFS requires increasing amounts of “advanced biofuels” (i.e. not made from corn starch)  For 2012, EPA reduced the EISA requirement of 500 million gallons of cellulosic biofuels to about 9 million gallons  Actual 2012 production to date: 20,000 gallons

6. Page 6 Acts as a cap-and-trade program for fuels  Seeks to reduce carbon intensity (CI) of fuel pool through fuel switching  Goal of program is to replace traditional fuels (gasoline, diesel) with “low-carbon” fuels (i.e. cellulosic, electricity, hydrogen) California implementing LCFS as part of AB32  10% CI reduction over 10 years Other states pursuing LCFS programs: OR, WA, 11 Northeast/Mid-Atlantic States EPA believes it has authority under CAA for national LCFS program through regulation

7. Page 7 CEA report (SAIC modeling) on Northeast regional LCFS: Increase in consumer gasoline costs of 112% Loss of 147,000 jobs in Northeast region $27 billion decline in regional GDP $28.8 billion decline in disposable household income Charles River Associates study on national LCFS program: Increase in consumer gasoline/diesel costs of up to 170% $1,400 – $2,400 decline in annual household purchasing power $410 – $750 billion decline in U.S. GDP Net loss of 2.3 – 4.5 million American jobs

8. Page 8 Initiative announced by President Obama in May 2010  EPA proposal expected in 2012 or early 2013  Final rule in 2013  Perhaps effective in 2016, in time for MY 2017 Will include gasoline sulfur reduction; could also include gasoline RVP reductions Under Tier 2, sulfur already reduced 90% Independent study: 9 – 25 cent per gallon cost increase, 4 to 6 potential refinery closures

9. Page 9 January 7, 2010: EPA published proposal to tighten ozone NAAQS  Set primary standard between 60 and 70 parts per billion (ppb) over eight hours  No new science evaluated September 2, 2011: President Obama announced Ozone NAAQS reconsideration would be withdrawn Regularly scheduled 5-year reconsideration of the ozone standard (mandated by CAA) will occur in 2013

10. Page 10 Sept. 2010 Manufacturers Alliance (MAPI) study examined impacts of a 60 ppb ozone NAAQS: Annual attainment cost of $1 trillion+ from 2020-2030 Reduction in GDP of $676.8 billion (3.6%) in 2020 7.3 million jobs lost by 2020 “The net result would likely be another inducement for companies to move operations offshore”

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12. Page 12 EPA issuing GHG regulations for large stationary sources  Title V; PSD permits for sources > 100,000 TPY (new facilities) or > 75,000 TPY (major modifications)  GHG New Source Performance Standards (NSPS) for utilities, refineries  Regulations for refineries anticipated 2013; unsure what they will look like  Regardless of what they look like, will conflict with other regulations already discussed  NSPS will trigger GHG regulation for existing sources