D3 Cellulosic Fuels 10th FELC Jim Ramm, PE 9/26/2016 D3 Cellulosic Fuels 10th FELC Jim Ramm, PE

RIN 101 Introducing the Renewable Fuel Standard 9/26/2016 RIN 101 Introducing the Renewable Fuel Standard D-Codes RVOs Q-RIN

Fuel Categories & D Codes 9/26/2016 Fuel Categories & D Codes D3 & D7 D4 & D5 D6 Cellulosic ethanol, cellulosic diesel, renewable CNG/LNG/electricity, Corn ethanol, other grandfathered biofuels Sugarcane ethanol, Renewable diesel, biodiesel

Renewable Volume Obligations (RVOs) Are “Nested 9/26/2016 Renewable Volume Obligations (RVOs) Are “Nested Renewable Volume Obligations (RVOs) Are “Nested” Fuel Type RIN Used to Prove Compliance 2018 RVO (BG) Cellulosic Biofuel D3 , D7 0.238 Biomass Based Diesel D4, D7 2.10 Remaining Advanced Biofuel D3, D4, D5, D7 1.902 Sub Total 2018 RVO 4.24 Remaining Renewable Fuel D3, D4, D5, D6, D7 15.00 Total 2018 RVO 19.24 D3 D4 D5 D6

Current RVO Schedule (BGY) Year Cellulosic Fuels Biomass-based Diesel Advanced Biofuels Renewable Fuel Total D Code D3, D7 D4, D7 D3, D7, D4, D5 D3, D7, D4, D5, D6 2014 0.033 1.63 2.67 13.61 16.28 2015 0.123 1.73 2.88 14.05 16.93 2016 0.230 1.90 3.61 14.50 18.11 2017 0.311 2.00 4.28 15.00 19.28 2018 0.238 2.10 4.24 19.24 2019 tbd 13 28.00 2020 15 30.00 2021 18 33.00 2022 21 36.00 EPA has authority to re-set annual RVOs

Document Review: Purchases, Sales, RINs Q-RIN Requirements Document Review: Purchases, Sales, RINs Facility Mass Balance RFS Records The Quality Assurance Program (QAP) is a Voluntary audit program for RIN generators Put into place after widespread RIN fraud destabilized RIN markets. Auditors must receive annual approval by EPA and meet strict independence criteria Benefits: RINs receive a “Q-RIN” tag in EMTS Obligated parties who utilize Q-RINs for their compliance obligation receive an affirmative defense against notices of violation.

Market Valuation of Energy Credits 9/26/2016 Market Valuation of Energy Credits RIN Pricing Cellulosic Waiver Credits

D4 is the Marginal Compliance Cost for the D6 Mandate RIN Values are Being Led by D6 Demand & D4 prices Key drivers of D4 RIN prices: feedstock prices, diesel prices, and $1 blenders tax credit.

RIN Pricing History

Examples of Political Uncertainty, Rumors EVENTS 1 Donald Trump elected President 2 2017 D6 RVO is set higher than expected 3 Rumors of a deal changing the point of obligation 4 Regulatory freeze ends with 2017 RVO unchanged 5 Proposed 2018 RVO released 6 US Appeals court strikes down 2016 RVO, rules against EPA

Supply-Demand Dynamics Plus Regulatory Uncertainty Drive Volatility Advanced biofuel & biomass based diesel RVO’S Pace of biofuel production vs. mandate Availability of banked carry-over RINs from previous year - can be used for up to 20% of current year obligation Other temporary shifts in supply-demand Regulatory uncertainty - when the EPA publishes its proposed and final RVOs Perceptions of fraud Political events

Uncertainty Is the New Certainty NEARLY 42,500 COMMENTS FILED ON 2017 RFS PROPOSAL Will EPA increase RVO for conventional biofuel to statutory levels? What will be advanced biofuels RVO? Will there be a market for E15 and flex fuels? Will the program will be amended under the current administration? Will the point of obligation change? Will biodiesel imports be treated equal to domestic production (IRS, Commerce Dept.)

Cellulosic Waiver Credit WHAT IS THE CELLULOSIC WAIVER CREDIT? Cellulosic fuels not produced in sufficient amounts to satisfy statutory requirements. EPA reduces the statutory requirements for cellulosic biofuels to set annual standards. EPA sells “cellulosic waiver credits” (CWCs) as alternative to RINs to meet the reduced cellulosic biofuel standard. CWCs are purchased by obligated parties at prices set by the EPA.

Cellulosic Waiver Credit PRICE CALCULATIONS The price of a CWC is the GREATER of $0.25 or $3.00 minus the wholesale price1 of gasoline (most recent 12 months),where both the $0.25 and $3.00 are adjusted for inflation. Description Formula 2017 Calculation $0.25 (Inflation Adjusted) $0.25*Inflation Adjustment for Year = CWC Price $0.25*1.142 = $0.29 $3 – Wholesale Price of Gasoline (Inflation Adjusted) ($3.00* Inflation Adjustment for Year) – Wholesale price of Gasoline = CWC Price ($3.00*1.142)-$1.423 = $2.001 CWC Price for Year Larger of the two values is selected, rounded to the nearest cent $2.00 1www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMA_EPM0_PBR_NUS_DPG&f=M.

Pricing a D3 RIN DEPENDS ON D5, CWC AND A REASONABLE DISCOUNT Theoretical floor = D5 RIN Theoretical ceiling = D5 + CWC Actual is somewhere in between… Year Average D5 RIN Value CWC Value D3 Floor Price D3 Ceiling D5 + 80% of CWC Actual quotes 2015 $0.711 $0.64 $1.35 $1.22 $1.25 2016 (YTD June 30) $0.778 $1.33 $2.11 $1.84 $1.90 2017 (estimate) $0.975 $2.00 $2.975 $2.58 $2.60

9/26/2016 Biogas Biogas Background Biogas End Use Biogas Opportunities

Methane From Biogas is Renewable Natural Gas (RNG) Anaerobic Digester Digestate RNG Biogas Slurry & Manure Food & Amenity Waste Crops & Residues Heat Power Gas Grid Transport Fuel

Evolution of Biogas Uses Raw to moderately upgraded Pipeline quality

Carbon Credits Add Significant Value to RNG One MMBTU of Pipeline Quality Biogas Produced in the Midwest and Used for Transportation in California Value of Gas $3.00 9% Value of Federal Credits (RINs) $22.20 69% Value of California Credits (LCFS) $6.85 21% Total $32.05 100%

Feedstock Determines D Code D5 RIN D3 RIN END USE OPTION 1 END USE OPTION 2 END USE OPTION 3 OPTION 4 Picture source: https://ssl.arb.ca.gov/lcfsrt/Login.aspx

Kernel Fiber Evaluating Kernel Fiber under LCFS 9/26/2016 Kernel Fiber Evaluating Kernel Fiber under LCFS Value of Kernel Fiber Ethanol RFS Pathways 2

Evaluating Kernel Fiber Ethanol CI- For CA LCFS No iLUC (Indirect Land Use Change, 19.8 gCO2e/MJ for Corn Ethanol) No Corn farming and transportation burden Generally speaking, the CI is in the range of 10-40 gCO2e/MJ Exact CI depends on the specific facility and specific technology selected

RFS Pathways 2 New Cellulosic Pathways: D3 Kernel Fiber Co-Processing D3 Kernel Fiber Separate Processing D3 Biogas from Wastewater Treatment Plant, Landfills, and Manure Digesters and D5 Biogas from digestion of other wastes D3 electric vehicle RINs from landfill gas

Approved Pathways Under RFS Fuel Type Feedstock Type Production Process D Code Cellulosic Ethanol (60) Cellulosic Biomass – Agricultural Residues (70) Cellulosic Production Process (280) 3 Renewable Compressed Natural Gas, Renewable Liquefied Natural Gas, and Renewable Electricity Biogas from waste digesters Any 5 Renewable Compressed Natural Gas, Renewable Liquefied Natural Gas, Renewable Electricity Biogas from landfills, municipal wastewater treatment facility digesters, agricultural digesters, and separated MSW digesters; and biogas from the cellulosic components of biomass processed in other waste digesters

RFS Pathways 2 CELLULOSIC HYDROLYSIS MECHANICAL SEPARATION CELLULLOSIC MIXTURE OF CELLULOSIC & NON CELLULLOSIC FEED STOCK NON CELLULLOSIC CELLULLOSIC DERIVED SUGARS & NON CELLULLOSIC DERIVED BIO FUEL RESIDUAL SOLIDS CELLULOSIC HYDROLYSIS MECHANICAL SEPARATION NON-CELLULOSIC FERMENTATION SEPARATIONS & REFINING

RFS Pathways 2 Best practices to separate adhering starch in order to be considered a de minimus contaminant and qualify as crop residue Separate hydrolysis of kernel fiber Mass balance determination of cellulosic ethanol gallons from reasonably accurate feedstock and process data

Simultaneous Or In-situ Biochemical Processing Simplified schematic of a biochemical process with in-situ hydrolysis MIXTURE OF CELLULOSIC & NON CELLULOSIC DERIVED BIO FUEL MIXTURE OF CELLULOSIC & NON CELLULLOSIC FEED STOCK HYDROLYSIS DERIVED SUGARS FERMENTATION SEPARATION & REFINING RESIDUAL SOLIDS

RFS Pathways 2 Registration Requirements: Process diagram; description of the treatment process; description of pre-treatment; third party engineer verification Peer Review of Non-VCSB laboratory methods Initial converted fraction based on a minimum of 3 batch trials Initial converted fraction must be submitted with the registration and remains valid for first 500,000 gallons The overall fuel yield including supporting data and a discussion of possible variability The cellulosic converted fraction including supporting data and a discussion of variability A description of how the cellulosic converted fraction is determined

RF Pathways 2 SIMULTANEOUS OR IN-SITU BIOCHEMICAL PROCESSING

RFS Pathways 2 Ongoing Requirements: Cellulosic converted fraction must be recalculated and reported within 10 business days of every 500,000 gallons of cellulosic RINs generated For deviations in converted fraction over 10%, the Producer must notify EPA and adjust RIN Gen within 5 business days

IN-SITU vs. Separate Processing Comparison Category In-Situ Processing Separate Processing D3 Pathway Available Yes D3 Ethanol Lift 1-3% 7-10% Capital Cost 0 – 300K$ 10-20M$ Implementation Time 3 months to 6 months 12 – 18 months System Requirements Optional enhanced milling technology, Cellulase Enzyme, measurement of Converted Fraction of Cellulase and Starch Best practices for starch separation, Separate Hydrolysis, mass balance based on reasonably accurate feedstock and process data, Cellulase Enzyme Registration Requirements Process diagram; process description; Peer Review of Non-VCSB lab methods; Initial converted fraction for first 500,000 gallons of D3 production; overall fuel yield; cellulosic converted fraction; methods for determining cellulosic converted fraction; 3rd party engineering review and registration update Process diagram; process description; measurement of D3 gallons; mass balance method; 3rd party engineering review at substantial completion and registration update Recalculation Requirements Sampling, analysis, and calculation of Cellulosic converted fraction must be performed every 500,000 gallons NA Record Keeping Requirements 5 year requirement to retain laboratory results and duplicate samples D3 Volume Measurements, Mass balance, D3 ledger