The Value Proposition for Cellulosic and Advanced Biofuels Under the Federal Renewable Fuel Standard Sarah Thornton, Esq. Director, Biofuels and Biomass Policy Biotechnology Industry Organization (BIO) April19, 2011

2 The RFS Supports and Incentivizes Investment in Cellulosic & Advanced Biofuels  The Federal RFS Law & EPA’s Implementing Regulations:  Establish markets for cellulosic and other advanced biofuels as long as the industry can produce them.  Present a stable market support system for cellulosic biofuels ensuring that they earn a compliance premium.  Provide a substantial price support to advanced biofuels (especially cellulosic biofuels), which makes for an attractive case for investment in this nascent industry.

3 Companies Have Made Significant Investments to Commercialize the Technology The technology for cellulosic and advanced biofuels is ready. More than 70 pilot and demonstration biorefineries across North America – algae, butanol and cellulosic ethanol – representing hundreds of millions of dollars in investment. Successes at each stage of research and development and in process scale-up. Commercial development was slowed by the recession but will regain momentum as capital investment activity picks up.

4 RFS2 Required Volumes and Rulemaking  EPA’s 2010 final rule established administrative rules for RFS2 implementation Defined eligible renewable fuels and compliance values. Nested standards, with specific enacted volumetric requirements for cellulosic biofuels, biodiesel and other advanced biofuels, allow for price and “green premium” valuation and projection Affirmed EPA’s commitment to provide incentive for industry growth.

5 EPA Enforcement = Private Investment Driver Despite its cellulosic waiver obligation, EPA has signaled its ongoing commitment to enforcing the renewable fuels requirements established in law since 2005 Under final RFS2 rules and subsequent clarifications:  EPA remains committed to provide an incentive for the growth of cellulosic and advanced biofuels Cellulosic Waiver Credit (CWC) –The CWC price is set annually at the higher of $3.00 less the average wholesale price of gasoline for the preceding 12 months or $0.25 per gallon adjusted for inflation (2008 base per EISA). Biofuels have both a fuel and a compliance value  Fuel value = Commodity value for transportation fuel  Compliance value = Value in achieving US mandate compliance

6 RFS2 Compliance Alternatives Obligated Parties can comply with the Cellulosic RVO in several ways: Advanced biofuel nested standards Conventional biofuel Alternative compliance from EPA Advanced biofuel Cellulosic biofuel Biomass- based diesel RIN typeA-RINC-RINB-RIN*R-RINCWC Compliance options: Gallon purchased ( ); RINs obtained (X) 1 - Buy cellulosic ethanol gallons X 2 - Buy advanced ethanol gallons & CWC X X 3 - Buy biodiesel gallons & CWC* X X 4 - Buy corn ethanol gallon; sell R-RIN & buy A-RIN and buy a CWC X X Obligated parties must purchase a gallon of cellulosic ethanol (which includes a C-RIN) OR a CWC and a gallon of an advanced biofuel * Per Equivalence Values, biodiesel is worth 1.5 or 1.7 RINs. An average of 1.6 is assumed. This implies only 0.6 gallons of biodiesel provide an ethanol equivalent RIN. It also implies that a B-RIN=1.6 A-RINs

7 The CWC Provides a Valuable Hedge Mechanism Against Low Oil Prices The CWC, which is inversely related to crude oil prices, provides cellulosic biofuels a partial hedge to declining oil prices

8 Cellulosic and advanced biofuels meet important National goals Cellulosic and advanced biofuels can provide energy security, economic development opportunities, and GHG emission reductions.  Impact on job creation could reach: 190,000 direct jobs by ,000 total jobs (direct and indirect) by  Economic output generated by the advanced biofuels industry could reach $148.7 billion by 2022  Anticipated cumulative reduction in petroleum imports by 2022 could exceed $350 billion.

9 Conclusions  EPA’s RFS implementation should provide necessary market assurance and make advanced biofuels investment attractive to private investors.  The RFS2 provides assurance that all advanced and cellulosic biofuels produced up to annually prescribed volumes will have a market.  The compliance value for cellulosic biofuels is a calculable premium, inversely related to oil prices. EPA enforcement therefore provides a significant degree of price certainty for cellulosic biofuels, substantially mitigating additional capital risk associated with commercialization of advanced biofuels.  The RFS2 mechanisms provide the type of long-term, market-based government policy mechanisms that will continue to drive investment and innovation.

10 For more information Brent Erickson, Matt Carr PhD, Sarah Thornton Esq. “The value proposition for cellulosic and advanced biofuels under the US federal renewable fuel standard.” INDUSTRIAL BIOTECHNOLOGY, MARY ANN LIEBERT, INC. VOL. 7 NO. 2 APRIL Sarah Thornton, Esq. BIO