1. The Economics of Eco-Performance Fuel North Dakota Corn Growers Association February 19, 2014 Dean A. Drake President

2. Background MN Corn Research & Promotion Council Study Parties Involved Defour Group LLC Dean Drake Dr. Tom Walton Dave Aldorfer Air Improvement Resources (Tom Darlington) Transportation Fuels Consulting (Gary Herwick) Defour Group LLC© 2014 Slide 2 Objectives Evaluate the cost of RFS Compare to Cost of CAFE Estimate Costs & Benefits of New Fuel Write Summary Reports

3. The Intersection of Vehicles and Fuels Thermal Efficiency Power Output = X Higher Energy Density = More Power per Gallon Octane Rating BTU per Gallon No Fuel is Perfect Gasoline: – High Energy Density – Low Octane Rating Ethanol: – Low Energy Density – High Octane Rating Fuel Properties Vehicle Properties Higher Octane Rating = Higher Compression Ratio Greater Thermal Efficiency More Power per BTU Energy Density Defour Group LLC© 2014 Slide 3 =

4. The Three Uses of Ethanol 1 Gallon Ethanol Boost Octane In Todays Gasoline For Todays Vehicles Saves Consumers About 6 Cents Per Gallon of E10 E10 E85 EPF Replace Gasoline in Todays Flex-Fueled Vehicles Costs Consumers About 32 Cents per Gallon, But Energy Security Benefit = 46 Cents Per Gallon Create Eco-Performance Fuel (EPF) to be Used in Advanced Engines Octane Rating of Todays Premium Costs 9 Cents Per Gallon Less Than Todays Regular Looking for the Highest Value Use of Ethanol 1 st Place Defour Group LLC© 2014 Slide 4

5. 50% 90% 60% 80% 100% 20052010201520202025 70% Ethanol Tax Credit & Tariff Expired Corn Ethanol Price as Percent of Gasoline Year RFS2 Enacted Saves consumers money when used to boost octane Saves consumers money over gasoline PERIOD! Cost of Corn Ethanol vs Gasoline in 2012 $$ Ethanol Gasoline Wholesale Price of Expressed as Percent Defour Group LLC© 2014 Slide 5 Volumetric Price Parity 1 gall of ethanol price = 1 gall of gasoline Energy Price Parity $1 of ethanol has the same energy content as $1 gall of gasoline (E-10)

6. Automakers Double Jeopardy Federal Fuel Economy (CAFE) Standards Authorized by the Energy Independence and Security Act (EISA) Administered by the National Highway Traffic Safety Administration (NHTSA) Fleet MPG: 35 in 2017 to 48.7 in 2025 Modest Non-Compliance Penalties $55 per mpg per car Not a criminal action No recall necessary Defour Group LLC© 2014 Slide 6 Year 40 50 60 202020252015 CAFE Stds. Fuel Economy in MPG Fleet Average Fuel Economy Standards

7. Automakers Double Jeopardy Defour Group LLC© 2014 Slide 7 Year Fleet Average Greenhouse Gas Standards 202020252015 Carbon Dioxide (CO 2 ) Standards in gm/mi 163 243 CO 2 Stds. Federal Carbon Dioxide (CO 2 ) Standards Authorized by the Clean Air Act (CAA) Administered by US EPA (EPA) Fleet Average Standards Decreases to 163 gm/mi by 2025 Severe Non-Compliance Penalties Up to $10,000 per car per day fine Possible criminal action Recall may be necessary And California has the Right to Veto! CAFE Stds.

8. Why Eco-Performance Fuel? Economic Reasons Boosting Octane Highest Value Use of Ethanol Highest increase = greatest value, if Engines can utilize it Gradual Increase in Volumes may be Lowest Cost Path Mandated volume increases like RFS generate new, lower cost supply As essential fuel, not subject to repeal Eventually make higher level blends like E85 cost competitive with gasoline Defour Group LLC© 2014 Slide 8 From Air Improvement Resource, Inc. 0 20 40 2035 2020 2025 2030 Calendar Year 2013 RFS-2 w/o Biodiesel E-10 Ethanol Use in Billions of Gallons Per Year E-10 & EPF Potential Ethanol Use with Eco-Performance Fuel

9. Why Eco-Performance Fuel? Technical Reasons Enable Automakers to Increase Engine Efficiency CO 2, not MPG, the major challenge Higher compression is free EPF should result in 7% - 11% lower CO 2 emissions with no MPG penalty EPF Has Additional Properties as a Fuel Charge cooling further improves efficiency Provides low toxic clean octane Defour Group LLC© 2014 Slide 9

10. Obstacles to Implementation Carmakers Need Certainty Engine Tooling - Long Lifetime Before Making Changes, Carmakers Need to Know: What is EPF? What can it do? Will the consumer have access to the fuel? Will there be sufficient ethanol? Will the government back it? Will it be affordable? Defour Group LLC© 2014 Slide10

11. Government Wants Support Do Carmakers Want EPF? Will Congress Support EPF? Is Ethanol Industry Behind it? What are the Political Risks? Obstacles to Implementation Defour Group LLC© 2014 Slide11

12. Oil Companies Will Oppose EPF But Precedent Exists: Unleaded Gasoline in 1970s Lead in gasoline kills catalysts 1975 emission standards could not be met any other way Automakers told oil industry and government to get the lead out Congress amended CAA to get lead removed from fuel Obstacles to Implementation Defour Group LLC© 2014 Slide12

13. A Path Forward Eco-Performance Fuel Comprehensive Test Program Technical Objectives Establish the fuel specifications Quantify fuel economy & emission performance Defour Group LLC© 2014 Slide 13 Policy Objectives Generate automaker support Create public awareness Provide basis for regulatory activity Create momentum for ethanol

14. A Path Forward Would Provide CO 2 Compliance Cushion To meet 2025 standards Could Get in 2017 mid-term review –Review of feasibility 2022 and beyond –EPA beginning work now –Would need test program results Allow Product Planning, Engineering Design and test high compression engines Develop anti-misfueling technology Work with gasoline retailers to ensure supply Automaker Support Defour Group LLC© 2014 Slide 14 The Test Program May Lead to

15. A Path Forward Government Action EPA Has Authority to Act Unleaded gas provides template CAA gives power to set fuel specifications Would establish: Legal definition of EPF using test program results Implementation date Certification protocols Government Action Will Trigger Other Work Infrastructure development Standard setting –Pumps and nozzles –Misfueling prevention devices Defour Group LLC© 2014 Slide 15 Automaker Support May Lead to

16. Defour Group LLC© 2014 Slide 16 Next Steps Talk to EPA About the Economics of Ethanol Get Test Program Moving Complete MN Study and Publish Public Report Campaign to Generate Public Awareness Study the Economics of Supply Biofuel As an Essential Transportation Fuel