1. 1 Joel Velasco Chief Representative – North America washington@unica.com.br www.unica.com.br BRAZILIAN SUGARCANE INDUSTRY ASSOCIATION UNIÃO DA INDÚSTRIA DE CANA-DE-AÇÚCAR Outlook for Brazilian Ethanol in U.S. Sugarcane Ethanol as a Low Carbon, Advanced Renewable Fuel

2. 2 OUTLINE ① Sugarcane in Brazil A Primer on the Industry ① Outlook for U.S. Market Federal Policy (RFS) State Initiatives (LCFS) ② Sugar Market Brazil responding to demand

3. 3 3 Sugarcane in Brazil A Primer ①

4. 4 ABOUT UNICA UNICA is the leading sugarcane industry association, representing +100 producers and mills in Brazil Responsible for 60% of all ethanol and sugar production in Brazil Emerging as a leader in the generation of bioelectricity already meeting 3% (and soon 10%) of Brazil’s electricity demand International presence, now in Washington & Brussels, to engage in constructive dialogue

5. 5 WHERE SUGARCANE IS GROWN IN BRAZIL Sources: NIPE-Unicamp, IBGE and CTC South-Central region represents about 90% of sugarcane harvest

6. 6 WHERE SUGARCANE IS REALLY GROWING IN BRAZIL 90% Source: CanaSat, see http://www.dsr.inpe.br/canasat/http://www.dsr.inpe.br/canasat/

7. 7 CURRENT PRODUCTION IN BRAZIL Source: UNICA SUGAR 31 Million Tons ETHANOL 7 Billion Gallons ELECTRICITY 16,000 GWh

8. 8 Source: Ministry of Mines and Energy BEN (2008). SUGARCANE IS #1 RENEWABLE ENERGY SOURCE

9. 9 CURRENT & FUTURE PRODUCTS

10. 10 Sugarcane Biofuels & U.S. Market Low Carbon, Advanced Renewable Fuels ②

11. 11 U.S. MARKET FOR ETHANOL 75 – 100% 50 – 74% 10 – 50% 0 – 10% 20072008 Source: Hart Energy

12. 12 U.S. MARKET FOR ETHANOL 75 – 100% 50 – 74% 10 – 50% 0 – 10% 20072008 Source: Hart Energy

13. 13 U.S. MARKET FOR ETHANOL 75 – 100% 50 – 74% 10 – 50% 0 – 10% 20082009 Source: UNICA Estimate

14. 14 U.S. RENEWABLE FUELS STANDARD (RFS2) Source: EISA of 2008, Dept of Energy, ITC; E-10 Blend Wall Limit based on EIA’s projections of gasoline consumption and do not include bottleneck and other infrastructure concerns. Sugarcane with at least 40% GHG Reduction

15. 15 EPA: INITIAL PROPOSAL’S LIFECYCLE ANALYSIS Source: See Figure 2.1-2. “Lifecycle GHG Results Using 100-Year Net Present Value with 2% Discount Rate” in page 282 of Discussion Draft of Environmental Protection Agency (EPA) Regulatory Impact Analysis, May 2009. Range shows net emissions if EPA assumes all land conversion from forest (upper bound) and all from grassland (lower bound).

16. 16 Sources: UNICA’s comments to EPA on September 25, 2009. UNICA: SUGARCANE GHG REDUCTION UNDER EPA’s RFS2 Sugarcane ethanol to meet “Advanced Biofuel” threshold

17. 17 CALIFORNIA’S LOW CARBON FUEL STANDARD (LCFS) Source: California’s Low Carbon Fuels Standard Programhttp://www.arb.ca.gov/ The LCFS calls for a reduction of at least 10 percent in the carbon intensity of the state's transportation fuels by 2020. California consumes about 15 billion gallons of gasoline a year Other states may follow California’s lead, going beyond RFS requirements

18. 18 LCFS WITH “INDIRECT LAND USE” PENALTY Source: California Air Resources Board’s Low Carbon Fuel Standard, August 2009. Grams of CO 2 per megajoule Despite Modeling Errors, Sugarcane Ethanol is Lowest Carbon Liquid Fuel “Indirect Land Use”

19. 19 Source: California Air Resources Board’s Low Carbon Fuel Standard, August 2009. See also “Table 3.4: LCFS – Complying E10 Blends” of California Energy Commission report “Transportation Energy Forecasts and Analyses for the 2009 Integrated Energy Policy Report.” Grams of CO 2 per megajoule REPORTING ONLY LCFS SIMULATION WITH SUGARCANE ETHANOL E-10 Blend with Sugarcane Ethanol using exaggerated ILUC COMPLIANCE WITH CREDITS? Even with ILUC, 10% sugarcane ethanol blends meet LCFS to 2017

20. 20 World Sugar Markets Why are sugar prices at 28 year high? ③

21. 21 SUGAR MARKET DYNAMICS With low sugar prices (until earlier this year), sugar (as opposed to ethanol) production was not increasing in Brazil for last two crop years… … but world sugar market is in structural deficit, exacerbated by India’s switch to net importer among other reasons. So, Brazil is boosting sugar production (+12% in south-central region) yet key sugar markets are not accessible.

22. 22 2008/09 ACTUAL 2009/10 ESTIMATE Δ ESTIMATE 2009/10 YTD Δ YOY Sugarcane Crush (million tons) 505530 +4.9% 348 +9.7% Sugar-Ethanol Mix 39.5%43.1% Sugar (million tons) 26.729.35 +9.7% 19.0 +12.0 % Ethanol (billion gallons) 6.66.2 -5.4% 4.0 -0.1% Hydrous 4.43.0 13.4% Anhydrous 2.21.0 -27.4% Bioelectricity (MW average) 1,8002,000n/a Share of electricity demand (%) 3% SOUTH-CENTRAL PRODUCTION & ESTIMATES FOR SOUTH-CENTRAL BRAZIL NEW PROJECTIONS APRIL-SEPT Source: UNICA. See 2009/10 Crop Year revised estimate for South Central Brazil and Harvest Update on September 16, 2009

23. 23 Area Sources: IBGE, UNICA NOTE: Note: 1) 2008 is estimated data; 2) Grains include rice, corn, wheat, soybeans, etc. Brazil’s food production volumes doubled in the last decade mainly due to yield gains 19902008 BRAZIL FOOD PRODUCTION INCREASING

24. 24 SUGAR & ETHANOL PRODUCTION INCREASING Sources: IBGE, UNICA, Wall Street Journal on August 13, 2009 Brazil’s sugarcane ethanol volumes have increased 130% and sugar more than 350% in two decades… 19902008 2003

25. 25 A LOW CARBON, ADVANCED RENEWABLE FUEL