Webinar: Ethanol on Capitol Hill Review Brian Jennings, ACE Executive Vice President, May 27, 2010

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1 Webinar: Ethanol on Capitol Hill Review Brian Jennings, ACE Executive Vice President, May 27, 2010

Status of E15 Waiver EPA expected to grant a partial waiver for E15 (could be June-July or decision could slip to Fall) but implementation date likely to occur later, probably 2011.

2 Status of E15 Waiver EPA expected to grant a partial waiver for E15 (could be June-July or decision could slip to Fall) but implementation date likely to occur later, probably and newer model-year cars expected to be approved to use E15, but not older cars nor small engines. EPA will propose new misfueling and labeling rules to accompany the waiver. EPA will not address 1 pound RVP waiver issue, says it is a legislative issue. EPA will not grant liability protection to petroleum marketers, NACS et al pursuing legislation.

3 The National Fire Protection Assn is considering a change to fire code NFPA 30A (applies to gas stations) to allow local fire marshals or authorities having jurisdiction (AHJ) to allow up to E15 with regular inspections. Optimistic view of Limited E15 Waiver EPA estimates 60% of cars are 2001 model-year and newer. Can assume that all cars will eventually be approved for E15? Every 1% increase over the blend wall adds about 1.3 billion gallons of market demand for ethanol according to Fitch Ratings. Even with practical challenges, transition will occur faster than E10 b/c of RFS schedule. Citgo will allow branded jobbers to sell E15 (March 29, per OPIS). Gilbarco & Dresser-Wayne have warranties for pumps and dispensers that use up to E15 per the UL87 standard (but UL still has not certified/approved the use of up to E15).

4 Concerns with Limited E15 Waiver 40% of cars would not be allowed to use E15. Govt Red Tape/Delay: Proposed retail labeling and misfueling rules must be published in Federal Register (30, 60, 90, day comment period) followed by final rule(s) published in Federal Register with potential for additional comment period. Labels: will EPA require E15 warning labels that confuse consumers, or worse yet, discourage consumers? EPA decision likely to spur litigation, plaintiffs may ask for stay of the waiver while court considers legal challenges. NACS suggesting retailers will not offer E15 w/out liability protection. ADM says just 2 of their top 10 customers would consider using E15. While equipment warranties support up to E15, UL has not approved up to E15 yet (although AHJ have been ok with this in some areas). Above factors suggest EPA s direction on E15 will not adequately address blend wall nor create significant enough ethanol demand.

S. 1627 Consumer Fuels and Vehicles Choice

50-50 cost share grants for blender pumps;

5 S Consumer Fuels and Vehicles Choice Act Ramps up FFV requirement. 50% of all models for sale must by FFVs in 2011 and 2012, 90% by cost share grants for blender pumps; $50 M in 2010, $100 M in 2011, $200 M in 2012, $300 M in 2013, and $350 M in 2014.

6 VEETC 45 cent per gallon blender s credit, or Volumetric Ethanol Excise Tax Credit (VEETC) authorized through December 31, 2010 and needs to be extended Ethanol supports 400,000 American jobs. If VEETC expires, at least 112,000 jobs will be lost according to ENTRIX study released March 17, Ethanol pays surplus $3.4 billion into federal Treasury, more than paying for itself VEETC is passed on to consumers to keep fuel prices affordable. If VEETC expires, consumers could pay more for gasoline According to FAPRI, if VEETC expires, corn prices will drop at least 15 cents per bushel over the period, and Farm Bill program commodity supports could increase Also according to FAPRI, if VEETC expires, domestic ethanol production will fall by at least 10% and the U.S. will rely on more foreign oil to replace the ethanol Source: The Contribution of the Ethanol Industry to the Economy of the United States, John Urbanchuk, LECG, LLC, 2/12/2010

7 Ethanol tax credits more than pay for themselves Source: Contribution of Ethanol to the U.S. Economy LECG, Feb. 2010

8 At this station, VEETC helps keep E10 blends 10 cents per gallon under unleaded Photo taken March 17, 2010, Sioux Falls, SD

House of Representatives during ACE fly-in Extends VEETC at 45 cents/gallon for 5 years through

9 H.R Pomeroy-Shimkus Renewable Fuels Reinvestment Act Introduced in U.S. House of Representatives during ACE fly-in Extends VEETC at 45 cents/gallon for 5 years through Rep. Pomeroy (D-ND) Extends Small Ethanol Producer Tax credit through Extends Secondary Tariff at 54 cents/gallon through Rep. Shimkus (R-IL) Extends Cellulose Production Tax Credit for 3 years to 2016.

S. 3231 - Grassley-Conrad Grow Renewable Energy from Ethanol Naturally (GREEN) Jobs Act Identical to

3231 has 7 cosponsors, including: Thune (SD), Harkin (IA), Brownback (KS), Johnson (SD), Johanns

10 S Grassley-Conrad Grow Renewable Energy from Ethanol Naturally (GREEN) Jobs Act Identical to House bill (HR 4940) S has 7 cosponsors, including: Thune (SD), Harkin (IA), Brownback (KS), Johnson (SD), Johanns (NE), Nelson (NE), and Stabenow (MI). Sen. Grassley R-IA Please contact your Senators to support S HR 4940 has 40 cosponsors: Sen. Conrad D-ND

12 Comparing & contrasting ethanol to oil ACE op-ed published in major Capitol Hill paper The Hill

13 ACE making the case for ethanol policy in another major Capitol Hill publication

14 ACE Biofuels Beltway March DC fly-in March ACE members visited more than 60 congressional offices Focused on: 1.Tax credit (VEETC) legislation 2.FFV/blender pump legislation

15 Important to contact your Members of Congress about VEETC, small producer credit, cellulose credit, and tariff legislation Call, write a letter, or send an Schedule a meeting during congressional recess: Memorial Day Recess: May 31 June 6 Independence Day Recess: July 3 July 11 August Recess: August 9 September 12 Encourage your co-workers, friends, neighbors to act ACE will publish candidate survey in Fall

16 Ethanol Conference and Trade Show Aug. 4-5, KC. Register online at

17 Bonus slides

18 Secondary Tariff on Ethanol Imports Purpose of secondary tariff is to offset the VEETC, because every gallon of ethanol used in the U.S., no matter the origin, qualifies for blender s credit Tariff is not a barrier to imports of ethanol Brazil levies a 20% ad valorem tariff on U.S. ethanol, while U.S. ad valorem tariff on Brazil is just 2% Removal of tariff would jeopardize U.S. jobs and domestic ethanol production, increase reliance on foreign fuel

19 Small Ethanol Producer Tax Credit Credit on taxable income of up to $1.5 million annually (10 cents per gallon, limited to first 15 million gallons) Definition of small ethanol producer: facility with annual capacity of less than 60 mgy

20 Ethanol creates U.S. jobs 30 to 50 high-skill, high-wage jobs are created at each ethanol facility. Ethanol plant salaries range from $40,000 to $150,000/yr according to a recent survey.* Iowa State University estimates the total employment impact of one 100 mgy ethanol plant supports 1500 jobs throughout the state s economy. Nearly 400,000 jobs in the U.S. were supported by ethanol production, construction of new ethanol capacity, and industry R&D in # According to the Windmill Group, LLC, if EPA approves E15, *Ethanol Producer Magazine 2010 Salary Survey #Contribution of ethanol to the U.S. economy, LECG,

21 Ethanol Generates Economic Activity Nearly 200 U.S. ethanol plants in 26 states produced 10.7 billion gallons in 2009, generating economic benefits from ongoing operations, new construction, and research & development of new technologies. Ethanol plant operations, transportation, new construction, and ethanol R&D added $53.3 billion to U.S. GDP in Ethanol industry put an additional $16 billion into pockets of U.S. consumers in Source: Contribution of ethanol to the U.S. economy, LECG,

22 U.S. Oil Dependence is Risky and Expensive Source: Office of Climate Strategy, Center for American Progress

23 Ethanol Cuts Foreign Oil Dependence 10.7 billion gallons of U.S. ethanol in 2009 displaced $21.3 billion of foreign oil, the equivalent of 5% of U.S. crude oil imports or 364 million fewer bbls of oil In 2010, U.S. ethanol will displace more than 800,000 bbls per day of imported gasoline, ranking ethanol as the 3 rd largest supplier of fuel to the U.S. on a gasoline equivalent basis, behind only Canada and Saudi Arabia, and ahead of Venezuela, Mexico, and Nigeria.

24 Ethanol Cleans Our Air Corn ethanol reduces GHG emissions by 48% to 59% compared to gasoline* EPA determined the direct lifecycle emissions of corn ethanol are 52% better than gasoline Even with a ILUC emissions penalty, EPA determined the indirect lifecycle emissions of corn ethanol are 21% better than gasoline EPA determined that in 2022, ethanol will have reduced GHG emissions by 138 million metric tons -- equivalent to the annual emissions of 27 million passenger vehicles *Improvements in in LCA GHG Emissions of Corn Ethanol Liska et al Journal of Industrial Ecology Feb 09

Gas Prices on the Rise Gas prices threatening to approach $3 per gallon in 2010 Bad timing: unemployment remains high and economy still struggling to recover

25 Gas Prices on the Rise Gas prices threatening to approach $3 per gallon in 2010 Bad timing: unemployment remains high and economy still struggling to recover According to the Oil Price Information Service, Americans spend $1 billion daily on gasoline E10 Ethanol blends (E10 and E85 in this example) are more affordable at the pump

26 Ethanol and Gas Prices Ethanol adds 800,000 bbls/day to fuel supply Merrill Lynch determined in 2008 that without ethanol, oil and gasoline prices would rise by 15%, which totaled 50 cents per gallon during the record pump prices of 2008 Growth in ethanol production between caused gas prices to be 29 to 40 cents lower per gallon than would otherwise have been the case* If ethanol were removed from the world supply, oil prices would increase by an estimated 27.5% # *Iowa State University, April 2008 #Impact of Ethanol on World Oil Demand and Prices: LECG, May 2008

27 Ethanol eases pain at the pump E10 Photo taken March 17, 2010, Sioux Falls, SD

28 Blender Pumps Separate hoses for flex fuel and standard fuel Contrasting labels for standard and flex fuel. Blue flex fuels Blends above E10 clearly labeled for flex fuel vehicles only Contrasting labels for standard and flex fuel. White standard fuels E10 87% Unleaded/13% E85 E30 65% unleaded/35% E85 E85 Unleaded

29 Federal Infrastructure Tax Credit IRS limits tax credit eligibility Proposed tax credit eligibility IRS interpretation Congressional Intent

30 Amazon Deforestation on Decline while Biofuels Production on the Rise Brazilian Deforestation and Global Ethanol Production Square Miles Deforested 12,000 10,000 8,000 6,000 4,000 2, ,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Million Gallons Ethanol Deforestation Ethanol Production urce: IEA; Butler, Mongabay.com (FAO, NISR)

Sustainable, Efficient Corn Ethanol Net energy ratio values from 1.29 to 2.23 Corn-ethanol systems reduced GHG emissions by 48% to 59% compared to gasoline, which has a GHG intensity of 92 gco2e MJ.

31 Sustainable, Efficient Corn Ethanol Net energy ratio values from 1.29 to 2.23 Corn-ethanol systems reduced GHG emissions by 48% to 59% compared to gasoline, which has a GHG intensity of 92 gco2e MJ. Improvements in in LCA GHG Emissions of Corn Ethanol Liska et al Journal of Industrial Ecology Feb 09 Ethanol-to-petroleum ratios were 10:1 to 13:1 for corn-ethanol but could increase to 19:1 with progressive crop management that increases both yield and input use efficiency.

32 Net Energy Ratio, Fossil Fuels and Ethanol Percent Gasoline Diesel Natural gas LP gas Electricity Coal Ethanol Net energy ratio Source: USDA Office of Energy Policy and New Uses

33 Corn Sustainability Improvements Land Use Soil Loss Irrigation Energy Climate Amount of land to produce one bushel of corn Soil loss per bushel, above a tolerable level Irrigation water use per bushel Energy used to produce one bushel Emissions per bushel 37% 69% 27% 37% 30% Source: Field to Market

34 Future sources of oil will be more carbon intensive harmful to environment Source: Brooke Coleman, New Fuels Alliance

1/3 of every corn bushel used as distillers grain feed for livestock Ethanol produced 30.

35 Ethanol returns 1/3 of corn used as high quality feed Ethanol production represented 30% of corn use in 2009 on gross basis figure often cited by critics More accurate to examine net use of corn because ethanol returns 1/3 of every corn bushel used as distillers grain feed for livestock Ethanol produced 30.5 million metric tons of high quality distillers grain feed in 2009 On a net basis, just 21% of corn in 2009 was used to make ethanol

36 Corn has small impact on retail food prices Source: USDA,NCGA * Based on corn value of $4/bushel. USDA choice boneless sirloin steak. Feb. 08;

37 Energy has twice the impact on food prices than corn Source: LECG, The Relative Impact of Corn and Energy Prices in the Grocery Aisle RFA.

38 Texas A&M: Don t blame corn ethanol for food prices Corn prices have had very little effect on consumer food prices. Higher energy prices viewed as underlying force driving prices.

39 Water use in perspective Don Hofstand, Iowa State University Extension

CONTRIBUTION OF THE ETHANOL INDUSTRY TO THE ECONOMY OF THE UNITED STATES

CONTRIBUTION OF THE ETHANOL INDUSTRY TO THE ECONOMY OF THE UNITED STATES Prepared for the Renewable Fuels Association by John M. Urbanchuk Managing Partner February 17, 2014 The environment facing the