Future Fuel Trendlines: Reviewing Key Trends in the First Quarter April 2018

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1 Future Fuel Trendlines: Reviewing Key Trends in the First Quarter 2018 April 2018

2 Macro Trends I Watch for You Focus is on low carbon fuels & vehicles, leveraging my network to bring intelligence to clients and doing first-rate qualitative research and analysis that integrates these issues holistically The Drivers Air Pollution Legislative & Regulatory Frameworks Primarily in U.S., EU, China, India, Brazil, Canada Climate Change Urbanization Fuel economy ZEV Key Topics Low carbon fuels Biofuels & Adv. Alt. Fuels Fuel Economy ZEVs Autonomy Mobility Demographics Car bans

3 The Issues I ll Be Talking About Today Frameworks ZEVs Biofuels

4 Low Carbon Fuel & Vehicle Frameworks California is proposing amendments to the LCFS standard, while Canada is moving forward with its own program and Brazil has recently enacted new legislation. Meantime, the U.S. is headed for a do-over on fuel economy standards.

5 Key Legislative & Regulatory Frameworks Analysis Focuses on U.S. & EU Experience But Also Includes Coverage of Other Key Countries Such as India, China, Brazil Frameworks Low Carbon Fuels Fuel Economy ZEV Mandates & Incentives Major Biofuels Mandate Later this Year: The Beginnings of Comparative Analyses of These Frameworks

6 CARB Proposed Amendments to the LCFS New GHG Target of 20% Reduction Over 2010 Levels Current and Proposed LCFS CI Reduction Schedules (Percent CI Reduction) Credits Generated in the Proposed Amendments Scenario

7 The Brazilian Industry Is Preparing for a Transition to Fuel Cell Vehicles with RenovaBio First biofuels-specific legislation that I have seen post the Paris Agreement that specifically invokes the Agreement and makes a direct link between GHG reduction and meeting the Agreement s requirements through biofuels. It insulates the industry against the coming of the electric vehicle, which I have never seen as very eminent in Brazil anyway. The industry has seen the same thing some in the ethanol industry in the U.S. are seeing: more value can be added to 1G biofuels and their uptake can be enhanced with lower carbon intensity.

8 Big Reason #1 for the U.S. Fuel Economy Do Over : Concern about Credit Availability [F]or an automaker with a large truck fleet looking at compliance post- 2021, your two most likely strategies will either be to make expensive investments in improving the efficiency of your trucks, or plan to rely on an increasingly tight but also opaque credit market. Given these choices, the auto industry collectively chose option C: fight to weaken the standards. And EPA appears primed to go along. Sam Ori

9 Big Reason #2: Consumer Preference for Larger SUVs & Trucks the 2012 rule projected significantly higher fuel prices than current EIA projections, while the 2017 Final Determination used similar projections to EIA. Lower fuel prices mean lower incentives for consumers to purchase fuel efficient vehicles, because the fuel cost savings they get from doing so are also lower. Thus, the projections for fuel cost savings in the 2012 rule may have been optimistic, which increases the challenge manufacturers face in making fuel-efficient vehicles attractive to consumers.

10 Zero Emission Vehicles Auto investment in electric vehicles continuing to grow with over US$200 billion in announcements, but there are definitely challenges continuing to grow ranging from infrastructure, to material availability, to sustainability and more.

11 EV Investments Announced by Major Automakers Over the Past Year in Billions USD Aston Martin Audi BAIC BMW Changan Source: Compiled by Future Fuel Strategies, April 2018 Chery Daimler Dongfeng Motors-Nissan- Fiat/FCA Chrysler Ford Geely-Volvo General Motors Great Wall Group PSA/Peugeot Honda Hongqi-FAW Hyundai Kia Mahindra Mazda Porsche Renault-Nissan-Mitsubishi SAIC Suzuki Tata/Jaguar Land Rover Toyota Volkswagen

12 Nearly US$2 trillion Required for EV Infrastructure for India, China, EU, U.S.

13 Cobalt & Lithium Supplies Could Be Problematic for EV Market Demand for LIBs to Double by 2025 Today 40% of the world s cobalt is used for LIBs, and that is expected to exceed 120,000 tons a year by 2020, up approximately 30% from Two very recent studies have highlighted potential supply risks of lithium and cobalt. In the case of lithium, both say that the need for production scale up may not keep pace with demand. For cobalt, the issue is that most of it comes from war-torn and unstable Democratic Republic of the Congo (DRC).

14 Biofuels Do we need biofuels to decarbonize transport? Yes, we do, says IRENA/IEA. Short-term opportunities governments should be exploring include HVO/HEFA, E20-40, E85 and RNG/biomethane.

15 IEA s 2DS Scenario Envisions Fossil, Electricity, Biofuels & Small Amounts of Hydrogen Playing a Role The 2DS Scenario (2DS) lays out an energy system pathway and a CO2 emissions trajectory consistent with at least a 50% chance of limiting the average global temperature increase to 2 C by Annual energy sector emissions are reduced by 70% from today s levels by 2060 with cumulative emissions of around 1,170 gigatons of CO2 (GtCO2 ) between 2015 and 2100 (including additional industrial process emissions). To stay within this range, CO2 emissions from fuel combustion and industrial processes must continue to decline after 2060 and carbon neutrality in the energy system must be reached by 2100.

16 Do We Need Biofuels to Decarbonize Transport? Yes, We Do, Says IEA/IRENA Biofuels Final Transport Energy Demand by Fuel Type in the 2DS, 2060 Biofuels provide some 40% of air transport fuel in 2060, and 30% of bunker fuel for shipping Short-term opportunities include biomethane, renewable diesel, higher ethanol blends The total investment in bioenergy needed to deliver the 2DS is estimated at US$6.1 trillion, with US$1.6 trillion in bioelectricity systems and US$ 4.5 trillion in transport biofuels production

17 The Biofuels We Have Now Can Bridge to the Future If the Right Actions Are Taken Short-Term Strategies to Pursue Now with Existing Biofuels RNG HVO/HEFA E20-40 & E85 Some Long-term Actions that Need to be Taken Phase out inefficient fossil fuel subsidies and introduce CO2 emission pricing schemes. Create a stable, long-term policy framework for bioenergy, to increase investor confidence and allow for sustainable bioenergy production. Implement sustainability governance frameworks based on GHG performance. Establish LCFS approaches, providing technology-neutral support but ensuring significant benefits over fossil fuels and favoring those which offer the deepest decarbonization for the least cost. Increase share of development bank finance directed to advanced, low-carbon bioenergy projects. Increase total finance for advanced, lowcarbon bioenergy projects so as to reach USD 50 billion/year by 2030.

18 Novel Advanced Biofuels to Cost about $130 Billion from Evolution of Support Costs for Novel Advanced Biofuels Investment needs: US$ 30 billion ; $US100 billion By comparison, total fossil fuel costs from here to 2040 total some US$30 trillion. The support costs for advanced biofuels under these assumptions would amount to less than 0.5% of fossil fuel costs over this period.

19 Questions? Tammy Klein, Principal Future Fuel Strategies (M);