A Guide to Long Term RIN Price Forecasting

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1 A Guide to Long Term RIN Price Forecasting 9 th Annual OPIS RFS2, RIN and Biodiesel Forum Chicago, IL October 4, 2017 Patrick Foody EVP, Advanced Biofuels Iogen Corporation

2 RIN Forecast 2

3 Presentation Outline: A Guide to Forecasting RINs 1. Who is Iogen? 2. Why make long term forecasts? 3. Credit price structure and theory 4. D6 RINs 5. D4 RINs 6. D5 RINs 7. D3 RINs 8. Long term factors to consider 9. Summary and Conclusions

4 Who is Iogen? Family owned and run business since 1975 Successful Developer of 2 nd Gen Biofuels Technology & Projects Cellulosic ethanol Renewable hydrogen Renewable natural gas Major partners and investors over the years: Biogas relationships include Cellulosic biofuels Cellulosic Ethanol Proven integrated cellulosic ethanol technology $100 M cellulosic ethanol facility running at Raizen site since Brazil Q4, 2014 Significant experience assembling projects with complex supply chains, fiber and biogas Cellulosic Biogas New technology for biogas to renewable content in gasoline/diesel using refineries Unique refiner relationships, providing RIN/LCFS solutions to obligated parties Top 5 RIN producer in US Several Hi BTU projects under development Related More than $500 MM R&D investment, with 300+ patents issued or pending Built and sold a global specialty enzyme business with focus on fiber processing (sold in 2013) 4

5 We ve implemented cellulosic ethanol production in Brazil Brazilian Sugar Mills Raízen Costa Pinto Mill, Piracicaba, Brazil Brazil s largest cane processor, Iogen partner 24 sugar/ethanol mills, ~ 65 m tonnes/yr. crushing ~ US$ 30 billion sales ~ 40,000 employees The Costa Pinto 2G Ethanol Project Operating Since Dec 2014 US ~$100 million 10 MM gal. 2G ethanol Bagasse as feedstock Residue to boiler Once meeting all targets, Raizen plans for 7 more plants

6 We ve developed a simple but novel way to enable refiners to play a role in cellulosic biofuel production Landfill Gas (LFG) Collection Cellulosic Ethanol Plants Farm & Municipal Digesters 4 patents issued so far U.S. Patent No. 8,945,373 U.S. Patent No. 8,753,854 U.S. Patent No. 8,658,026 U.S. Patent No. 9,040,271 Regulatory Status Already APPROVED for LCFS credit generation EPA Pathway not yet Approved Existing Hydrogen Plants Cellulosic Biogas Existing Refineries Renewable Content in Existing Gasoline or Diesel Anaerobic Digestion Making RNG 0.35B Gal Existing 5+B Gal Potential Hydrogen Production and Fossil Fuel Hydrogenation 7+B Gallons Capcity Gasoline / Diesel containing RH Existing Fuel & Vehicle Infrastructure 150+B Gal Potential 6

7 We are expanding our biogas-based fuels business We work with biogas rights holders and refiners to assemble unique supply chains There is strong refiner interest in Iogen s unique RH refinery pathway for cellulosic biofuel Enables lower cost compliance approach for refiners Does not obsolete refined fuels (like most other biofuels do) Enables LCFS credit generation Processing existing landfill biogas is a natural bridge for getting additional value from biogas produced from cellulosic ethanol plants 7

8 We have an investor view in the business (primarily D3) Large scale cellulosic ethanol project development Investment cases for long term fuel price outlooks Several projects, several countries RIN price forecasting models, market risk analysis Renewable Natural Gas (RNG) project development Assembling biogas/rin supply chains that are financeable Key is understanding/managing RIN risk exposure Significant role in policy development and analysis Interest in practical policies that will deliver intended outcomes Involvement in both RFS2 and LCFS policy consultations 8

9 Obligated parties Why make long term RIN price forecasts? Assessing future potential costs/liabilities related to RINs Assessing investment strategies Developing strategies to reduce cost and manage risk exposure Biofuel Producers Evaluating investment decisions and risk exposures Fuel Distributors Evaluating investments in distribution assets Traders Understanding market drivers to support market position/trading strategies 9

10 Background: Biofuels Legislation - EISA and RFS2 The Energy Independence and Security Act of 2007 EISA established the current Renewable Fuels Standard (RFS2). The law set requirements for the use of biofuels across America, increasing year over year until 2022, then held There are requirements for 4 different types of biofuels, with a nested structure of obligations that apply to refiners and importers Total Renewable Biofuel Made from any Renewable Biomass > 20% GHG reduction (36 B Gal in 2022) Biomass-based Diesel Made from Renewable Biomass Meets definition of biodiesel > 50% GHG reduction (1.5 B Gal in 2012, reset annually thereafter) Advanced Biofuel Made from Renewable Biomass, but is not ethanol from corn starch > 50% GHG reduction (21 B Gal in 2022) Cellulosic Biofuel Made from Cellulosic Biomass > 60% GHG reduction (16 B Gal in 2022)

11 Background: EPA Established Rules to Implement RFS2 in 2010 EPA rulemaking builds on RFS 1 Extended a system of RINs, or Renewable Identification Numbers to each classification of biofuel. One RIN = 1 ethanol gallon RINs are generated when a biofuel is produced, and sold with the fuel RINs are separated when a fuel is blended into fossil fuels RINs are used by Obligated Parties (refiners or importers) to meet their obligations Obligated Parties meet the 4 types of obligations by acquiring their pro-rata share of national obligations OPs can either blend fuels to acquire RINs, or acquire RINs from others who blend fuels Obligated Parties must buy biofuels proportionally to their gasoline utilization Compliance is tracked through a system of RIN trading Total Renewable Biofuel D6 RIN Example: Corn ethanol Biomass-based Diesel D4 RIN Example: Biodiesel from soy D7 RIN Example: Cellulosic diesel Advanced Biofuel D5 RIN Example: Cane ethanol D4 D7 Cellulosic Biofuel D3 RIN Example: Cellulosic ethanol Example: CNG from LFG

12 How the RVO s Stack Up (Example of 2018 RVOs) EISA 2018 Applicable Volumes Total Renewable Fuel 26.0 B Gal 2018 Market Fulfillment Total Renewable Fuel B Gal Incremental Renewable Fuel 15.0 B Gal E B Gal Incremental Renewable Fuel 15.0 B Gal Advanced Biofuel 11.0 B Gal Advanced Biofuel 4.4 B Gal Cellulosic Biofuel 7.0 B Gal BBD 1.5 B Gal Min. (EGE) Incremental Advanced Biofuel 4.0 B Gal Cellulosic Biofuel 0.4 B Gal Biomass-Based Diesel 3.25 B Gal (EGE) Incremental Advanced Biofuel 4.0 B Gal Cellulosic Biofuel 7.0 B Gal Cellulosic Biofuel Waiver 6.6 B Gal Cellulosic Biofuel 7.0 B Gal 12

13 Price ($/gal) Economic Theory of Free Market Based Credit Pricing Equilibrium Supply (S) Supply Curve Relationship between selling price and the volume that sellers are willing and able to supply Dominated by production cost Higher price generally brings more volume on stream Supply can be limited by production capacity P* Natural Equilibrium Price V* Natural Equilibrium Volume Demand (D) Volume (gal) Demand Curve Relationship between the buying price and the volume that buyers are willing and able to buy Dominated by value-in-use and cost of alternatives Lower price generally increases demand Demand can be limited by infrastructure 13

14 Price ($/gal) Economic Theory of Free Markets and Credit Pricing Price of biofuel Supply (S) Supply cost of incremental biofuel An RVO introduces a requirement for a certain level of biofuel use The market finds the lowest cost alternative, using RINs as the price balancing mechanism P* RIN RIN Price drives the outcome V* V RVO Renewable Volume Obligation Blender value of incremental biofuel Demand (D) Volume (gal) Positive when the RVO is above the Natural Equilibrium Volume Equal to the difference in the supply curve price and the demand curve price for the RVO volume Driven by the additional cost of getting the last incremental gallon to market 14

15 Example of Estimated Ethanol Supply Demand Relationship 2013 RVO 13.8 B Gal Ref: Center for Agricultural and Rural Development, Iowa State University, Policy Brief 13-BP-11, August new stations 800 MM gal/yr If each station costs $60,000 Cost is $0.19/RIN/yr If consumer demand pans out, low cost RIN protection Ref: Center for Agricultural and Rural Development, Iowa State University, Policy Brief 13-BP-13, September

16 Governing Relationships Affect RIN Prices Structural value relationships: D4 D5 D6 (from nesting, replacement options) D3 D5 + CWC (D3 can be replaced by D5 + CWC) D7 D4 + CWC (D7 can be replaced by D4 + CWC) CWC = max ($0.25 inflation adjusted, or $3.00 inflation adjusted prior year gasoline price) (set by statutory formula in EISA) Market relationships What is the volume change V implied by the RVO? (Set by EPA annually within legal requirements) What is the lowest cost incremental choice to meet the RVO for each RIN type (given supply options, distribution capacity)? How will market participants demand/share potential margins 16

17 Presentation Outline: A Guide to Forecasting RINs 1. Who is Iogen? 2. Why make long term forecasts? 3. Credit price structure and theory 4. D6 RINs 5. D4 RINs 6. D5 RINs 7. D3 RINs 8. Long term factors to consider 9. Summary and Conclusions

18 D6 RINS How RVOs Stack Up 2018 Market Fulfillment Cellulosic Biofuel 0.4 B Gal Advanced Biofuel 4.4 B Gal Total Renewable Fuel B Gal E B Gal Biomass-Based Diesel 3.25 B Gal (EGE) Cellulosic Biofuel Waiver 6.6 B Gal 15 Billion gallons Incremental Total Renewable Fuel RVO Ethanol as E10 is the least expensive option (D6 RIN). Current E-10 limit is about 14.2 B gal Ethanol in E10 competes gallon-for gallon with gasoline (no energy discount) At current oil prices, RIN cost would be about zero cost Ethanol has octane benefit the market may value Next available options (for final 6%) are much more expensive, or not available in sufficient quantities to be the incremental choice E-15 (D6), E-85 (D6), Palm BBD (D6), Cane EtOH (D5), BBD (D4), and CNG (D3) D6 RINs are generally held up by E-85 economics RIN bank can be used if current pricing is punitive 18

19 High D6 RIN Prices Are Dependent upon the last 6% Most (~94%) of incremental total renewable fuel can be fulfilled with limited cost via E10 The last 6% drives the premium D6 RIN prices Volatility in D6 RIN prices derives from market sentiment about how the last 6% will be managed Speculated regulatory changes that would reduce/ eliminate the high cost of E10-derived RINs Possible reduction in the incremental total biofuel RVO (below 15B gal) D8 RIN proposal, where D6 would trade on E-10 economics, and D8 would trade on higher blend economics Possible generation of D6 RINs from ethanol export 6% Gasoline volume increase, or E15 equalling 4% of volume could erode D6 prices 19

20 Possible D6 Price Erosion Beyond

21 D6 RIN Price Model Basis Forecast Basis: Incremental total renewable fuel RVO is greater than the E-10 capacity (has been so since 2013). Implication: Cost of D6 RINs is not based upon E-10 economics, but rather on E-85 economics (the marginal TRF gallon) Forecast Basis: E-85 competes with gasoline/diesel on an energy basis, with historically observed distribution margins vs. the fossil equivalents. RINs make up the cost difference. Forecast Basis: Ethanol prices are reflective of production cost, which are driven by corn costs, production yields, and operating costs (based upon industry benchmarks). Forecast Basis: Commodity futures markets are reasonable predictors of future expected pric 21

22 5 Year D6 RIN price forecast 22

23 D6 RIN Sensitivity to Oil and Corn Prices 23

24 Presentation Outline: A Guide to Forecasting RINs 1. Who is Iogen? 2. Why make long term forecasts? 3. Credit price structure and theory 4. D6 RINs 5. D4 RINs 6. D5 RINs 7. D3 RINs 8. Long term factors to consider 9. Summary and Conclusions

25 D4 RINS How RVOs Stack Up 2018 Market Fulfillment Total Renewable Fuel B Gal E B Gal Cellulosic Biofuel 0.4 B Gal Advanced Biofuel 4.4 B Gal Biomass-Based Diesel 3.25 B Gal (EGE) Cellulosic Biofuel Waiver 6.6 B Gal ~ 4.8 Billion gallons (ethanol equiv.) Possible demand for D4 RINs BBD is the incremental alternative for unspecified AB volume BBD is drawn into the pool for renewable fuel compliance beyond E10, but E85 appears to be the marginal gallon 25

26 D4 RIN Price Model Basis Forecast Basis: The biomass-based diesel (D4) RVO is incrementally met with soybean oil based biodiesel Forecast Basis: BBD competes with diesel on a cost-per-unit-energy basis, with historically observed distribution margins. RINs make up the cost difference. Forecast Basis: BBD prices are reflective of production cost, which are driven by soy oil price, biodiesel yields, and operating costs (based upon industry benchmarks). Forecast Basis: Commodity futures markets are reasonable predictors of future expected prices Forecast Basis: D4 RINs have a floor price of D6 RINs if E85 is the incremental total renewable fuel gallon Forecast Basis: The biodiesel tax credit is not reinstated. If the tax credit was reinstated, the D4 RIN price would drop. 26

27 5 Year D4 RIN Price Forecast 27

28 D4 RIN Sensitivity to Oil and Soybean Oil Prices 28

29 The $1.00 Biodiesel Tax Credit should lead to a reduction in the D4 RIN If E85 provides the incremental TRF gallon (as in 2016), D4 RIN would hit D6 floor price, a drop of $0.34/RIN If BBD is the incremental gallon of total renewable fuel (TRF), then the D4 RIN should drop by $0.67/RIN If D4 RIN is held up by the E85 driven D6 RIN, there would be additional profits to the biodiesel industry of about $0.50 per biodiesel gallon 29

30 Presentation Outline: A Guide to Forecasting RINs 1. Who is Iogen? 2. Why make long term forecasts? 3. Credit price structure and theory 4. D6 RINs 5. D4 RINs 6. D5 RINs 7. D3 RINs 8. Long term factors to consider 9. Summary and Conclusions

31 D5 RINS How RVOs Stack Up 2018 Market Fulfillment Total Renewable Fuel B Gal E B Gal Cellulosic Biofuel 0.4 B Gal Advanced Biofuel 4.4 B Gal Biomass-Based Diesel 3.25 B Gal (EGE) Cellulosic Biofuel Waiver 6.6 B Gal ~ 1.6 Billion gallons (ethanol equiv) Possible demand for D5 RINs Sugar cane ethanol is one alternative for AB and incremental renewable fuel compliance beyond E10 Cane ethanol is unlikely to satisfy the full demand. 31

32 D5 RIN Price Model Basis Forecast Basis: The incremental demand for D5 RINs (unspecified advanced biofuel) is met by cane ethanol Forecast Basis: Cane ethanol trades like corn ethanol, except in the incremental AB pool. RINs make up the cost difference. Forecast Basis: Cane ethanol prices are reflective of production cost, which are driven primarily by sugar price. Forecast Basis: Commodity futures markets are reasonable predictors of future expected prices Forecast Basis: D5 RINs have a ceiling price of the D4 RIN (set by BBD economics), and a floor price set by D6 RINs Forecast Basis: The biodiesel tax credit is not reinstated. 32

33 5 Year D5 RIN Price Forecast Biodiesel is the marginal volume for unspecified advanced biofuel 33

34 D5 RIN Sensitivity to Oil & Sugar Prices 34

35 Presentation Outline: A Guide to Forecasting RINs 1. Who is Iogen? 2. Why make long term forecasts? 3. Credit price structure and theory 4. D6 RINs 5. D4 RINs 6. D5 RINs 7. D3 RINs 8. Long term factors to consider 9. Summary and Conclusions

36 D3 RINS How RVOs Stack Up 2018 Market Fulfillment Total Renewable Fuel B Gal E B Gal Cellulosic Biofuel 0.4 B Gal Advanced Biofuel 4.4 B Gal Biomass-Based Diesel 3.25 B Gal (EGE) Cellulosic Biofuel Waiver 6.6 B Gal ~ 0.35 Billion gallons (ethanol equiv.) Demand for CB RINs (D3/D7), set annually to match growing available volume Huge RFS CB volumes are waived, and RVO is statutorily set annually to the projected available volume 36

37 Cellulosic Biofuel (CB) RINs (D3/D7) are different from other RINs Obligated parties (OPs) have an alternative compliance option: Acquire a D3 or D7 RINs to meet CB RVO, or Acquire a Cellulosic Waiver Credit (CWC) and a corresponding advanced biofuel RIN ( AB RIN, i.e. D5 or D4) CWCs are available only at the end of the compliance year (Mar 31), so they have the advantage that no money is tied up holding RINs The CWC functionally sets a ceiling on CB RIN prices If CWC + AB RIN is cheaper than a CB RIN, OPs will buy the cheapest option The CWC creates a market relief valve in the event of short supply The RIN carry-over option functionally sets a floor, because holding RINs is an option vs. selling at low prices 37

38 Historical D3 RIN prices 38

39 Fuel Price ($/gal) Oil Price ($/BBL) The CWC was implemented as a cap on CB prices, and as an incentive during low oil prices Congress determined America should be prepared to pay $3.00 / gallon for the benefits of cellulosic biofuel Low greenhouse gas emissions, not made from food material CWC tops up the price of the cellulosic biofuels to $3.00/gal; $4.00 $3.50 Maximum Price Congress was willing to pay for low GHG cellulosic biofuel ($/gal) $3.00/gal + inflation $160 $140 CWC Currently at $2.00/gal $3.00 $120 $2.50 $100 $2.00 $80 $1.50 $1.00 Average Wholesale Price of U.S. Gasoline ($/gal) $60 $40 $0.50 $0.00 Prevailing oil price ($/BBL) $20 $0 39

40 CB RVO setting creates market balance For cellulosic biofuel RVOs, EISA specifies that CB RVOs be set at projected volume available when it waives the statutory CB applicable volumes Statutory volumes are currently being waived, so the RFS projected volume available provision applies to CB RVO setting EPA does not have authority to bias CB RVO numbers high or low The CB RVO provisions have been the subject of litigation (API vs. EPA, 706 F.3d 474 (D.C. Cir. 2013)) The DC Circuit Appeals Court ruled that EPA must take neutral aim in assessing what will actually happen EISA established checks and balances to incent growth and to protect consumers The CB RVO setting requirements ensure that any and all volumes produced will have a market. The CWC provision ensures price protection for consumers while maintaining a price signal to the market. 40

41 Iogen Forecast Basis : 20% TVM Discounts to the Compliance Point 41

42 Iogen s View on D3 RIN Pricing Scenarios Different Modes of Market Price Determination Short Market: Available Volume below RVO Long Market: Available Volume above RVO Long: Carry over limit not exceeded Over Long: Carry over limit exceeded AB Market Available: Unspecified Advanced room AB Market Full: Unspecified Advanced full We believe RVOs will be set to keep the market balanced for several years (at least until 2021) 50% Short Market 50% Long Market In later years (2021 and beyond), there is an increased risk of available volumes that exceed the RVO 42

43 Price should be between long & short trading boundaries 20% TVM estimate, carry over to 50:50 next year 43

44 EPA s June 17 NPRM proposed CB RIN RVO cuts EPA proposed a growth rate RVO method that would reduce the RVO below the current production rate We believe a growth rate method can be used, and that EPA must take into account leading indicators CRNG Forecast 60% growth If 25% Growth Rate NPRM 2018 RVO Contribution of CNG/LNG We believe the NPRM is inappropriately biased low, and the final RVO will be more reflective of the production trend 44

45 Short term outlook for D3 RINs 2017 is short by ~50 MG D3 RINs have been near maximum levels Obligated parties should consider using deficit carryovers, not buying CWCs to fill shortfall this should reduce pressure on the 2017 D3 RIN price OPs can likely buy lower-priced 2018 D3 RINs to satisfy deferred 2017 volume requirements 2018 may be the first year when the market is long EPA appears to have a bias to set the RVO cautiously, not expecting accelerating growth RNG industry information points to significant growth Capacity is coming on stream as a market response the 2x RIN price increase, driven by oil price decrease 3 years ago We forecast slightly lower D3 RIN prices in 2018 vs 2017 CWC price should be $1.96 in 2018, vs $2.00 in 2017 A long market should set the average price to $2.44, unless available volume exceeds the 20% carryover limit (not likely, but possible) 45

46 D3 Long Term Market Outlook Forecast Basis: EPA continues to set an RVO that creates a balanced market within 20% Forecast Basis: The market is short 50% of the time, long 50% (EPA is meeting its requirement for neutral bias) Forecast Basis: The reset does not create a permanently over long market Forecast Basis: The post-2022 RVOs maintain status quo, consistent with congressional intent Forecast Basis: Commodity futures markets are reasonable predictors of future expected prices 46

47 Iogen D3 RIN Forecast Balanced Market Conditions D3 RIN Long Forecast D3 RIN Short Forecast D3 RIN 50/50 Forecast

48 Key risk factors to the long term D3 RIN price outlook Oil price volatility futures markets indicate there is 25% chance oil is outside $35-90/BBL EPA Administrative Actions RVO mis-call that creates an over long market (exceeding next year 20% limit) The RVO reset for , creating a permanently over long market Legislative Actions Reinstatement of the BBD blender s credit Political change 2020 election Post 2022 RVO reset 48

49 Oil Price: P-75 range (25% chance oil will be outside the range) 49

50 RVO Overshoot of D3 RINS How RVOs Stack Up 2018 Market Fulfillment Total Renewable Fuel B Gal E B Gal Cellulosic Biofuel 0.4 B Gal Advanced Biofuel 4.4 B Gal Biomass-Based Diesel 3.25 B Gal (EGE) Cellulosic Biofuel Waiver 6.6 B Gal ~ 1.6 Billion gallons (ethanol equiv) Demand for CB RINs (D3/D7), if serving alternative AB,TRF markets This market would be served if the available D3 RINS exceed the next year 20% limit Serving these markets would be require that D3 RIN price is reduced to D5/D4 levels 50

51 RVO Far overshoot of the RVOs - Severe D3 RIN price erosion Relationship Between RIN Price and RVO Overshoot Short Market Volume below RVO Short Market Price set by same yr. TVM delay Long Market Volume Above RVO Long Market: Carry-Over (20% max) Price set by next yr. TVM delay Iogen 50:50 Forecast Over Long Market: Unspecified AB RINs Price set by D5/D4 RIN Lower price if BBD tax credit enacted NOTE: With annually set RVO s there is a time dimension to the pricing mode. Early in the year, it is not known if the market will be long or short As production data emerges, then the mode (short, long, ultra long) becomes clear Only the latter part of the compliance year will face long market discounts 51

52 The reset has the potential to create eroded prices EPA s June 17 NPRM indicated EPA initiated the reset process Given that certain statutory criteria are met, EPA plans to reset the CB applicable volume for all years until 2022 Like with biodiesel volume setting, the law requires that EPA must evaluate 5 factors to adjust the applicable volumes: 1. Impact upon several environmental factors (incl. GHG emissions) 2. Impact upon energy security 3. Expected annual production levels 4. Impact upon infrastructure, and sufficiency of infrastructure 5. Impact upon jobs, ag prices, food prices, rural development 52

53 The earliest year where CB applicable volume could be reset is 2020 The reset would be enacted through rulemaking that involves a proposed rule and public consultation EPA has not yet proposed any reset of the EISA s CB applicable volume table The soonest timeline for a final rule would be 2018 The rule establishing the changed RVO must be no later than 14 months before the first year for which such applicable volume will apply Therefore the earliest year of a revised RVO would be 2020 Applicable Volumes must be set for all years until

54 EPA has limits in resetting the CB applicable volumes Applicable volumes could be reset until 2022 (maximum 3 years) The law requires that the reset applicable volumes would be based upon the assumption that EPA would not need to issue a waiver The applicable volume would need to consider production volume growth EPA recognizes congressional intent in applying the same criteria with BBD and AB RVOs EPA recognizes congressional intent for growth of advanced biofuel usage in setting BBD applicable volumes (for example in the recent NPRM) Congressional intent of growth in cellulosic biofuel volumes is unquestionable EPA has limited scope to use a cost-based justification for limiting growth of biogas-based cellulosic biofuels EPA has found the cost of biogas-based cellulosic biofuels to be generally neutral, and much lower cost than BBD EPA has limited scope to claim inadequate sufficiency of infrastructure EIA forecasts NGV at about 2-3 X of current CB production from biogas EIA forecast substantial growth in electric vehicles, and biogas-based electricity is eligible There is 20 X the current CB production for converting biogas to RH that would be 54 incorporated in gasoline and/or diesel

55 A balanced market is likely under a CB reset scenario If a reset occurs, EPA will most likely match the CB applicable volume to a neutral forecast available volume applied until 2022 EPA s current proposed growth rate method could be used with historical industry growth. Current growth trend is ~ 25%/yr New information will be available in the next year The CRNG is forecasting much higher growth There are factors indicating the growth of CB fuel supply will market-correcting: There are short development times for of biogas facilities (12 months from financing to start-up) If prices are low due to oversupply, financing will be impacted, and development growth will slow down 55

56 When RVO is set for multiple years, risk of price erosion increases Multi-year RVO setting increases risk because there is not an annual corrective process Waivers can be applied if volume is short If Volume is long, the market absorbs by price change if the volume exceeds carry overs As back-up, CB RINs can be used to satisfy advanced or total biofuel categories Low prices may not be sufficient to curb investment The first year the CB RVO does not benefit from feedback is 2021 If the produced volume permanently overshoots the CB RVO, the price will be determined by the alternative market served: Over Long, AB : incremental Advanced Biofuel gallon (now BBD) Volume 750 MG and increasing to 1.75 B gal Over Long, AB Full : incremental Total Biofuel gallon (now BBD) Volume 800 MG, space depending on E10 and E15 growth 56

57 D3 RINs Beyond 2022 The RVOs outside EISA s initial applicable volumes (i.e ) will be set by the elected administration (next election 2020) EISA provides that the AB applicable volume for any year after 2022 must be at least the same percentage of the renewable fuel applicable volume of Reducing the status quo of total renewable fuel volume has significant political implications Therefore, there is not expected to be a drop off under the post 2022 volume setting requirements. Market growth of RVO will be administration dependent 57

58 Summary of RIN Forecasts Sep 20/17 Quarterly Model Run Commodity Futures Brent Oil ($/BBL) Henry Hub Gas ($/MMBtu) Corn ($/Bu) Soybean Oil ($/lb) Sugar ($/lb) Iogen Forecast D6 Rin (E85) D5 RIN (Natural) D5 RIN (Capped by D4 RIN) D4 RIN CWC D3 Cap (CWC + D5) D3 - Short Market D3 - Long Market D3-50/50 Average

59 Considerations for the longer term Is GHG emissions reduction action going to prevail, and be considered in the net public interest? If GHG emissions reduction from the transportation sector is desired: What options offer the lowest costs? Clean fuels (including cellulosic biofuels) are a lower cost solution than many vehicle efficiency measures (hybrids, etc.) Governments should have an interest in catalyzing the lowest cost solutions for consumers Clean fuels are an opportunity for the fuels industry, whereas the alternative may be a declining market share 59

60 Summary The RFS is a market-based program to increase renewable fuel use, providing flexibility to players RIN prices are driven by the cost spread between fossil fuel and biofuels, and create the incentive to use renewable fuels Two top price drivers are oil price and ag commodity prices For D6 RINs, prices are driven by how the RVOs link to the E10 blend wall D3 RINs operate differently from other RINs because of the CWC availability and the RVO setting method Political change and EPA administrative actions can have a dramatic impact on the market Quantitative RIN forecasting tools such as those presented offer means to evaluate outlooks, assess scenarios, and support investment decisions 60

61 Thank You Contact Information Patrick Foody EVP Advanced Biofuels Iogen Corporation X

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