1EnvironmentalandEconomicIssuesFacingToday’sEthanolIndustryEPAFarm,Ranch,andRuralCommunitiesCommittee(FRRCC)MeetingSeptember8,20082EnvironmentalissuesfacingourindustryWhatisourindustrydoing?•Workingtoreducethelifecyclegreenhousegas(GHG)emissionsassociatedwithethanolproduction•Enhancingtheenergyefficiencyandsustainabilityofethanolproductionsystems•Ensuring“landusechange”modelingisaccurateandthebestscienceisconsidered•Encouragingalevelplayingfieldfortheevaluationoftheenvironmentalimpactsofallfuels3LifecycleGHGEmissions•Inthepast,lifecycleanalysiswaslargelyanacademicexercise•Emergingregulatoryframeworksestablishlifecycle‐basedGHGreductionstandardsforbiofuelsFederalRenewableFuelsStandard(RFS2)3⁄4Newplantsmustshow20%GHGreductioncomparedtogasoline3⁄4“Advanced”biofuels=50%GHGreduction3⁄4“Cellulosic”biofuels=60%GHGreductionCaliforniaLowCarbonFuelsStandard3⁄4ReduceGHGemissionsby10%by20203⁄4Otherstateslookingatsimilarcarbon‐basedfuelstandards4LifecycleGHGemissionsfromcurrentdry‐millcornethanolLIFECYCLEGHGEMISSIONS,DRY‐MILLCORNETHANOLvs.GASOLINEAgriculturePhase44gCO2eq./MJBiorefineryPhase43gCO2eq./MJCo‐productCredit‐17gCO2eq./MJTOTALGlobalWarmingIntensity(GWI)70gCO2eq./MJGasoline92gCO2eq./MJGHGReductionRelative toGasoline‐24%Source:GREET1.8bandLiska,UniversityofNebraska.5FactorscontributingGHGstothecornethanollifecycleShareofCornEthanolGHGEmissionsbyPhaseTheglobalwarmingintensityofEACHofthesephasescanbereducedinthefuturethroughadoptionofnewtechnologiesandproductionpracticesSource:Wang,2007.6Improvingtheagphase:Highercropyields708090100110120130140150160170

Bushels/AcreU.S.CornYieldU.S.averagecornyieldhasmorethandoubledinthelast35yearsSource:USDA;2008yieldisestimatedat155bu./acre7Improvingtheagphase:FertilizeruseFertilizerTrendsandNewTechnologies•Variable/precisionapplication•Ninhibitors/slowrelease•Nutilizationtransgenictraits•Economicincentivetouseless8Improvingthebiorefineryphase:Energyuse•Newtechnologieshavereducedtheenergyrequiredtoproduceethanol•Producershavegreatincentivetoreduceenergycosts•Increasinguseofprocessheatfromnon‐fossilfuels(biomass)20,00022,00024,00026,00028,00030,00032,00034,0002004 2005 2006 2007 GREETDefault

BTU/GallonDryMillThermalEnergyUsageImprovements(AverageBTUperGallonofEthanolProduced)Source:Christianson&Associates.“U.S.EthanolIndustryEfficiencyImprovements:2004through2007”August5,20089GHGemissionreductionsfromethanolbasedonvariouspractices&technologies“Our study shows that the GHG emission impacts of cornethanol could vary from a3% increase(if coal is used asthe process fuel) to a52% reduction(if wood chips).” –Wang, ANL, May 2007Source:Wangetal.,May2007.10Improvementsinwateruse6.55.84.73.452.352.52.7012345671994199820022006 2010(P)

Gallons of Water: 1 Gallon FuelWaterRequiredtoProduce1GallonofEthanolvs.GasolineEthanolGasolineSources:RFA,MNDNR,NRELTheethanolindustryconstitutesfour‐tenthsof1%oftotalU.S.industrialwateruse**Assumesethanolindustryuses75milliongallonsH2O/day.TotaldailyindustrialH2Ouseis18.5billiongals./day11ThelandusechangedebateandpotentialimpactsonthebiofuelslifecycleTheconceptoflandusechangeisbasedonthefollowingprinciples:1.Increasedproductionofplant‐basedbiofuelswillleadtotheconversionofpreviously(orrecently)uncroppedlands(e.g.CRP,forestandgrassland)intocropproduction.2.Conversionoftheselandstocroppingsystemsreleasesgreenhousegasemissionsthroughclearingandtillage.3.TheGHGemissionsresultingfromtheselandconversionsarethenattributedtothebiofuelslifecycle.PotentialImpact:SomequestionableanddiscreditedstudiessuggestGHGemissionsfrombiofuelsareworsethangasolinewhenlandusechangeisconsidered.12LandusechangeTwoTypesofLandUseChange:•Direct:Growingbiofuelsfeedstockongroundthatpreviouslywasusedforsomethingelse3⁄4Example:CRPtocornforethanol3⁄4Analysisisrelativelystraightforward,data‐driven,andverifiable•Indirect:Landsomewhereintheworldisclearedforagricultureuseasaresultoflandsomewhereelsebeingplantedtobiofuelsfeedstock3⁄4Example:soy/cornconvertedtocorn/cornÆdecreasessoybeanexportsÆresultsindemandformoresoyacressomewhereelseintheworldÆcausesgrasslandtobeclearedforsoybeancultivationÆcausesdeforestationofrainforesttoaddpastureground3⁄4Analysisiscomplex,drivenbycompoundingassumptions,andunverifiable13NostatisticalrelationshipbetweenethanolproductionandAmazondeforestation02,0004,0006,0008,00010,00012,00014,00016,00018,00002,0004,0006,0008,00010,00012,000 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Million Gallons Ethanol

Square Miles DeforestedBrazilianDeforestationandGlobalEthanolProductionDeforestationEthanolProduction•EmpiricaldatadonotsupportthenotionthattherateofdeforestationinBrazilandworldethanolproductionarestatisticallyrelated•Deforestationhasbeendecliningsince2004•2007deforestationwaslowestinlast20yearsSource:F.O.Licht;NationalInstituteofSpaceResearch(Brazil)14Recentanalysesofindirectlandusechangeareflawedandinvalid•Quality,validation,andtransparencyofmodels–GTAPmodeldoesnotincludeCRP,idlelandinlandinventory–FASOMGHG,FAPRImodelsnotpubliclyavailable•Purposeofmodels–GTAPwasdesignedforglobaltradeinteractionsandpolicyimpacts,notLUC•Inabilitytoverifyresults•Assumptionsunderlyinganalysis–Searchingerassumes30BGYcornethanolby2015–Cropyields,DDGSdisplacement,soilcarbonemissions,etc.•Allfuelsneedtobeevaluatedwiththesamemetrics•Noprecedentforaccurateaccountingofindirecteffects•Incapableofintegratinginterplayofeconomic,institutional,technological,culturalanddemographicvariables15Areindirecteffectmetricsbeingappliedtootherfuels?•Energyconsumedinexplorationanddrilling•Protectionofoilsupply•Energyintensityandlanduseimpactsofoilsands•Oilfieldfires•Ventingandflaring•Petroleum‐relateddeforestation(Ecuador,Nigeria)•Etc.16EconomicIssues•Managinghighercornprices•Energyinputcosts•Transportationcosts•Perceptionsaboutethanol’sroleinfoodprices17TransportationCosts•TransportationImpactsof100MGYethanolplant:–3,448railcarsofFuelEthanolperyear(10tankcarsperday)–9,867railcarsofCornperyear(60%byRail,17railcarsperday)–3,048railcarsofDDGSperyear(9hoppercarsperday)18ShippingEthanolviaPipeline–EthanolCANbeshippedviapipeline–Mosteconomicalmodeoftransportation–Muchresearchisbeingconducted•Kinder‐Morgantoshipfuelethanol(E95)inpipelinefromTampatoOrlando•Dept.ofTransportationResearch•AssociationofOilPipelinesResearchProgram19EthanolandFoodPrices•Duringthefirst4monthsof2008,theallfoodCPIincreasedby4.8percent,withincreasedethanolandbiodieselconsumptionaccountingforonlyabout4‐5percentofthetotalincreasewhileotherfactorsaccountedfor95‐96percentoftheincrease.In2007,97%offoodpriceincreaseshadnothingtodowithethanol.‐‐USDA/DOELettertoSenatorJeffBingaman,ChairmanofSenateEnergyandNaturalResourcesCommittee,June11,2008•MinimalimpactssubstantiatedbystudiesbyTexasA&M,FederalReserveBankofK.C.,USDA‐ERS,PurdueUniversity,InformaEconomics,others20TABLE 1. Ethanol Impact on Household Gasoline SpendingVariable21,252Fed. HighwayASourceA.MilesDrivenperHouseholdperYr.(miles)20.2EnvirdministrationB.AverageVehicleFuelEconomy(mpg)onmental1,052$0.20‐0.50LowProtection AgencyC.GasolineUseperHouseholdperYear(gals.)(A÷B)D.EthanolSavingsperGallonofGasolineer: DOE/USDAUpper:Merrill LynchE. GASOLINE SAVINGS PER HOUSEHOLD$210.40– $526(CxD)TABLE2.EthanolImpactonHouseholdFoodSpendingVariable$6,111BureauofSourceA.Average HouseholdFoodSpending(2006)Labor StatisticsB.AddedCostto Fooddue toFoodPrice Inflation (5.2%June07 toJune08)$317.77June2008Consumer Price IndexC. AddedCostto Fooddue toFoodPrice InflationwithEthanolImpact$302.49‐$3r: DOE/USDAUpper:W.H.Cncl.ofEcon.AdvisorswithoutEthanolImpact (4.95%‐5.1%)11.66LoweD.ADDEDCOSTTOFOODDUETOIMPACTOFETHANOLONFOODINFLATION(.10%TO .25%)$6.11­$15.28(B­C)TABLE 3. Net Impact of Ethanol on Total Household SpendingVariable$210.40‐$526TaSourceA.Ethanolble 1, RowEB.SavingsperHousehold$6.11ble 2, RowAddedCosttoFoodperHouseholdduetoImpactofEthanolonFoodInflation‐$15.28TaDC. NET IMPACT OF ETHANOL ON HOUSEHOLD SPENDING$204.29­$510.72(A– B)ESTIMATING THE IMPACT OF INCREASED ETHANOL PRODUCTION ON U.S. HOUSEHOLD SPENDING21Summary•EthanolwillcontinuetoplayanimportantroleinreducingGHGsfromthetransportationsector•Theethanolindustrycontinuestoimproveitsenergyefficiencyandsustainability•Muchresearchisneededonlandusechangeissues;thecurrentlevelofunderstandingisinsufficient•ThecostsandbenefitsofALLfuelsshouldbeevaluatedusingthesamemetrics•Ethanolproducersarefacinghigherproductioncosts•Ethanol’simpactonthehouseholdbudgetispositive22ThankYouwww.ethanolrfa.orgGeoffCooperRenewableFuelsAssociation16024ManchesterRd.Ellisville,MO63011(636)594‐2284