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Fuel Ethanol in the United States: Where We Are in 2006: 

Fuel Ethanol in the United States: Where We Are in 2006 James Peeples TREIA “Texas Renewables ’06” Omni Southpark Hotel Austin, Texas November 13, 2006

U.S. Fuel Ethanol Market Overview: 

U.S. Fuel Ethanol Market Overview U.S. demand for fuel ethanol surged past 4 billion gallons in 2005 U.S. production capacity is expected to exceed 5 billion gallons per year in 2006 Over 50 production facilities under construction in the U.S. in 2006 The U.S. will surpass Brazil in production & use of fuel ethanol in 2006 Third generation technologies emerging to use wide range of feedstocks in addition to grains & other crops (biomass, energy crops, MSW, etc.)

U.S. Fuel Ethanol Market Overview: 

U.S. Fuel Ethanol Market Overview There are 103 U.S. bioethanol refineries in full production today Total nameplate capacity in 2006 exceeds 5 billion gallons per year (bgy) Another ~50 new plants are being built and current plants expanding by >2.9 bgy in 2006 Total U.S. fuel ethanol capacity will approach 8 bgy in 2007, or about 5% of total U.S. motor fuel use RFS will likely be increased from 7.5 bgy renewable fuels by 2012 to 15 bgy or more (110th Congress) Substantial new investment in production of all biofuels is expanding – Texas is emerging as a leader!

U.S. Fuel Ethanol Market Overview: 

U.S. Fuel Ethanol Market Overview Fuel ethanol now used in ~30% of all U.S. gasoline Fuel ethanol is lowest net cost octane enhancer to reduce SI engine emissions Fuel ethanol is most cost-effective diesel fuel oxygenate (E diesel®) for emissions reduction Fuel ethanol (E85) is most readily available, lowest cost alternative fuel (1,000 refueling stations) “Renewable Fuel Standard” (RFS) calls for 7.5 bgy remewable fuels by 2012 -- easy Fuel ethanol is projected to hit 25 – 30 bgy production in 20 years – more difficult, but achievable

Federal Incentives for Fuel Ethanol: 

Federal Incentives for Fuel Ethanol Federal “Volumetric Ethanol Excise Tax Credit” (VEETC) enacted in 2005 to equalize cost of fuel ethanol with RUL (generally) Incentive of $0.51 per gallon for ethanol used as a fuel regardless of taxpayer/end user status Available at the terminal rack, and immediately applied to the cost of finished ethanol-diesel blend (in gasoline, E85, E-diesel®) Incentive remains in effect through 2010 and very likely beyond (original law adopted in 1978!)

Incentives for Fuel Ethanol (E85): 

Incentives for Fuel Ethanol (E85) Volumetric Ethanol Excise Tax (VEETC) for E85 Blender Tax Credit of $0.51 cents per gallon Credit goes to entity that blends the ethanol and unleaded gasoline Credit good through December 31, 2010 The credit should allow for aggressive pricing for ethanol relative to gasoline pricing For more information on E85 please visit the NEVC website at www.e85fuel.com

Incentives for Ethanol FFVs: 

Incentives for Ethanol FFVs 2005 Energy Bill Highlights - Incremental Vehicle Cost Provides a tax credit for the purchase of a new dedicated AFV (Dec. 31, 2005 through Dec. 31, 2010) 50% of the incremental cost of the vehicle, plus 30% if the vehicle meets tighter emission standards Credits range from $2,500 to $32,000 depending on the size of the vehicle For non-taxpaying entities, the seller of the vehicle can capture the credit

Ethanol as an Alternative Fuel (E85): 

Ethanol as an Alternative Fuel (E85) Blended at 85vol% ethanol + 15vol% RUL (in some areas, 70vol% ethanol in winter) All federal tax incentives apply and are captured at terminal for blenders of E85 Refueling network across country is expanding – centrally-fueled fleets are largest customers 6+ million ethanol FFVs on U.S. highways Cost of E85 at pump expected to track RUL in the long-run (with “normal” supply/demand balance) Substantially reduces GHG and other emissions Domestically produced energy, creates U.S. jobs, etc.

New Ethanol FFVs for MY2007: 

New Ethanol FFVs for MY2007 DaimlerChrysler 4.7 liter Chrysler Aspen 4.7 liter Jeep Commander 4.7 liter Jeep Grand Cherokee 4.7 liter Dodge Dakota General Motors 5.3 liter Chevy Express 5.3 liter GMC Savana 3.9 liter Chevy Uplander 3.9 liter Pontiac Montana 3.9 liter Saturn Relay 3.9 liter Buick Terraza Mercedes Benz 2.5 liter C230 sedan Nissan 5.6 liter Armada

Typical E85 Site: San Antonio, TX: 

Typical E85 Site: San Antonio, TX Public-Private Partnership Site is publicly accessible for multiple municipalities including city, county, state & federal fleets Site has over 100 local customers signed up; more signing up daily Site is multi-fuel featuring E85 and propane & incorporates today’s best technology All components are E85 compatible

Expanding Fuel Ethanol’s Potential: 

Expanding Fuel Ethanol’s Potential Meeting the “25 x ’25” Challenge: More new E85 infrastructure (10,000 stations, min.) Ethanol (E95) as locomotive fuel (AHL-TECH) Ethanol (E95) as electric hybrid automobile fuel Higher ethanol-gasoline blend levels (>20vol%) E diesel® (ethanol-diesel blends) Ethanol in fuel cell applications Target: 40 – 50 billion gallons/year (10x increase) For more, see: www.25x25.org

Barriers to Biofuels Expansion: 

Barriers to Biofuels Expansion Convincing Consumers to Buy Biofuels Achieving Cost Competitiveness Expanding Infrastructure (e.g., 10,000 E85 refueling stations needed, coast-to-coast) Commercializing New Biofuels (biobutanol, etc.) & Feedstocks (e.g., switchgrass, corn stover) Developing Next Generation Uses for Biofuels (dedicated E85 vehicles, locomotives, hybrids, fuel cells, etc.) Solving Transportation Bottlenecks Sustaining a National Consensus on Biofuels

Conclusions: 

Conclusions Biofuels are here to stay, and after 28 years of development is experiencing unprecedented growth All biofuels can and will play a significant role in U.S. transportation & energy requirements The U.S. will derive substantial environmental, energy security, and economic benefits, even if biofuels only achieve 25% petroleum displacement by 2025 Biofuels are slowing gaining acceptance Many “non-traditional” states (e.g., Texas) are emerging as leaders in biofuels production, along with other renewables (e.g., wind power, solar, etc.)

Thank You!: 

Thank You! James Peeples AHL-TECH 6530 Dearborn Drive Falls Church, Virginia 22044 USA (703) 256-4497 (office) (703) 628-1503 (mobile) jpeeples@AHL-TECH.com (e-mail)