10/14/ National Petroleum Council Future Transportation Fuels Study BIOFUELS Base Case Commentary Guidelines and Template REV 1

10/14/2010 Purpose of the Templates The following Guidelines and Template are a result of a request from several subgroups for more guidance and structure regarding base case commentary for the NPC Future Transportation Fuels Study –These templates will be used for the November 10 & 11 Supply & Infrastructure report-outs on the Base Case –The templates will be the basis for the narrative assessment of the Base Case in the study report These guidelines are a supplement to pages 10 and 11 of the “EIA AEO 2010 Reference Case Transportation Sector Overview” that was issued by the Supply & Infrastructure Task Group The “In Bounds for Comments on the Base Case” (p.11) section has been further grouped into the following categories : 1.Supply and Infrastructure 2.Technology 3.Demand 4.GHG 5.Legislation 6.Other materially significant areas not addressed. Upon completion, this document should be a top line overview, about 7-10 PowerPoint slides. 2

10/14/2010 Future Transportation Fuels Study – Instructions Instructions: 1.Assess the Base Case (EIA AEO 2010 Reference Case Extrapolation GHG baseline) A.Consider the assumptions, data and conclusions for each category B.Subgroups should use the data supplied in the Base Case, even if assumptions are not clear 2.Explain the subgroup’s view as compared to the base case 3.Provide references and sources for the subgroup’s view relative to the base case 4.Subgroups should comment on all six categories listed in the template 5.Summarize the subgroup’s top findings upon completing the exercise 3

10/14/ Supply & Infrastructure - Todd Subgroup’s comments (example items for the Supply & Infrastructure category: Supply Chains, Infrastructure availability and development, Refining and manufacturing capacity and production costs, Supply and feedstock availability, volumes, and timing, Opportunities for fuel switching or substitution, State and regional observations, Impact on Food of replacing corn) The relatively rapid growth in adoption of biofuels in the EIA-EO 2010 outlook requires a significant amount of infrastructure to be developed. The assumptions require that 300 million tons of biomass be available by 2020 and that over 500 million tons of biomass be available by The volume of biomass handled with be something on the order of 3X the current biomass handled in the existing grain infrastructure. This assumes that rain, truck bardge, etc must be available to meet the additional transportation demands for this raw material. The outlook also assumes that plants can be build at essentially peak rate (based on current corn based ethanol) and sustained at that level over a number of years. The cost of biomass delivered must allow for competitive economics as the growth of advanced biofuels occurs.

10/14/ Supply & Infrastructure - Todd

10/14/ Technology – Dave & Steven Subgroup’s comments (example items for the Technology category: Technology pathways and timing, Vehicle technology availability, Timelines. Use Category Approach; Deconstruct): In the year 2020, the EIA Annual Energy Outlook predicts that approximately 1.5 billion gallons of cellulosic ethanol will be produced in the US. This prediction implies that the production of cellulosic ethanol is economically viable in 2020, at least relative to other cellulosic biofuels that meet the GHG reduction criteria in the RFS. This raises an important question -- what assumptions must be made (in other words, what assumptions did EIA likely make) regarding the production cost of cellulosic ethanol such that it would be competitive with gasoline in 2020? The EIA reference case predicts that the wholesale cost of gasoline in 2020 will be $2.79/gallon (in 2008 $) (range is $1.56-$4.56 for the low and high oil price cases), for which a break-even (on a Btu basis) wholesale cost of ethanol is $1.86/gallon. The most recent citable work on the cost of production of cellulosic ethanol via the biochemical route is the article in the Journal FUEL that documents the results of the ConocoPhillips/Iowa State/NREL collaboration on comparative technoeconomic analysis for biochemical, gasification, and pyrolysis pathways. The calculated n th plant baseline cost for the biochemical route was $5.00/GGE in 2007 $, which corresponds to $3.47/gallon of ethanol in 2008 $.

10/14/ Technology – Dave & Steven Subgroup’s comments (example items for the Technology category: Technology pathways and timing, Vehicle technology availability, Timelines. Use Category Approach; Deconstruct): (continued from previous slide) The focus of the ConocoPhillips/Iowa State/NREL study was on technology that will be commercialized in the 5-8 year timeframe. That forced the collaboration to essentially freeze the rate of technological development circa Several important technological advances have already been made since In 2008, with the support of the DOE, Novozymes and three other enzyme companies undertook ambitious programs to further improve the specific activity of enzyme cocktails for the saccharification of lignocellulose to sugars. Novozymes fully expects to meet its proposed 2X cost reduction goal. If the cost of enzymes estimated in the ConocoPhillips/Iowa State/NREL study is accurate, then Novozymes’ DOE-supported project will lead to enzyme use cost reductions of approximately $0.35/gallon of ethanol.

10/14/ Technology – Dave & Steven Subgroup’s comments (example items for the Technology category: Technology pathways and timing, Vehicle technology availability, Timelines. Use Category Approach; Deconstruct): (continued from previous slide) A second example of technology development relates to xylose yields. In 2007, xylose yields from pretreatment at pilot scale were more akin to 55-60%. Since that time, NREL has made tremendous strides in achieving pilot scale conversions that are above 80% conversion of xylan to xylose. Most of this improvement has come about through enhanced ability to control residence time and through less severe pretreatment conditions. In addition, the most recent commercial enzyme preparations from Novozymes have been very good at helping to achieve these yields (there is some hemicellulase activity in these preparations). This has been documented in internal NREL/DOE milestone reports. Fermentation is another area where technology development will lead to reductions in ethanol production costs. For example, strains are being developed that can effectively convert arabinose to ethanol, which further improves the overall conversion of biomass to ethanol.

10/14/ Technology – Dave & Steven Subgroup’s comments (example items for the Technology category: Technology pathways and timing, Vehicle technology availability, Timelines. Use Category Approach; Deconstruct): (continued from previous slide) In addition to technological development, the DOE predicts that feedstock costs will come down. For feedstock cost, the ConocoPhillips/Iowa State/NREL study used $75/dry ton for delivered corn stover. DOE, in its multiyear program plan (MYPP) has documented targets for corn stover that are closer to $51/dry ton ( Feedstock cost reductions of this magnitude will have a major impact on ethanol production cost (~$0.35/gallon). Finally, for the financial assumptions, the ConocoPhillips/Iowa State/NREL study assumed 100% equity financing. With more typical industry financing assumptions (eg significant debt financing in addition to equity financing), ethanol cost could be reduced by another $0.20/gallon.

10/14/ Technology – Dave & Steven Subgroup’s comments (example items for the Technology category: Technology pathways and timing, Vehicle technology availability, Timelines. Use Category Approach; Deconstruct): (continued from previous slide) Given these various factors, and starting with the predicted cost of $3.47/gallon of ethanol based on the ConocoPhillips/Iowa State/NREL study, the cost of cellulosic ethanol via the biochemical route in 2020 starts to approach the break-even ethanol cost of $1.68/gallon based on EIA’s predicted reference case wholesale cost of $2.79/gallon of gasoline. EIA predicts that advanced biofuels in general and cellulosic biofuels in particular will not meet the amount mandated in the RFS, but they do not give a rationale as to how they came up with the lower amounts. Was a growth rate comparable to that seen in corn ethanol in assumed? Did EIA look at when proposed plants that have received DOE biorefinery grants will come on line and then extrapolate based on a set growth rate? In the EIA-AEO, Figure 87 (U.S. production of cellulosic ethanol and other new biofuels, ) shows that cellulosic ethanol plateaus in 2022 and does not begin to grow again until approximately 2032, whereas other new biofuels grow uninterrupted after What was the rationale for the growth plateau?

10/14/ Demand – Dave & Tom Subgroup’s comments (example items for the Demand category: Fleet turnover, demand volumes and timing; Biodiesel, Blend Wall, E85, E15+):

10/14/ GHG – David & Mike Subgroup’s comments (example items for the GHG category: Carbon/GHG, Other tail-pipe criteria pollutants, Carbon Neutral, RFS2 Targets, Land Use, Manufacturing, Drying):

10/14/ Legislation – John & Tom (CRP) Subgroup’s comments (example item for the Legislation category: Existing legislation and regulation, Blend Wall, Adjustments, RFS2, Responsibility on wrong party, CRP ):

10/14/ Other materially significant areas not addressed - ALL Subgroup’s comments (example item for the Other category: Significant gaps (define significance), Other issues of material impact, Other Governments Renewable Fuels Policies, Impact on Food)

10/14/ Base Case Assessment Summary of Top Findings Subgroup’s comments: