Slide © 2014, Forest2Market, Inc. Sustainable, Affordable, Reliable, Available The Feedstock Challenge

Slide © 2014, Forest2Market, Inc. Sustainable, Affordable, Reliable, Available Woody Biomass is all of these – now and it can cost ½ of ag biomass

Unique Considerations in the Evaluation of Forest-Originated RFS2 Feedstock Stan Parton Manager – Bioenergy/Biochemicals Practice Forest2Market June 10, 2015

Slide © 2014, Forest2Market, Inc. EPA Rules for RFS2 Qualified Materials Apparent intent to prevent unintended consequences. Prohibits: –Harvest from federal lands –Tree harvest of natural stands –Harvest in ecologically sensitive areas –Conversion of land (natural forest or agricultural) to plantations Allows feedstock from: –Natural Stands – slash and pre-commercial thinnings only –Plantation Stands – slash and thinnings Plantation must have been established by 12/19/2007 and actively managed since that time Establishment and management must be documented 5

Slide © 2014, Forest2Market, Inc. Forest Sourced RFS2 Qualified Feedstock 6 Forest Biomass Non-FederalPlantation Established prior to 12/19/2007 First Thinnings Tree Residue Slash Woody Mill Residue Biogenic Material Non-Biogenic Material Established after 12/19/2007 Natural Not ecologically sensitive or old-growth Pre- Commercial Thinnings Tree ResidueSlash Ecologically sensitive or old growth Federal

Slide © 2014, Forest2Market, Inc. Two ‘Practical’ Feedstock Types Pulpwood - First commercial thinnings from plantations Residue - Slash from natural or plantation stands 7

Slide © 2014, Forest2Market, Inc. Forest RFS2 Feedstock Market Realities RFS2 qualified material is currently available and moving in the existing wood supply chain. Existing users of this material are indifferent about using RFS2 versus non-RFS2 materials. Users are not paying a premium for RFS2 material. RFS2 material is not currently distinguished in the supply chain from non-RFS2 material. Acquiring RFS2 certified material will likely require an economic incentive above the current market price. –To cause existing users to vacate their demand –To provide certification required to secure RINs 8

Slide © 2014, Forest2Market, Inc. Critical RFS2 Supply Chain Questions 1 What will happen to the distribution of raw material feedstocks when new RFS2 feedstock demand enters the market? 2 As the existing users are indifferent about feedstock types, are there sufficient quantities of non-RFS2 material available to allow them to vacate their demand for RFS2-qualified material? 3 What is the capacity-to-pay for various competitors in the market including the new RFS2 user? 4 What price premium is necessary to prompt existing users to vacate their demand for RFS2 material? 5 What additional price premium will be required for the supply chain to distinguish, separate and certify RFS2 qualified material? 9 As woody biomass exists in the forest products supply chain -

Slide © 2014, Forest2Market, Inc. Analytical Requirements to Answer the Questions Determine current proportion of RFS2-qualified material in the market distinguished from non-RFS2 Assess likelihood that existing market participants’ demand for RFS2 material may be modified in response to demand for RFS2 material from the biofuels producer Estimate the resulting cost of RFS2 materials necessary to motivate traditional users to vacate their demand Analyze the future availability of RFS2 and non-RFS2 feedstock materials based on demand from all users 10

Slide © 2014, Forest2Market, Inc. Theoretical Supply Basin Analysis – How will supply redistribute? 11

Slide © 2014, Forest2Market, Inc. Reallocation of Forest Materials – Elements of Analysis Calculate the split of existing flow of materials in the market into RFS2 qualified and non-qualified materials 12 Analyze the historic and current roundwood supply and demand for feedstock in the proposed project’s supply basin Determine the amount of current supply that would be RFS2 eligible and how much is currently being used by competitors Calculate the split of existing and future inventory into RFS2 qualified and non- qualified materials Forecast feedstock supply and demand of RFS2 and non-RFS2 material utilizing econometric models of demand, forest growth and yield Determine if sufficient non-qualified feedstock exists to meet the demand of traditional users either within or outside the project supply basin Compare forecasted demand of users who do not require RFS2 material to the available non-RFS2 material within the project supply basin If necessary, compare the demand of users who do not require RFS2 material to additional available feedstock (RFS2 and non-RFS2) outside of the basin

Slide © 2014, Forest2Market, Inc. Reallocation of Forest Materials – Elements of Analysis Calculate the cost to existing users to vacate their demand of RFS2 qualified feedstock 13 Calculate the cost necessary to prompt traditional users to vacate RFS2 demand in favor of non-RFS2 material in the basin or for any material outside of the project supply basin Determine competitors’ “capacity-to-pay” and therefore ability to vacate RFS2 demand Compare competitors’ “capacity-to-pay” to that of the energy project’s Calculate the cost of RFS2 material to the energy project, including: Cost of existing users to secure non-RFS2 feedstock materials plus A premium to motivate the existing users to vacate their demand for RFS2 materials plus A premium for supply certification to secure RINs

Slide © 2014, Forest2Market, Inc. Conclusions-Forest Originated Feedstocks Great financial motives exist for using forest originated feedstock. However, in order to determine their availability, sustainability of supply and cost, analysis of the supply basin, existing users and market behavior must be employed. The diligence analysis is complex and relies on –detailed knowledge and date of the forest and forest products sector, its current and future demand –Utilizing advanced forest growth and yield models –Industry economic models 14

Forest2Market, Inc Brixham Hill Ave, Suite 550 Charlotte, NC Stan Parton