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Joel Velasco Chief Representative – North America washington@unica.com.br www.unica.com.br

BRAZILIAN SUGARCANE INDUSTRY ASSOCIATION. UNIÃO DA INDÚSTRIA DE CANA-DE-AÇÚCAR. Outlook for Brazilian Ethanol in U.S. Sugarcane Ethanol as a Low Carbon, Advanced Renewable Fuel. Joel Velasco Chief Representative – North America washington@unica.com.br www.unica.com.br. OUTLINE.

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Joel Velasco Chief Representative – North America washington@unica.com.br www.unica.com.br

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  1. BRAZILIAN SUGARCANE INDUSTRY ASSOCIATION UNIÃO DA INDÚSTRIA DE CANA-DE-AÇÚCAR Outlook for Brazilian Ethanol in U.S. Sugarcane Ethanol as a Low Carbon, Advanced Renewable Fuel Joel Velasco Chief Representative – North America washington@unica.com.br www.unica.com.br

  2. OUTLINE • Sugarcane in Brazil • A Primer on the Industry • Outlook for U.S. Market • Federal Policy (RFS) • State Initiatives (LCFS) • Sugar Market • Brazil responding to demand

  3. Sugarcane in Brazil A Primer

  4. ABOUT UNICA UNICA is the leading sugarcane industry association, representing +100 producers and mills in Brazil Responsible for 60% of all ethanol and sugar production in Brazil Emerging as a leader in the generation of bioelectricity already meeting 3% (and soon 10%) of Brazil’s electricity demand International presence, now in Washington & Brussels, to engage in constructive dialogue

  5. WHERE SUGARCANE IS GROWN IN BRAZIL South-Central region represents about 90% of sugarcane harvest Sources:NIPE-Unicamp, IBGE and CTC

  6. WHERE SUGARCANE IS REALLY GROWING IN BRAZIL 90% Source: CanaSat, seehttp://www.dsr.inpe.br/canasat/

  7. CURRENT PRODUCTION IN BRAZIL SUGAR 31 Million Tons ETHANOL 7 Billion Gallons ELECTRICITY 16,000 GWh Source: UNICA

  8. SUGARCANE IS #1 RENEWABLE ENERGY SOURCE Source: Ministry of Mines and Energy BEN (2008).

  9. CURRENT & FUTURE PRODUCTS

  10. Sugarcane Biofuels & U.S. Market Low Carbon, Advanced Renewable Fuels

  11. U.S. MARKET FOR ETHANOL 2007 2008 75 – 100% 50 – 74% 10 – 50% 0 – 10% Source: Hart Energy

  12. U.S. MARKET FOR ETHANOL 2007 2008 75 – 100% 50 – 74% 10 – 50% 0 – 10% Source: Hart Energy

  13. U.S. MARKET FOR ETHANOL 2008 2009 75 – 100% 50 – 74% 10 – 50% 0 – 10% Source: UNICA Estimate

  14. U.S. RENEWABLE FUELS STANDARD (RFS2) LOWER GHG Sugarcane with at least 40% GHG Reduction Source: EISA of 2008, Dept of Energy, ITC; E-10 Blend Wall Limit based on EIA’s projections of gasoline consumption and do not include bottleneck and other infrastructure concerns.

  15. EPA: INITIAL PROPOSAL’S LIFECYCLE ANALYSIS Source: See Figure 2.1-2. “Lifecycle GHG Results Using 100-Year Net Present Value with 2% Discount Rate” in page 282 of Discussion Draft of Environmental Protection Agency (EPA) Regulatory Impact Analysis, May 2009. Range shows net emissions if EPA assumes all land conversion from forest (upper bound) and all from grassland (lower bound).

  16. UNICA: SUGARCANE GHG REDUCTION UNDER EPA’s RFS2 Sugarcane ethanol to meet “Advanced Biofuel” threshold Sources: UNICA’s comments to EPA on September 25, 2009.

  17. CALIFORNIA’S LOW CARBON FUEL STANDARD (LCFS) Other states may follow California’s lead, going beyond RFS requirements The LCFS calls for a reduction of at least 10 percent in the carbon intensity of the state's transportation fuels by 2020. California consumes about 15 billion gallons of gasoline a year Source: California’s Low Carbon Fuels Standard Programhttp://www.arb.ca.gov/

  18. LCFS WITH “INDIRECT LAND USE” PENALTY Despite Modeling Errors, Sugarcane Ethanol is Lowest Carbon Liquid Fuel Grams of CO2 per megajoule “Indirect Land Use” Source: California Air Resources Board’s Low Carbon Fuel Standard, August 2009.

  19. LCFS SIMULATION WITH SUGARCANE ETHANOL Even with ILUC, 10% sugarcane ethanol blends meet LCFS to 2017 E-10 Blend with Sugarcane Ethanol using exaggerated ILUC Grams of CO2 per megajoule REPORTING ONLY COMPLIANCE WITH CREDITS? Source: California Air Resources Board’s Low Carbon Fuel Standard, August 2009. See also “Table 3.4: LCFS – Complying E10 Blends” of California Energy Commission report “Transportation Energy Forecasts and Analyses for the 2009 Integrated Energy Policy Report.”

  20. World Sugar Markets • Why are sugar prices at 28 year high?

  21. SUGAR MARKET DYNAMICS With low sugar prices (until earlier this year), sugar (as opposed to ethanol) production was not increasing in Brazil for last two crop years… … but world sugar market is in structural deficit, exacerbated by India’s switch to net importer among other reasons. So, Brazil is boosting sugar production (+12% in south-central region) yet key sugar markets are not accessible.

  22. PRODUCTION & ESTIMATES FOR SOUTH-CENTRAL BRAZIL APRIL-SEPT NEW PROJECTIONS Source: UNICA. See 2009/10 Crop Year revised estimate for South Central Brazil and Harvest Update on September 16, 2009

  23. BRAZIL FOOD PRODUCTION INCREASING Brazil’s food production volumes doubled in the last decade mainly due to yield gains Area 1990 2008 Sources: IBGE, UNICA NOTE: Note: 1) 2008 is estimated data; 2) Grains include rice, corn, wheat, soybeans, etc.

  24. SUGAR & ETHANOL PRODUCTION INCREASING Brazil’s sugarcane ethanol volumes have increased 130% and sugar more than 350% in two decades… 1990 2008 2003 Sources: IBGE, UNICA, Wall Street Journal on August 13, 2009

  25. A LOW CARBON, ADVANCED RENEWABLE FUEL

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