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Main Legislation

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  1. Energy Policy Act of 2005: Established Renewable Fuel Standard (RFS), requiring Refiners to use 7.5 bil gals by 2012, under flexible annual compliance system of tradeable certificates (RINs). California Global Warming Solutions Act of 2006 (AB32): Reduce state’s carbon emissions to 1990 levels by 2020. Establish Low Carbon Fuel Standard (LCFS) to reduce GHG emissions of total fuels by 10% by 2020, beginning in 2011. Energy Independence and Security Act of 2007 (EISA) Change volume of RFS to 36 bil gals by 2022. Redefine “renewable fuel” on basis of GHG reduction: Advanced biofuel at min 50% GHG reduction = 21 bil gals of which, Celullosic at 60% GHG reduction = 16 bil gals of which, Biodiesel at 50% GHG reduction = 1 bil gals of which, Other Advanced (e.g., sugar) at 50% = 4 bil gals Other renewable fuel at 20% GHG reduction = 15 bil gals Main Legislation

  2. EISA Does not address issue of “legal blend level” of renewable fuel in US, even though 36 bil gal RFS implies “E20” or “E25” in aggregate by 2022. Catch-22 on calculating GHG emissions reduction: “(including direct emissions and significant indirect emissions such as significant emissions from land use change)” Corn starch ethanol plants do not meet the 20% GHG emissions standard, but are grandfathered (at about 15 bil gals). [RFS2] “While ‘Advanced Biofuel’ specifically excludes ethanol derived from corn starch, it includes other types of ethanol derived from renewable biomass, including ethanol made from cellulose, hemicellulose, lignin, sugar, or any starch other than corn starch, as long as it meets the proposed [50%] emission reduction threshold. Thus, even if corn starch-derived ethanol were made so that it met the proposed [50%] GHG reduction threshold, it would still be excluded from being defined as an advanced biofuel.” California LCFS makes average Midwest corn ethanol non-compliant by about 2014. Main Problems with Legislation

  3. EPA still assessing different Landuse Change Methods, 100 years vs. 30 years write off,but both options mean that typical corn ethanol is not minimum of -20%, must be grandfathered.

  4. EPA assumes that “Blend Wall” will be solved by 2022,probably with E-12 and E-85, with Flex Fuel Vehicles—which seems only barely plausible.

  5. EPA assumes that 83 million tons of stover can and will be delivered at a low cost,in the range of $50/ton. This is simply not plausible.

  6. California Global Warming Solutions Act of 2006 (AB32): Reduce state’s carbon emissions to 1990 levels by 2020. Establish Low Carbon Fuel Standard (LCFS) to reduce GHG emissions of total fuels by 10% by 2020, beginning in 2011. Note. The goal of the LCFS is NOT to incentivize biofuels but simply to REDUCE CARBON. Back to California!

  7. Yes, many people, and their elected representatives, are true (quasi-religious) believers, including many academic modelers But no, economically and politically We don’t have the money to execute a “grand plan” No genuine “world government” is in place to oversee the plan; in fact the world is at war in many regions We cannot agree to massive financial transfers to China and India to “help,” on the order of $200 billion per year. We face political instability ourselves without continuing solid economic growth, as crude oil price in IEA forecast hits $190/bbl. Cap & Trade vs. Blue Sky AssumptionsIs the World Ready to Save the Planet?—It Costs Only $10 Trillion and We Get Most of It Back!(per the IEA)

  8. MAIN ASSUMPTIONS in Blue Sky #17(Changes from last BS in red) • World economy and crude oil price • Weak GDP next few years, crude oil price in $70-120 range, with weaker dollar • Ethanol Demand for Corn • No major change in tax credit or import tariff • Corn ethanol production near RFS annual targets • E-10 legal inclusion limit will be raised • Corn ethanol “nameplate” of ~ 13.5 bil gals can be run at 15 bil gals • RFS-2 will have four classes of RINs • RFS-2 is cap to government incentives, but Market Demand is free to increase • Negligible cellulosic ethanol for many years (with annual RFS waivers) • Sugar ethanol classed as Advanced Biofuel • Feed demand for Corn • Reduced animal numbers next two years, then re-building • DDG displacing corn, but relatively strong DDG exports • Export demand for Corn • Weakened by world recession, but trend growth in future • Biodiesel demand for Soybeans • Well below the RFS of 1 bil gals

  9. MAIN ASSUMPTIONS in Blue Sky #17, cont. • Agronomic factors • Area planted total for corn + soybeans = ~ 164 mil acres • Corn yield trend at latest 10-year slope ( = + 2.5 bu/ac per year) • Corn yield deviation from trend = similar pattern last 10 years • Transportation Impact • Given more corn net exports from Illinois, stronger Gulf share, less whole corn net exports from cornbelt to non-cornbelt states—but much greater DDG movements • Corn Price Impacts • Historical farm price model = most likely outcome with weak economy, moderate crude oil price, but faster trend growth in yield • Snap-shot of supply-demand in 2020 with high corn yield trend (from GMO research) shows corn carryout growing at about 4.5 billion bushels per year