Biofuels: Think outside the BarrelVinod Khosla Jan 2006Ver 3.2

Assertions for Alternative FuelsWe dont need oil for cars & light trucks

We definitely dont need hydrogen!

We dont need new car/engine designs

We dont need new distribution systems

Rapid (3-5 yrs) changeover of automobiles is possible!

Shift has little cost to consumers, automakers, government

Not so Magic Answer: EthanolCheaper Today in Brazil!

Why EthanolTodays cars & todays fuel distributionTodays liquid fuel infrastructureLeverages current trendsFlex-fuel vehicles proven in millions!Hybrid drivetrain compatibleLeverages Lightweighting & improved efficiency of carsAlready part of fuel market through blending Just add E85 fuel category (third pump!)Existing ethanol market in the billions & growing!Incremental introduction possible & UNDERWAY!Ethanol is cheaper than gasoline at current prices

Why EthanolMultiple Issues, One AnswerCheaper fuel for consumers ($20b+ per NRDC)More energy security & diversified sourcesSignificant (80%-95%) carbon emission reduction (with cellulosic ethanol)Higher farm incomes & rural employmentFaster GDP growth, Smaller Import Bill, Lower worldwide energy prices

Why EthanolSignificant Upside Today & Tomorrow New Crop uses; Use agricultural wasteImproved Crop yieldImproved Process technologyBioengineered crops, enzymes,.economic/environmental/land use upside thru technology/scale/Multiple sources including clean coal, natural gas, animal wasteCustom ethanol engines: Higher performance than gasoline!Biodiesel & heavy trucks

Why NowBrazil has proven model of ethanolLow risk auto conversion model to FFVInitial fuel markets thru blending- reduced production riskExcess supply for kick start available from BrazilHigh oil prices accommodate startup costs of ethanolBreakeven at scale likely to be ~$35/barrelCarbon considerations will further improve economics20% /yr+ increase of US ethanol production already in processSignificant increase in farm profits feasible - better use for farm subsidies4m+ US FFV vehicles, 4b gals ethanol supply, blending in place,.Many US car models available at same price (FFV or gasoline)

Flex Fuel Vehicles (FFV)Almost no incremental cost to produce & low riskConfidence on fuel availability to consumersEasy switchover for automobile manufacturers4 million+ FFV cars in the US today (to earn CAFE credits)Consumer choice: use EITHER ethanol or gasoline (no risk)Fully compatible with Hybrid carsBrazil Proof: new car sales from 4% FFV to ~70% in 3 years!Growth in ethanol use driven by low prices of ethanolBrazil: $50b on oil imports savings

Interest GroupsUS Automakers: less investment than hydrogen; compatible with hybrids

Agricultural Interests: more income, less pressure on subsidies; new opportunity for Cargill, ADM, farmers co-operatives,

Environmental Groups: faster & lower risk to renewable future; aligned with instead of against other interests

Oil Majors: equipped to build/own ethanol factories& distribution; lower geopolitical risk, financial wherewithal to own ethanol infrastruct.; diversification

Distribution (old & New): no significant infrastructure change; potential new distribution sources (e.g. Walmart)

Interest Groups: Action ItemsUS Automakers: 100% flex-fuel new car requirement in exchange for some regulatory relief

Agricultural Interests: 100% flex-fuel new cars but no tax on imported ethanol; transfer subsidies from row crops to energy crops (equivalent $/acre)

Environmental Groups: tax-credit for cellulosic ethanol & debt guarantees for new cellulosic ethanol technologies

Oil Majors: new business opportunity?

Distribution (old & New): assist ethanol third pump strategy; promote ethanol distribution at destination sites (e.g. Walmart) & fleets

Prioritized Action ItemsRequire all cars to be Flex Fuel Vehicles (FFVs)Require E85 ethanol distribution at 30% of gas stationsAssist debt financibility of first 5 plants with any new technologyAllow fleets to import ethanol without tax burdenRequire automakers to promote ethanol usage to get CAF creditSwitch subsidies (same $/acre) from existing to energy cropsAllow carbon credits for cellulosic ethanol Fully fund current legislation & reduce earmarks!Fund future demand with improved efficiency requirements! Establish early demand by creating strategic ethanol reserve

RISK: Oil vs. Hydrogen vs. Ethanol

ObjectionsLand Use Traditional numbers cited are for corn ethanolNRDC 2050 estimate: 114m acres required for our needs Ceres Corp Estimate: 100m+ acres of export crop & CRP lands availableDOE Study estimates availability of 1.3 billion tons of biomass Conversion of 73m acres to soybeans proves ability to switch land useWoolsey/Shultz estimate of 60m acres (Rocky Mountain Institute estimate)

Energy Balance (Energy OUT vs. IN)Corn ethanol numbers ~1.2-1.8X.but reality from non-corn ethanol isSugarcane ethanol (Brazil) ~8XCellulosic ethanol ~4-8XPetroleum energy balance at ~0.75

Environmental pollutionE85 better in most respectsE10- gasoline has acceptable emissions performance in newer vehicles & FFVsE10- gasoline better than MTBE+Gasoline today

Land Use

Land Use: RealityNRDC: 114m acres can meet our transportation fuel needs in 2050Assumes only 2X switch grass yield improvement (10 tons/acre)Assumes ethanol production @100 gals/dry ton of feedstock

Jim Woolsey/ George Shultz (Rocky Mountain Institute) estimate 60m acres

73m acres of soybean can be used for co-production of ethanol & animal proteinLee Lynd: Re-imagine agriculture to accommodate energy productionReplace export lands with import replacement lands

20 tons/acre x 100gals/ton x 39m acres =78 b gals/yr from CRP lands!Miscanthus (www.bical.net or www.aces.uiuc.edu/DSI/MASGC.pdf)New Energy crops (www.ceres.net )39m acres of CRP Lands

Agricultural waste products & animal wasteLee lynd: Using Currently Managed Lands for Energy ProductionThermochemical Ethanol from municipal sewage/ coal/ animal waste

Land Use: RealityNew Feedstocks Miscanthus, Switchgrass,NRDC Estimates : Growing Energy ReportProf Lee Lynd: Bioenergy from Currently Managed LandsDOE Report: Potential for Billion Tons of Biomass Futures: New Approaches, New TechnologiesProf. Lee Lynd: Re-imagining AgricultureCeres New technology Approaches

Switch Grass as FeedstockNatural prairie grass in the USEnriches soil carbon content; less fertilizer; less pesticideLess water pollution (nitrogen runoff)Dramatic reduction in CO2 , other reductionsMore biodiversity in switchgrass fields (vs. corn)Dramatically less topsoil loss compared to corn fieldsSignificant potential for improvement of switchgrass cropsHigh potential for co-production of animal feedCurrently ~50% of all agricultural land useMinimal extra land required for fuel production and other varied crop possibilities existthe worlds best agricultural lands were once grasslands

Miscanthus as Feedstock?20 tons/acre? (www.bical.net)10-30 tons/acre (www.aces.uiuc.edu/DSI/MASGC.pdf)

Economics of Miscanthus FarmingSource: http://www.aces.uiuc.edu/DSI/MASGC.pdf

Characteristics of an Ideal Crop: MiscanthusSource :http://www.aces.uiuc.edu/DSI/MASGC.pdf

Bioenergy From Currently Managed Lands Expanded use of winter cover crops & breeding of new (winter & rotation) crops Harvest of agricultural residues, particularly in conjunction with multi-year crop rotations.Substitute crops that provide food/feed while also providing feedstocks for energy production. Breeding crops to increase co-production of cellulosic feedstocks. (soybeans 2->5 tons/acre)Changed cultivation practices for existing crops to increase recovery of cellulosic residues. (reduced till or no till; rotation of corn with grasses; etc)Increases in productivity of crops, making currently-managed lands avail for bioenergy.Changes in demand for exports (+ or -).Pretreatment of cellulose-rich biomass to make calories more available to feedlot animalsIncreased hay productivity on underutilized pasture land.Increased hay production/harvest from CRP land.Recovered forest residues, potentially in relation to prevention of catostrophic fires.Dietary changeSource: Lee R. Lynd, Producing Cellulosic Bioenergy Feedstocks from Currently Managed Lands; October 7, 2005

Three Important Sources Production of corn stover and stalks from other grains (wheats, oats) totals well over 250 million dry tons. A combination of different crop rotations and agricultural practices (e.g. reduced tillage) would appear to have potential for a large fraction of these residues to be removed. For example, although complete removal of corn stover would result in a loss of about 0.26 tons of soil carbon per year, cultivation of perennial crops (e.g. switchgrass, Miscanthus) adds soil carbon at a substantially higher rate. Thus, a rotation of switchgrass and corn might maintain or even increase soil fertility even with 100% stover removal. This, however, brings up questions about the length of time land might be grown in each crop, since switchgrass would benefit from longer times to distribute the cost of establishment while corn would benefit from short times to maintain productivity and decrease losses due to pests. It is likely that some crop other than switchgrass as it exists today would be best for incorporation into a relatively high frequency rotation with corn. Targets for crop development could be identified and their feasibility evaluated.

Winter cover crops grown on 150 million acres (@2tons/acre) = 300 million tons of cellulosic biomass.

In recent years, U.S. soybean production has averaged about 1.2 tons of dry beans per acre annually. Given an average bean protein mass fraction of about 0.4, the annual protein productivity of soybean production is about 0.5 tons protein per acre. Perennial grass (e.g. switchgrass) could likely achieve comparable protein productivity on land used to grow soybeans while producing lignocellulosic biomass at about a rate of about 7 dry tons per acre annually. The limited data available suggest that the quality of switchgrass protein is comparable to soy protein, and technology for protein extraction from leafy plants is rather well-established. The 74 million acres currently planted in soybeans in the U.S. could, in principle, produce the same amount of feed protein we obtain from this land now while also producing over 520 million tons of lignocellulosic biomass. Alternatively, if new soy varieties were developed with increased above-ground biomass (option 4, Table 1), this could provide on the order of 350 million tons of lignocellulosic biomass although soil carbon implications would have to be addressed.

Source: Lee R. Lynd, Producing Cellulosic Bioenergy Feedstocks from Currnently Managed Lands,Stovers: 250m tonsWinter Crops: 300m tonsSoybeans: 350m tons

Potential for Billion Tons of Biomass In the context of the time required to scale up to a large-scale biorefinery industry, an annual biomass supply of more than 1.3 billion dry tons can be accomplished with relatively modest changes in land use and agricultural and forestry practices. Or a 100billion++ gallons per year!Technical Feasibility of a Billion-Ton Annual SupplyUS Department of Energy Report , April 2005.http://www.eere.energy.gov/biomass/pdfs/final_billionton_vision_report2.pdf

Biomass Will Make a Differenceor ~30% of U.S. transportation fuel supply!!Turning South Dakota intoa member of OPEC?!Farm acresTons/acreGallons/tonThousand barrels/dayTodayTomorrow44 Million56085744 Million15803,429IraqKuwaitLibyaNigeriaThousand barrels/day2,0112,3761,5152,509QatarSaudiUAE8189,1012,478South Dakota3,429Source: Ceres Company Presentation

Land Is Not ScarceU.S. Cropland Unused or Used for Export CropsIn 2015, 78M export acres plus 39M CRP acres could produce 384M gallons of ethanol per day or ~75% of current U.S. gasoline demandUS AcreageTotal = 2,300M acresSource: Ceres Company Presentation

Farmers Are Driven By EconomicsPer acre economics of dedicated biomass crops vs. traditional row cropsSource: Ceres Company Presentation

Biomass as Reserves: One Exxon every 10 yrs!!1 acre100M acres209 barrels of oil*20.9 billion barrels* Assumes 10 yr contractSource: Energy Intelligence (data as of end of 2004)==; Ceres Company Presentation

Energy Balance&Fossil Fuel Use Reductions

Fossil Fuel UseLegend EtoH = Ethanol Allo. = Allocation Disp. = Displacement

Well-to-Tank Energy ConsumptionBTU per Million BTU Fuel DeliveredPetroleumNatural GasRenewable/ElectricitySource: Well-To-Wheel Energy Consumption and Greenhouse Gas Analysis, Norman Brinkman, GM Research & Development

Petroleum & Fossil Fuel Reduction Benefits

Environmental Issues

Environmental issuesCarbon emission reduction of 80%++ for light transportation

Zero sulphur, low carbon monoxide, particulate & toxic emissions

Co-production of animal protein & cellulosic biomassAllows existing cropland to produce our energy needsReduces cost of animal feed & energy

Energy Crops (Switchgrass): Carbon enrichment of soil (immediate)2-8X lower nitrogen run-off75-120X lower topsoil erosion (compared to corn)2-5X more bird speciesResistant to infestation & disease; lower pesticide usePotential for coal ethanol as supplementary source (Clean coal)

Well-to-Wheel Greenhouse Gases0200400600800Gasoline conventionalDiesel conventionalDiesel hybrid electricGasoline fuel cell hybridNaphtha fuel cell hybridFischer Tropsch dieselCNG conventionalLH2 fuel cell hybridMethanol fuel cell hybridCH2 fuel cell hybridE-85 conventionalEthanol fuel cell hybridg CO2/mile (fuel production and vehicle)PetroleumNatural GasRenewable/ElectricityBetterElectrolysis CH2 FC hybridSource: Well-To-Wheel Energy Consumption and Greenhouse Gas Analysis, Norman Brinkman, GM Research & Development

Emission Levels of Two 2005 FFVs(grams per mile @ 50,000 miles)

Ethanol Blends: EmissionsE6 (low ethanol blends)Low Nox in modern vehicles with oxygen sensors (higher in older vehicles)Increased RVP and increased VOCs (and hence ozone formation)Increased permeation emissions in older vehiclesReduced CO emissions (not enough to offset increased ozone via VOCs) butReduced permeation emissions ( thicker hoses & plastics) in newer vehiclesCalifornia Low Emissions Vehicle II program reduces permeation and evaporative emissions (part of 2007 Federal Law)

E85Low Evaporative emissions (Lower RVP)Expected Low Permeation emissions in FFVsLow Nox in modern vehicles with oxygen sensors reasons to not like ethanol are disappearing!Source: Personal Communications

Fuel IssuesE10-Usable in todays engineMeets most emissions requirements

E85Easy switch 60-80%+ reduction of carbon emissions (vs. gasoline)Exceeds hydrogen fuel cell carbon reductions

Continuous production technology improvements likelyCostSourcesEnvironmental

More Technology to Come. Changes that will have effects comparable to those of the Industrial Revolution and the computer-based revolution are now beginning. The next great era, a genomics revolution, is in an early phase. Thus far, the pharmacological potentials of genomics have been emphasized, but the greatest ultimate global impact of genomics will result from the manipulation of the DNA of plants. Ultimately, the world will obtain most of its food, fuel, fiber, chemical feedstocks, and some of its pharmaceuticals from genetically altered vegetation and trees." Philip H. Abelson, EditorScience, March 1998

Technology Improvements

BioengineeringEnzymesPlant engineering

Energy cropsSwitch grassPoplarWillowMiscanthus

Co-production of animal protein & cellulose/hemi-cellulose

Process & Process YieldsProcess CostPre-treatmentCo-production of industrial chemicals to reduce net fuel costsProcess Yield gals/dry tonConsolidated bioprocessing

Other: out of the box technologies

Ceres: What one company is doing

Ceress Traits Address all Parts of EquationAcres Tolerance to chronic and acute droughtDrought recoveryHigh salt toleranceTolerance to heat shock50% improvement in seedling growth under cold conditionsParts of the EquationCeres Traits & TechnologiesTons per acre 500% increase in biomass in arabidopsis in the greenhouse300% increase in rice in the field30% increase in CO2 uptake (a measure of photosynthetic effic.)Dollars per acreSignificant reduction in required nitrogen20% improvement in photosynthetic efficiency on low nitrogen5% increase in root biomassGallons per ton Decreased ligninIncreased celluloseCapital & Vari. costProprietary gene expression system Strong constitutive promotersTissue specific and inducible promotersCo-productsUp to 80-fold increase in desired plant metabolitesAbility to express entire metabolic pathways in plants

Source: Company Presentations

Expanding Usable AcreageHeat toleranceDrought toleranceCold germinationDrought recoverySalt toleranceDrought Inducible PromotersSource: Company Presentations

Increasing Tons per AcreIncreased biomassShade toleranceFlowering timePhotosynthetic EfficiencyStature controlHerbicide toleranceSource: Company Presentations

Reducing Dollars per AcreNitrogen uptakeIncreased root biomassPhotosynthetic efficiency under low nitrogenNitrogen partitioningSource: Company Presentations

Increasing Gallons per TonGallons of ethanol per dry ton of feedstock**Data represents theoretical yields as reported by IogenPlant structure(How easy is it to access and digest?)Composition(How much carbohydrate is there?)Source: Company Presentations

Reducing Cost Through Enzyme ProductionActivation LineXTarget LineProteinTranscription factorPromoterSterility FactorFluorescent markerTissue-specific promotersCeres proprietary gene expression systemCeres promoterIndustry standard promoterSource: Company Presentations

Ceres : Developing Commercial Energy CropsGenerating Plant Material for DNA Libraries to be Used in Molecular Assisted BreedingTransformation with Ceres TraitsCeres expects to have proprietary commercial varieties ready for market in 2-3 years and transgenic varieties in 5-71 day after trimmingRe-growth after 15 daysEmbryogenic callusShoot regenerated from callusPlant regenerationSource: Company Presentations

Other Technology CompaniesGenecoreNovazymeDiversaIogenBCIMascomaCanavialis (www.canavialis.com.br):.????

Hydrogen vs. Ethanol EconomicsRaw Material Costs: cost per Giga Joule (gj)Electricity @$0.04/kwh = $11.2/gj (Lower cost than natural gas)Biomass @$40/ton = $2.3/gj (with 70% conversion efficiency)

Hydrogen from electricity costly vs. Ethanol from BiomassHydrogen from Natural Gas no better than Natural GasCost multiplier on hydrogen: distribution, delivery, storageHigher fuel cell efficiency compared to hybrids not enough!Hydrogen cars have fewer moving parts but more sensitive, less tested systems and capital cost disadvantageReference: The Future of the Hydrogen Economy ( http://www.oilcrash.com/articles/h2_eco.htm#8.2 )

Hydrogen vs. EthanolEthanol: US automakers balance sheets ill-equipped for hydrogen switchoverEthanol: No change in infrastructure in liquid fuels vs. gaseous fuelsEthanol: Current engine manufacturing/maintenance infrastructureEthanol: switchover requires little capitalEthanol: Agricultural Subsidies are leveraged for social goodEthanol: Faster switchover- 3-5 years vs 15-25yrsEthanol: Low technology risk Ethanol: Incremental introduction of new fuelEthanol: Early carbon emission reductions

Strategy & TacticsChoice: Oil imports or ethanol imports?GDP beyond food to food & energy rural economyAdd $5-50B to rural GDPBetter use for subsidies through energy cropsRely on entrepreneurs to increase capacityRely on biotechnology & process technology to increase yields .Increased ethanol use mandates already in place ~ 20% /yr production capacity increase plans already in process!Ethanol fuel cells possibly after ethanol distribution is place (if needed)

Brazil: A Role Model

Brazil: FFV Market Share of Light Vehicle Sales.from 4% in early 2003 to 70% in Dec. 2005!!!Can Rapid Adoption of FFV Happen?50% in May05

110100050000100000150000200000250000Accumulated Ethanol Production ( 1000 m3)( Oct. 2002) US$ / GJ 1986200219991996198019901993Gasoline (Rotterdam)Ethanol(producers BR)MarketConditions(J Goldemberg, 2003)Ethanol: Learning Curve of Production Cost

Brazil sugar-cane/ethanol learning curve Liters of ethanol produced per hectare since between 1975 to 2004??

* So Paulo (SP)SOURCE: MAPASource: Honorable Roberto Rodrigues, Minister of Agriculture, Brazil (Assessing Biofuels Conf., June 2005)Consumer Price Ratio

Grf1

0.6515615432

0.6472019465

0.6473459426

0.6446229913

0.6344827586

0.6129441624

0.5438381361

0.5351089588

0.535236938

0.526222746

0.5234741784

0.5096097845

0.5751928021

0.5991930061

0.5793237971

0.5307692308

0.5273690406

0.520783848

0.4556521739

0.4510837727

0.4809160305

0.54084014

0.6187759336

0.6210691824

0.6224783862

0.6977840641

0.6949952786

0.6769743102

0.6722855726

0.5925925926

0.5202524987

0.5359028511

0.5454545455

0.5270057682

0.5207785376

0.5244094488

0.5178010471

0.4778947368

0.3989361702

0.4076262084

0.421732114

0.4584188912

0.4638554217

0.510286001

0.5175702811

0.5543478261

0.5850183824

0.5775034294

0.5690759378

0.5619004111

0.5579477783

0.5577981651

0.5142594296

AEHC X Gasolina

Percentage: Hydrated x Gasoline

Plan1

Indicador de Preo do lcool Etlico Carburante - SO PAULO/SP

Preos Mdio Mensal em R$/litro

MsAEHC - Bomba (*)Gasolina Comum(*)AEHC X Gasolina

Mai/980.6850.80684.99%

Jun/980.6560.80681.39%

Jul/980.6060.80475.37%

Ago/980.5850.78374.71%

Set/980.5560.77671.65%

Out/980.5560.77671.65%

Nov/980.5560.74874.33%

Dez/980.5560.74874.33%

Jan/990.5360.80666.50%

Fev/990.5520.83466.19%

Mar/990.5310.81964.84%

Abr/990.4780.86455.32%

MaI/990.4220.93844.99%

Jun/990.3930.92442.53%

Jul/990.5231.08748.11%

ago/990.4581.03644.21%

Set/990.5041.11845.08%

Out/990.5661.13349.96%

Nov/990.7751.19564.85%

Dez/990.7861.19565.77%

Jan/000.7831.20265.14%

Fev/000.7971.20466.20%

Mar/000.7931.28561.71%

Abr/000.7921.27562.12%

Mai/000.7731.26161.30%

Jun/000.7571.25060.56%

Jul/000.7551.24460.69%

Ago/001.0381.49169.62%

Set/001.0261.48569.09%

Out/000.9951.48067.23%

Nov/001.0401.64163.38%

Dez/001.0641.64164.84%

Jan/011.0641.63365.16%

1.0641.64464.72%

Mar/011.0611.63964.73%

1.0431.61864.46%

Mai/011.0121.59563.45%

0.9661.57661.29%

Jul/010.8871.63154.38%

0.8841.65253.51%

Set/010.8811.64653.52%

0.8931.69752.62%

Nov/010.8921.70452.35%

0.8751.71750.96%

Jan/020.8951.55657.52%

0.8911.48759.92%

Mar/020.8911.53857.93%

0.8971.6953.08%

Mai/020.8961.69952.74%

0.8771.68452.08%

JuL/020.7861.72545.57%

0.7701.70745.11%

Set/020.8191.70348.09%

0.9271.71454.08%

Nov/021.1931.92861.88%

1.1851.90862.11%

Jan/031.2962.08262.25%

1.4802.12169.78%

Mar/031.4722.11869.50%

1.4232.10267.70%

Mai/031.3562.01767.23%

1.1521.94459.26%

Jul/030.9891.90152.03%

1.0151.89453.59%

Set/031.0441.91454.55%

1.0051.90752.70%

Nov/030.9901.90152.08%

0.9991.90552.44%

Jan/040.9891.91051.78%

0.9081.90047.79%

Mar/040.7501.88039.89%

0.7591.86240.76%

Mai/040.7841.85942.17%

0.8931.94845.84%

Jul/040.9241.99246.39%

1.0171.99351.03%

Set/041.0311.99251.76%

1.1222.02455.43%

Nov/041.2732.17658.50%

1.2632.18757.75%

Jan/051.2442.18656.91%

1.2302.18956.19%

Mar/051.2182.18355.79%

1.2162.18055.78%

Mai/051.1182.17451.43%

(*) Jornal da Tarde SP - at dia 25/07/01

Obs.: A partir de jul/01 a fonte de preo na bomba da ANP

"99/00""00/01""01/02""02/03""03/04""04/05""05/06"

Mai44.99%61.30%63.45%52.74%67.23%42.17%51.43%

Jun42.53%60.56%61.29%52.08%59.26%45.84%

Jul48.11%60.69%54.38%45.57%52.03%46.39%

Ago44.21%69.62%53.51%45.11%53.59%51.03%

Set45.08%69.09%53.52%48.09%54.55%51.76%

Out49.96%67.23%52.62%54.08%52.70%55.43%

Nov64.85%63.38%52.35%61.88%52.08%58.50%

Dez65.77%64.84%50.96%62.11%52.44%57.75%

Jan65.14%65.16%57.52%62.25%51.78%56.91%

Fev66.20%64.72%59.92%69.78%47.79%56.19%

Mar61.71%64.73%57.93%69.50%38.47%55.79%

Abr62.12%64.46%53.08%67.70%40.76%55.78%

Plan1

0.6515615432

0.6472019465

0.6473459426

0.6446229913

0.6344827586

0.6129441624

0.5438381361

0.5351089588

0.535236938

0.526222746

0.5234741784

0.5096097845

0.5751928021

0.5991930061

0.5793237971

0.5307692308

0.5273690406

0.520783848

0.4556521739

0.4510837727

0.4809160305

0.54084014

0.6187759336

0.6210691824

0.6224783862

0.6977840641

0.6949952786

0.6769743102

0.6722855726

0.5925925926

0.5202524987

0.5359028511

0.5454545455

0.5270057682

0.5207785376

0.5244094488

0.5178010471

0.4778947368

0.3989361702

0.4076262084

0.421732114

0.4584188912

0.4638554217

0.510286001

0.5175702811

0.5543478261

0.5850183824

0.5775034294

0.5690759378

0.5619004111

0.5579477783

0.5577981651

0.5142594296

Meses

(%)

Percentual - Hidratado X Gasolina - Capital /SP

Plan2

"01/02"

"02/03"

"03/04"

"04/05"

"05/06"

Variao - lcool X GasolinaSafra

Mai

Mai

Mai

Mai

Mai

Jun

Jun

Jun

Jun

Jun

Jul

Jul

Jul

Jul

Jul

Ago

Ago

Ago

Ago

Ago

Set

Set

Set

Set

Set

Out

Out

Out

Out

Out

Nov

Nov

Nov

Nov

Nov

Dez

Dez

Dez

Dez

Dez

Jan

Jan

Jan

Jan

Jan

Fev

Fev

Fev

Fev

Fev

Mar

Mar

Mar

Mar

Mar

Abr

Abr

Abr

Abr

Abr

0.6344827586

0.5273690406

0.6722855726

0.421732114

0.5142594296

0.6129441624

0.520783848

0.5925925926

0.4584188912

0.5438381361

0.4556521739

0.5202524987

0.4638554217

0.5351089588

0.4510837727

0.5359028511

0.510286001

0.535236938

0.4809160305

0.5455

0.5175702811

0.526222746

0.54084014

0.527

0.5543478261

0.5234741784

0.6187759336

0.5207785376

0.5850183824

0.5096097845

0.6210691824

0.5244094488

0.5775034294

0.5751928021

0.6224783862

0.5178010471

0.5690759378

0.5991930061

0.6977840641

0.4778947368

0.5619004111

0.5793237971

0.6949952786

0.3846976993

0.5579477783

0.5307692308

0.6769743102

0.4076262084

0.5577981651

Plan3

Brazil: Ethanol FactsEmployment: Gasoline/Ethanol is 22:1 (Brazil-ANFAVEA)

Ethanol ~40% of total consumption of spark ignition cars (non-diesel)

VW planning on a phase out of all gasoline cars in 2006?

Canavialis (www.canavialis.com.br): plant genetics company developing an "energy cane" (more cellulose, less sucrose)

Bioethanol Relative Production CostSource: The Economist, New Energy Finance, DOE, UK Petroleum Industry Association (via: Imprimatur Capital)

BioDiesel Production CostSource: The Economist, New Energy Finance, DOE, UK Petroleum Industry Association (via: Imprimatur Capital)

Status: United States

Ethanol Capacity Expansion is Underway

Ethanol FFVs Are Here! Californias Motor Vehicle Population

CostsSource: Encyclopedia of Energy (Ethanol Fuels , Charlie Wyman)

Ethanol vs. Gasoline6Comparative Results Between Ethanol andGasoline Are More Relevant to Policy Debate0.74MBTU Fossil Energy/1MBTU out$80/ton of corn (100gal ethanol) = $0.20/gal raw material costs1.23\MBTU Fossil Energy/1MBTU out$60/barrel of oil (42 gals) = $1.43/gal raw material costs

Source: Prof. Dan Kammen (UC Berkley, Michael Chang (Argonne)

Source: Worldwatch Institute Cost of Ethanol vs. Price of Gasoline($ per gallon of gasoline equivalent)~$2~$1.60~$1.301 gallon gasoline equivalent fuel = 1.3 gallons of ethanol

Chart1

1.97

1.62

1.29

Sheet1

Ethanol's cost

wholesale gasoline price1.970.52008

U.S. ethanol (production cost)1.620.42768

Brazilian ethanol (production cost)1.290.34056

Sheet2

Brazil3,98921922821820

United States3,535106462

China96479

India46271

France21953

Russia19840

South Africa11026

United Kingdom106594

Saudi Arabia79

Spain79

Thailand74

Germany71

Ukraine66

Canada61

Poland53

Indonesia44

Argentina42

Italy40

Australia33

Japan31

Pakistan26

Sweden26

Philippines22

South Korea22

Guatemala17

Cuba16

Ecuador12

Mexico9

Nicaragua8

Mauritius6

Zimbabwe6

Kenya3

Swaziland3

Others338

Total10,770

Sheet3

U.S. Ethanol Production Facilities Source: Renewable Fuels Association

U.S. Fuel Ethanol Production Capacity(Dec 2004)Source: Renewable Fuels Association

U. S. Ethanol Production Capacity Under Construction (Dec 2004)Source: Renewable Fuels Association

Energy Bill 2005

The NumbersEthanol cost today: ~$0.75/gal (Brazilian ethanol wholesale)E85 gasoline equivalent blended cost: ~$1.30/gal (US)Gasoline cost ~$2.00/gal wholesaleLong term ethanol price potential of $0.60 gasoline equivalentNRDC 2050 Forecast: 165 billion gals of ethanol from existing cropland while meeting current agricultural needs! $40/ton of extra income for farmers for waste biomass lower government subsidies for price support (5-12 tons/acre yield)

STATES CAN HELPExample: PennsylvaniaEthanol off-take contracts at $1.25/gal for 10 years (vs. today's gasoline @~$2/gal)Providing Demand aggregationProviding debt to assist biofuel plant financingProviding feedstock price guarantees / contracts

Unfair Expectations?Level of cleanliness too high for biofuels : better than petroleum or 100% Pure

Level of domestic supply expectations : why a 100% domestic supply initially when petruleum is imported?

Agricultural standards too high: far more rigorous debate on new crops than on traditional crops?

Debate on subsidy on ethanol but not on the tax on cheapest worldwide ethanol supply (Brazilian)?

Non-Transportation Impacts of EthanolCoal & Clean Coal

Biofuels impact on oil prices

Fuel Cells & Stationary Power

ReferencesNRDC Report: Growing Energy (Dec 2004)http://soilcarboncenter.k-state.edu/conference/carbon2/Fiedler1_Baltimore_05.pdfGeorge Schultz & Jim Woolsey white paper Oil & SecurityRocky Mountain Institute: Winning the Oil Endgamehttp://www.unfoundation.org/features/biofuels.asphttp://www.transportation.anl.gov/pdfs/TA/354.pdfThe Future of the Hydrogen Economy ( http://www.oilcrash.com/articles/h2_eco.htm#8.2 )Fuel Ethanol: Background & Public Policy Issues (CRS Report for Congress, Dec. 2004)

Comments?Vinod Khoslavkhosla@kpcb.com

ETHANOL:MARKET PERSPECTIVELuiz Carlos Corra CarvalhoSugar and Alcohol Sectorial Chamber,Ministry of Agriculture, BrazilAssessing the Biofuels Option

Joint Seminar of the International Energy Agency, the Brazilian Government and the United Nations FoundationParis, 20 21 June 2005

* So Paulo (SP)SOURCE: MAPA

Consumer Prices Ratio*

Source: Honorable Roberto Rodrigues, Minister of Agriculture, Brazil (Assessing Biofuels Conf., June 2005

Grf1

0.6515615432

0.6472019465

0.6473459426

0.6446229913

0.6344827586

0.6129441624

0.5438381361

0.5351089588

0.535236938

0.526222746

0.5234741784

0.5096097845

0.5751928021

0.5991930061

0.5793237971

0.5307692308

0.5273690406

0.520783848

0.4556521739

0.4510837727

0.4809160305

0.54084014

0.6187759336

0.6210691824

0.6224783862

0.6977840641

0.6949952786

0.6769743102

0.6722855726

0.5925925926

0.5202524987

0.5359028511

0.5454545455

0.5270057682

0.5207785376

0.5244094488

0.5178010471

0.4778947368

0.3989361702

0.4076262084

0.421732114

0.4584188912

0.4638554217

0.510286001

0.5175702811

0.5543478261

0.5850183824

0.5775034294

0.5690759378

0.5619004111

0.5579477783

0.5577981651

0.5142594296

AEHC X Gasolina

Percentage: Hydrated x Gasoline

Plan1

Indicador de Preo do lcool Etlico Carburante - SO PAULO/SP

Preos Mdio Mensal em R$/litro

MsAEHC - Bomba (*)Gasolina Comum(*)AEHC X Gasolina

Mai/980.6850.80684.99%

Jun/980.6560.80681.39%

Jul/980.6060.80475.37%

Ago/980.5850.78374.71%

Set/980.5560.77671.65%

Out/980.5560.77671.65%

Nov/980.5560.74874.33%

Dez/980.5560.74874.33%

Jan/990.5360.80666.50%

Fev/990.5520.83466.19%

Mar/990.5310.81964.84%

Abr/990.4780.86455.32%

MaI/990.4220.93844.99%

Jun/990.3930.92442.53%

Jul/990.5231.08748.11%

ago/990.4581.03644.21%

Set/990.5041.11845.08%

Out/990.5661.13349.96%

Nov/990.7751.19564.85%

Dez/990.7861.19565.77%

Jan/000.7831.20265.14%

Fev/000.7971.20466.20%

Mar/000.7931.28561.71%

Abr/000.7921.27562.12%

Mai/000.7731.26161.30%

Jun/000.7571.25060.56%

Jul/000.7551.24460.69%

Ago/001.0381.49169.62%

Set/001.0261.48569.09%

Out/000.9951.48067.23%

Nov/001.0401.64163.38%

Dez/001.0641.64164.84%

Jan/011.0641.63365.16%

1.0641.64464.72%

Mar/011.0611.63964.73%

1.0431.61864.46%

Mai/011.0121.59563.45%

0.9661.57661.29%

Jul/010.8871.63154.38%

0.8841.65253.51%

Set/010.8811.64653.52%

0.8931.69752.62%

Nov/010.8921.70452.35%

0.8751.71750.96%

Jan/020.8951.55657.52%

0.8911.48759.92%

Mar/020.8911.53857.93%

0.8971.6953.08%

Mai/020.8961.69952.74%

0.8771.68452.08%

JuL/020.7861.72545.57%

0.7701.70745.11%

Set/020.8191.70348.09%

0.9271.71454.08%

Nov/021.1931.92861.88%

1.1851.90862.11%

Jan/031.2962.08262.25%

1.4802.12169.78%

Mar/031.4722.11869.50%

1.4232.10267.70%

Mai/031.3562.01767.23%

1.1521.94459.26%

Jul/030.9891.90152.03%

1.0151.89453.59%

Set/031.0441.91454.55%

1.0051.90752.70%

Nov/030.9901.90152.08%

0.9991.90552.44%

Jan/040.9891.91051.78%

0.9081.90047.79%

Mar/040.7501.88039.89%

0.7591.86240.76%

Mai/040.7841.85942.17%

0.8931.94845.84%

Jul/040.9241.99246.39%

1.0171.99351.03%

Set/041.0311.99251.76%

1.1222.02455.43%

Nov/041.2732.17658.50%

1.2632.18757.75%

Jan/051.2442.18656.91%

1.2302.18956.19%

Mar/051.2182.18355.79%

1.2162.18055.78%

Mai/051.1182.17451.43%

(*) Jornal da Tarde SP - at dia 25/07/01

Obs.: A partir de jul/01 a fonte de preo na bomba da ANP

"99/00""00/01""01/02""02/03""03/04""04/05""05/06"

Mai44.99%61.30%63.45%52.74%67.23%42.17%51.43%

Jun42.53%60.56%61.29%52.08%59.26%45.84%

Jul48.11%60.69%54.38%45.57%52.03%46.39%

Ago44.21%69.62%53.51%45.11%53.59%51.03%

Set45.08%69.09%53.52%48.09%54.55%51.76%

Out49.96%67.23%52.62%54.08%52.70%55.43%

Nov64.85%63.38%52.35%61.88%52.08%58.50%

Dez65.77%64.84%50.96%62.11%52.44%57.75%

Jan65.14%65.16%57.52%62.25%51.78%56.91%

Fev66.20%64.72%59.92%69.78%47.79%56.19%

Mar61.71%64.73%57.93%69.50%38.47%55.79%

Abr62.12%64.46%53.08%67.70%40.76%55.78%

Plan1

0.6515615432

0.6472019465

0.6473459426

0.6446229913

0.6344827586

0.6129441624

0.5438381361

0.5351089588

0.535236938

0.526222746

0.5234741784

0.5096097845

0.5751928021

0.5991930061

0.5793237971

0.5307692308

0.5273690406

0.520783848

0.4556521739

0.4510837727

0.4809160305

0.54084014

0.6187759336

0.6210691824

0.6224783862

0.6977840641

0.6949952786

0.6769743102

0.6722855726

0.5925925926

0.5202524987

0.5359028511

0.5454545455

0.5270057682

0.5207785376

0.5244094488

0.5178010471

0.4778947368

0.3989361702

0.4076262084

0.421732114

0.4584188912

0.4638554217

0.510286001

0.5175702811

0.5543478261

0.5850183824

0.5775034294

0.5690759378

0.5619004111

0.5579477783

0.5577981651

0.5142594296

Meses

(%)

Percentual - Hidratado X Gasolina - Capital /SP

Plan2

"01/02"

"02/03"

"03/04"

"04/05"

"05/06"

Variao - lcool X GasolinaSafra

Mai

Mai

Mai

Mai

Mai

Jun

Jun

Jun

Jun

Jun

Jul

Jul

Jul

Jul

Jul

Ago

Ago

Ago

Ago

Ago

Set

Set

Set

Set

Set

Out

Out

Out

Out

Out

Nov

Nov

Nov

Nov

Nov

Dez

Dez

Dez

Dez

Dez

Jan

Jan

Jan

Jan

Jan

Fev

Fev

Fev

Fev

Fev

Mar

Mar

Mar

Mar

Mar

Abr

Abr

Abr

Abr

Abr

0.6344827586

0.5273690406

0.6722855726

0.421732114

0.5142594296

0.6129441624

0.520783848

0.5925925926

0.4584188912

0.5438381361

0.4556521739

0.5202524987

0.4638554217

0.5351089588

0.4510837727

0.5359028511

0.510286001

0.535236938

0.4809160305

0.5455

0.5175702811

0.526222746

0.54084014

0.527

0.5543478261

0.5234741784

0.6187759336

0.5207785376

0.5850183824

0.5096097845

0.6210691824

0.5244094488

0.5775034294

0.5751928021

0.6224783862

0.5178010471

0.5690759378

0.5991930061

0.6977840641

0.4778947368

0.5619004111

0.5793237971

0.6949952786

0.3846976993

0.5579477783

0.5307692308

0.6769743102

0.4076262084

0.5577981651

Plan3

Current Situation

Acohol-gasoline mixture set to 25% since July, 2003.

The automotive industry has launched flexible-fuel cars in March, 2003.

Advantage to alcohol consumption if oil prices are above US$ 35 / per barrel.

Total consumption: ~ 200,000 barrels / day of equivalent gasoline (30,000 gas-stations).

~ 40% of total consumption of spark ignition cars (Otto Cycle Engines).

May, 2005: for the first time, flexi-fuel vehicles sales exceeded gasoline-fueled vehicle sales, 49.5% against 43.3%.Source: Honorable Roberto Rodrigues, Minister of Agriculture, Brazil (Assessing Biofuels Conf., June 2005

Source: Leal, Regis, CO2 Life Cycle Analysis of Ethanol Production and Use, LAMNET, Rome, may 2004Comparative Energy Balance

Raw MaterialTotal Energy RatioCorn1,21Switchgrass4,43Sugarcane8,32

Source: Leal, Regis, CO2 Life Cycle Analysis of Ethanol Production and Use, LAMNET, Rome, may 2004LIFE CYCLE GHC EMISSIONS IN ETHANOLPRODUCTION AND USE

Kg CO2 equiv./ t caneAverageBest ValuesEmissions34,533,0Avoided Emissions255,0282,3Net Avoided Emissions220,5249,3Anhydrous Ethanol2,6 to 2,7 t CO2 equiv./m3 ethanol

Ethanol: LEARNING CURVE(J Goldemberg, 2003)110100050000100000150000200000250000Accumulated Ethanol Production ( 1000 m3)( Oct. 2002) US$ / GJ 1986200219991996198019901993Gasoline (Rotterdam)Ethanol(producers BR)MarketConditions

ETHANOL AND EMPLOYMENT( IN THE PRODUCTION OF THE VEHICLE AND OF FUEL)Considering that an ethanol driven vehicle consumes, on average,2.600 litres of ethanol per year ( one million litres of ethanol, peryear, generates 38 direct jobs );for gasoline, spends 20% less fuel( one million litres of gasoline, per year, generates 0,6 direct jobs);C gasoline contains 25% ethanol.

Source: Copersucar/Unica/ANFAVEA/PETROBRAS

VEHICLESRATIO OF EMPLOYMENTSETHANOL21,87C GASOLINE6,01A GASOLINE1

The Ethanol application as vehicular fuel in Brazil.

Brazilian Automotive Industry Association - ANFAVEAEnergy & Environment CommissionHenry Joseph Jr.

Brazil: FFV Market Share of Light Vehicle Sales.from 4% in early 2003 to 67% in Sept. 2005

3. Brazilian Domestic Production of VehiclesBrazil:10th World Production1.828.000 vehicles / yearPassenger Cars, Light Commercials, Trucks and Buses2003

Source: AAMA, OICA, ANFIA, IMT, INA, ANFAVEA, SMMT, Wards Comm.

Vehicle ModificationsCarburetorThe material of the carburetor body or carburetor cover cannot be aluminum or exposed Zamak; if it is, must be substituted, protect with surface treatment or anodize;Any component in polyamide 6.6 (Nylon) that has contact with the fuel must be substituted by other material or protected;The material of buoy, nozzle, metering jet, floating axle, seals, gaskets and o-rings must be appropriated. Electronic Fuel InjectionSubstitution of fuel injector material by stainless steel;New fuel injector design to improve the fuel spray;New calibration of air-fuel ratio control and new Lambda Sensor working range;Any component in polyamide 6.6 (Nylon) that has contact with the fuel must be substituted by other material or protected.Fuel PumpThe internal surface of pump body and winding must be protected and the connectors sealed;Any component in polyamide 6.6 (Nylon) that has contact with the fuel must be substituted by other material or protected.The pump working pressure must be increased.Fuel Pressure DeviceThe internal surface of the fuel pressure device must be protected;Any component in polyamide 6.6 (Nylon) that has contact with the fuel must be substituted by other material or protected.The fuel pressure must be increased.Fuel FilterThe internal surface of the filter must be protected;The adhesive of the filter element must be appropriated;The filter element porosity must be adjusted.Ignition SystemNew calibration of advance control;Colder heat rating spark plugs.Evaporative Emission SystemDue to the lower fuel vapor pressure, it is not necessary evaporative emission control. Fuel TankIf the vehicle fuel tank is metallic, the internal surface of tank must be protected (coated);Any component in polyamide 6.6 (Nylon) that has contact with the fuel must be substituted by other material or protected.Higher fuel tank capacity, due to the higher fuel consumption.Catalytic ConverterIt is possible to change the kind and amount of noble metal present in the loading and wash-coating of catalyst converter;The catalyst converter must be placed closer to the exhaust manifold, in order to speed up the working temperature achievement (light-off).EngineThe engine compression ratio should be higher;Camshaft with new cam profile and new phase;New surface material of valves (intake and exhaust) and valve seats.Intake ManifoldWith new profile and less internal rugosity, to increase the air flow;Must provide higher intake air temperature. Exhaust PipeThe internal surface of pipe must be protected (coated);The exhaust design must be compatible with higher amount vapor. Motor OilNew additive package. Cold Start SystemAuxiliary gasoline assisted start system, with temperature sensor, gasoline reservoir, extra fuel injector and fuel pump;The vehicle battery must have higher capacity. (Otto Engines)

8. Relative Performance of Ethanol Engines

10. Comparative Raw Exhaust Emission

15. Comparative Aldehyde Emission

16. Comparative Evaporative Emission

11. The Fossil Fuels

12. The Renewable FuelsCO2

Comparative Vehicle Prices (Brazil)Ford EcoSport XL1.6L 8V gasoline- 14.859,001.6L 8V Flex Fuel- 15.231,00Volkswagen Gol 2d1.0L 8V Special gasoline- 7.496,001.0L 8V Special alcohol- 7.649,001.0L 8V City Total Flex- 8.035,00Renault Scnic Privilge 4d2.0L 16V gasoline- 22.597,001.6L 16V Hi-Flex - 21.540,00( 1,00 = R$ 2,933)

http://www.transportation.anl.gov

Wholesale PricesSource: http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/petroleum_marketing_monthly/current/pdf/pmmall.pdf

Projected World Oil Prices (EIA)Source: EIA Reports

US Domestic Oil Consumption & SupplySource: EIA Reports

Prices of Selected Petroleum ProductsSource: http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/petroleum_marketing_monthly/current/pdf/pmmall.pdf

Tutorialhttp://www.eere.energy.gov/biomass/understanding_biomass.html

Source: Lee R. Lynd, Dartmouth; Producing Cellulosic Bioenergy Feedstocks from Currently Managed Lands; Draft-work-in-progress; October 7, 2005Source: Lee R. Lynd, Dartmouth; Producing Cellulosic Bioenergy Feedstocks from Currently Managed Lands; Draft-work-in-progress; October 7, 2005

INSERTS REQUESTED BY VKDecember 2, 2005For a full-scale production and use of ethanol, the learning curve for the efficiency improvements resulting from investments in research and development and human resources shows a clear potential for the agricultural raw materials and their fossil competitors ethanol is totally able to compete with gasoline. The chart shows a dramatic fall in production costs, in blue, and the gasoline prices in Rotterdam, in yellow. This slide from Chris Flavin, Worldwatch Institute, World Petroleum Congress, September 2005.Source: Renewable Fuels AssociationSource: Renewable Fuels AssociationSource: Renewable Fuels AssociationThe new world of biofuels has specific rules: there must be clearly positive life-cycle energy and life-cycle GHG emissions. Concerning raw materials, the first case shows sugar-cane with a great advantage. For every input energy unit, the production is 8.2 times bigger, on average.You can see results around 10,2 times!As a result, when emissions are compared upon replacement of gasoline and fuel oil with ethanol and sugar-cane bagasse, there is a saving or uptake of 2.6 tons of CO2 equivalent for anhydrous ethanol, and of 1.9 ton of CO2 equivalent for hydrous ethanol. This is the key to the success of biofuels!For a full-scale production and use of ethanol, the learning curve for the efficiency improvements resulting from investments in research and development and human resources shows a clear potential for the agricultural raw materials and their fossil competitors ethanol is totally able to compete with gasoline. The chart shows a dramatic fall in production costs, in blue, and the gasoline prices in Rotterdam, in yellow. Another both interesting and appealing impact is the logic of the relation between the jobs created in the gasoline supply chain and those created in the ethanol supply chain when a vehicle is produced. The difference, which is several times more favorable to ethanol, is a decisive factor in the option to fuel FFVs with ethanol. It is always important to analyze the entire supply chain. The vehicle is the back-end of the analysis and the indication of the differences.

See what we are talking about: the area between the lines shows the tropical region, the potential it represents for less developed countries, and the positive impacts on their economies, as well as the global economy, which are extremely relevant to a balanced world scenario and, specifically, create effective conditions for peace. That is a global effort that calls for positive actions on the part of global institutions. It is a great chance to establish more balanced relationships, while fostering development and reducing geographic disparities