Slide 1

Strategic Directions in Socio-economic Issues August 14, 2015 Paul Willems, TVP Energy Biosciences EBI Associate Director

Slide 2

2 Outline Socio economics in EBI Big picture energy context & where do biofuels fit in Going after climate change Energy efficiency Electricity Transport The case for biofuels Policy Biomass availability Land availability Economics Land use Agricultural Intensification

Slide 3

3 EBI socio-economics agenda Be the trusted source for science underpinning policy Not involved in any lobbying We provide data, policy analysis and tools for policy implementation Open to collaboration with other institutions with similar values Enable biofuels done well and avoid repeat of GMO introduction Thinking ahead about tomorrows issues Funded by BP, but not an agent of BP

Slide 4

4 Oil supply and cost curve Availability of oil resources as a function of economic price Source: IEA (2005)

Slide 5

5 Source: UN and DOE EIA Energy use grows with economic development US Australia Russia Brazil China India S. Korea Mexico Ireland Greece France UK Japan Malaysia energy demand and GDP per capita (1980-2002)

Slide 6

6 Source: IEA WEO 2004 Global Energy Demand Growth by Sector (1971-2030) Energy Demand (bnboe) Rapid Demand Growth Across All Sectors Key:- industry- transport- power- buildings

Slide 7

7 * - excludes traditional biomass Source: IEA 2004 2002 2030 Fuels Mix Projected to Remain Similar Key: - oil- coal - gas- nuclear- hydro - modern renewables Global Primary Energy Supply by Fuel*:

Slide 8

8 Source : IPCC 4 report, 2007

Slide 9

9 Primary EnergyConversion TechnologyProducts Reforming Coal Natural Gas Biomass Extra Heavy Oil Syngas Conversion - FT - Oxygenates - Chemicals Gasification Enzymatic/Biological Conversion Power Generation Electricity Fuels Chemicals Refining Processes - coking - hydro-treating - novel thermal processes CO 2 Capture CO 2 for EOR/Storage the fungibility of carbon

Slide 10

10 Energy efficiency opportunities US example

Slide 11

11 Lower Carbon electricity via natural gas

Slide 12

12 US natural gas resources & production

Slide 13

13 Vehicle pathways (US$)

Slide 14

14 Vehicle pathways with biofuels (US$)

Slide 15

15 Enthusiasm for biofuels 1. 23% of gasoline pool 2. By energy content not volume Source: IEA, EU Policy, USDOE, BP Biofuels and BCG team analysis Ability to address multiple policy objectives Relative ease of introducing liquid fuels at scale into existing fuel pool / infrastructure / vehicles Technology solutions to support sustainable growth US 2007 Energy Independence and Security Act Gasoline blend target of 36B 1 gal by 2022 (21B gal produced from LC feedstock) Blenders subsidized by 51 cpg Farmers protected by 54 cpg import tariff Agricultur al Support Energy Security GHG Reductions 1970: Petrobras tasked to diversify energy sources Tax incentives to encourage investment Deregulated in 1990s Industry now self sufficient Brazil The Biofuels Directive 2003 Biofuel blend target of 5.75% 2 by 2010 2007 New blend target of 10% 2 Blenders subsidized by ~160 cpg Farmers protected by ~60 cpg import tariff Climate change 130 g/km CO2 reduction by 2012 95 g/km by 2020 EU

Slide 16

16 Significant growth potential Volume blpa announced regulation World biofuel penetration consensus range 19% 11% Penetration of gasoline & diesel demand in 2030

Slide 17

17 Actual penetration will depend on a range of factors BioethanolBiodiesel Economic Supply Demand Constraint type Economics of ethanol vs. gasoline Economics of ethanol under different carbon prices Timing of LC commercialisation, and production cost of LC versus conventional ethanol Vehicle fleet ability to absorb ethanol Ability to get past E10 FFV growth Mandated demand levels as floor Debate on food vs. fuel, sustainability Ability of market to grow engineering capacity, production capacity, infrastructure, logistics, distribution Trade flow restrictions (tariffs, quotas) Timing of LC commercialisation Debate on food vs. fuel, sustainability Economics of biodiesel vs. ethanol Economics of biodiesel vs. diesel/oil price Potential technological breakthrough in biodiesel production Vegetable oil supply limitations Mandate levels in key markets Vehicle fleet ability to absorb biodiesel

Slide 18

18 A spectrum of possibilities Biofuels done well Biofuels done badly Feedstocks corn, sugar cane, energy grasses Process optimization pretreatment, conversion, renewable fuel use Greenhouse gas balance well-to-wheel emissions Agricultural practices intensity, fertilizers, water use, social impacts etc Economic competitiveness versus gasoline, diesel, with/without subsidies Fuel quality Performance in engines, energy density

Slide 19

Land

Slide 20

20 Global Land Use AMBIO 23,198 (Total Land surface 13,000 M Ha) Forest & Savannah Cereal 4.6% Pasture & Range 23.7% 30.5% Other crops 6.9% Nonarable 34.4% Courtesy of Chris Somerville

Slide 21

21 US Agricultural land use has declined http://www.ers.usda.gov/briefing/Baseline/crops.htm

Slide 22

22 A Billion acres of agricultural land has been abandoned globally

Slide 23

23 Some biomass species can be grown on saline land, not suitable for agriculture RegionArea (10 6 ha) Africa69.5 Near/ Middle East53.1 Asia and Far East19.5 Latin America59.4 Australia84.7 North America16.0 Europe20.7 Spartina growing in salt water (yield ~ 22 tons/ha) Saline soils (FAO)

Slide 24

24 Land Use How much land is available, given the changing definition of crops? How do we achieve proper land management policies globally? All human activity has land use implications. How do we understand biofuels in the proper context? Is the concept of indirect land use changes a useful policy instrument?

Slide 25

Biomass

Slide 26

26 US Biomass inventory = 1.3 billion tons Forest 12.8% Urban waste 2.9% Manure 4.1% Grains 5.2% Crop residues 7.6% Soy 6.2% Wheat straw 6.1% Corn stover 19.9% Perennial crops 35.2% From: Billion ton Vision, DOE & USDA 2005 26 B gals ~

Slide 27

27 Crop yields have been strongly increased but biomass yields have not Source: European Forest Institute (www.efi.fi) Indiana Agricultural Statistics Service Average European forest yieldAverage Indiana corn yield

Slide 28

28 Global grain production with and without yield enhancements Data from worldwatch 19641974198419942004 Year 0 500 1000 1500 2000 Million Hectares

Slide 29

29 Future crops expand notion of arable land

Slide 30

30 High yield decreases transportation and land costs Richard Hamilton, Ceres 500,000 gal/day scenario

Slide 31

Food and Fuel

Slide 32

32 Will long-term food price trend reverse? D. Dijk, Rabobank (2007)

Slide 33

33 Developing economies want feed & food

Slide 34

34 Global soybean imports

Slide 35

35 Agricultural intensification How much yield improvement can be achieved over time in both agriculture and livestock operations through application of modern technology? How much yield improvement could be achieved if we could simply apply existing technology to all applicable acres worldwide? What are the environmental implications of crop and livestock intensification from a soil, water, air, habitat and biodiversity perspective? What are the right government policies to promote both agricultural productivity and environmental quality?