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Joel VelascoChief Representative – North Americawashington@unica.com.brwww.unica.com.br

BRAZILIAN SUGARCANE INDUSTRY ASSOCIATIONUNIÃO DA INDÚSTRIA DE CANA-DE-AÇÚCAR

Outlook for Brazilian Ethanol in U.S.Sugarcane Ethanol as a Low Carbon, Advanced Renewable Fuel

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OUTLINE

① Sugarcane in Brazil• A Primer on the Industry

② Outlook for U.S. Market• Federal Policy (RFS)• State Initiatives (LCFS)

③ Sugar Market• Brazil responding to demand

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Sugarcane in BrazilA Primer

①

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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

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WHERE SUGARCANE IS GROWN IN BRAZIL

Sources: NIPE-Unicamp, IBGE and CTC

South-Central region represents about 90% of sugarcane

harvest

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WHERE SUGARCANE IS REALLY GROWING IN BRAZIL

90%

Source: CanaSat, see http://www.dsr.inpe.br/canasat/

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CURRENT PRODUCTION IN BRAZIL

Source: UNICA

SUGAR31 Million Tons

ETHANOL7 Billion Gallons

ELECTRICITY16,000 GWh

8Source: Ministry of Mines and Energy BEN (2008).

Sugarcane16%

Other re-newables

3.0%

Petroleum36.7%

Natural Gas9.6%

Coal6.0% Uranium

1.6%Hydroelec-

tricity14.7%

Other biomass12.4%

SUGARCANE IS #1 RENEWABLE ENERGY SOURCE

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CURRENT & FUTURE PRODUCTS

1010

Sugarcane Biofuels & U.S. Market

Low Carbon, Advanced Renewable Fuels

②

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U.S. MARKET FOR ETHANOL

75 – 100%

50 – 74%

10 – 50%

0 – 10%

2007 2008

Source: Hart Energy

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U.S. MARKET FOR ETHANOL

75 – 100%

50 – 74%

10 – 50%

0 – 10%

2007 2008

Source: Hart Energy

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U.S. MARKET FOR ETHANOL

75 – 100%

50 – 74%

10 – 50%

0 – 10%

2008 2009

Source: UNICA Estimate

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Conventional Biofuels

4 4.7 9 10.5 12 12.6 13.2 13.8 14.4 15 15 15 15 15 15 15 15

Celulosic Advanced

NaN NaN NaN NaN 0.1 0.25 0.5 1 1.75 3 4.25 5.5 7 8.5 10.5 13.5 16

Non-celulosic Advanced

NaN NaN NaN 0.1 0.2 0.3 0.5 0.75 1 1.5 2 2.5 3 3.5 3.5 3.5 4

Biomass-based Diesel

NaN NaN NaN 0.5 0.65 0.8 1 1 1 1 1 1 1 1 1 1 1

E-10

14.18449121

19

14.25029213

05

14.36781799

79

14.58574552

92

14.69683282

47

14.75112940

12

14.84592582

32

14.94461842

92

14.98721914

39

14.91909221

08

14.88727069

47

14.80197569

85

14.70902429

87

14.44694927

5

14.16664625

07

13.90390748

69

13.51656247

33

3

8

13

18

23

28

33

38B

illio

ns

of G

allo

ns

E-10 Blend Wall

LOWER GHG

U.S. RENEWABLE FUELS STANDARD (RFS2)

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.

Sugarcane with at least 40% GHG

Reduction

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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).

16Sources: UNICA’s comments to EPA on September 25, 2009.

UNICA: SUGARCANE GHG REDUCTION UNDER EPA’s RFS2

100 years2% Discount

30 years0% Discount

EPA Proposed Rule -44% -26%

Brazilian Regional Land Use Modeling -64% -52%

Recognizing Carbon Uptake of 17tC/ha

-69% -60%

Emission Credits for Cogeneration

-82% -73%

Sugarcane ethanol to meet “Advanced Biofuel” threshold

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CALIFORNIA’S LOW CARBON FUEL STANDARD (LCFS)

Source: California’s Low Carbon Fuels Standard Programhttp://www.arb.ca.gov/

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

Other states may follow California’s lead, going beyond RFS requirements

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Gasoline LCFS in 2020 Corn Ethanol Sugarcane Ethanol0

20

40

60

80

100

120

9686

69

12

30

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LCFS WITH “INDIRECT LAND USE” PENALTY

Source: California Air Resources Board’s Low Carbon Fuel Standard, August 2009.

Gra

ms

of C

O2

per

meg

ajou

leDespite Modeling Errors, Sugarcane Ethanol is Lowest Carbon Liquid Fuel

“Ind

irect

Lan

d U

se”

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 202087

88

89

90

91

92

93

94

95

96

97

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.”

Gra

ms

of C

O2

per

meg

ajou

le

RE

PO

RT

ING

ON

LY

LCFS SIMULATION WITH SUGARCANE ETHANOL

E-10 Blend with Sugarcane Ethanol using exaggerated

ILUC

COMPLIANCE WITH CREDITS?

Even with ILUC, 10% sugarcane ethanol blends meet LCFS to 2017

2020

World Sugar MarketsWhy are sugar prices at 28 year high?

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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.

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2008/09ACTUAL

2009/10ESTIMATE

ΔESTIMATE

2009/10YTD

Δ YOY

Sugarcane Crush (million tons) 505 530 +4.9% 348 +9.7%

Sugar-Ethanol Mix 39.5% 43.1%

Sugar (million tons) 26.7 29.35 +9.7% 19.0 +12.0%

Ethanol (billion gallons) 6.6 6.2 -5.4% 4.0 -0.1%

Hydrous 4.4 3.0 13.4%

Anhydrous 2.2 1.0 -27.4%

Bioelectricity (MW average) 1,800 2,000 n/a

Share of electricity demand (%) 3% 3%

PRODUCTION & ESTIMATES FOR SOUTH-CENTRAL BRAZIL

NEW PROJECTIONS APRIL-SEPT

Source: UNICA. See 2009/10 Crop Year revised estimate for South Central Brazil and Harvest Update on September 16, 2009

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Area

Sources: IBGE, UNICANOTE: Note: 1) 2008 is estimated data; 2) Grains include rice, corn, wheat, soybeans, etc.

Brazil’s food production volumes doubled in the last decade mainly due to yield

gains

1990 2008

BRAZIL FOOD PRODUCTION INCREASING

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SUGAR & ETHANOL PRODUCTION INCREASING

Sources: IBGE, UNICA, Wall Street Journal on August 13, 2009

Brazil’s sugarcane ethanol volumes have increased 130%

and sugar more than 350% in two decades…

1990 20082003

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A LOW CARBON, ADVANCED RENEWABLE FUEL