Mike Scarpino U.S. Department of Energy National Energy Technology Laboratory

1. The Clean Cities Program2008 UpdateProgram Priorities, Budgets & Legislation, Biofuels Updates, Future Areas of Emphasis Mike Scarpino U.S. Department of Energy National Energy Technology Laboratory

2. U.S. petroleum production peaked in 1972 (crude oil in 1970) despite higher prices, advanced technology, new offshore & AK discoveries. U.S. Oil + NGL Production Peaks: 1972

3. Peaking of world supply outside of OPEC is imminent and will magnify the cartel’s market power.

4. World Energy Reserves Based on $145/barrel, the US spends $650+ billion per year on imported oil (or $12.6 billion per week) Source: US Department of Energy

5. The Clean Cities Program • Established in 1993 in response to the Energy Policy Act (EPAct) of 1992 • Provides a framework for businesses and governments to work together as a coalition • Coordinates the activities of petroleum displacement proponents • Mission: To advance the energy, economic and environmental security of the United States by supporting local decisions to adopt practices that reduce the use of petroleum in the transportation sector. • Goal: To expand and stimulate alternative fuel and advanced technology markets to achieve a petroleum reduction of 2.5 billion gallons of gasoline equivalent (GGEs) / year by 2020.

6. Clean Cities Today 87 Coalitions 5,452 Stakeholders 5,753 AFV Stations 500,000 AFVs using Alt Fuels

7. Alternative Fuels Increase Vehicles and Infrastructure Electricity Ethanol (E-85) Propane Natural Gas Hydrogen Biodiesel (B100) Blended Fuels Increase Use of Blends Low levels of alternative fuels with conventional fuels 10% ethanol / 90% gasoline blends (E10) 2% biodiesel / 98% diesel blends (B2) 20% biodiesel / 80% diesel blends (B20) Idle Reduction Increase Technology Use/Practices Heavy-duty trucks School Buses Hybrids Expand Market for Vehicles Light- and heavy-duty hybrid electric vehicles Fuel Economy Increase Fuel Efficient Technologies and Practices Fuel efficient vehicles, behavioral changes, vehicle maintenance initiatives, etc. Clean Cities Technologies (Fuel/Technology Neutral Approach) Reduce Replace Eliminate

8. Clean Cities Program Focus Areas • Accelerated Biofuels Initiative-Accelerate BioFuels Infrastructure Development Efforts, Consumer Outreach, and Technical Support Efforts. • Technology Deployment & Demonstrations-Niche Market Fleet, Adv Vehicle Demos (PHEVs, HD HEVs, FCVs, Clean diesel) • Consumer Information & Education-Fuel Economy.Gov (General outreach activities for consumers to make educated choices for new vehicle purchases • Strengthening Coalitions-Specialized training & workshops • Expanded National Partnerships-Work w/Verizon, Enterprise, Kroger, etc. • Addressing Technical Barriers & Technical Assistance for Early Adopters-Coordinate specialized training and outreach to public safety officials, first responders, fleet maintenance personnel, etc. Distribute incident response procedures and guidelines. UL certifications. CNG Cylinder Program.

9. Clean Cities Coalitions: Public-Private Partnerships • Coalition Objectives • Identify and educate fleets about alternative fuels • Build necessary refueling sites • Train drivers, mechanics, policymakers and others • Educate the public • Find adequate resources for AFV projects • Encourage governments to pass legislation favorable to AFVs • Fiscal incentives, e.g. taxes • Non-fiscal incentives, e.g. green parking, HOV access

10. Funding: Program Budgets & Past / Future DOE Solicitations

11. Clean Cities Program Budget $ Millions

12. Clean Cities Leverages Funding Grants Awarded to Coalitions in 2006

13. 2006 Clean Cities Infrastructure Awards • $8.6 Million Awarded in 2006 to Increase the Use and Availability of Alternative Fuels • Refueling Infrastructure for E85 and Alternative Fuels (13 Projects) • 180 AFV Refueling Sites in 25 States and DC • Installation of biodiesel blending capabilities • CNG/LNG Infrastructure (2 projects) • Incremental Cost for Alternative Fuel Vehicles (1 Project – Propane) • Idle Reduction Training and Awareness for School Districts (2 Projects) • Total Project Value is > $25M • Planning to issue a similar solicitation for FY 09

14. I-65 Corridor Project • The Indiana Office of Energy & Defense Development was awarded $1.3 million from the U.S. Department of Energy to fund E85 and B20 fueling stations along Interstate 65 from Gary, Indiana to Mobile, Alabama • 886 Miles of I-65 in the states of Indiana, Kentucky, Tennessee and Alabama are impacted by this project • 31 E85 and 5 B20 pumps are being funded • Funding also supports 1 biodiesel blending facility in Ohio, near the Indiana State line With the proposed stations in place, one would be able to travel the entire length of I-65 and be no more than a quarter of a tank from the nearest E85 station.

15. Biodiesel Terminal Blending • National Biodiesel Board Biodiesel Terminal Blending Project: • As of 9/30/07, 5 of 6 terminals are complete • 2 in New York • 1 in Pennsylvania • 1 in Florida • 1 in Indiana • 22,518,431 gallons of B99 have been dispensed since the project began on 10/1/06.

16. Potential Funding Categories for FY 09 Solicitation • 1. Infrastructure for Alternative Fuels: • - intend to fund a percentage of the infrastructure cost associated with developing alternative fuel fueling capability. • 2. Education/Outreach & Workshops: • - intended to provide technical support to help accelerate the transition to biofuels and other alternative fuels in the transportation sector. This may include the development of educational materials, direct technical assistance, and workshops on subjects such as, Vehicle/Fuel Benefits and Availability, Fuel Handling & Quality, First Responder Training, the Safe and Proper use of AFVs and refueling equipment/stations, working with local public safety and regulatory officials, etc. • 3. Incremental Cost of Alternative Fuel Vehicles • - intend to fund a percentage of the incremental cost associated with purchase of dedicated alternative fuel vehicles. • 4. Biofuels College/University Program • - intend to fund projects to support an integrated program from curriculum through application to demonstrate production and use of biofuels on campus (vehicle fleets, heating, off-road vehicles, etc.) 16

17. Potential Schedule for FY 09 Clean Cities Program Solicitation • NETL will have Project Management and Administrative oversight • Estimated Date to Issue Solicitation: late Oct / early Nov 2008 • Estimated Due Date For Proposals: late January, 2009 • Estimated Award Date: Spring 2009 • Estimated Funding Available: $6 million in DOE funds over 2 year funding period (i.e. $3 million in FY 09 funds & $3 million in FY 10 funds). • Note: Some awards may be jointly funded by Clean Cities and the DOE Biomass Program (OBP). All funding estimates are contingent upon final Federal budget appropriations for FY09 and future years. 17

18. Federal Laws & Incentives

19. EPAct 2005 Tax Incentives Alternative Motor Fuel Vehicle Credit (P.L. 109-58, Sec. 1341) Provides for tax credits for the following types of vehicles: • Alternative Fuel Motor Vehicle, 50-80% of incremental cost for vehicles: $4,000 max. for LDVs and $8,000-$32,000 max. for MDVs/HDVs • Fuel Cell Vehicle, $8,000-$40,000 • Hybrid Motor Vehicle, up to $3,400 (LDV) or $1,500 - $12,000 for MDVs/HDVs • Advanced Lean Burn Technology Motor Vehicle, up to $3,400 (LDVs only) • Aftermarket conversions also qualify

20. EPAct 2005 Tax Incentives Expiration Dates for Vehicle Credits • Fuel Cell Vehicles – 12/31/2014 • Advanced Lean Burn Technology Motor Vehicle – 12/31/2010* • LD Hybrid Motor Vehicle – 12/31/2010* • MD/HD Hybrid Motor Vehicle – 12/31/2009 • Alternative Fuel Motor Vehicle – 12/31/2010 *Subject to phase-out per 60,000 vehicle threshold, includes both hybrid and lean-burn vehicles sold by a manufacturer

21. EPAct 2005 Tax Incentives AFV Refueling Property Credit (P.L. 109-58, Sec. 1342) • Provides for tax credits of: • Up to 30% of fueling equipment cost (max. credit of $30,000) • Up to $1,000 for a residential installation • Form 8911, “AFV Refueling Property Credit” – available • Instructions clarify that credit may be taken for more than one refueling property • Not clear if multiple dispensers at single location qualify • Not clear if upgrades to stations qualify • Credits expire 12/31/2009 (except 12/31/2014 for Hydrogen)

22. Alternative Fuel Tax Credit Enacted as part of SAFETEA-LU (P.L. 109-59, section 11113) • AFs included: LPG, LNG, CNG, and liquefied hydrogen • Credit worth 50¢ per gal. (CNG per 121 cubic feet) • Credit generally goes to retail sellers, but can also go to users that operate their own fueling station(s) • If you use another fleet’s private station, they get the credit • Public entities and tax exempt entities qualify for the credit/payment. Source: Jeff Clarke, NGVAmerica

23. Alternative Fuels Tax Credit (cont.) • Effective period: Oct. 1, 2006 – Sept. 30, 2009 (2014 for H2) • Claiming the credit – IRS forms which may be required, depending on circumstances: Form 637; Form 720; Form 8849, Schedule 6; and Form 4136 Additional sources of information: • IRS Guidance – www.irs.gov/pub/irs-drop/n-06-92.pdf • IRS Forms – www.irs.gov/formspubs/lists/0,,id=97817,00.html • NGVAmerica Summary http://www.ngvamerica.org/pdfs/Notice2006-92RegSum2.pdf Source: Jeff Clarke, NGVAmerica

24. Energy Independence & Security Act of 2007 (EISA) • December 2007, Congress Passes and President Signs the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140) • What EISA did: • Expanded Renewable Fuel Standard (RFS) to 36B gal/yr of renewable fuel by 2022 (vs. 7.5B gal/yr by 2012, from EPAct 2005) - Corn Ethanol limited to 15B of 36B gallons in 2022 – remaining 21B gallons is Advanced Biofuels & Biodiesel must be at least 1B gallons in 2022 • Increased Corporate Average Fuel Economy (CAFE) - Increases CAFE levels to 35 mpg overall by 2020 – estimated to save 0.9M barrels per day by 2020, and 2M barrels per day by 2030 • What EISA did NOT do: • Create New Tax Incentives

25. EISA Biofuels Utilization Sec. 244 – Renewable Fuel Infrastructure & Fueling Station Grants • Calls for DOE to administer grants for renewable fuel infrastructure (blends of >10% up to 85% with gasoline (no cap for diesel blends)) – up to 33% of costs, up to $180,000 for any single retail outlet. No double benefit w/tax credits. • Also allows for technical/marketing assistance. • Also includes refueling infrastructure corridor program • up to 10 areas, • maximum of $20M/applicant, • requires involvement of EERE Vehicle Technology deployment program participants • $200M/yr Authorization, FY2008-2014. No funds appropriated. • Authorization DOES NOT EQUAL Appropriation – just because Congress authorizes money doesn’t mean the program gets it.

26. EISA – Rulemaking for State & Fuel Provider Program • EISA Section 133 calls for DOE to allocate acquisition credits under the S&FP Program for the following: • Fuel Cell Electric Vehicles • Hybrid Electric Vehicles • Medium or Heavy duty Electric Vehicles • Neighborhood Electric Vehicles • Plug-In Electric Vehicles • Investments in AF refueling equipment or off-road equipment • Investments in emerging technologies • DOE is required to allocate these credits by 1/31/09. This action requires a rulemaking. • Notice of Proposed Rulemaking anticipated to be issued in summer 2008.

27. EISA – Renewable Fuel Standard • Expands the Renewable Fuel Standard to 36B gal/yr of renewable fuel by 2022 (vs. 7.5B gal/yr by 2012, from EPAct 2005) • Fuels include: • Corn ethanol • Advanced biofuels • Cellulosic ethanol and ethanol from other non-corn biomass sources • Biomass-based Diesel (Biodiesel) • Biogas • Butanol and other alcohols from biomass • Other fuels from cellulosic biomass • EPA will develop regulations to implement • Corn Ethanol limited to 15B of 36B gallons in 2022 – remaining 21B gallons is Advanced Biofuels • Biodiesel must be at least 1B gallons in 2022

28. Food For Fuel: Truths & Myths

29. Food vs. FuelFactors Affecting Food Costs • Higher Agricultural Commodity and Energy Prices • Growth in Foreign Demand • Reduced Foreign Competition and Supply • Depreciating U.S. Dollar • Buying of Grain and Oilseed Futures • Weather, Drought

30. Food vs. Fuel:Factors Affecting Food Costs • Less than one third of U.S. retail food contains corn as a major ingredient. • Corn exports increased from 53.9 metric tons in 2006/2007 to 63.5 metric tons in 2007/2008. USDA, FAS, 5/2008 • Ethanol production and availability may have positively impacted fuel costs. • “Across all food consumed, 30% higher corn prices increase all average food prices by 1.1% percent.” Center for Agricultural and Rural Development, Helen H. Jensen, Bruce A. Babcock, Iowa Ag Review, Summer 2007

31. Components of Retail Food Costs Source: USDA Direct energy costs and transportation costs account for roughly 8% of retail food costs in 2005. Main Street Economist, Vol. III, Issue I; 2008; Federal Reserve Bank of Kansas City

32. Food vs. Fuel: Corn as Feed • Feed Corn Usage • 2.6 lb of corn to produce 1 lb of chicken • 6.5 lb of corn to produce 1 lb of pork • 7 lb of corn to produce 1 lb of beef • With corn at $2.28/bushel (20 year average), 56 lb/bushel or $.04/lb of corn, feed corn adds: • $.10/lb of chicken • $.26/lb of pork • $.29/lb of beef • Using the 2007 average price of corn of $3.40 and assuming price increases would all be passed on to the consumer, prices would have increased: • $.05/lb for chicken • $.13/lb for pork • $.14/lb for beef Amber Waves, Vol. 6, Issue 1; USDA

33. Food vs. Fuel: Corn Products for Human Consumption • An 18-oz box of corn flakes contains approximately 12.9-oz of milled field corn • With corn at $2.28/bushel (20 year average), 56 lb/bushel or $.04/lb of corn, the corn value of the corn in this box is $.033. • Using the 2007 average price of corn of $3.40 and assuming price increases will all be passed on to the consumer, prices would increase by $.016. • A 2-liter bottle of soda contains approximated 15 oz of corn in the form of high-fructose corn syrup. • With corn at $2.28/bushel (20 year average) the value of the corn is $.038. • Using $3.40/bushel prices would increase by $.019. Amber Waves, Vol. 6, Issue 1, USDA

34. Corn Farming Productivity • Long-term trend for yield increase since 1940 • Acres planted generally decline or remain constant • Fertilizer application increased rapidly until about 1980 then leveled off • Yield increases continued unabated • Less fertilizer per bushel • Precision farming (GIS) • Improved crop strains • Tillage has also been reduced

35. Farming Practices • The primary ecological impacts of biofuels are in agriculture • Significant economic incentives to farm with less inputs • Farm output per unit of energy down more than 50% in 60 years • Large growth (3x) in no-till farming • Data also show reduced use of pesticides and dangerous pesticides

36. Land Use • 2007/2008- Out of the 86 million corn acres harvested, 21 million acres were used to produce approximately 6.5 billion gallons of ethanol. • 2017/2018- Out of the 85 million harvested corn acres, USDA projects 28 million acres will be used to produce 4.9 billion bushels of corn for ethanol. This translates into approx. 13 billion gallons of ethanol using current published ethanol production yields (2.8 gallons/ bushel) Sources: USDA- Long Term Agricultural Projection Tables released February 2008, RFA Ethanol Industry Outlook 2008, USDA Amber Waves, April 2006

37. EISA 2007 Renewable Fuel Standard 36 billion gallons of total renewable fuels by 2022 • 21 billion gallons of advanced biofuels • 1 billion gallons of biodiesel • 16 billion gallons of cellulosic biofuels • 4 billion gallons from any source • 15 billion gallons from corn ethanol

38. Possible 2017/ 2018 Scenario Assuming trends, farm legislation, weather, and crop yield growth continue to track as in the past and CRP land can be used for corn and perennials… Gallons Ethanol • Crop Residue: Cellulosic 9.4 - 12.2 billion (Only 28% of land can have residual removed due to erosion concerns) • CRP: Cellulosic 4.2 - 12 billion(12 million acres out of 37 million acres in CRP) • CRP: Corn 2.6 - 3.1 billion(CRP acreage suitable for corn of 6.4 million acres) • Corn 11.3 - 13.7 billion(28.3 million acres) Total for 2017/2018 27.5 - 42 billion Sources: USDA Long-Term Agricultural Projection Tables, February 2008; RFA Ethanol Industry Outlook 2008; USDA Amber Waves, April 2006; USDA Amber Waves, November 2007; USDA Agricultural Baseline Projections: U.S. Crops 2008-2017, February 2008; ORNLBiomass as Feedstock for a Bioenergy and Bioproduct Industry: The Technical Feasibility of a Billion- Ton Annual Supply, April 2005, NAICC Annual Meeting Presentation, Hal Collins, USDA-ARS; NRDCGrowing Biofuels: How Biofuels Can Help End America’s Oil Dependence, Nathanael Greene, December 2004, EERE Biomass Program Web site

39. Corn Use 2007/2008 2017/2018 Feed 45% 40% Exports 19% 17% Ethanol 25% 33% Source: USDA Long Term Agricultural Projection tables released February 2008 • Distillers grains from each bushel of corn used to produce ethanol substitutes for about a fifth of a bushel of direct corn feeding in livestock rations. • Source: USDA Ethanol Expansion in the United States- How Will the Agricultural Sector Adjust?, Paul C. Westcott, FDS-07D-01, May 2007)

40. EIA’s Annual Energy Outlook 2008 (March 2008 early release) “Although the situation is very uncertain, the current state of the industry and EIA’s present view of projected rates of technology development and market penetration of cellulosic biofuel technologies suggest that available quantities of cellulosic biofuels before 2022 will be insufficient to meet the new RFS targets for cellulosic biofuels, triggering both waivers and a modification of applicable volumes… The modification of volumes reduces the overall target in 2022 from 36 bilion gallons to 32.5 billion gallons…”

41. Water Usage • 96% of field corn used for ethanol is not irrigated • Water consumption for the other 4% is approximately 1.2 acre-feet of water per acre or approximately 785 gal for every gallon of ethanol produced • Water usage for ethanol production ranges from 3-4 gal of water per gallon of ethanol produced. • Future cellulosic production is estimated to use 1.9-6 gal of water per gallon of ethanol • Water usage for petroleum refining ranges between 45-50 gal consumed per barrel of crude or 2-2.5 gal per gallon of gasoline Water Usage for Current and Future Ethanol Production, Andy Aden, National Renewable Energy Laboratory, Southwest Hydrology, 9-10/2007

42. Price Impact on Gasoline “The growth in ethanol production has caused retail gasoline prices to be $0.20 to $0.40 per gallon lower than would otherwise been the case.” The Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry, Working Paper 08-WP 467, April 2008, Xiaodong Du and Dermot J. Hayes, Center for Agricultural and Rural Development, Iowa State University “Oil and gas prices would be about 15% higher if biofuel producers weren’t increasing their output.” Francisco Blanch, Merrill Lynch, The Wall Street Journal, 3/2008 “The use of 10% ethanol blend saved Missouri drivers $.077 per gallon at the retail pump in 2007.” Impact of Ethanol on Retail Gasoline Prices in Missouri, John M. Urbanchuk, LECG LLC, 4/2008

43. Global Impacts Increasing Food Prices  Global Supply  Global Demand  Value of the Dollar  Oil Demand  Buying of Grain and Oilseed Futures

44. Global Demand Increases • Growth in foreign exchange holdings by major food importing countries (OPEC, Russia, Ukraine, China, Japan and other Asian countries) • Protective policies by importers as food security measures • Reduced import tariffs and subsidies for consumers • Biofuels • Devaluation of the dollar, which may reduce importing costs • Increased per capita income in developing countries, which increased per capita consumption of staples and diversified diet to include more meat and dairy • Population Growth Economic Research Service, USDA, WRS-0801, 5/2008

45. Global Supply: Fewer Sources and Reduced Supplies • Adverse Weather • Droughts in Ukraine, Russia, Turkey, Australia, and other countries • Decreased yields due to weather in other countries • Protective policies by exporters to reduce food price inflation • Eliminated export subsidies, export taxes, quantitative restrictions, export bans • Reduction in research and development focused on yield-enhancing technologies slowing production growth Economic Research Service, USDA, WRS-0801, 5/2008

46. Stakeholder & General Public Information and Education: Tools & Services

47. Clean Cities Website Tools Clean Cities AFDC FuelEconomy.gov – in partnership with EPA

48. Clean Cities and AFDC Website Tools • Alternative Fuel Station Locator • Financial Opportunities • Incentives and Laws • Clean Fleet Guide • Success Stories • Current Model Listing and Listing for 2001 – 2007 • Clean Cities, Vehicle Manufacturers and Industry Contacts Listing • Natural Gas, Hybrid, and Flex Fuel Cost Calculators • Idle Reduction Equipment Listing and Search Options • Searchable Document Database • Related Links • Vehicle Make/Model - Heavy- and Light-Duty Vehicles

49. Incentives and Laws

50. Refueling Station Locator