Ridge Partners views new RFS2 regulations in the US as a positive development

February 5, 2010, Chicago IL

The alternative energy community of investors and entrepreneurs should welcome the clarity provided by the newly announced RFS2. Companies like Ridge Partners who seek to provide a superior financial return in a green industry while meeting the highest environmental standards should benefit.

Background:

The US government has struggled with its attempt to address global warming, energy conservation and being viewed in a positive light in the international community on these issues. The debate surrounding a national alternative energy policy has caused uncertainty and disruption to the growth of the biofuels industry development.

The US government has promoted the use of biofuels through a program of blender’s tax credits and the Renewable Fuel Standard (RFS).

Under the initial RFS program (RFS1), the Environmental Protection Agency (EPA) is required to set annual benchmarks representing the amount of renewable fuel to be used by each gasoline refiner, blender (other than oxygenate blenders), or importer (called “obligated parties”). The RFS program includes registration, recordkeeping and reporting requirements for all renewable fuel producers and obligated parties, and it resulted in a trading market in renewable fuel credits, known as Renewable Identification Numbers (RINs).

RFS1 established in December 2008:

RFS1 mandates that a percentage of all of the fuel produced and distributed in the US be renewable in origin and that percentage of biofuels required for 2009 was 10.21%.

Taking into account that the lifecycle greenhouse gas impact of corn based ethanol is different from that of cellulosic ethanol or biodiesel, the EPA has weighted the number of RINs assigned to different types of biofuels on a RIN per gallon basis.

RFS1 was viewed by many in the industry as creating almost as many problems as the ones it was intended to resolve and created uncertainty in the market place that curtailed entrepreneurial investment in alternative energy. The program has been seen by many to be ineffective and abuses of the blenders’ tax credit through “splash and dash” operations created the necessity to clarify the regulations and eliminate loopholes that exist.

The US government also became more actively engaged in UN Climate Change initiatives as indicated by the US government’s participation in the Copenhagen talks. There is an effort to more closely align the US EPA Renewable Fuels Standard with the existing UN Kyoto Protocols.

RFS2 announced February 2010:

To address the issues related to RFS1 and to upgrade its participation on the world stage as it relates to a greener environment, the US EPA instituted changes to the Clean Air Act and Energy Independence and Security Act (EISA) by adopting the Renewable Fuels Standard (RFS2) standard for biofuels usage.

Ridge Partners feels that the EPA, with the adoption of RFS2, is moving closer to the UN Carbon Credit model set forth by the Kyoto Protocol. It does this by establishing specific and detailed methodologies for life cycle carbon impacts of the various feed stocks used on the production of ethanol, biodiesel and synthetic diesel.

Ridge Partners has designed the DR project in order to maximize the monetization of carbon credits (CERs) under the UN Kyoto program. The UN standard is more stringent and comprehensive than the US EPA RFS2. Ridge’s work in this area as well as the sustainability certification process that the project will undergo during the UN process is more than sufficient to provide data needed to qualify our products for qualification under RFS2. While jatropha based biofuel is not mentioned by name in RFS2, we are completely confident we will meet the threshold test required and by providing a defined path to certification RFS2 moves us closer to our business goals.

In both the UN and RFS2 programs, each type of biofuel must be established on an industry wide basis through the adoption and approval of a methodology (UN) or pathway (US EPA).
As to the potential impact of the RFS2 regulations on Ridge’s initial project in the Dominican Republic (DR), there are two points worth noting:

The fact that jatropha is omitted and does not have a pathway (methodology) in place is a non-issue. It is widely understood that jatropha is a superior feed stock to soy and, since soy is approved, it is a given jatropha will be. Modern US industrial soy production is much more carbon intensive than the cultivation of jatropha as we are implementing it in our project. Jatropha’s superior carbon footprint will be part of Ridge’s evaluation by SGS, Ltd. SGS has established a body of work on this subject relative to matter of combustion and indirect land use.

There are many differences between the cultivation of the two crops as noted below:

We view the adoption of a Jatropha pathway by EPA as a matter of “when” not a matter of “if”.

The purpose of this is to reduce slash and burn farming that is occurring in the Amazon and other areas in danger of deforestation from being used to produce biofuels that will benefit from the RFS2 program. The UN Kyoto Protocol is even more stringent than RFS2 requiring land to have been cleared prior to 1998.

Ridge is able to easily demonstrate all of the land for its DR project meets the UN standard and is therefore acceptable under RFS2. Ridge is in the process of retaining SGS, Ltd. to provide third party certification of Ridge’s compliance with RFS2. SGS has many specialties, one of which is in vegetable oil certification and is universally recognized as a leading inspection, verification, testing and certification company.

In conclusion, RFS2 is a welcome program that will make it more difficult for existing biofuels companies in the US using marginal technology and marginal feed stocks to compete, but it will reward companies like Ridge Partners that are already in compliance with UN CER programs.

For further discussion please feel free to contact:

Thomas Kluber
President and CEO
Ridge Partners LLC


Michael J. Losch
Chief Financial Officer
Ridge Partners LLC