Audit Committee Charter

Policy: This charter defines the membership and responsibilities of the Audit Committee of the Board of Directors of Pacific Ethanol.

Purpose: The primary function of the Audit Committee of the Board of Directors of Pacific Ethanol, Inc is to, 1) assist the Board in fulfilling its responsibilities by reviewing the financial reports provided by the Company to the Securities and Exchange Commission, the Company’s shareholders or to the general public, and by reviewing the Company’s internal financial and accounting controls; 2) oversee the appointment, compensation, retention and oversight of the work performed by any independent public accountants engaged by the Company; 3) recommend, establish and monitor procedures designed to improve the quality and reliability of the disclosure of the Company’s financial condition and results of operations; and 4) monitor the implementation and effectiveness of PEI-II-030 Code of Ethics and the compliance programs under the Code of Ethics policy.

Procedures:

1.0 Committee Membership
The Audit Committee shall be comprised of a minimum of three or more Directors as appointed by the Board of Directors, who shall meet the independence, audit committee composition requirements promulgated by the Securities and Exchange Commission, the NASDAQ National Market, any exchange upon which securities of the Company are traded or any governmental or regulatory body exercising authority over the Company. In addition, each member of the Audit Committee shall be free from any relationship that, in the opinion of the Board of Directors, would interfere with the exercise of his or her independent judgment as a member of the Audit Committee.

At the time of his or her appointment to the Audit Committee, each member of the Committee shall be able to read and understand fundamental financial statements, including a balance sheet, cash flow statement and income statement. At least one member of the Audit Committee shall have employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. Further, at least one member of the Audit Committee shall qualify as an “audit committee financial expert” as such term is defined by the Securities and Exchange Commission pursuant to Section 407 of the Sarbanes-Oxley Act of 2002.

The members of the Audit Committee shall be elected by the Board of Directors at the meeting of the Board of Directors following each annual meeting of stockholders and shall serve until their successors shall be duly elected and qualified or until their earlier resignation or removal. Unless a Chair is elected by the full Board of Directors, the members of the Audit Committee may designate a Chair by majority vote of the full Committee membership.

2.0 Meetings
The Audit Committee shall meet as often as it determines, but not less frequently than quarterly. The Audit Committee shall meet periodically with management, the internal auditors and the independent auditor in separate executive sessions. The Audit Committee may request any officer or employee of Pacific Ethanol or their outside counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Audit Committee.

3.0 Authority and Responsibilities
To fulfill its responsibilities and duties, the Audit Committee shall carry out the following specific activities:

3.1 Document Review
Review and reassess the adequacy of this Charter periodically as conditions dictate, but at least annually, and recommend any proposed changes to the Board of Directors for approval.

Review with representatives of management and representatives of the independent accounting firm Pacific Ethanol’s audited annual financial statements prior to their filing as part of the Annual Report on Form 10-KSB. After such review and discussion, the Audit Committee shall recommend to the Board of Directors whether such audited financial statements should be published in the Company’s annual report on Form 10-KSB. The Audit Committee shall also review the Company’s quarterly financial statements prior to their inclusion in Pacific Ethanol’s quarterly Securities and Exchange Commission filings on Form 10-QSB.

Take steps designed to insure that the independent accounting firm reviews Pacific Ethanol’s interim financial statements prior to their inclusion in the Company’s quarterly reports on Form 10-QSB.

Review and discuss with management and the independent accountants any material financial or non-financial arrangements of Pacific Ethanol that do not appear on the financial statements of the Company.

3.2 Independent Accounting Firm
The Audit Committee shall be directly responsible for the appointment, compensation, retention and oversight of the work of any independent accounting firm engaged by Pacific Ethanol for the purpose of preparing or issuing an audit report or related work. The Audit Committee shall have the ultimate authority and responsibility to appoint, evaluate and, when warranted, replace such independent accounting firm (or to recommend such replacement for shareholder ratification in any proxy statement).

Resolve any disagreements between management and the independent accounting firm as to financial reporting matters.

Instruct the independent accounting firm that it should report directly to the Audit Committee on matters pertaining to the work performed during its engagement and on matters required by applicable regulatory body rules and regulations.

On an annual basis, receive from the independent accounting firm a formal written statement identifying all relationships between the independent accounting firm and Pacific Ethanol consistent with Independence Standards Board Standard 1. The Audit Committee shall actively engage in a dialogue with the independent accounting firm as to any disclosed relationships or services that may impact its independence. The Audit Committee shall take appropriate action to oversee the independence of the independent accounting firm.

On an annual basis, discuss with representatives of the independent accounting firm the matters required to be discussed by Statement on Auditing Standards 61, as it may be modified or supplemented.

Meet with the independent accounting firm prior to the audit to review the planning and staffing of the audit and consider whether or not to approve the auditing services proposed to be provided.

Evaluate the performance of the independent accounting firm and consider the discharge of the independent accounting firm when circumstances warrant. The independent accounting firm shall be ultimately accountable to the Board of Directors and the Audit Committee.

Consider in advance whether or not to approve any non-audit services to be performed by the independent accounting firm required to be approved by the Audit Committee pursuant to the rules and regulations of any applicable regulatory body.

The Audit Committee shall have the authority to oversee and determine the compensation of any independent accounting firm engaged by the Company.

Ensure the rotation of the audit partners as required by Section 10A(j) of the Securities Exchange Act of 1934, as amended, and consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the independent auditing firm on a regular basis.

Recommend to the Board of Directors policies for the Company’s hiring of employees or former employees of the independent auditor consistent with Section 10A(l) of the Securities Exchange Act of 1934.

At least annually, obtain written confirmation from the independent accountants that, in the independent accountants’ professional judgment, the independent accountants are “independent” of the Company within the meaning of the federal securities laws.

Periodically consult with the independent accountants out of the presence of management about internal controls and the fullness and accuracy of the Company’s financial statements.

3.3 Financial Reporting Processes
In consultation with the independent accounting firm and management, review annually the adequacy of the Company’s internal financial and accounting controls.

Review disclosures made to the Audit Committee by Pacific Ethanol’s Chief Executive Officer and Chief Financial Officer in connection with their certifications of the Company’s reports on Form 10-KSB and Form 10-QSB, including disclosures concerning; 1) evaluations of the design and operation of the Company’s internal financial and accounting controls; 2) any significant deficiencies discovered in the design and operation of the Company’s internal controls which could adversely affect the Company’s ability to record, process, summarize, and report financial data; and 3) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls. The Audit Committee shall direct the actions to be taken and/or make recommendations to the Board of Directors of actions to be taken to the extent such disclosures indicate the finding of any significant deficiencies in internal controls or fraud.

Regularly review Pacific Ethanol’s critical accounting policies and accounting estimates resulting from the application of these policies and inquire at least annually of both the Company’s internal auditors and the independent accounting firm as to whether either has any concerns relative to the quality or aggressiveness of management’s accounting policies.

Consider the independent accountant’s judgments about the quality and appropriateness of the Company’s accounting principles as applied in its financial reporting.

Consider and approve, if appropriate, major changes to Pacific Ethanol’s auditing and accounting principles and practices as suggested by the independent accountants or management.

Establish regular and separate reporting to the Audit Committee by each of management and the independent accountants regarding any significant judgments made in management’s preparation of the financial statements and the view of each as to appropriateness of such judgments.

Following completion of the annual audit, review separately with each of management and the independent accountants any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information.

Review and resolve any significant disagreement among management and the independent accountants in connection with the preparation of the financial statements.

Review with the independent accountants and management the extent to which changes or improvements in financial or accounting practices, as approved by the Audit Committee, have been implemented.

Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters.

Establish procedures for the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
Prepare, in accordance with the rules of the Securities and Exchange Commission as modified or supplemented from time to time, a written report of the audit committee to be included in the Company’s annual proxy statement for each annual meeting of stockholders.

To the extent required by any regulatory body, instruct the Company’s management to disclose in its Form 10-KSB and Form 10-QSB’s the approval by the Audit Committee of any non-audit services performed by the independent accounting firm, and review the substance of any such disclosure.

3.4 Oversight of Pacific Ethanol’s Internal Audit Function
Discuss with the independent auditor and management the internal audit department responsibilities, budget and staffing and any recommended changes in the planned scope of the internal audit.

Review the significant reports to management prepared by the internal auditing department and management’s responses.

3.5 Compliance Oversight Responsibilities
Obtain from the independent auditor assurance that Section 10A (b) of the Securities Exchange Act of 1934 has not been implicated.

Obtain reports from management and the independent auditor that the Company and its subsidiaries and affiliated entities are in conformity with applicable legal requirements and the Company’s Code of Business Conduct and Ethics.

To the extent deemed necessary by the Committee, it shall have the authority to engage outside counsel, independent accounting consultants and/or other experts at the Company’s expense to review any matter under its responsibility.

Review and approve in advance any proposed related party transactions.

Perform any other activities consistent with this Charter, the Company’s bylaws and governing law, as the Audit Committee or the Board of Directors deems necessary or appropriate.

Discuss with management and the independent auditor any correspondence with regulators or governmental agencies and any published reports, which raise material issues regarding Pacific Ethanol’s financial statements or accounting policies.

3.6 Employee Complaint Procedure (Whistle Blower Policy)
Establish procedures for the receipt, retention and treatment of complaints received by Pacific Ethanol regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

For additional definitions and activities, refer to PEI-II-040 Whistle Blower.

3.7 Ethics Responsibilities
Periodically but not less than annually review the Pacific Ethanol Code of Ethics including Insider Trading and Conflict of Interest Policies. Determine their continuing relevance to the Pacific Ethanol business environment. Recommend changes to the full Board of Directors if warranted.

4.0 Reporting
The following reports as required by the SEC will be prepared and published pursuant to the Securities Acts requirements:

Prepare, in accordance with the rules of the SEC as modified or supplemented from time to time, a written report of the audit committee to be included in the Company’s annual proxy statement for each annual meeting of stockholders

To the extent required by any Regulatory Body, instruct the Company’s management to disclose in its Form 10-KSB and Form 10-QSB’s the approval by the Committee of any non-audit services performed by the independent accounting firm, and review the substance of any such disclosure.

5.0 Limitation of Audit Committee’s Role
While the Audit Committee has the responsibilities and powers set form in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that Pacific Ethanol’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted principles and applicable rules and regulation. These are the responsibilities of management and the independent auditor.

In accordance with a written charter adopted by the Company’s Board of Directors (which is attached to this Proxy Statement as Appendix _____), the Audit Committee assists the Board in fulfilling its responsibility to provide oversight with respect to the Company’s financial statements and reports and other disclosures provided to stockholders, the system of internal controls and the audit process. Its duties include reviewing the adequacy of the Company’s internal accounting and financial controls, reviewing the scope and results of the audit plans of the Company’s independent and internal auditors, reviewing the objectivity, effectiveness and resources of the internal audit function, and assessing the Company’s financial reporting activities and accounting standards and principles. The Audit Committee also selects and engages the Company’s independent auditors and approves their fees. The Audit Committee consists of _____ members, Messrs. ________ and ______s, Ms. _______ and Ms. _________. In 200__, the Committee met ______ times. Our securities are listed on the Nasdaq Exchange and are governed by its listing standards. All members of the Audit Committee meet the independence standards of Section ______ of the Nasdaq Stock Exchange Listed Company Manual.

The Audit Committee has considered whether the provision of [list or cross-reference material non-audit services performed by the independent auditors] and other non-audit services by is compatible with maintaining the independence of _______________..

1. Did the Committee appoint, oversee and approve the compensation of the independent auditors?
2. Do the independent auditors report directly to the Committee?
3. If there were disagreements between management and the independent auditors regarding financial reporting, was the Committee involved in the resolution of those disagreements?
4. Does the Committee pre-approve all audit, review and attest services and permissible non-audit services by the independent auditors, and related fees and other terms of engagement on these matters?
5. Did the Committee review and discuss the Company’s audited financial statements with management?
6. Did the Committee request and receive from the independent auditors the Critical Accounting Policy Report required in connection with the annual audit relating to (a) all critical accounting policies and practices used, (b) all alternative treatments of financial information within GAAP that have been discussed with management including ramifications of using the alternatives and the treatment preferred by the auditors, and (c) other material written communications between the auditors and management such as any management letter or schedule of unadjusted differences?
7. Did the Committee discuss with the independent auditors the audited financial statements and the matters required to be discussed by SAS 61?
8. Did the Committee review with management and the independent auditors the Company’s intended disclosures under MD&A in the 10-K?
9. Did the Committee receive from the independent auditors a written disclosure and statement of all relationships between the auditors and the Company consistent with ISB No. 1?
10. Did the Committee actively discuss with the independent auditors any disclosed relationships or services that may impact the objectivity or independence of the auditors?
11. Did the Committee obtain from the auditors a statement of the audit fees and other categories of fees billed for the last fiscal year which are required to be disclosed in the Proxy Statement and consider whether the provision of any non-audit services is compatible with maintaining the auditors’ independence?
12. Did the Committee review the quarterly unaudited financial statements and the results of the auditors’ review of those financial statements?
13. In connection with the quarterly financial statements and 10-Q, did the Committee review the Company’s disclosures under MD&A to be included in the 10-Q?
14. Is each member of the Committee financially literate?
15. Are all members of the Committee “independent” as defined in applicable listing standards and applicable law?
16. Does any member of the Committee serve on more than three audit committees of public companies?
17. Does the Committee consist of at least three members?
18. Did the Committee review its performance for the prior year?