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    Spanish company Ferry Group is to invest €42/US$55.2 million in a project for the production of biomass fuel pellets in Bulgaria. The 3-year project consists of establishing plantations of paulownia trees near the city of Tran. Paulownia is a fast-growing tree used for the commercial production of fuel pellets. Dnevnik - Feb. 20, 2007.

    Hungary's BHD Hõerõmû Zrt. is to build a 35 billion Forint (€138/US$182 million) commercial biomass-fired power plant with a maximum output of 49.9 MW in Szerencs (northeast Hungary). Portfolio.hu - Feb. 20, 2007.

    Tonight at 9pm, BBC Two will be showing a program on geo-engineering techniques to 'save' the planet from global warming. Five of the world's top scientists propose five radical scientific inventions which could stop climate change dead in its tracks. The ideas include: a giant sunshade in space to filter out the sun's rays and help cool us down; forests of artificial trees that would breath in carbon dioxide and stop the green house effect and a fleet futuristic yachts that will shoot salt water into the clouds thickening them and cooling the planet. BBC News - Feb. 19, 2007.

    Archer Daniels Midland, the largest U.S. ethanol producer, is planning to open a biodiesel plant in Indonesia with Wilmar International Ltd. this year and a wholly owned biodiesel plant in Brazil before July, the Wall Street Journal reported on Thursday. The Brazil plant is expected to be the nation's largest, the paper said. Worldwide, the company projects a fourfold rise in biodiesel production over the next five years. ADM was not immediately available to comment. Reuters - Feb. 16, 2007.

    Finnish engineering firm Pöyry Oyj has been awarded contracts by San Carlos Bioenergy Inc. to provide services for the first bioethanol plant in the Philippines. The aggregate contract value is EUR 10 million. The plant is to be build in the Province of San Carlos on the north-eastern tip of Negros Island. The plant is expected to deliver 120,000 liters/day of bioethanol and 4 MW of excess power to the grid. Kauppalehti Online - Feb. 15, 2007.

    In order to reduce fuel costs, a Mukono-based flower farm which exports to Europe, is building its own biodiesel plant, based on using Jatropha curcas seeds. It estimates the fuel will cut production costs by up to 20%. New Vision (Kampala, Uganda) - Feb. 12, 2007.

    The Tokyo Metropolitan Government has decided to use 10% biodiesel in its fleet of public buses. The world's largest city is served by the Toei Bus System, which is used by some 570,000 people daily. Digital World Tokyo - Feb. 12, 2007.

    Fearing lack of electricity supply in South Africa and a price tag on CO2, WSP Group SA is investing in a biomass power plant that will replace coal in the Letaba Citrus juicing plant which is located in Tzaneen. Mining Weekly - Feb. 8, 2007.

    In what it calls an important addition to its global R&D capabilities, Archer Daniels Midland (ADM) is to build a new bioenergy research center in Hamburg, Germany. World Grain - Feb. 5, 2007.

    EthaBlog's Henrique Oliveira interviews leading Brazilian biofuels consultant Marcelo Coelho who offers insights into the (foreign) investment dynamics in the sector, the history of Brazilian ethanol and the relationship between oil price trends and biofuels. EthaBlog - Feb. 2, 2007.

    The government of Taiwan has announced its renewable energy target: 12% of all energy should come from renewables by 2020. The plan is expected to revitalise Taiwan's agricultural sector and to boost its nascent biomass industry. China Post - Feb. 2, 2007.

    Production at Cantarell, the world's second biggest oil field, declined by 500,000 barrels or 25% last year. This virtual collapse is unfolding much faster than projections from Mexico's state-run oil giant Petroleos Mexicanos. Wall Street Journal - Jan. 30, 2007.

    Dubai-based and AIM listed Teejori Ltd. has entered into an agreement to invest €6 million to acquire a 16.7% interest in Bekon, which developed two proprietary technologies enabling dry-fermentation of biomass. Both technologies allow it to design, establish and operate biogas plants in a highly efficient way. Dry-Fermentation offers significant advantages to the existing widely used wet fermentation process of converting biomass to biogas. Ame Info - Jan. 22, 2007.

    Hindustan Petroleum Corporation Limited is to build a biofuel production plant in the tribal belt of Banswara, Rajasthan, India. The petroleum company has acquired 20,000 hectares of low value land in the district, which it plans to commit to growing jatropha and other biofuel crops. The company's chairman said HPCL was also looking for similar wasteland in the state of Chhattisgarh. Zee News - Jan. 15, 2007.

    The Zimbabwean national police begins planting jatropha for a pilot project that must result in a daily production of 1000 liters of biodiesel. The Herald (Harare), Via AllAfrica - Jan. 12, 2007.

    In order to meet its Kyoto obligations and to cut dependence on oil, Japan has started importing biofuels from Brazil and elsewhere. And even though the country has limited local bioenergy potential, its Agriculture Ministry will begin a search for natural resources, including farm products and their residues, that can be used to make biofuels in Japan. To this end, studies will be conducted at 900 locations nationwide over a three-year period. The Japan Times - Jan. 12, 2007.

    Chrysler's chief economist Van Jolissaint has launched an arrogant attack on "quasi-hysterical Europeans" and their attitudes to global warming, calling the Stern Review 'dubious'. The remarks illustrate the yawning gap between opinions on climate change among Europeans and Americans, but they also strengthen the view that announcements by US car makers and legislators about the development of green vehicles are nothing more than window dressing. Today, the EU announced its comprehensive energy policy for the 21st century, with climate change at the center of it. BBC News - Jan. 10, 2007.

    The new Canadian government is investing $840,000 into BioMatera Inc. a biotech company that develops industrial biopolymers (such as PHA) that have wide-scale applications in the plastics, farmaceutical and cosmetics industries. Plant-based biopolymers such as PHA are biodegradable and renewable. Government of Canada - Jan. 9, 2007.

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Thursday, December 28, 2006

The year in review: Latin America

Latin America's biofuel activities in 2006 were evidently dominated by Brazil, the continent's most experienced, largest and most innovative producer. Most readers are aware of the country's successful ethanol program, which has shown its strength more than ever now that oil prices set records this year. Over 70% of all car owners in Brazil now use sugarcane based ethanol on a daily basis. 2006 set records on many fronts for the country: its sugarcane harvest was the largest ever at 475.7 million tons, up more than 10% over the previous harvest; the price of both anhydrous and hydrous ethanol reached new lows (making Brazilian ethanol even more competitive with expensive oil), the number of flex-fuel cars on the road hit the 2 million mark for the first time, making up 77% of the entire market of newly sold vehicles (earlier post) and exports of the biofuel to both the US and the EU surged. Given sufficient supplies, the Brazilian government increased the amount of ethanol to be blended in gasoline, from 20 to 23%.

By raising its voice on all fronts, Brazil showed how complex the large transition from a fossil fuel based to a biofuel based economy really is: it involves technological innovation and large investments in science, the construction of physical infrastructures, the creation of new social, agricultural, economic, investment and trade policies, the finetuning of markets and negotiations with multilateral trade bodies (such as the WTO), the creation of allies and networks aimed at turning biofuels into a genuine commodity that can be traded on the world market...

Queuing to invest in Brazil
Looking back on 2006, we can see how Brazil played on all these stages simultaneously and showed the way forward for other countries that want to green their energy system. First of all, the country created favorable conditions for direct foreign investments in the biofuels sector. As a result, a long line of companies and investors queued to enter the market: American (earlier post), Asian (earlier post) and European firms (earlier post) and funds (earlier post) poured money into Brazil, as were 'personality investors' like George Soros (earlier post) and the founders of Google (earlier post):
:: :: :: :: :: :: :: :: ::

Even though the country is attracting considerable foreign investments, but the Brazil itself is trying to create a regional market for biofuels. Using all techniques and institutions available (from direct bilateral agreements to weighing in on MERCOSUR's energy policies), Brazil tries to involve its neighbors more thoroughly in both the production and consumption side of the biofuels market.

This year, the country signed a cooperation agreement with Argentina that will consist of exchanging technological and scientific expertise from government to government. Argentina is aiming to substitute 10% of its liquid fuels with biofuels by 2010, using mostly corn for ethanol and soybeans for biodiesel. Since Brazil is especially interested in broadening its knowledge on biodiesel production, it can learn from Argentina. The other way around, Argentina stands to gain massively from Brazil's experience with creating a viable ethanol market (earlier post).

Likewise, Brazil and Venezuela are working together on getting an ethanol industry off the ground in the world's 7th largest oil exporter. Brazil's state oil company Petrobras will be providing technical support to Venezuela's state oil company PDVSA several areas, such as fuel reception, transportation, distribution, regulatory marks, and its mixture to gasoline (earlier post). In a second announcement, the PDVSA said it is creating a joint-venture with a Brazilian partner to build 17 sugarcane based ethanol plants that must result in the production of enough ethanol to comply with the country's renewable energy act, which mandates an 8% ethanol blend in gasoline (earlier post). The rationale behind Venezuela's interest in biofuels is unclear: it could stem from its vision to create a regionally integrated energy market (and a quid pro quo deal with Brazil on this matter might make Venezuela to exchange oil for Brazilian ethanol), or from a longterm vision aimed at building a labor-intensive biofuel industry that must bring jobs to the rural poor.

Biofuels and energy as tools to build a South-South alliance
Beyond regional integration, Brazil, under the impulse of President Lula da Silva, is using its grand vision on bioenergy as a tool to strengthen a genuine South South alliance, uniting both Latin America, Africa and Asia. Such an alliance would increase the country's weight on the international stage, especially when it comes to international trade negotiations.

At three major international Summits held this year, Brazil closed green energy deals with partner countries, and expressed that South South integration is a top priority for the government. At the first Africa South-America Summit held in Nigeria, Lula stressed the importance of the development of a biofuels industry in Africa (earlier post). The continent's energy security can be strengthened by it, and it also offers one of the most suitable weapons in the fight against climate change, from which Africa stands to suffer most.

At the India - Brazil - South-Africa Summit (IBSA), aimed at strengthening South-South cooperation and at creating a more "just" economic world order, Lula and his Indian counterpart, Manmohan Singh signed a bilateral energy agreement, which allows India to invest in Brazil's ethanol and sugar sectors. If necessary, the country can even acquire a large land base in Brazil for the development of biofuels (earlier post).

Finally, at the historic 14th Non-Aligned Movement Summit, held in Havana, Brazil again stressed the role bioenergy can play in integrating the Global South (earlier post). This Summit, with its dense symbolism that takes us back to the original Non-Aligned Movement that operated during the Cold War, was perceived by many as a sign that developing countries are setting their own agenda more and more, without relying on Washington or Brussels any longer. More than 116 (rapidly) developing countries united in Cuba, and gave the world an alternative vision on current global affairs such as the "war" agains terrorism, nuclear proliferation, or indeed the energy crisis.

Brazil's position in this new political movement coming from the South, is largely pragmatic. It would be a mistake to equate the country's government with more radical leftist leaders in Latin America. Brazilian leaders remain moderates, but they do strive towards a multilateral world order in which the South has a stronger voice.

Besides direct South-South cooperation, Brazil takes another classic route to create a global biofuels market: the elegant South-North-South development strategy. The country signed an agreement both with France (earlier post), the UK (earlier post) and with other European countries (earlier post and here) to invest in Africa's biofuels potential. A similar trilateral approach took a Brazilian delegation of biofuel experts to Senegal, where Indian entrepreneurs joined in with their capital, while Senegal puts in land and labor (earlier post).

The creation of a world market for biofuels
What Brazil is really aiming for with all these agreements and its expansion into other countries (such as those of the Caribbean, where Brazilian sugar and ethanol entrepreneurs are buying up old facilities to increase their efficiency and output - earlier post), is the creation of a genuine world market for biofuels. Brazil eyes exports of its competitive fuels, but as long as it stands alone, it will be difficult to set good terms of trade with individual countries, let alone to streamline global trade rules in such a way that they are favorable for biofuels producers.
Export markets par excellence are the EU (which is expected to become the largest importer of Brazilian ethanol next year), and the US. But both countries have trade barriers that scoop off some of Brazil's potential profits.

The country is therefor taking several steps to get rid of the tariffs and technical barriers. Together with the State of Florida and the Inter-American Development Bank, Brazil created the Inter-American Ethanol Commission (earlier post). It's aim: to get with one foot in the door of the thirsty US market. Governor Jeb Bush is an advocate of removing the US$ 54 cent tariff on ethanol.

Brazil is also trying to change the formal status of biofuels, as it is currently (under)defined in the World Trade Organisation's (WTO) texts. Are biofuels agricultural products, industrial commodities, or environmental goods? The International Food & Agricultural Trade Policy Council (IPC) this year released an interesting paper on exactly these questions, and showed the complexity of the matter (earlier post). The Brazilian government is studying it as well, and hopes to change the classifications in its favor (that is: away from the status of "agricultural product") (earlier post).

Besides these formal and technical issues, the fundamental question remains: is the development of large, export-oriented biofuels initiatives in the Global South warranted? Some think it is, because of economic and environmental reasons. Claude Mandil, chief of the International Energy Agency, for example, urged both the EU and the US to give up producing biofuels that can't survive without subsidies, and said it would be better for those countries to import them from Brazil or India, where it makes economic sense to produce them (earlier post). Because these countries in the South have agro-climatic conditions and crops that make it possible to achieve high yields, they require less land for the production of an amount of bioenergy. This is an important environmental advantage, in a world where land and water are valuable and scarce resources.

Indirectly, biofuels production in the South could be the key to revive the so-called Doha Round of international trade negotiations, which was aimed at creating a fair global free trade regime that would benefit developing countries, but which collapsed this year over disagreements between the US and the EU on agriculture. Both Ted Turner (earlier post) and Nobel Prize winner for economics, Joseph Stiglitz (earlier post), explained why biofuels can break the deadlock.

Notwithstanding the lack of progress on Doha, or the opacity of trade rules on biofuels, Brazil is moving ahead and is supplying biofuels to buyers in Europe and Asia. The most talked about supply contract is the one it signed with Japan: Brazil will virtually supply all the ethanol (1.8 billion liters per year) its Asian partner needs to satisfy its provisional 3% ethanol mandate. Besides sugarcane based ethanol, Brazil will export vegetable oils that will be turned into biodiesel in Japan (earlier post). The Japanese case is interesing in different ways: given its low domestic potential for the production of biofuels, the country has no choice than to source them from abroad (in order to fulfill its Kyoto targets). The fact that it is looking Southward, is a sign for the future, when other developing countries will export to Western markets. Despite domestic constraints, Japan's government wants all cars in the country to be ethanol-capable by 2020 (earlier post). (See our Year in Review article on Asia, for Japan's biofuel deals with the Philippines, Papua New Guinea, Indonesia and Malaysia).

Another highlight of 2006 was the fact that both Brazil and China succeeded in side-stepping the US tariff on ethanol, simply by importing the fuel into Caribbean island states, where the tariff does not hold. From there, the fuel was then re-exported to the US (earlier post). The technique prompted Brazil to create a regional biofuel trade hub in Central-America. In Panama, both Petrobras and an American company built biodiesel and ethanol infrastructures - clearly with the aim of controlling the trade routes to Asia and North America (earlier post).

In Europe, the British parliament was the first this year to thoroughly look at the pros and cons of importing ethanol from Brazil and the developing world in general. In its report, the House recognised the simple fact that biofuels can be produced in the South much more efficiently and economically than in the North. The proposition of importing those fuels -- the main aim of the Biopact -- must be taken seriously (earlier post).

Social and environmental sustainability
This year, biofuels came into the spotlight precisely over this point: suppose that the West starts to import them massively from the South, then what are the potential consequences when it comes to their social and environmental sustainability?

In at times virulent exchanges, biofuels advocates squared off with environmentalists over these questions. When President Lula wrote a piece (earlier post) on the many benefits brought by biofuels (jobs, reduced greenhouse gas emissions, energy security...), WWF-Brazil responded in kind and called the country's biofuels program unsustainable (earlier post). A report from the International Energy Agency's Bioenergy Task 40 analysed the issue in depth, and concluded that, as it is currently produced, Brazilian ethanol is environmentally "sustainable", even though on the front of social sustainability a lot of work needs to be done (earlier post). The authoritative science magazine Nature entered the debate and dedicated a neutral essay to Brazilian ethanol. It took a cautious but largely positive stance on the fuel (earlier post).

In the meantime, to fend off criticisms on the social impacts of large-scale biofuel production, Brazilian government officials stressed how the country's renewable fuel programs are an instrument precisely aimed at alleviating rural poverty. A law was promulgated that gives incentives to biofuels companies if they source their feedstocks from small farmers (earlier post) Brazil's new ethanol expansion plan is projected to bring 3.6 million jobs to poor farmers (earlier post), whereas Petrobras showcased its social committments by involving 30,000 rural and poor families in a pilot biodiesel production project (earlier post).

Critics maintain that it is not enough to allow small farmers to produce the raw materials for biofuels. Feedstock production (oilseeds, grains, sugar) adds little value; it is the bioconversion into useable fuels that adds value. Moreover, it remains to be seens whether the large number of jobs will indeed come out of the programs, let alone whether biofuel policies are an efficient tool to tackle the land question that is so prominent in Brazil. The landless have an absolute right to land, regardless of whether they want to become biofuel producers. Land in exchange for becoming energy farmers is a pragmatic quid pro quo, that bypasses the fundamental question of the reasons behind the social inequalities.

Science, technology and infrastructures
Even though Brazil's domestic biofuels programs are a success, the country knows that if it wants to expand and conquer a world market, a lot of steps need to be taken still. Given its ambitions, the Brazilian biofuel sector is resulting in a myriad of innovations that make it look as if the country's global vision is not a mere fantasy.

For example, Brazil is the first country in the world that is actually building a dedicated ethanol pipeline. This year, Petrobras began building the 1300 kilometre fuel line that leads from inland production zones, to export facilities on the Atlantic (earlier post).

The country invented a new high-tech process for the production of biodiesel by making use of the infrastructure of existing petroleum refineries (so-called H-Bio - earlier post), it launched the first hybrid, highly efficient, integrated biodiesel-ethanol production plant (earlier post), whereas it pioneers the development of aviation biofuels ('biokerosene'), in cooperation with Boeing and NASA (earlier post).

Scientific and technological advancements in bioprocessing, agricultural technologies and crop science, make experts say that Brazil's biofuels industry can still increase its productivity considerably (earlier post). The country already reduced ethanol production costs by up to 75% over the past 25 years, and this trend is likely to continue (earlier post).

Finally, when it comes to the actual cars that make use of these green fuels, Brazil proves to be an innovator too. The concept of flex-fuel vehicles - now being produced by virtually all auto manufacturers - was originally developed in Brazil as a way to ensure the success of the national ethanol effort. But small and innovative Brazilian automakers, like Obvio!, are now going a step further, and announced the development of "trybrids" - cars that operate on gasoline, ethanol and natural (or bio)gas. Such trybrids or tri-fuel vehicles allow consumers to decide for themselves which fuel to choose at which pump and at which point in time (earlier post).

Biofuels activities elsewhere in Latin America
A quick look at the rest of Latin America shows that virtually all major economies there now have biofuel policies and targets in place. Again, foreign investors are eyeing these countries, because often they have a very large production potential and relatively stable investment climates. Major European ethanol and sugar company Südzucker is investing in Chile (earlier post). When a local agribusiness company there announced the results of its feasibility study on Chile's biofuel potential, the country's stock exchange surged... (earlier post). George Soros announced a US$ 300 million investment in Argentina's biofuels sector (earlier post). Colombia, a potential green energy 'superpower' was very active this year as well, with several large investments in palm and sugar plantations aimed at producting biodiesel and ethanol (earlier post).

Argentina, one of the world's largest agricultural exporters, urged its soybean farmers to prepare for the biofuels revolution, but this in turn raised questions on genetically modified crops in Europe (earlier post). Argentina is the second largest producer and exporter of GMOs, mainly soybeans. Now what to think of biofuels made from these genetically altered crops? Should the EU allow them to enter the market?

The rationale behind Europe's ban on GMOs is made up of two main arguments, first of all that the long-term environmental impacts of GMOs are unknown, and that therefor the precautionary principle must be applied; secondly, that the effects of GMOs on human and animal consumption are not studied well enough. Of course, when GMOs are used for fuels to fill our tanks, the latter argument does no longer hold.

In any case, the GMO debate came to the fore this year, when the WTO ruled in favor of North America and against Europe's ban (earlier post). A few weeks after the decision, the European Council of Ministers overruled it, and allows individual member-states to issue a national ban on GMOs (earlier post). This debate is of course all-important to all those involved in the biofuels sector. Since all major agricultural producers in Latin America use GMOs, they might start to look at GM energy crops...

The year 2006 also brought us some smaller but interesting projects from the Caribbean. The islands have a long history as sugar producers (stretching back to colonial times), and are seeing a revival of the industry because of the ethanol opportunitiy. Cuba, for example, could become a major ethanol producer and could lift itself out of energy poverty (the country suffers seriously under high oil prices, notwithstanding the preferential and favorable oil deals it made with Venezuela). In order to succeed, a lot of reform in the the communist island's sugar sector must be carried through, though (earlier post). Guyana agreed to allow a company from Barbados to establish a very large oil palm plantation on 162,000 hectares of land. The oil is destined to be exported to the Caribbean island, where it will be turned into biodiesel, ready for both domestic use and for exports (earlier post).
Finally, Caribbean island states profited from the fact that they fall under a special US trade agreement. Under this deal, the US tariff on ethanol is not imposed, which made both China and Brazil decide to use the islands as a hub to enter the US ethanol market without being burdened by the tariff (earlier post).

This review would not be complete without mentioning some excellent news resources on Brazil's biofuels industry. We often referred to Henrique Oliveira's Ethablog which saw the light this year. Henrique does a great job of mediating between the English speaking world and his native Brazil, by offering sharp analyses based on inside info from Brazil, and by translating his insights into accessible and well written texts for all of use who want to learn more about the country's lively biofuel market. EthanolBrasil, a similar blog but written in Portuguese, recently saw the light too. It is maintained by Marcelo Coelho, an industry expert, and a group of Brazilian contributors. A must read for all of us who master the Portuguese language.

Tomorrow we zoom in on the EU and the US's role in the biofuels sector this year, but only in so far it directy concerned relations with the developing world.

Biopact Team
Insists on wishing you a fascinating 2007, once again

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