A just-released study by Garten Rothkopf, the Washington, DC-based advisory firm, prepared for the Inter-American Development Bank (IDB), assesses the opportunities and challenges for Brazil and the Americas in the emerging global biofuels industry.
IDB’s goal in requesting the report—A Blueprint for Green Energy in the Americas—is to develop a strategic blueprint for its activities in the region. The study is also to serve as the basis for more focused and policy-oriented studies in the future.
The report includes The Global Biofuels Outlook 2007, a study of the global biofuels market, including a survey of developments in 50 countries on 6 continents. The study notes that in 40 of the 50 countries surveyed, biofuels promotion legislation has been adopted and that in 27, biofuels mandates have been introduced into law. The vast majority of these changes have taken place in the past four years.
A Blueprint for Green Energy in the Americas is based on the premise that biofuels are not a panacea, but one important choice in an increasing array of energy options, with a significant role to play in the reduction of greenhouse gas emissions from transport and represent an opportunity for the region to build on its natural endowments by establishing world-class centers of innovation and production, developing rural economies, and attracting private sector investment.
The Western Hemisphere today produces 80% of the world’s biofuels; Latin America accounts for 40% of global biofuels production.
The report also focuses on the challenges that lie ahead, from ensuring that the choices made are sustainable in terms of their environmental and social impact, to recognizing that unprecedented investment and innovation will produce new competitive forces.
By 2010, annual investment in alternative energy is expected to reach $100 billion. The study estimates that for biofuels to meet the demand of a conservative 5% of global transport fuel use in 2020 at least $200 billion in new investment will be required.
The report outlines four pillars critical to the development of a competitive biofuels industry and the identification of projects:
Innovation. Brazil has been the undisputed center of ethanol innovation to date, but investment in research and development in biofuels is booming and new disruptive technologies will dramatically change the playing field. Investment in innovation, particularly through regional initiatives and knowledge sharing, is critical for the region to remain a center of high value added technology exports in biofuels, not simply commodity production.
Capacity Expansion. The potential to expand productive capacity in Brazil, and a number of other countries in the region, is significant, as is the interest from investors in funding such an expansion. What is needed are clear regulatory frameworks, tailored financing lines, zoning of territory to identify the appropriate areas for expansion and mitigate environmental impact, and support for the improvement of private sector transparency to encourage foreign investment.
Infrastructure. Infrastructure, particularly transport infrastructure, is a leading concern. Investment in infrastructure requires a dual focus—looking inward to facilitate the growth of the biofuels industry in underdeveloped regions and looking outward to how production reaches ports for exports. It is estimated that Brazil needs as much as $1 billion a year in infrastructure investment to meet its capacity expansion goals and maintain its competitiveness in global markets. In countries with new industries, investing in a biofuels distribution infrastructure is necessary for the implementation of existing and planned blend mandates.
Building Global Markets. This expansion strategy rests on the promise of global biofuels markets. While there has been some movement on this issue in recent weeks with the establishment of the International Biofuels Forum at the UN, much remains to be done. Liquid global markets require common standards and sophisticated risk management tools—neither of which exists today.