A Blueprint for Green Energy in the Americas: Strategic Analysis of Opportunities for Brazil and the Hemisphere

Abstract

A) Introduction This report was commissioned by the Inter-American Development Bank to identify opportunities in Brazil, and in the Americas more broadly, in the emerging global biofuels industry. The goal is to offer a strategic blueprint for IDB activities in the region and serve as the basis for even more focused and policy-oriented studies in the future. Much of the world is in the midst of a major reexamination ofand investment inclean energy. Soaring oil prices and increasingly acute concerns about climate change have turned what used to be a cottage industry into a booming business. By 2010, it is estimated that US$100 billion will be invested in clean energy, compared to US$38 billion in 2005, and just over US$5 billion a decade before. Investment is coming from a variety of different, and sometimes unexpected, sources. Chinas government recently announced that it will invest US$187 billion in clean energy through 2020. Biofuels are an important element in this rapidly shifting environment. Around the world, large subsidies are being offered to spur production of ethanol and biodiesel. And a growing number of governments are requiring that biofuels be blended with fossil fuels. Blend mandates have been enacted or are under consideration in 27 of the 50 countries surveyed by this report, and 40 have some form of biofuels promotion legislation. Perhaps most significantly, the promise of second-generation technology, particularly commercially viable cellulosic ethanol, will dramatically change the global competitive landscape. Nations capable of innovating will have tremendous advantages, both because the emerging technologies will support their industries and because they will possess a high value-added export. Given the aggressive blend mandates established or under consideration in the worlds leading transport fuel markets, a conservative projection of the potential share of biofuels in global transport energy consumption in 2020 is 5%, up from just over 1% today. Meeting this demand would require a nearly five-fold increase in biofuels production worldwide, and an investment of over $200 billion in the next 14 years in capacity expansion alone. This dwarfs the investment in biofuels in recent years, $1 billion in 2005 and a projected $2 billion in 2006, although the pace is picking up with $7 billion already announced in new projects through 2008.1 The enthusiasm surrounding the biofuels sector is infectious. However, it is a basic assumption of this report that biofuels are not a panacea, but one important choice in an increasing array of energy options. They have 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 report seeks to cut through the hype surrounding biofuels, and alternative energy writ large, and present an objective, fact-based analysis of the regions global competitive position looking forward to 2020. The development of biofuels in the Americas must be understood within the global context of larger trends in energy production and consumption. This report therefore begins with the major trends in global energy: the drivers of demand, the constraints on supply, and the twin imperatives of energy security and emissions reductions. The promise of biofuels is then assessed relative to the leading alternative technologies in the transport sector: hydrogen fuel cells and coal liquefaction. This is followed by the Global Biofuels Outlook 2007, an assessment of the state of biofuels in 50 countries on 6 continents, highlighting the critical areas of government policy, productive capacity, private sector investment, and research and development. It is, to the best of the authors knowledge, the most extensive survey of global biofuels (both ethanol and biodiesel) available today. Brazil has a unique and leading position in the emerging global biofuels industry. Its role in developing technologies that allow consumers to switch easily between fossil fuels and biofuels has been little short of revolutionary. Energy choice, a concept this report will focus on, has a powerful champion in Brazil. On the production side as well, Brazil is second only to the US. In 2005, Brazil exported 2.6 billion liters of ethanol, about half of all ethanol traded internationally that year. Its sugarcane-based ethanol is the most cost-competitive biofuel in existence. Brazil is also one of the few countries with the available arable land to expand production enough to become a major exporter. All these factors have made Brazilian advice and expertise on biofuels highly sought after commodities. As will be discussed, the Brazilian government has developed a number of initiatives to work more closely with neighbors and regional partners. In light of Brazils prominence, this report devotes considerable attention to the path it has taken and the choices it is making to adjust to this changing environment. CONTINUED...see the document...the exec summary goes on and on.