MGSM950-Report1- Rise of the Bio-Economy

Professor John Mathews

Term 2, 2008

Presented by Marcelo P Soruco

Contents
Abstract.................................................................................................................................4 The Traditional Economy.....................................................................................................5 The Bio-Economy .................................................................................................................5 Bio-Products ..........................................................................................................................7 Enzymes .............................................................................................................................7 Bio-Pesticides ....................................................................................................................7 Bio-Plastics .........................................................................................................................7 Renewable Energy...........................................................................................................8 Bio-Refinery/Bio-Reactors................................................................................................8 Bio-Fuels .............................................................................................................................8 Carbon Credits ...............................................................................................................10 The Importance of Bio-Economy to the World ..............................................................10 The Relationship between Climate Change and the Economy ................................11 Failure in investment in sustainable economy...............................................................12 Size of the Bio-Economy....................................................................................................13 Bio-Economy Growth ........................................................................................................15 A New Era ...........................................................................................................................16 Banks` Special Attention...................................................................................................17 Petrol Under Pressure .........................................................................................................18 Political Instability in Iraq ...............................................................................................18 Middle East Scarcity.......................................................................................................18 Climate Change is Already Presenting its Effects......................................................19 New Opportunities .........................................................................................................19 Oil Production this Decade ..............................................................................................19 Uncertainty in Oil Prices .................................................................................................20 Uncertainty in Oil Supply ...............................................................................................20 Houston Conference .....................................................................................................21 Peak Oil Alternatives......................................................................................................21 Hubberts Peak Theory ..................................................................................................21 Oil Reserves Today .........................................................................................................22 Bio-Fuel Generation...........................................................................................................22 First generation ...............................................................................................................23 Second Generation .......................................................................................................23 Third Generation.............................................................................................................23 First Generation of Bio-Fuels..............................................................................................23 Sugar Cane .....................................................................................................................23 2

Corn .................................................................................................................................23 Second Generation of Bio-Fuel .......................................................................................24 Brazil .................................................................................................................................25 Europe..............................................................................................................................25 United States ...................................................................................................................25 Oceania ..........................................................................................................................25 World Position of Bio-Fuel ..................................................................................................25 Bio-Fuel Demand Forecast ...............................................................................................27 The Future of Bio-Fuel in Europe ...................................................................................27 The Future of Bio-Fuel in US............................................................................................27 Importance of Brazilian Bio-Fuel ......................................................................................29 Worlds Opportunity Regarding Bio-Fuel ........................................................................30 Market and Regulatory.....................................................................................................31 Bio-Fuel-related trade regimes in the United States..................................................31 Bio-Fuel-related trade regimes in European Union ...................................................31 Bio-Fuel-related trade regimes in Brazil .......................................................................32 Intellectual Property ..........................................................................................................32 Bio-Economy Opportunity ................................................................................................32 Conclusion ..........................................................................................................................33

Abstract

This paper examines the rise of the Bio-Economy and the significance of Bio-Fuels. It describes the rise of Bio-Fuels as part of a global shift towards a Bio-Economy from the petro economy that dominated the 20th century. This study case shows why the Bio-Economy will become the dominant economy of the 21st century. The project will examine the rise of Bio-Economy globally and particularly the emergence of Bio-Fuels in Brazil. The project provides estimates of the current magnitude of the Bio-Economy and its rate of growth, as well as details of its various constituents, including Bio-Fuels, BioEnergy, Bio-Materials and others. These estimates will draw on data provided by agencies such as the Organisation for Economic Cooperation and Development (OECD), United Nations Conference on Trade and Development (UNCTAD), Empresa Brasileira de Pesquisa Agropecuria (Embrapa), United Nations Educational, Scientific and Cultural Organization (UNESCO) and Petrleo Brasileiro (Petrobras) . The Global trade in products of the Bio-Economy will be examined, as well as the intellectual property protection of Bio-Economy industries and the competitive dynamics involved.

The Traditional Economy

Historically, human beings have learned how to transform raw materials into products that suit their needs. These products were exchanged by barter, then by standard units such as salt, silver, gold, and in most recent history by currencies. This is the base of modern economy. In the current, traditional economy, countries and private organizations are worried only about transforming raw materials into products; which may be final products or intermediate products. Final products are those that you can buy for immediate use, such as computers, shoes, soft drinks, cars, gasoline, etc. Intermediate products are those used as inputs to produce other products, such as electronic components, leather, raw plastic, iron, crude oil (Petrol), etc. In a traditional economy, government and private organizations are not focused on how these products are produced as long they generate GDP or revenue. These products have a clear line cradle to grave1 pathway, however, it is not important where they are disposed of or if they have caused pollution to be generated.
Raw Material

Processing

Product (Intermediate/ Final)

Usage

Trash/ Pollution
Days, months, years, centuries Figure 1-Traditional Economy

In a traditional economic model (cradle to grave), even if we do not perceive it this way, all products have a shelf life, from newspapers to a bottle of milk. If we leave a sheet of newspaper exposed to the environment, after a few days the newspaper will disintegrate, however, if we leave a bottle in the same condition, this bottle will disintegrate only after decades or centuries. We can also consider the concept of usage as generating energy, in this case after the use, the fuel can produce CO, CO2, NOX, different types of particles or radioactive waste.
The Bio-Economy

The Bio-Economy is a new method in the production process which eliminates the impact of pollution after products are disposed of, offering products that do not harm the environment, and if they do, it is only superficially. The concept of a Bio-Economy appeared at the end of 20th century when private organizations, especially those in chemical fields, began to offer products that did not damage the environment in order to reach targets imposed by Agenda 21.

Concept introduced by Walter Stahel in 1990s in Europe

Agenda 21 is a program suggested in 1992 by the United Nations Conference on Environment and Development, where imposed targets to countries were implemented to develop environmental policies. These new policies would apply to technologies that promise to make a significant contribution in enabling the development of better health care, enhanced food security through sustainable agricultural practices, improved supplies of potable water, more efficient industrial development processes for the transformation of raw materials, support for sustainable methods of forestation and reforestation, and detoxification of hazardous wastes.2 The Bio-Economy creates products by growing and catalysing natural sources through microorganisms, enzymes or replacing processes that depend heavily on chemicals instead of extracting raw materials (crude oil, coal, bauxite, etc) and adapting it to our needs. The Bio-Economy creates value by designing new processes to rearrange atoms (basically carbon and hydrogen) in sources that can be easily obtained or planted. The Bio-Economy is a concept based on different products known as Bio-Products. The conventional economy differs in that Bio-Products present a different life cycle through their production. They do not generate pollution, and there is no end after their use; they become residues that can be used as input to other processes. This process is called Zero Waste, or Cradle to cradle. Raw Material Processing Product (Intermediate/ Final) Usage

Residues

New Process
Figure 2-Bio-Economy Life Cycle

Just as in a regular economy, usage can also be considered as producing energy; however, in this case, the process will produce CO2, a gas that is easily converted into oxygen through green plants and some kinds of marine. Another important characteristic of the Bio-Economy is its independence of raw materials from nature, as opposed to the traditional economy, it is possible to control all production processes.

Agenda 21, Chapter 16. The entire text of Agenda 21 is available at www.un.org/esa/sustdev/agenda21text.htm

For example, in a conventional economy-based product, let`s say gasoline, the production of gasoline is dependent on a viable crude oil (petrol) field; if there is no crude oil to extract, it not possible to produce gasoline. In the Bio-Economy, the final product, Bio-Fuel, can be produced in a more sustainable way; the process does not rely on finding something, or need to be used until it is finished, it is produced by crops. If the demand for fuel rises, it is then necessary to raise crops.
Bio-Products

Bio-products are those products obtained through bio-economic bases. As it is a new concept involving extremely new technologies and processes, there are products that in spite of presenting characteristics which may make themselves part of the bio-economy, will not be considered in the paper because there is no critical mass in volume, or economic importance. The Bio-Products that present more relevance in Bio-Economy today are: Enzymes Enzymes are substances that make it possible to rearrange carbohydrates in a different way in order to make new molecules. Using modern chemical engineering, it is possible to create new enzymes to act in different kinds of materials. Basically any substance that is composed of a hydrocarbon, like domestic waste, bagasse from crops, paper or cellulose, can be a source to produce Bio-Products, such as Bio-Fuel or Bio-Plastic. Today the world is watching enzymes closely as a solution to the second generation of Bio-Fuels. Among many companies, Coskata has developed a revolutionary process based in enzymes to produce Ethanol with an extremely competitive price. Bio-Pesticides Bio-Pesticide is a general denomination for Bio- (Insecticide, Fungicide) based on a specific kind of saprophyte, bacteria or fungus. In these cases micro organisms are harmful to insects or fungus, killing them naturally. There are many advantages in using Bio-Pesticides over synthetics, for instance: they do not leave residue on the food, provide natural long-term immunity to crops and soil, can be used at all stages of plant growth, targets are specific, nontoxic to human, animals and plants Figure 3 - Bio-Pesticide Market and they are completely absorbed by the earth. This market is projected to grow to US$400 million by 2015.

Bio-Plastics Bio-plastics are a material with all characteristics of a synthetic plastic except that this plastic is biodegradable. This material, also known as PLA (Polymerized Lactic Acid) was developed for medical purposes, which is to help bones and other organs 7

regain their health and then degrade gradually into safe ingredients that are absorbed by the body. Bio-Plastic is an ecological way to pack food and make eco-friendly bottles for water, soft drinks, etc. PLA is more expensive than synthetic plastic: however, its price has decreased over the last decade due to the economy of scale. Some companies like London Bio Packaging already offer products at affordable prices. Demand forecasts for degradable plastic in the U.S. shows an expected expansion of nearly 17 per cent yearly to 2010, valued at $610 million. Renewable Energy Renewable Energy, also known as Bio-Energy, is a way to generate energy by not damaging the environment through producing CO2, radioactive waste or toxic particles. Examples of renewable energy are: Bio-Fuel; Wind; Biomass waste; Solar; Low carbon emission; Geothermal. Bio-Refinery/Bio-Reactors This is a modern concept of refinery, where biomass is used as input. Biomass consists of grains, vegetables and some kinds of waste that can be converted into new products, for example, Bio-Fuels. The first Bio-Refinery was opened in the U.S. in 1925 to produce Methanol, Ethanol and Butane. The heart of a Bio-Refinery is the Bio-Reactor. The Bio-Reactor is a device that creates an environment where bacteria/enzymes transform molecules from the input (Biomass) to fuels. With modern chemical engineering, recent reactors can transform residential waste, paper, and crops` bagasse into Bio-Fuel, faster and more cost effectively than the last generation of Bio-Reactors.

Bio-Fuels Bio-Fuel3 is a general definition for different kinds of fuels produced according to the Bio-Economy principles of biomass. There are several methods/processes to produce these Bio-Fuels. Depending on the fuel, the technology may be more mature, or still under development, however most of the solutions are based on the following cycle:

Figure 4-Biofuel Conversion Process

3

The word fuel is a generic definition for source of energy; however, in this paper the word fuel is related only to a liquid fuel (internal combustion engines) used for transportation vehicles.

Production of biomass For example, sugar cane, corn, manure, garden waste and crop residues. Harvest During the harvest, the biomass is prepared to be processed. Bio-Refinery As already mentioned, this is where the fuel is created. Final Product The Bio-Fuel itself is ready to be used. As presented in the Bio-Economy Life Cycle (Figure 2), Bio-Fuel after it is burned, becomes CO2 that is used in other cycles (Figure 4-Biofuel Conversion Process). Most of the Bio-Fuels follow the same process, such as Bio-Ethanol, Bio-Diesel, BioButane, and Bio-Propane. The production of Hydrogen according to the Bio-Economy principle is still expensive and not economically viable. This process is not described here.

Carbon Credits Carbon credits are certificates that represent an amount of Carbon Dioxide disposed of in the atmosphere (one tonne/credit). These certificates were created in order to make industries producing Carbon Dioxide reduce their atmospheric emissions and avoid future emissions by making the companies pay for their emissions. This is also a way to encourage developing countries to protect their ecosystem by creating new certificates. Secondly, this gives time to developed countries to find alternative ways to produce clean energy. The funds received from the trade of carbon enable the quality of life to be improved in developing countries, creating a market for new opportunities, helping boost the economy, and raising the GDP. The broad use of these credits makes it possible, through economies of scale for new technologies which are still relatively expensive, to compete with traditional petrol4-based technology.

The Importance of Bio-Economy to the World

The world today is very different from last century; production technologies now are much more efficient and more environmentally invasive than a few decades ago. Natural resources such as petrol, food, fishing, drinkable water and even the atmosphere were considered endless in supply. Preeminent economists, like Adam Smith, were focused only on economic results. One Nobel-prize winning economist in the 1970s made the claim that the world can, in effect, get along without natural resources. This phrase is a snap shot of past thinking. In the 21stcentury, with global changes like the hole in the ozone layer, global warming and especially the Greenhouse Effect, economists and financial institutions can now realize that a previously simple economic analysis does not fit our reality. A new economy based on sustainable environmental growth is a necessity that the world is facing today. The Bio-Economy is a way to keep the worlds economy growing, while at the same time ensuring that this growth does not damage the environment. The biggest economies in the world today are watching the relationship of ecology, economy and sustainability very closely. Europe is defining aggressive targets to reduce their CO2 emissions in many economic sectors by 20% before 2020. Governments are still aware that they must invest a portion of their revenue in programs like funding research and development to reduce emissions and encourage renewable power sources5. The United States is heavily investing in Bio-Fuels and alternative sources of energy to reduce or even eliminate dependence on crude oil from the Middle East. There is massive investment in technologies to extract fuels, especially Ethanol, from corn and other biomass. Government and private institutions around the world are investing massively in enzymes, catalysts and new ways to produce fuel in a sustainable way. Brazil, which has experience in producing Ethanol, has also been
4 5

Carbon Credit is also an important tool to reduce dependence on coal fuel

(Kanter e Castle 2008)

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developing and testing engines that run on two different fuels. China is running a program to reduce its pollution in its biggest cities. Because pollution is having such an impact on its economic growth, China launched its Bio-Fuels program in 2002, The National Biomass Ethanol Gasoline Pilot Project. In response to the rapidly increasing fuel needs and raised levels of air pollution. The pilot project was initially launched in four provinces throughout China's central and north-eastern regions to create a market infrastructure and demonstrate production potential.
The Relationship between Climate Change and the Economy

The world finance sector has demonstrated a strong interest in developing a long term goal for the new world economy. The biggest financial institutions in the world are watching the Greenhouse Effect closely and the threats and opportunities it represents. Many strategic investments for renewable and more efficient ways to produce energy have been developed around the world. By 2030, additional investments of approximately US$200 billion to US$210 billion (or between 0.3-0.5% GDP) are projected to be needed just to bring 6 emissions down to current levels of 2007.

Figure 5-CO2 Concentration

Figure 6- CO2 World Production

Fossil fuel combustion is the largest source of CO2 emissions. It was responsible for 66% of global Green House Emissions in 2005. Emissions from road transportation were responsible for 11% of this total in 2005. Between 1990 and 2005, the Green House Emissions increased 14% in OECD countries and 70% in
6

(Carbon Crunch - Meeting the cost 2007) pg 14

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Figure 7 - GHG Emission

BIC7. According to IEA8 projections of annual CO2 growth rates for 20022030, ranges are between 1.3% and 3.6% (2.2 Gt CO2 and 4.2 Gt CO2) and can reach almost 6 Gt CO2 in 2050. The potential for reducing this growth varies widely, depending on country, economical incentive, political regulation and new technologies available.

Failure in investment in sustainable economy

Governments around the world must create policies and set prices on carbon to stimulate development of climate-friendly technologies, clean energy and incentives to change consumer behaviour, energetic grid, and more sustainable business practices. The lack of action (programs, laws, incentives, regulations, etc) from the government and private companies will drive the world to a broad range of problems, like environmental damage (air and water pollution), negative health and economic impacts (natural disasters, decrease in fish stock and reduced agricultural yields in m3). The total cost of environmental policy inaction involves several different types of costs: Public finance expenditures Direct financial costs Indirect costs Social welfare costs

Figure 8- Cost of Inaction of environmental action

As an indirect effect of an inappropriate investment in sustainable technologies, a country can even suffer economic loss due to commercial barriers imposed by countries that are developing environmental policies. It is estimated that total damage associated with emissions of air pollution from 10,000 major sources in US are between US$ 71 billion and US$ 277 Billion (0.7-2.8% of

7 8

Brazil, India and China Based on International Energy Outlook 2005, DOE/EIA-0484.Energy Information Administration

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GDP)9. For China, the World Bank calculates that pollution costs are about 5.8 per cent of the GDP every year10. The most visible effects of lack of investment in a sustainable economy are natural disasters. Although data is not completely reliable, information from the Insurance Information Institute suggests that between 1970 and 1980, annual insurance losses from natural disasters represented between US$ 34 billion. In 2006, The World Bank estimated that the loss in the poorest countries due to natural disasters represented more than 13% of GDP. Part of this amount was caused by climate change11. Effective action taken today to reduce CO2 emissions may increase costs by around 1% GDP annually, but failure to act will result in costs and risks equivalent to losing at least 5% GDP annually and as much as 20% if a wider range of risks is taken into account.12
Size of the Bio-Economy

As mentioned in the previous section, this new economy has been changing the way that public and private institutions see their relationship to nature. It creates the greatest challenge, understanding and identifying the potential of each market, mapping them and finding opportunities. The most dynamic economic fields in this economy are Renewable Energy and Carbon Trade; however, Bio-plastic, Enzymes, and Bio-Pesticide, also represent a significant potential market. Each one of these fields represents an opportunity to migrate from traditional products and ways to produce energy to a new reality where new products and ways to get energy are sustainable, and more efficient. The exact size of this new economy in the world is difficult to pinpoint for a several reasons:13 As it is a new area, in some fields there is no one regular unit to measure similar products; Some products like enzymes can be difficult to define in which area they would be classified; as depending on the situation the same substance can be classified as pharmaceutical, agricultural or industrial; Some products are framed by niche markets with a large range of subsectors, like Bio-Pesticides (Bio-Insecticide and Bio-Fungicide), with each of them presenting a wide range of solutions based on bacterium, fungus, virus, protozoan or alga. Sometimes there is no policy to compare the efficiency and the final results between similar products, for example compare the way in which Bio-Plastics disintegrate among different technologies.

(Muller and Mendelsohn 2007) (Kuhn 2007) 11 (OECD Environmental Outlook to 2030 2008) pg 284
9 10 12 13

(Cogan 2008) Based on (Juma e Konde 2001) Pg 13

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In spite of the fact that this is a fuzzy area, it is possible to make some estimates based on assumptions. The values presented in this paper assume that Bio-Energy (Renewable Energy) is composed of: Bio-Fuel, Wind Power, Biomass, Solar, Low Carbon Emission technologies, and a set of other small solutions of renewable sources like Geothermal. This assumption is very important because although there are some investigations that present Bio-Energys size, some of them may not consider all these variables and have different assumptions regarding the scope, thus presenting an apparently different result for the same year.
Table 1-Bio-Economy 2007 Renewable Energy Carbon trade14 Bio-Plastic15 (*) Enzymes16 Bio-Pesticide17 (**) TOTAL US$ 85 billion US$ 60 billion US$ 0,35billion US$ billion US$ billion US$145,36 billion Figure 9 Bio-Economy 2007 0,045 0,018 58.48% 41.28% 0.24% 0.003% 0.001%

(*) Based only on North America Market (**) Based on only in Europe & North American market

14 15 16
17

Based on (Reuters 2008) Based on (Degradable Plastics 2006)

Calculated based on (Labtechnologist.com 2005) Calculated based on (US industry forecasts 2008-2013 2004), (Warrior 2006), (goliath - Business knowledge on demand 2004) and (Pan-Europe 2006)

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Bio-Economy Growth

The investment in Bio-Economy has been growing each year, mainly in Renewable Energy. In 2006 there was an investment of US$ 101.2 billion; during the following year, 2007, this rose to US$ 145.36 billion. Investments in Bio-Plastic, Enzymes and BioPesticide become dispersible when compared to Renewable Energy and Carbon Trade. In 2007, renewable energy sources were divided as: Bio-Fuel (26%), wind power (38%), biomass and waste (10%), solar (16%), low carbon emission technologies (6%) and others (4%). Renewable energies are already the most important slice in this market. It has been growing in the past years, and based on several factors such as environment and petrol gap, will grow even more during the next decades. The trend for the next decades is towards renewable

Figure 10-Forecast for Renewable Energy

energy and Carbon Credit responding for even a bigger share of the world market due to new resolutions imposed by the European Community (EU), this year, 2008. There is expected to be an increase in Carbon Credit transactions because companies will be forced to reduce CO2 emission, while barriers will be imposed to imported products that do not fit environmental regulation.18

Figure 11 - Growth of Bio Economy (Billion)

Figure 12-Renewable Energy Grow

18

(BBC News 2008)

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Table 2-Renewable energy investment in the world (US$ billions)

2005 Renewable Energy Carbon trade19 Total $33.32 $10.00 $43.32

2006 $70.90 $30.00 $100.90

2007 $85.00 $60.00 $145.00

Researchers speculate that global economic demand for energy will increase around 50 per cent in the next 25 years. The Greenhouse Effect and global heat put the world economy to a new position where banks and private companies can make profit in a market where CO2 is a traded commodity.
A New Era

As developed countries economies rely on industries and developing countries mostly on agriculture, this change in how the world sees new economical transactions is bringing the world to a new way of doing business. This new way creates new opportunities for the developing countries to make the transition from simply exporting raw materials to exporting products with aggregate value, biomass, Bio-Fuel or even energy.

Figure 13- Waves of innovations

This change in the mentality of the richest nations is driving the world to a new technological wave. The world first went through the Industrial Revolution, with waves of technology, and in each shift fostering the world wealth economy and opening new opportunities to late-comers. The Bio-Economy is arriving as a big opportunity to promote a new view on how people care for the world, at the same time that it creates several new
19

The amount of Carbon credit considerate in this paper represents all transactions during the year; this is not intention to specify the transactions in each of different types of certificates. In spite of the changes in values of the credits, the amount of transactions in world has been increasing during last year.

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possibilities for developing countries. The previous wave was technology that brought computers, changed the way that people communicated (e-mail, MSN, Internet) and brought us digital resources like cameras, mobile phones, PDAs, and so on.20 Although products based on this new economy are more expensive when compared with a similar product in the traditional economy, most people do not mind paying a little more for Bio-Products. A Bio-product may be slightly more expensive than similar traditional products, like Bio-Pesticide, or much more expensive like Bio-Plastic. There are some cases where depending on the process; the final product can be more expensive or cheaper than traditional, like Bio-Fuels.

Banks` Special Attention

According to a study21, a growing number of banks recognize the opportunities posed by global warming, and some of the 40 leading banks are treating this as a risk management just like other credit, operational and reputation issues: The study shows that 23 out 40 banks include a reference or discussion of climate change in their latest annual shareholders reports; Twenty-six of these banks were signatories to the latest annual survey conducted by the Carbon Disclosure Project, a non-profit organization that seeks information on climate risks and opportunities from companies on behalf of an investor coalition of 315 firms ; Collectively, these banks have produced at least 97 research reports on climate change. During the last four years, 40 banks in this study have become strongly involved in the renewable energy market. Banks are participating through direct ownership stakes in renewable energy companies, debt financing, private equity and fund investments, underwriting of initial public offerings and offering financial advisory services.

Figure 14 -Worldwide Investment per Country

20 21

Based on (Gardner e Prug 2008) Pg 69

(Cogan 2008)

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Demand for climate protection products and services is driving banks into whole new markets to support efficient risk sharing of increasingly vulnerable infrastructure. Public and private institutions are prepared to make massive investments in BioEnergy during the next decades, some of which being: $500 billion-Value of low-carbon energy markets by 2050 (Stern); $100 billion-Demand for projects generating GHG emissions credits by 2030 (UN); $100 billion-Worldwide investment in clean energy by 2009 (New Energy Finance); $18.6$23.1 billion-Estimated solar industry revenues by 2010 (Solar Buzz); $15 billion-Global fuel cell and distributed hydrogen market by 2015 (The Climate Group) $20 billion-Growth of environmentally sustainable business by 2018 (Bank of America) $84 billion-Cumulative net savings from energy efficient products in US by 2012 (The Climate Group)

Petrol Under Pressure

The price of the petrol used to be defined mostly by supply, demand, size of the reserves, and eventually political instability in the Middle West. There was no concern over the possibility of running out of petrol; however, since the end of the 20th century, the world began to search for new alternatives to deal with the high price of petrol. During the beginning of the 21st century, with the climate change regulations that demanded more environmentally-friendly energy, and uncertainties about the capacity of petrol supply, the world began to consider new variables that demanded alternatives solutions for petrol. For the last few years, world petrol economy has been suffering the effects of several events that are gradually fading the petrol market. Besides the ecological appeal for clean and renewable energies, some factors are driving a rise in a barrel`s price and instability in capacity to supply the world demand for petrol. Some factors that have been driving this situation are: Political Instability in Iraq Iraq is one of the 10 biggest petrol suppliers in the world (2007 Iraq was responsible for 5.87% of OPEC`s supply). Once the U.S. invasion did not achieve the expected success, and because Iraq is responsible for a considerable production share, the U.S. has to deal with a delicate situation where there are not many options, and some of those include: expanding or maintaining existing levels of troops, withdrawing U.S. forces, or partitioning the country. Each of these options will put pressure on oil prices in Iraq, and potentially raise oil prices in the world. Middle East Scarcity The Middle East is responsible for 65% of the worlds oil reserves. This means they must become a major player in the following decades, so when oil become scarce, western countries may go over to make sure they get their oil. If the world does not reduce its dependence on petrol, the lack of supply may cause

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political and economical instability eventually resulting in an international war for oil in Middle Eastern countries in the next 10 to 25 years. Climate Change is Already Presenting its Effects As a result of the Greenhouse Effect and increase in the temperature around the world, catastrophic events through the world have consumed huge amounts of money in North America, Europe, Asia, and Africa. Governments, private companies, and financial institutions are considering global heat as a real threat instead of a potential threat, so they are implementing new procedures to reduce CO2 emissions and incentives to renewable energies. New Opportunities Renewable energy and high efficiency energy solutions are already a reality and have being widely implemented in some countries to deal with the problem of petrol price at the same time that it reduces the CO2 emission. Climate change created new business opportunities like Carbon Trade Market, and investment in Renewable Energy Supplier.
Oil Production this Decade

In 2000, 96% of oil capacity was utilized22, and its utilization has risen even further year after year, reducing the worlds spare capacity. Today, the world is demanding nearly all of the oil being produced, with an excess of only about 1 million barrels per day out of the 85 million barrels that are used. Global oil markets will be tight during 2008 but it is possible that during next 2 years the world production of petrol will experience a slight increase due the rise of production from countries outside of the Organization of the Petroleum Exporting Countries (OPEC) and the OPEC program may produce more than initial forecasts. World oil production is expected to be 1.4 million bbl/d in 2008, due to increased risks of a global economic slowdown. A report from the Organization for Economic Cooperation and Development (OECD) is expecting 1 million bbl/d of the world consumption in 2008, with gains concentrated in China, India, other Asian countries and the Middle East23. Although there is a chance to improve the production this year, this is certainly not enough to supply the world demand for the next decades. Another report by IEO2007 projects the world consumption of petroleum and other liquid fuels will grow from 83 million barrels oil equivalent per day in 2004 to 97 million in 2015 and 118 million in 203024. Demand for petrol is increasing faster than its capacity to produce, making it extremely important that petrol producers invest in research and new technologies to find and extract expensive/deep petrol only to relieve the situation.

22 23 24

Adapted from (Anderson, Gardiner e Associates 2007) Adapted from (EIA, Energy Information Administration 2008) (EIA, Energy Information Administration 2008)

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Uncertainty in Oil Prices According EIAs Annual Energy Outlook 2007 world oil prices will decline from $68 per barrel in 2006 to possibly $49 per barrel in 2014 then will rise to $59 per barrel in 2030. Total world liquids consumption possibly will rise to 118 million barrels per day in 2030. In the low price scenario, world oil prices are projected to be $36 per barrel in 2030. In the high price scenario, oil prices are projected to be $100 per barrel in 2030. The projections for total fuel consumption in 2030 ranges from 103 million barrels per day in the high price case to 134 million barrels per day in the low price case, Figure 16 - Oil's price today indicating a big range of uncertainty in the worlds future oil markets25. Clearly the scenario is worst than could be forecasted, just in mid May 2008, petrol reached over US$ 120,00 and there is no indication that this price will fall.
Figure 15 - Oil Price`s Projections

Uncertainty in Oil Supply It is difficult to forecast the world capacity to supply Petrol for next decades since there are many complex variables that cannot be measured including: Most of the biggest oil fields were discovered more than 40 years ago, today it is harder to find petrol fields; Geopolitical issues in a number of the OPEC countries (responsible for 65 per cent of the worlds total reserves) make it difficult to estimate future production levels. Based on information, projections and new technologies, it is estimated that about 95% of the world's oil reserves have been found and exploited. Since Figure 17 - Oil & Gas Supply oil-discovery is limited, it is inevitable that oil-production will reach its peak and then only consume oil from the existing fields, with no enough new supplies. This peak is expected when around half of the reserves have been used, which is this decade (2005 - 2015).

25

(Petroleum and Other Liquid Fuels 2007)

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It is expected that oil production will decline 2% or 3% per year, while, demand for oil is to rise26 at 2% or 3% per year. This will result in a 4% short come just a year after the peak and will rise to a 15% - 20% gap in 5 years27. The irreversible decline in Petrol production is expected in the next 5 - 10 years. Natural gas will follow soon after that. These resources combined, account for about 75% of world energy.

Houston Conference
The worlds largest annual conference on peak oil, the Houston Conference was held in October 2007, with over 525 delegates. 60 speakers from 18 countries and 35 U.S. States addressed the conference. Over 25 members of the accredited press attended including the New York Times, Bloomberg News, World Oil magazine, and many mediums related to Oil were in attendance. The importance of this conference was not only to open solutions for oil peak, but to analyse the size of the problem and its impact on the oil supply. Companies and governments already know that the petrol market is fading, and petrol will be over sooner or later. Representatives from The Oil Drum28 expressed varying degrees of scepticism about the ability of Saudi Arabia to meet stated production goals. U.S. Congressman Roscoe Bartlett warned that a teachable moment may be coming, and attendees should ask their elected representatives what contingency plans are in place for responding to it29. It is common knowledge that during the next decades the lack of energy will affect every country at all levels. There is little confidence that high oil dependent countries (like U.S.) are preparing contingency plans to address this scenario.

Peak Oil Alternatives

Even with all evidence of oil supply problems, there are people that argue against the Peak Oil explaining that if the world controls the consumption, new technologies and techniques will help locate oil and gas deposits in areas called The Golden Zone, an underground zone where temperatures range between 60o and 120o C. This theory is based on a new discovery that 90 per cent of the world's oil and gas reserves are to be found just there.30

Hubberts Peak Theory

This theory, first presented in 1956, confirms the dark forecast for oil supply. According to this theory, oil production occurs in a bell-shaped curve. The theory assumes that the amount of oil is finite, and people will take the easiest oil first (close to shore, shallower wells, biggest structures, etc.), but that we will eventually need to get oil from more remote, deeper and smaller fields. Globally, Hubberts Peak is expected to occur around 2015 if societies do not make any changes in demand.
26 27

Figure 18-Hubberts Peak Theory

Not considering new alternative solutions and new technologies (Al 2004) 28 A worldwide community (Australia, Canada, Europe, U.S., New Zealand) that discusses ideas related to peak oil, sustainable development, growth, and the politics and economics implications: http://www.theoildrum.com/special/mission 29 (Whipple 2007)
30

(Rugland 2007)

21

Oil companies have already recognised this situation and have begun seeking niches in different areas of renewable energy, with many even branching out of the transportation fuel business altogether. Oil Reserves Today Reserves of oil are the estimated quantities that geological and engineering data demonstrate with reasonable certainty can be recovered in future years from known reservoirs, assuming the existing economic and operating conditions. Since 2000, the largest net increase in estimated proved oil reserves has been made in Canada, with the addition of 174 billion barrels of Canadian oil sand as a conventional reserve. Iranian oil reserves have increased by 46.6 billion barrels, or 52 per cent, since 2000. Kazakhstan has had the third largest increase, 24.6 billion barrels.
Table 3 - Countries with the largest net increase in reserves between 2000 and 2007 31
(Billion Barrels)

1 2 3 4 5 6 7 8 9 10

Saudi Arabia Canada Iran Iraq Kuwait United Arab Emirates Venezuela Russia Libya Nigeria

262.3 179.2 136.3 115 101.5 97.8 80 60 41.5 36.2

11 12 13 14 15 16 17 18 19 20 21

Kazakhstan United States China Qatar Mexico Algeria Brazil Angola Norway Azerbaijan Rest of World

30 21.8 16 15.2 12.4 12.3 11.8 8 7.8 7 65.5

This table is relatively dynamic. In November, 2007, Brazil discovered a huge amount of petrol with capacity to produce between 5 to 10 billion barrels, which can put Brazil in a better position.

Bio-Fuel Generation

Due to issues like climate change and peak oil, the whole world is searching for an alternative fuel for petrol. There are many options like Ethanol, Methanol, Dimethyl Esters (DME), hybrid vehicle as well as hydrogen and hybrid engines. The most commonly used Bio-Fuels are Ethanol and Bio-Diesel. The most economically important Bio-Fuel is Ethyl alcohol or simply Ethanol. It is a flammable, colourless chemical compound, organic substance produced from hydrocarbons (family32 OH), and it is used pure or blended with gasoline, however Bio-Diesel technology has been evolving, especially in Europe. There are many ways to produce Bio-Fuel, for each of these ways there are different implications.

31 32

(Petroleum and Other Liquid Fuels 2007) pg9

Organic substance composed by Cx- OH (Carbon, Oxygen, and Hydrogen )

22

The selection of the right type of Bio-Fuel is something extremely complex because in this analysis we must consider environmental, economical, social and political factors. To produce enough Bio-Fuel to supply the world demand, the first step is to secure enough Biomass. The kind of Biomass utilised has different impacts in agricultural industry and defines the Bio-Fuel Generation. First generation This refers to Bio-Fuels made from sugars from plants such as sugar cane, sugar beet and corn, using conventional basic and relatively cheap technologies, based on fermentation; it is broadly used around the world, in most cases the production cost is not attractive. Second Generation It utilises Biomass not used as food, such as cellulosic and gasification processes. Most of the Second Generati on Bio-Fuels are experimental and there are only few of them working. Third Generation This is an experimental advanced Photo biological process to produce BioFuel. Today there is no practical use, in this processes hydrogen is produced directly using algae. Under certain conditions the pigments in certain types of algae absorb solar energy. An enzyme in the cell acts as a catalyst to split water molecules, and some of the bacteria produces Hydrogen after they grow on a substrate33.
First Generation of Bio-Fuels

Sugar Cane Ethanol from sugar cane today is the most energy-efficient way to produce Bio-Fuel. This kind of Ethanol is produced in the Dominican Republic, India, Africa and quite often in Brazil. The sugar cane harvest utilises machines or people. In Brazil most harvesting is manual. The alcohol is extracted from the body of the sugar cane. The body is triturated and squeezed to extract the juice and then filtered. This juice is fermented with leaven, water and sulphuric acid. After being fermented, it is filtered again and heated to 90 oC until it becomes gross alcohol. The bagasse is burned in boilers to produce electricity that can be used or even sold. Ethanol from sugar cane is extremely energy-efficient - it is estimated that for every 1kJ of Ethanol fuel, energy produced from sugar cane it only requires 0.12k (Energy balance = 8.6)34 Corn The production of Ethanol from corn is widely used in the U.S. There are two production processes, wet milling and dry milling. The main difference between the two is in the initial treatment of the grain35.
33 34

(The Encyclopedia of Alternative Energy and Sustainable Living n.d.) Calculated based in (Moreira 2007)

23

In dry milling, the seed is ground into flour before being mixed with water, which is referred to in the industry as "meal" and processed without separating out the various component parts of the grain. The meal is slurred with water to form a "mash." Enzymes are added to the mash to convert the starch to dextrose, a simple sugar. Ammonia is added for pH control and as a nutrient to the yeast. The mash is processed in a high-temperature cooker to reduce bacteria levels ahead of fermentation. The mash is cooled and transferred to fermenters where yeast is added and the conversion of sugar to Ethanol and Carbon Dioxide (CO2). In wet milling, the seed is allowed to soak in dilute sulphurous acid for 24 to 48 hours, before being ground down further. This steeping facilitates the separation of the grain into its many component parts. After steeping, the corn slurry is processed through a series of grinders to separate the corn germ. The corn oil from the germ is either extracted on-site or sold to crushers who extract the corn oil. The fermentation process for Ethanol is very similar to the dry mill process described above. Some scientists have argued that the whole process to produce Ethanol from corn actually requires more energy than what is obtained in an Ethanol fuel; however, the majority of studies have shown the opposite. Accordingly, the Argonne National Laboratories has estimated that for every 1kJ of Ethanol fuel energy produced from corn it only requires 0.74kJ of energy from fossil fuels. For gasoline it is required 1.23kJ of energy to make the same 1kJ of fuel energy36. According to a report from the National Research Council, the U.S. is facing problems with these techniques. The increase in Ethanol production is causing impact in terms of water consumption. Agricultural shifts to growing corn and expanding Bio-Fuel crops into regions with little agriculture, especially dry areas, could change current irrigation practices and greatly increase pressure on water resources in many parts of the United States. The quality of groundwater, rivers, and coastal and offshore waters could be impacted by increased fertilizer and pesticide37.

Second Generation of Bio-Fuel

The second generations biggest advantage is the possibility to use Biomass through the harvesting of waste and garbage, items such as paper or grass for a price that is more competitive than the production of cane or corn in first generation bio fuels. Second generation Bio-Fuels may offer significant economic benefits as well as environmental sustainability because do not rely on foods crops . Many companies

35 36 37

(Renewable Fuel Association 2005) (Alternative Fuel Technologies 2007)

Adapted from (Science Daily 2007)

24

around the world are joining, merging or simply signing cooperation contracts to develop new technologies and new process to produce second generation BioFuels. Brazil Recently (March,2008)Brazil's state-run oil firm Petrobras, and U.S. company KiOR Inc., a producer of Biomass Catalytic Cracking (BCC), signed a cooperative agreement over the development of second-generation Bio-Diesel. Brazil wants to ensure its position as the most price competitive Bio-Fuel producer, using plant waste materials to produce Bio-Oil with the help of KiOR's biomass catalytic cracking technology (BCC). BCCs technology converts lignocellulosic biomass into a Bio-Oil which is suitable for transportation fuels. Europe Neste Oil, a Finnish oil refiner, plans to invest approximately 550 million in building a plant in Singapore to produce NExBTL Renewable Second generation Diesel. This plant will have capacity to produce 800,000 t/a. It is expected that the construction will be completed by the end of 2010. NExBTL (Next Generation Biomass to Liquid), is a new process to produce Bio-Diesel made from animal fat or vegetable matter, It is also reliable in and stable in low temperature and has negligible exhaust emissions. United States In February 2008, GM announced a partnership with Coskata Inc, a company that developed a proprietary process that leverages microorganisms and Bio-Reactor designs to produce Ethanol from practically any carbon-based feedstock, including garbage, old tires and plant waste. The technology developed by Coskata is based in three steps: Incoming material converted to synthesis gas (gasification) Fermentation of synthesis gas into Ethanol (Bio-Fermentation) Separation and recovery of Ethanol (separations) This technology does not require additional chemicals or other pre-treatments. It consumes less than 1/3 of water to produce the equivalent of Ethanol and is extremely price competitive. Oceania In New Zealand, Lanza Tech is developing a platform for producing a low-cost Ethanol from the carbon monoxide component of waste flue gases. This solution can be made in any industrialized geography.
World Position of Bio-Fuel

The production of Bio-Fuel today is an issue for many developed countries, depending on the processes utilized to produce Bio-Fuel, especially Ethanol; the cost can be higher than that of petrol, while also reducing the production of foods and even causing deforestation. There is no simple solution, governments must balance the subsidies provided to fuels and environmental policies. An inappropriate policy, 25

especially in relation to first generation bio fuels instead of reducing CO2, may in fact create a rise in emissions due to the production process In spite of many problems, Ethanol is a very promising fuel. Its production can be environmentally friendly, with a very competitive price, as countries like Brazil have been proving. Ethanol effectively reduces the emission of CO2, and much is less polluting when compared with fossil fuels, as any other fuel Ethanol produces CO, NO and NO2. However, the biggest advantage is that Ethanol produces an average 25% less CO and 35% less NOx than gasoline.
Table 4- CO2 Emission

Fuel Gasoline Diesel Ethanol-Cereal Ethanol-Sugar Bio-Diesel Adv Bio-Fuel (cellulosic)

CO2reduction (%)

12-16 16-24 15-25 79-87 47-78 70-95

NOx, is extremely dangerous to environment and people. In spite of this, it is not as well known as COx. This gas can cause problems in short and long term, Ethanol deploys a very low amount of NOx into atmosphere.

Figure 19-NO2 Effects

Even with an undistinguished direction at which Bio-Fuel and which process to produce it, developed countries such as the U.S. and countries in the EU, have already begun to produce Bio-Fuel and have established targets for the reduction of CO2. Depending on the policy, Bio-Fuels can be used either pure or as a blend with other fuels. For developed countries, there is a large interest in developing Bio-Fuel technologies to decrease the enormous transportation sector dependence on oil. Developing countries are interested in the production and trade of Bio-Fuels as a commodity. Developed and developing countries are investing in new technologies and processes to raise Bio-Fuel production and Figure 20 - World Bio-Fuel Production Forecast 26

reduce their dependence on oil over the coming years.

Bio-Fuel Demand Forecast

The Future of Bio-Fuel in Europe In Europe, Ethanol is mainly produced from wheat, in France, Spain and Sweden, with a total of almost 500,000 tonnes in 2004. Bio-Diesel and Ethanol are mainly used blended with diesel or gasoline, respectively, and pure forms are also available in some countries. The EU transportation sector is responsible for over 30% of total energy consumption. EUs fuel is 98% dependent on Petrol being that a significant share is imported. Therefore, it is vulnerable to any disturbance in the market. If no clean fuel is introduced, the transportation sector will be responsible for an increase of 90% in CO2 emissions between 1990 and 2010. Based on this projection, the EU has created a policy known as White Paper for Renewable Energy Sources to raise the renewable energy sources to 12.0% by 2010. Various legislative actions are in place to help achieve this target: Promotion of renewable energy-based electricity generation from 14.0% in 1997 to 21.0% by 2010 for the EU 25 (22.1% for EU 15) (Directive 2001/77/EC). Promotion of Bio-Fuels for transportation applications by replacing diesel and petrol to the level of 5.75% by 2010 (Directive 2003/30 EC) accompanied by detaxation of Bio-Fuels (within Directive 2003/96/EC). Promotion of cogeneration of heat and electricity (Directive 2004/8/EC). Although Europe has not chosen one specific Bio-Fuel for all communities, it is following a tendency to use Bio-Diesel and its use has been getting more popular. The Future of Bio-Fuel in US In the U.S. Ethanol is very popular in a blend named E85. It means 85% Ethanol and 15% gasoline. Ethanol is also blended with gasoline at concentrations of 510% on a volume basis. In August 2005, the U.S. president signed the Energy Legislation in the U.S. which created a program to invest and research in clean energy, the Advanced Energy Initiative. This program set a national goal of replacing more than 75% of U.S. oil imports from the Middle East by 2025. This initiative provides an increase of 22% in clean energy research. The chapter under Homes and Businesses focuses on new technologies like clean coal, secure nuclear power, research in more efficient solar panels and wind-based power solutions. The most important subject is the transportation sector, where the government is given to the following initiatives: Bio-Refinery: Advanced technologies for fuel Ethanol from cellulosic (plant fibre) biomass - Budget $150 million. Developing More Efficient Vehicles: The next generation of battery technology for hybrid vehicles and plug-in hybrids - Budget $30 million. The Hydrogen Fuel Initiative: Development of hydrogen fuel cells and affordable hydrogen-powered cars - Budget $289 million.

The government believes the power of technology and the innovative technologies will reduce U.S. reliance on petrol and will help promote economic growth. Since 27

2001, the government has spent nearly $10 billion to develop cleaner, cheaper, and more reliable alternative energy sources. Although the U.S. is increasing its Bio-Fuel (Ethanol and Bio-Diesel) production, there are other solutions running.

Corn Ethanol Production Figure 21-U.S. Bio Fuel Production

28

Importance of Brazilian Bio-Fuel

The history of Brazilian alcohol as fuel began in 1973 when the Brazilian economy was based 80% on imported petrol and due to the rise in petrol price; the Brazilian economic balance was damaged, when fuel expenses increased from US$ 600 million to more than US$ 2 billion. In 1975 the government began a program, PROLCOOL, to find an alternative fuel to replace Diesel and Gasoline and also invested in technologies to find and extract petrol. In PROLCOOL, the government distributed incentives and subsidies to produce alcohol from sugar cane.

Figure 22- Ethanol Production in Brazil

In 1988 the government cut these incentives, as a result of the fact that the price of alcohol was close to that of gasoline.

Figure 23-Car production in Brazil

In 1990 people began to lose their trust in this kind of fuel, and began to buy gasoline-operated cars again. In 2003, Volkswagen put in the market the first flexfuel car, Gol, which runs with any percentage of Ethanol and Gasoline. Cars that used two different fuels, like gasoline and alcohol, were not new; in the U.S., there were cars that already offered this possibility; however, the technology used in Brazil was much cheaper. The production of flex-fuel cars was the great impulse to boost alcohol production in Brazil. Today Brazil is one of the biggest producers of alcohol in the world and even gasoline contains from 20 up to 25% of Ethanol, to help control the supply price. In 2006, 17 billion litres of Ethanol was produced in Brazil38 and it is expected that there will be an increase in Bio-Fuels production to about 60% by 2020.
38

(Sincalcool 2008)

29

The Brazilian government is aware of the possibilities to export Bio-Fuel to the world and is working to firstly ensure the quality of the production, and investing in new technologies to make the whole process of production more efficient, investing in genetically modifying sugar cane, and new process to extract all useful substances from the leaves and bagasse39. Secondly, dealing with several international institutions in order to get the best opportunities in international trade, and even offering technology. Some of the alliances in which Brazil is involved are: Round Table on Sustainable Bio-Fuels (Switzerland) Bio-Fuels Certification Project (Government of Germany) Cramer Commission (Government of the Netherlands) Other: European Union, United Kingdom, Japan

Worlds Opportunity Regarding Bio-Fuel

This new Bio Responsible Era is opening new opportunities to deal with climate changes and an energy crisis. There is a vital necessity to develop solutions towards a less carbon-intensive, and more sustainable economy. A big leap is investment in research alternative sources of energy, especially fuels for vehicles such as Alcohol and Bio-Diesel. Bio-Fuels open opportunities for developing countries in terms of a less carbon-intensive economy, raise rural incomes, new opportunities of work, improve quality of life (increase GDP), clean energy diversification, enhance energy security and reduce expenditures on imported fossil energy.

Developing countries with productive capacity have an opportunity to devote biomass, a favourable climate to grow them, and low-cost farm labour already are or may become efficient producers of Bio-Fuel. Developing countries, particularly Brazil, have benefited from that dynamism, including by taking advantage of existing preferential trade arrangements. Governments, the private sector, workers and consumers are becoming aware that the future economies will be based on low carbon emissions. This is changing the way institutions will do business, influence development cooperation, investment strategies and the ways in which developing countries goods and services are traded. A cleaner, more sustainable development path should be followed by developing and developed countries, especially developed countries. The carbon trade must be used as a tool to stimulate reduction of the amount of CO2 deployed in the atmosphere, not simply as one more business opportunity. Developing countries are having a chance to have available credit to invest, especially in new technologies. A portfolio of energy technologies to produce Bio-Fuel is required to stabilize greenhouse gas emission concentrations in the atmosphere. Disseminating the use of these new technologies, it is expected that costs will decrease through economies of scale. Costs must thus be determined by the development pathway pursued by countries and how the government encourages it. Several developed
39

(EMBRAPA 2006)

30

and developing countries are establishing regulatory frameworks for Bio-Fuels, including blending targets. They are also providing different kinds of subsidies and incentives to support emerging Bio-Fuel industries. These developments are expected to spur a sustained worldwide demand and supply of Bio-Fuels for the next decades. Moreover with political instability in the Middle East, and petrol prices unstable due to difficulty in defining the size of the reserves, production of liquid Bio-Fuels from nearly any form of energy feedstock (sugar, maize, rapeseed, etc.) becomes profitable: Ethanol from sugar cane is economic at oil prices of $30-35/barrel (Brazil), Ethanol from maize is economic at $55 (USA), Bio-Diesel from oilseeds is economic at $80 (EU). It is a perfect scenario for developed and developing countries, especially as developed countries raise their Bio-Fuel share in energy grid. While in Brazil 40% of transportation vehicles are fuelled by Bio-Fuel, only 3-5% in the USA and EU and even less elsewhere. By 2010 the EU plans to double the share of renewable energy in its primary energy consumption to 12%. Bio-Fuels will increase to 5.75% of total transport fuels. The USA also plans to more than double its current 2% share for Bio-Fuels by 2016, but this may accelerate. Brazil plans to increase Bio-Fuels share from 37% to about 60% by 2020. High oil prices and the need to reduce greenhouse gas emissions are among the important drives in this fast expanding sector. Bio-Fuels offer a number of potential advantages over fossil fuels, but concerns have been raised regarding the potential for negative secondary effects on food security and the environment

Market and Regulatory

Bio-Fuel-related trade regimes in the United States The importation tax of Bio-Fuel to the U.S. depends on the feedstock. A limited amount of Ethanol may be imported duty-free under the Caribbean Basin Initiative (CBI) even if most of the steps in the production process were completed in other countries. If produced from at least 50 % local (CBI) feedstock, Ethanol may be imported duty-free into the US market. If the local feedstock content is lower, limitations apply on quantity of duty-free Ethanol. Up to 7 % of the US market may be supplied duty-free by CBI Ethanol containing no local feedstock, for a tariff of over 14 cents per litre on Ethanol. Duty-free Ethanol imports have also played a role during the negotiations of the US-Central America Free Trade Agreement (CAFTA). Bio-Fuel-related trade regimes in European Union The EU production of alcohol is not cost-competitive with Brazilian Ethanol ( 900 / Toe vs. 680 /Toe). There are very heavy import duties on Brazilian Ethanol, even some European countries complain about the duties, because the European Ethanol production cannot supply the entire European market. The new GSP Regulation which applies from 1 January 2006 to 31 December 2008 no longer provides tariff reductions for either denatured or non-denatured alcohol.

31

Although the Regulation includes an incentive scheme for sustainable development and good governance of the EU, it is still limited. There has been no significant external trade, but there has been considerable intra-European trade. Brazilian BioDiesel is charged U$ 1.00 per gallon in taxes today 40. Since July 2007, England and France have been trying to convince the EU to reduce taxes over green products in general, among them, Brazilian Alcohol. The idea is to try importing some products that can make the EU save energy.

Bio-Fuel-related trade regimes in Brazil Brazil has struggled against taxes paid to the United States at the World Trade Organization, alleging that U.S. payments to farmers have exceeded WTO limits. In 2007 at the Doha Round Negotiations, Brazil encouraged a larger participation of developing countries in this commerce and must promote their capacity to develop environmental goods industries, argues the proposal JOB (07/146) "Bio-Fuels are essentially an environmental good," suggesting that trade barriers on them should be reduced41. However, governments have remained divided on how to determine which products are eligible for accelerated liberalization.

Intellectual Property

With the importance and dimensions that Bio-Fuel trade is reaching, there are challenges beyond the technique to produce Bio-Fuel. Many countries in the world are developing new technologies in different fields as enzymes, bacteria or even genetically improved crops. In a competitive market such as this, each country must expand its business, exchange technologies and sometimes even importing new technology. However, all of these processes must be closely followed-up in order to not lose the intellectual properties. For some technologies there are hundreds of thousands of dollars in investments that can simply disappear. All transactions in a market that is not consolidated are difficult. Each country should defend its interests and face this situation as an opportunity to expand its advantages based in specific technology, at the same time that gets new technologies from others fields. All the technological trade must be done over fair basis with a clear division of responsibilities. Technology developers have also to pay special attention to countries that have a not fair intellectual property policy like China. International organizations such as the United Nations, WTO, and the World Bank must always be involved to ensure specially the rights of the developing countries.

Bio-Economy Opportunity

A new economy based on renewable sources of energy, Ethanol or Bio-Diesel is a necessity and a fact; however, it is no guaranty of economic success to developing countries like Brazil, in spite of it being a big opportunity. Although the product of

40 41

(UNESCO 2007) (Bridgs-Weekly new trad digest 2007)

32

the new economy has changed, there is a ruler that remains the same: Competitiveness. A country only will remain a leader and take advantage of international trade, when it can offer its product at better prices, or a product with aggregated value. Brazil and other late comers must keep investing heavily in research and development in the most efficient ways to produce its energy. Today (2008) alcohol from Ethanol is the most energy-efficient solution; however, there is a broad range of research for other kinds of energy source. UK, U.S. and New Zealand have developed new revolutionary methods to produce alcohol from biomass. There are still many other investments to get energy from Hydrogen, more efficient batteries and hybrid vehicles. This decade Brazil is leader in Bio-Fuel production, but the world is going through a transition period and alcohol is not as solid a market as petrol. The world is changing and there is no renewable energy consolidated yet. It is a huge chance of every country to produce Bio-Fuel, Biomass, or simply creating Carbon Credit to get a significant rise in GDP.

Conclusion

The era of energy from petrol is over. Governments, intergovernmental and private organizations are aware that oil is reaching its peak and global heating is a reality that is already showing its effect. Stabilising or reducing the world`s power consumption is not a possibility, we do need Figure 24- Future Energies to find alternative ways to produce energy as soon as possible in order to minimize its effect in our lives. Today petrol still has a great importance in the world economy, much bigger than the Bio-Economy, but it is a fact that is changing. This new market will surpass the value of crude oil and become even more profitable over time. The biggest banks in the world already realize this opportunity and have created specific strategies to help consolidate this new market through carbon emissions management, trading and brokerage recognizing the need to change all energy grids, especially fuel used in transportation. The investment in Bio-Economy has been increasing year after year with very significant values in renewable energy of U$200 Billion to 2030 and U$500 Billion to 2050.

33

Differing from petrol economy, where it is clear that producers are obtaining the biggest profit, Bio-Economy is a door to new possibilities, where developing countries like Brazil, can take advantage of the lack of a very important resource, energy. In order to make new business, and take advantage of these changes, huge private companies are developing themselves to offer new products with green appeal. The giant Boeing had its first plane flying on Bio-Fuel last February, Airbus also is researching Bio-Fuels for A380. Last year (2007) Ferrari launched its first model powered by Ethanol, F430. Even petrol companies are heavily investing in renewable energies. Shell invested in Logen Corporation in 2002, a Canadian company specialising in enzyme manufacture, solar panel, and wind power. CHOREN (2005) invested in a German company specialising in gasification technology for biomass. BP has built a large stake in solar, wind and is investing around US$59.8 million a joint venture established by Brazilian companies to produce Ethanol. We are undergoing a period of transition where the world is changing from an economy based on petrol, to producing a simple plastic bottle, up to the fuel for our cars, to a new ecological and responsible economy, where there are new rulers to invest money. Profit is not the only ruler, and our environment is a very important factor to be considered. Companies, institutions and countries have no choice, but accept these new rules to make profit and even survive.

34

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