Bio Economy

8/2/2019 Bio Economy

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MGSM950-Report1- Rise of the Bio-EconomyProfessor John Mathews

Term 2, 2008

Presented by

Marcelo P Soruco


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Contents

Abstract.................................................................................................................................4The Traditional Economy.....................................................................................................5The Bio-Economy .................................................................................................................5Bio-Products..........................................................................................................................7

Enzymes .............................................................................................................................7Bio-Pesticides ....................................................................................................................7Bio-Plastics .........................................................................................................................7Renewable Energy...........................................................................................................8Bio-Refinery/Bio-Reactors................................................................................................8Bio-Fuels .............................................................................................................................8Carbon Credits ...............................................................................................................10

The Importance of Bio-Economy to the World..............................................................10The Relationship between Climate Change and the Economy ................................11Failure in investment in sustainable economy...............................................................12

Size of the Bio-Economy....................................................................................................13Bio-Economy Growth ........................................................................................................15A New Era ...........................................................................................................................16Banks` Special Attention...................................................................................................17Petrol Under Pressure.........................................................................................................18

Political Instability in Iraq ...............................................................................................18Middle East Scarcity.......................................................................................................18Climate Change is Already Presenting its Effects......................................................19New Opportunities .........................................................................................................19

Oil Production this Decade ..............................................................................................19

Uncertainty in Oil Prices .................................................................................................20Uncertainty in Oil Supply ...............................................................................................20Houston Conference .....................................................................................................21Peak Oil Alternatives......................................................................................................21Hubberts Peak Theory ..................................................................................................21Oil Reserves Today .........................................................................................................22

Bio-Fuel Generation...........................................................................................................22

First generation ...............................................................................................................23Second Generation .......................................................................................................23Third Generation.............................................................................................................23

First Generation of Bio-Fuels..............................................................................................23Sugar Cane.....................................................................................................................23


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Corn .................................................................................................................................23

Second Generation of Bio-Fuel .......................................................................................24

Brazil .................................................................................................................................25Europe..............................................................................................................................25

United States ...................................................................................................................25

Oceania ..........................................................................................................................25

World Position of Bio-Fuel ..................................................................................................25Bio-Fuel Demand Forecast ...............................................................................................27

The Future of Bio-Fuel in Europe ...................................................................................27The Future of Bio-Fuel in US............................................................................................27

Importance of Brazilian Bio-Fuel ......................................................................................29Worlds Opportunity Regarding Bio-Fuel ........................................................................30Market and Regulatory.....................................................................................................31

Bio-Fuel-related trade regimes in the United States..................................................31

Bio-Fuel-related trade regimes in European Union ...................................................31Bio-Fuel-related trade regimes in Brazil .......................................................................32

Intellectual Property ..........................................................................................................32Bio-Economy Opportunity ................................................................................................32Conclusion ..........................................................................................................................33


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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 fromthe petro economy that dominated the 20th century. This study case shows whythe Bio-Economy will become the dominant economy of the 21st century.

The project will examine the rise of Bio-Economy globally and particularly theemergence of Bio-Fuels in Brazil.

The project provides estimates of the current magnitude of the Bio-Economy and itsrate of growth, as well as details of its various constituents, including Bio-Fuels, Bio-Energy, Bio-Materials and others.

These estimates will draw on data provided by agencies such as the Organisation forEconomic Cooperation and Development (OECD), United Nations Conference onTrade 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 theintellectual property protection of Bio-Economy industries and the competitivedynamics involved.


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The Traditional Economy

Historically, human beings have learned how to transform raw materials intoproducts that suit their needs. These products were exchanged by barter, then bystandard units such as salt, silver, gold, and in most recent history by currencies. This isthe base of modern economy.

In the current, traditional economy, countries and private organizations are worriedonly about transforming raw materials into products; which may be final products orintermediate products. Final products are those that you can buy for immediateuse, such as computers, shoes, soft drinks, cars, gasoline, etc. Intermediate productsare 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 onhow these products are produced as long they generate GDP or revenue. Theseproducts 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.

In a traditional economic model (cradle to grave), even if we do not perceive it thisway, all products have a shelf life, from newspapers to a bottle of milk. If we leave asheet of newspaper exposed to the environment, after a few days the newspaperwill disintegrate, however, if we leave a bottle in the same condition, this bottle willdisintegrate only after decades or centuries.

We can also consider the concept of usage as generating energy, in this caseafter 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 theimpact of pollution after products are disposed of, offering products that do notharm the environment, and if they do, it is only superficially.

The concept of a Bio-Economy appeared at the end of 20th century when privateorganizations, especially those in chemical fields, began to offer products that didnot damage the environment in order to reach targets imposed by Agenda 21.

1 Concept introduced by Walter Stahel in 1990s in Europe

Raw Material Processing Product(Intermediate/

Final)

Usage

Trash/Pollution

Days, months, years, centuries

Figure 1-Traditional Economy


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Agenda 21 is a program suggested in 1992 by the United Nations Conference onEnvironment and Development, where imposed targets to countries wereimplemented to develop environmental policies. These new policies would apply totechnologies that promise to make a significant contribution in enabling the

development of better health care, enhanced food security through sustainableagricultural practices, improved supplies of potable water, more efficient industrialdevelopment processes for the transformation of raw materials, support forsustainable methods of forestation and reforestation, and detoxification ofhazardous wastes.2

The Bio-Economy creates products by growing and catalysing natural sourcesthrough microorganisms, enzymes or replacing processes that depend heavily onchemicals instead of extracting raw materials (crude oil, coal, bauxite, etc) andadapting it to our needs. The Bio-Economy creates value by designing newprocesses 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 cyclethrough their production. They do not generate pollution, and there is no end aftertheir use; they become residues that can be used as input to other processes. Thisprocess is called Zero Waste, or Cradle to cradle.

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 convertedinto oxygen through green plants and some kinds of marine.

Another important characteristic of the Bio-Economy is its independence of rawmaterials from nature, as opposed to the traditional economy, it is possible tocontrol all production processes.

2Agenda 21, Chapter 16. The entire text of Agenda 21 is available at www.un.org/esa/sustdev/agenda21text.htm

Raw Processing Product(Intermediate/

Final)

Usage

Residues

New Process

Figure 2-Bio-Economy Life Cycle


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For example, in a conventional economy-based product, let`s say gasoline, theproduction of gasoline is dependent on a viable crude oil (petrol) field; if there is nocrude 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 useduntil it is finished, it is produced by crops. If the demand for fuel rises, it is thennecessary to raise crops.

Bio-Products

Bio-products are those products obtained through bio-economic bases. As it is anew concept involving extremely new technologies and processes, there areproducts that in spite of presenting characteristics which may make themselves partof the bio-economy, will not be considered in the paper because there is no criticalmass in volume, or economic importance. The Bio-Products that present morerelevance in Bio-Economy today are:

EnzymesEnzymes are substances that make it possible to rearrange carbohydrates in adifferent 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. Basicallyany substance that is composed of a hydrocarbon, like domestic waste, bagassefrom crops, paper or cellulose, can be a source to produce Bio-Products, such asBio-Fuel or Bio-Plastic. Today the world is watching enzymes closely as a solution tothe second generation of Bio-Fuels. Among many companies, Coskata hasdeveloped a revolutionary process based in enzymes to produce Ethanol with anextremely competitive price.

Bio-PesticidesBio-Pesticide is a general denomination for Bio- (Insecticide, Fungicide) based on a

specific kind of saprophyte, bacteria orfungus. In these cases micro organismsare harmful to insects or fungus, killingthem naturally. There are manyadvantages in using Bio-Pesticides oversynthetics, for instance: they do notleave residue on the food, provide

natural long-term immunity to cropsand soil, can be used at all stages ofplant growth, targets are specific,nontoxic to human, animals and plantsand they are completely absorbed by

the earth. This market is projected to grow to US$400 million by 2015.

Bio-PlasticsBio-plastics are a material with all characteristics of a synthetic plastic except that

this plastic is biodegradable. This material, also known as PLA (Polymerized LacticAcid) was developed for medical purposes, which is to help bones and other organs

Figure 3 - Bio-Pesticide Market


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regain their health and then degrade gradually into safe ingredients that areabsorbed by the body.

Bio-Plastic is an ecological way to pack food and make eco-friendly bottles forwater, 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. Somecompanies like London Bio Packaging already offer products at affordable prices.Demand forecasts for degradable plastic in the U.S. shows an expected expansionof nearly 17 per cent yearly to 2010, valued at $610 million.

Renewable EnergyRenewable Energy, also known as Bio-Energy, is a way to generate energy by notdamaging the environment through producing CO2, radioactive waste or toxicparticles.Examples of renewable energy are:

Bio-Fuel; Wind; Biomass waste; Solar; Low carbon emission; Geothermal.

Bio-Refinery/Bio-ReactorsThis 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 wasopened in the U.S. in 1925 to produce Methanol, Ethanol and Butane. The heart of aBio-Refinery is the Bio-Reactor.

The Bio-Reactor is a device that creates an environment where bacteria/enzymestransform molecules from the input (Biomass) to fuels. With modern chemicalengineering, recent reactors can transform residential waste, paper, and crops`bagasse into Bio-Fuel, faster and more cost effectivelythan the last generation of Bio-Reactors.

Bio-FuelsBio-Fuel3 is a general definition for different kinds of fuelsproduced according to the Bio-Economy principles ofbiomass. There are several methods/processes toproduce these Bio-Fuels. Depending on the fuel, thetechnology may be more mature, or still underdevelopment, however most of the solutions are basedon the following cycle:

3The word fuel is a generic definition for source of energy; however, in this paper the word fuel isrelated only to a liquid fuel (internal combustion engines) used for transportation vehicles.

Figure 4-Biofuel Conversion Process


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Production of biomass For example, sugar cane, corn, manure, garden waste andcrop 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, Bio-Butane, and Bio-Propane.

The production of Hydrogen according to the Bio-Economy principle is still expensiveand not economically viable. This process is not described here.


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Carbon CreditsCarbon credits are certificates that represent an amount of Carbon Dioxide

disposed of in the atmosphere (one tonne/credit). These certificates were created inorder to make industries producing Carbon Dioxide reduce their atmosphericemissions and avoid future emissions by making the companies pay for theiremissions. This is also a way to encourage developing countries to protect theirecosystem by creating new certificates. Secondly, this gives time to developedcountries to find alternative ways to produce clean energy.

The funds received from the trade of carbon enable the quality of life to beimproved in developing countries, creating a market for new opportunities, helpingboost the economy, and raising the GDP. The broad use of these credits makes itpossible, through economies of scale for new technologies which are still relatively

expensive, to compete with traditional petrol

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-based technology.

The Importance of Bio-Economy to the World

The world today is very different from last century; production technologies now aremuch more efficient and more environmentally invasive than a few decades ago.Natural resources such as petrol, food, fishing, drinkable water and even theatmosphere were considered endless in supply. Preeminent economists, like AdamSmith, were focused only on economic results. One Nobel-prize winning economist inthe 1970s made the claim that the world can, in effect, get along without naturalresources. This phrase is a snap shot of past thinking.

In the 21stcentury, with global changes like the hole in the ozone layer, globalwarming and especially the Greenhouse Effect, economists and financial institutionscan 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 theworld is facing today. The Bio-Economy is a way to keep the worlds economygrowing, while at the same time ensuring that this growth does not damage theenvironment. The biggest economies in the world today are watching therelationship of ecology, economy and sustainability very closely. Europe is definingaggressive 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 theirrevenue in programs like funding research and development to reduce emissionsand encourage renewable power sources5.

The United States is heavily investing in Bio-Fuels and alternative sources of energy toreduce or even eliminate dependence on crude oil from the Middle East. There ismassive investment in technologies to extract fuels, especially Ethanol, from cornand other biomass. Government and private institutions around the world areinvesting massively in enzymes, catalysts and new ways to produce fuel in asustainable way. Brazil, which has experience in producing Ethanol, has also been

4Carbon Credit is also an important tool to reduce dependence on coal fuel5 (Kanter e Castle 2008)


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developing and testing engines that run on two different fuels. China is running aprogram to reduce its pollution in its biggest cities. Because pollution is having suchan 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. Thepilot project was initially launched in four provinces throughout China's central andnorth-eastern regions to create a market infrastructure and demonstrate productionpotential.

The Relationship between Climate Change and the Economy

The world finance sector has demonstrated a strong interest in developing a longterm goal for the new world economy. Thebiggest financial institutions in the world arewatching the Greenhouse Effect closely and thethreats and opportunities it represents.

Many strategic investments for renewable andmore efficient ways to produce energy havebeen developed around the world. By 2030,additional investments of approximately US$200billion to US$210 billion (or between 0.3-0.5%GDP) are projected to be needed just to bringemissions down to current levels of 2007.6

Fossil fuel combustion is the largest source of CO2emissions. It was responsible for 66% of global GreenHouse Emissions in 2005. Emissions from roadtransportation were responsible for 11% of this total in2005. Between 1990 and 2005, the Green HouseEmissions increased 14% in OECD countries and 70% in

6(Carbon Crunch - Meeting the cost 2007) pg 14

Figure 6- CO2 World Production

Figure 7 - GHG Emission

Figure 5-CO2 Concentration


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BIC7. According to IEA8 projections of annual CO2 growth rates for 20022030, rangesare between 1.3% and 3.6% (2.2 Gt CO2 and 4.2 Gt CO2) and can reach almost 6 GtCO2 in 2050. The potential for reducing this growth varies widely, depending oncountry, 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 tostimulate development of climate-friendly technologies, clean energy andincentives to change consumer behaviour, energetic grid, and more sustainablebusiness practices. The lack of action (programs, laws, incentives, regulations, etc)from the government and private companies will drive the world to a broad rangeof problems, like environmental damage (air and water pollution), negative healthand economic impacts (natural disasters, decrease in fish stock and reducedagricultural yields in m3).

The total cost of environmental policy inaction involves several different types ofcosts:

Public finance expenditures Direct financial costs Indirect costs Social welfare costs

As an indirect effect of an inappropriate investment in sustainable technologies, acountry can even suffer economic loss due to commercial barriers imposed bycountries that are developing environmental policies.

It is estimated that total damage associated with emissions of air pollution from10,000 major sources in US are between US$ 71 billion and US$ 277 Billion (0.7-2.8% of

7

Brazil, India and China8Based on International Energy Outlook 2005, DOE/EIA-0484.Energy Information Administration

Figure 8- Cost of Inaction of environmental action


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GDP)9. For China, the World Bank calculates that pollution costs are about 5.8 percent of the GDP every year10.

The most visible effects of lack of investment in a sustainable economy are naturaldisasters. Although data is not completely reliable, information from the Insurance

Information Institute suggests that between 1970 and 1980, annual insurance lossesfrom natural disasters represented between US$ 34 billion. In 2006, The World Bankestimated that the loss in the poorest countries due to natural disasters representedmore than 13% of GDP. Part of this amount was caused by climate change 11.

Effective action taken today to reduce CO2 emissions may increase costs by around1% GDP annually, but failure to act will result in costs and risks equivalent to losing atleast 5% GDP annually and as much as 20% if a wider range of risks is taken intoaccount.12

Size of the Bio-Economy

As mentioned in the previous section, this new economy has been changing theway that public and private institutions see their relationship to nature. It creates thegreatest 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 andCarbon Trade; however, Bio-plastic, Enzymes, and Bio-Pesticide, also represent asignificant potential market.Each one of these fields represents an opportunity to migrate from traditionalproducts and ways to produce energy to a new reality where new products andways to get energy are sustainable, and more efficient.

The exact size of this new economy in the world is difficult to pinpoint for a severalreasons:13

As it is a new area, in some fields there is no one regular unit to measuresimilar products;

Some products like enzymes can be difficult to define in which area theywould be classified; as depending on the situation the same substance canbe classified as pharmaceutical, agricultural or industrial;

Some products are framed by niche marketswith a large rangeofsubsectors,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 betweensimilar products, for example compare the way in which Bio-Plastics disintegrateamong different technologies.

9 (Muller and Mendelsohn 2007)10 (Kuhn 2007)11

(OECD Environmental Outlook to 2030 2008) pg 28412(Cogan 2008)13Based 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 estimatesbased on assumptions. The values presented in this paper assume that Bio-Energy(Renewable Energy) is composed of: Bio-Fuel, Wind Power, Biomass, Solar, LowCarbon Emission technologies, and a set of other small solutions of renewablesources like Geothermal. This assumption is very important because although there

are some investigations that present Bio-Energys size, some of them may notconsider 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

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

14Based on (Reuters 2008)15Based on (Degradable Plastics 2006)16Calculated based on (Labtechnologist.com 2005)17 Calculated based on (US industry forecasts 2008-2013 2004), (Warrior 2006), (goliath - Business knowledge ondemand 2004) and (Pan-Europe 2006)

Renewable Energy US$ 85 billion 58.48%

Carbon trade14 US$ 60 billion 41.28%

Bio-Plastic15(*) US$ 0,35billion 0.24%

Enzymes16 US$ 0,045billion

0.003%

Bio-Pesticide17(**) US$ 0,018billion 0.001%

TOTAL US$145,36billion

Figure 9 Bio-Economy 2007


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Bio-Economy Growth

The investment in Bio-Economy has been growing each year, mainly in RenewableEnergy. 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 Bio-Pesticide become dispersible when compared to Renewable Energy and CarbonTrade.

In 2007, renewable energy sources were dividedas: Bio-Fuel (26%), wind power (38%), biomassand waste (10%), solar (16%), low carbonemission technologies (6%) and others (4%).

Renewable energies are already the mostimportant slice in this market. It has beengrowing in the past years, and based on severalfactors such as environment and petrol gap, willgrow even more during the next decades. Thetrend for the next decades is towards renewable

energy and Carbon Creditresponding for even a bigger

share of the world market due tonew resolutions imposed by theEuropean Community (EU), thisyear, 2008. There is expected tobe an increase in Carbon Credittransactions because companieswill be forced to reduce CO2emission, while barriers will beimposed to imported productsthat do not fit environmental regulation.18

18(BBC News 2008)

Figure 12-Renewable Energy Grow

Figure 10-Forecast for Renewable Energy

Figure 11 - Growth of Bio Economy (Billion)


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

Researchers speculate that globaleconomic 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 positionwhere banks and private companies can make profit in a market where CO2 is atraded 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 economicaltransactions is bringing the world to a new way of doing business. This new waycreates new opportunities for the developing countries to make the transition fromsimply exporting raw materials to exporting products with aggregate value, biomass,Bio-Fuel or even energy.

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

19The amount of Carbon credit considerate in this paper represents all transactions during the year; thisis 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 lastyear.

2005 2006 2007

RenewableEnergy

$33.32 $70.90 $85.00

Carbontrade19

$10.00 $30.00 $60.00

Total $43.32 $100.90 $145.00

Figure 13- Waves of innovations


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possibilities for developing countries. The previous wave was technology thatbrought computers, changed the way that people communicated (e-mail, MSN,Internet) and brought us digital resources like cameras, mobile phones, PDAs, and soon.20

Although products based on this new economy are more expensive whencompared with a similar product in the traditional economy, most people do notmind paying a little more for Bio-Products.A Bio-product may be slightly more expensive than similar traditional products, likeBio-Pesticide, or much more expensive like Bio-Plastic. There are some cases wheredepending on the process; the final product can be more expensive or cheaperthan traditional, like Bio-Fuels.

Banks` Special Attention

According to a study21, a growing number of banks recognize the opportunitiesposed by global warming, and some of the 40 leading banks are treating this as arisk management just like other credit, operational and reputation issues:

The study shows that 23 out 40 banks include a reference or discussion ofclimate change in their latest annual shareholders reports; Twenty-six of these banks were signatories to the latest annual surveyconducted by the Carbon Disclosure Project, a non-profit organization that seeksinformation on climate risks and opportunities from companies on behalf of aninvestor coalition of 315 firms ; Collectively, these banks have produced at least 97 research reports on climatechange.

During the last four years, 40 banks in this study have become strongly involved in therenewable energy market. Banks are participating through direct ownership stakesin renewable energy companies, debt financing, private equity and fundinvestments, underwriting of initial public offerings and offering financial advisoryservices.

20 Based on (Gardner e Prug 2008) Pg 6921(Cogan 2008)

Figure 14 -Worldwide Investment per Country


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Demand for climate protection products and services is driving banks into wholenew markets to support efficient risk sharing of increasingly vulnerable infrastructure.Public and private institutions are prepared to make massive investments in Bio-Energy 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 thereserves, and eventually political instability in the Middle West. There was no concernover the possibility of running out of petrol; however, since the end of the 20 thcentury, the world began to search for new alternatives to deal with the high priceof petrol.

During the beginning of the 21st

century, with the climate change regulations thatdemanded more environmentally-friendly energy, and uncertainties about thecapacity of petrol supply, the world began to consider new variables thatdemanded alternatives solutions for petrol. For the last few years, world petroleconomy has been suffering the effects of several events that are gradually fadingthe 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 supplythe world demand for petrol. Some factors that have been driving this situation are:

Political Instability in IraqIraq is one of the 10 biggest petrol suppliers in the world (2007 Iraq wasresponsible for 5.87% of OPEC`s supply). Once the U.S. invasion did not achievethe expected success, and because Iraq is responsible for a considerableproduction share, the U.S. has to deal with a delicate situation where there arenot many options, and some of those include: expanding or maintainingexisting 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 raiseoil prices in the world.

Middle East ScarcityThe Middle East is responsible for 65% of the worlds oil reserves. This means theymust become a major player in the following decades, so when oil becomescarce, 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 warfor oil in Middle Eastern countries in the next 10 to 25 years.

Climate Change is Already Presenting its EffectsAs a result of the Greenhouse Effect and increase in the temperature around

the world, catastrophic events through the world have consumed hugeamounts of money in North America, Europe, Asia, and Africa. Governments,private companies, and financial institutions are considering global heat as areal threat instead of a potential threat, so they are implementing newprocedures to reduce CO2 emissions and incentives to renewable energies.

New OpportunitiesRenewable energy and high efficiency energy solutions are already a realityand have being widely implemented in some countries to deal with theproblem 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 yearafter year, reducing the worlds spare capacity. Today, the world is demandingnearly all of the oil being produced, with an excess of only about 1 million barrels perday out of the 85 million barrels that are used. Global oil markets will be tight during2008 but it is possible that during next 2 years the world production of petrol willexperience a slight increase due the rise of production from countries outside of theOrganization of the Petroleum Exporting Countries (OPEC) and the OPEC programmay 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 reportfrom the Organization for Economic Cooperation and Development (OECD) isexpecting 1 million bbl/d of the world consumption in 2008, with gains concentratedin China, India, other Asian countries and the Middle East23. Although there is achance to improve the production this year, this is certainly not enough to supplythe world demand for the next decades.

Another report by IEO2007 projects the world consumption of petroleum and otherliquid fuels will grow from 83 million barrels oil equivalent per day in 2004 to 97 millionin 2015 and 118 million in 203024. Demand for petrol is increasing faster than itscapacity to produce, making it extremely important that petrol producers invest in

research and new technologies to find and extract expensive/deep petrol only torelieve the situation.

22

Adapted from (Anderson, Gardiner e Associates 2007)23Adapted from (EIA, Energy Information Administration 2008)24 (EIA, Energy Information Administration 2008)


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Uncertainty in Oil PricesAccording 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 worldliquids consumption possibly will rise to 118 millionbarrels per day in 2030. In the low price scenario,world oil prices are projected to be $36 per barrelin 2030. In the highprice scenario, oilprices are projectedto be $100 per barrelin 2030. Theprojections for total

fuel consumption in

2030 ranges from 103million barrels per day in the high price case to 134million barrels per day in the low price case,indicating a big range of uncertainty in the worldsfuture oil markets25. Clearly the scenario is worst than could be forecasted, just in midMay 2008, petrol reached over US$ 120,00 and there is no indication that this pricewill fall.

Uncertainty in Oil SupplyIt is difficult to forecast the world capacity to supply Petrol for next decades since

there are many complex variables thatcannot be measured including:

Most of the biggest oil fields werediscovered more than 40 yearsago, today it is harder to findpetrol fields;

Geopolitical issues in a number ofthe OPEC countries (responsiblefor 65 per cent of the worldstotal reserves) make it difficult toestimate future production levels.

Based on information, projections andnew technologies, it is estimated thatabout 95% of the world's oil reserveshave been found and exploited. Sinceoil-discovery is limited, it is inevitable thatoil-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 thereserves have been used, which is this decade (2005 - 2015).

25 (Petroleum and Other Liquid Fuels 2007)

Figure 17 - Oil & Gas Supply

Figure 15 - Oil Price`s Projections

Figure 16 - Oil's price today


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It is expected that oil production will decline 2% or 3% per year, while, demand for oil is torise26 at 2% or 3% per year. This will result in a 4% short come just a year after the peak and willrise to a 15% - 20% gap in 5 years27.The irreversible decline in Petrol production is expected inthe next 5 - 10 years. Natural gas will follow soon after that. These resources combined,account for about 75% of world energy.

Houston ConferenceThe worlds largest annual conference on peak oil, the Houston Conference was held inOctober 2007, with over 525 delegates. 60 speakers from 18 countries and 35 U.S. Statesaddressed the conference. Over 25 members of the accredited press attended includingthe New York Times, Bloomberg News, World Oil magazine, and many mediums related to Oilwere in attendance.

The importance of this conference was not only to open solutions for oil peak, but toanalyse the size of the problem and its impact on the oil supply. Companies andgovernments already know that the petrol market is fading, and petrol will be over sooner orlater. Representatives from The Oil Drum28 expressed varying degrees of scepticism about

the ability of Saudi Arabia to meet stated production goals. U.S. Congressman RoscoeBartlett warned that a teachable moment may be coming, and attendees should ask theirelected representatives what contingency plans are in place for responding to it29. It iscommon knowledge that during the next decades the lack of energy will affect everycountry at all levels. There is little confidence that high oil dependent countries (like U.S.) arepreparing contingency plans to address this scenario.

Peak Oil AlternativesEven with all evidence of oil supply problems, there are people that argue against the PeakOil explaining that if the world controls the consumption, new technologies and techniqueswill help locate oil and gas deposits in areas called The Golden Zone, an undergroundzone 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 TheoryThis theory, first presented in 1956,confirms the dark forecast for oilsupply. According to this theory, oilproduction occurs in a bell-shapedcurve. The theory assumes that theamount of oil is finite, and peoplewill take the easiest oil first (close toshore, shallower wells, biggest

structures, etc.), but that we willeventually need to get oil from moreremote, deeper and smaller fields.Globally, Hubberts Peak isexpected to occur around 2015 ifsocieties do not make any changesin demand.

26Not considering new alternative solutions and new technologies27 (Al 2004)28A worldwide community (Australia, Canada, Europe, U.S., New Zealand) that discusses ideas relatedto peak oil, sustainable development, growth, and the politics and economics implications:

http://www.theoildrum.com/special/mission29 (Whipple 2007)30 (Rugland 2007)

Figure 18-Hubberts Peak Theory


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Oil companies have already recognised this situation and have begun seekingniches in different areas of renewable energy, with many even branching out of thetransportation fuel business altogether.

Oil Reserves TodayReserves of oil are the estimated quantities that geological and engineering datademonstrate with reasonable certainty can be recovered in future years fromknown reservoirs, assuming the existing economic and operating conditions.

Since 2000, the largest net increase in estimated proved oil reserves has been madein Canada, with the addition of 174 billion barrels of Canadian oil sand as aconventional reserve. Iranian oil reserves have increased by 46.6 billion barrels, or 52per cent, since 2000. Kazakhstan has had the third largest increase, 24.6 billionbarrels.

Table 3 - Countries with the largest net increase in reserves between 2000 and 2007 31

This table is relatively dynamic. In November, 2007, Brazil discovered a huge amount of petrol withcapacity 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 analternative fuel for petrol. There are many options like Ethanol, Methanol, DimethylEsters (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 aflammable, colourless chemical compound, organic substance produced fromhydrocarbons (family32 OH), and it is used pure or blended with gasoline, howeverBio-Diesel technology has been evolving, especially in Europe.

There are many ways to produce Bio-Fuel, for each of these ways there are differentimplications.

31(Petroleum and Other Liquid Fuels 2007) pg932Organic substance composed by Cx- OH (Carbon, Oxygen, and Hydrogen )

(Billion Barrels)

1 Saudi Arabia 262.3 11 Kazakhstan 30

2 Canada 179.2 12 United States 21.8

3 Iran 136.3 13 China 16

4 Iraq 115 14 Qatar 15.2

5 Kuwait 101.5 15 Mexico 12.4

6 United Arab Emirates 97.8 16 Algeria 12.3

7 Venezuela 80 17 Brazil 11.8

8 Russia 60 18 Angola 8

9 Libya 41.5 19 Norway 7.8

10 Nigeria 36.2 20 Azerbaijan 7

21 Rest of World 65.5


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The selection of the right type of Bio-Fuel is something extremely complex because inthis analysis we must consider environmental, economical, social and politicalfactors.To produce enough Bio-Fuel to supply the world demand, the first step is to secureenough Biomass. The kind of Biomass utilised has different impacts in agricultural

industry and defines the Bio-Fuel Generation.

First generationThis refers to Bio-Fuels made from sugars from plants such as sugar cane, sugarbeet and corn, using conventional basic and relatively cheap technologies,based on fermentation; it is broadly used around the world, in most cases theproduction cost is not attractive.

Second GenerationIt utilises Biomass not used as food, such as cellulosic and gasificationprocesses. Most of the Second Generation Bio-Fuels are experimental and there are only few of them working.

Third GenerationThis is an experimental advanced Photo biological process to produce Bio-Fuel. Today there is no practical use, in this processes hydrogen is produceddirectly using algae. Under certain conditions the pigments in certain types ofalgae absorb solar energy. An enzyme in the cell acts as a catalyst to splitwater molecules, and some of the bacteria produces Hydrogen after theygrow on a substrate33.

First Generation of Bio-Fuels

Sugar CaneEthanol 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 quiteoften in Brazil. The sugar cane harvest utilises machines or people. In Brazil mostharvesting is manual. The alcohol is extracted from the body of the sugar cane. Thebody is triturated and squeezed to extract the juice and then filtered. This juice isfermented with leaven, water and sulphuric acid. After being fermented, it is filteredagain and heated to 90 oC until it becomes gross alcohol. The bagasse is burned inboilers to produce electricity that can be used or even sold.

Ethanol from sugar cane is extremely energy-efficient - it is estimated that for every1kJ of Ethanol fuel, energy produced from sugar cane it only requires 0.12k (Energybalance = 8.6)34

CornThe production of Ethanol from corn is widely used in the U.S. There are twoproduction processes, wet milling and dry milling. The main difference between thetwo is in the initial treatment of the grain35.

33(The Encyclopedia of Alternative Energy and Sustainable Living n.d.)34Calculated based in (Moreira 2007)


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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 separatingout the various component parts of the grain. The meal is slurred with water toform a "mash." Enzymes are added to the mash to convert the starch todextrose, a simple sugar. Ammonia is added for pH control and as a nutrientto the yeast.

The mash is processed in a high-temperature cooker to reduce bacterialevels ahead of fermentation. The mash is cooled and transferred tofermenters 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 48hours, before being ground down further. This steeping facilitates theseparation 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 whoextract the corn oil. The fermentation process for Ethanol is very similar to thedry mill process described above.

Some scientists have argued that the whole process to produce Ethanol from cornactually requires more energy than what is obtained in an Ethanol fuel; however, the

majority of studies have shown the opposite. Accordingly, the Argonne NationalLaboratories has estimated that for every 1kJ of Ethanol fuel energy produced fromcorn 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 facingproblems with these techniques. The increase in Ethanol production is causingimpact in terms of water consumption. Agricultural shifts to growing corn andexpanding Bio-Fuel crops into regions with little agriculture, especially dry areas,could change current irrigation practices and greatly increase pressure on waterresources in many parts of the United States. The quality of groundwater, rivers, andcoastal and offshore waters could be impacted by increased fertilizer andpesticide37.

Second Generation of Bio-Fuel

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

35

(Renewable Fuel Association 2005)36 (Alternative Fuel Technologies 2007)37Adapted from (Science Daily 2007)


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around the world are joining, merging or simply signing cooperation contracts todevelop new technologies and new process to produce second generation Bio-Fuels.

Brazil

Recently (March,2008)Brazil's state-run oil firm Petrobras, and U.S. company KiORInc., a producer of Biomass Catalytic Cracking (BCC), signed a cooperativeagreement 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 biomasscatalytic cracking technology (BCC). BCCs technology converts lignocellulosicbiomass into a Bio-Oil which is suitable for transportation fuels.

EuropeNeste Oil, a Finnish oil refiner, plans to invest approximately 550 million in building aplant in Singapore to produce NExBTL Renewable Second generation Diesel. Thisplant will have capacity to produce 800,000 t/a. It is expected that the constructionwill be completed by the end of 2010.

NExBTL (Next Generation Biomass to Liquid), is a new process to produce Bio-Dieselmade from animal fat or vegetable matter, It is also reliable in and stable in lowtemperature and has negligible exhaust emissions.

United StatesIn February 2008, GM announced a partnership with Coskata Inc, a company that

developed a proprietary process that leverages microorganisms and Bio-Reactordesigns to produce Ethanol from practically any carbon-based feedstock, includinggarbage, 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. Itconsumes less than 1/3 of water to produce the equivalent of Ethanol and isextremely price competitive.

OceaniaIn New Zealand, Lanza Tech is developing a platform for producing a low-costEthanol from the carbon monoxide component of waste flue gases. This solution canbe 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 costcan be higher than that of petrol, while also reducing the production of foods and

even causing deforestation. There is no simple solution, governments must balancethe subsidies provided to fuels and environmental policies. An inappropriate policy,


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especially in relation to first generation bio fuels instead of reducing CO2, may infact create a rise in emissions due to the production process

In spite of many problems, Ethanol is a very promising fuel. Its production can beenvironmentally friendly, with a very competitive price, as countries like Brazil havebeen proving.

Ethanol effectively reduces the emission of CO2, and much is less polluting whencompared 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 COand 35% less NOx than gasoline.

Table 4- CO2 Emission

Fuel CO2reduction (%)

Gasoline 12-16

Diesel 16-24

Ethanol-Cereal 15-25Ethanol-Sugar 79-87

Bio-Diesel 47-78

Adv Bio-Fuel(cellulosic)

70-95

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

Figure 19-NO2 Effects

Even with an undistinguished direction at which Bio-Fuel and which process toproduce it, developed countries such as the U.S. and countries in the EU, havealready begun to produce Bio-Fuel and have established targets for the reductionof CO2.

Depending on the policy, Bio-Fuels can be used either pure or as a blend withother fuels. For developed countries, there is a large interest in developing Bio-Fueltechnologies to decrease the enormous transportation sector dependence on oil.Developing countriesare interested in theproduction and tradeof Bio-Fuels as acommodity. Developedand developingcountries are investingin new technologies

and processes to raiseBio-Fuel production and Figure 20- World Bio-Fuel Production Forecast


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reduce their dependence on oil over the coming years.

Bio-Fuel Demand Forecast

The Future of Bio-Fuel in EuropeIn 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 usedblended with diesel or gasoline, respectively, and pure forms are also available insome countries. The EU transportation sector is responsible for over 30% of totalenergy consumption. EUs fuel is 98% dependent on Petrol being that a significantshare 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 anincrease 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 Sourcesto raise the renewable energy sources to 12.0% by 2010. Various legislative actionsare in place to help achieve this target:

Promotion of renewable energy-based electricity generation from 14.0% in1997 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 dieseland petrol to the level of 5.75% by 2010 (Directive 2003/30 EC) accompaniedby 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 isfollowing a tendency to use Bio-Diesel and its use has been getting morepopular.

The Future of Bio-Fuel in USIn the U.S. Ethanol is very popular in a blend named E85. It means 85% Ethanol and15% gasoline. Ethanol is also blended with gasoline at concentrations of 510% on avolume basis.

In August 2005, the U.S. president signed the Energy Legislation in the U.S. whichcreated a program to invest and research in clean energy, the Advanced EnergyInitiative. This program set a national goal of replacing more than 75% of U.S. oilimports from the Middle East by 2025. This initiative provides an increase of 22% inclean energy research. The chapter under Homes and Businesses focuses on new

technologies like clean coal, secure nuclear power, research in more efficient solarpanels and wind-based power solutions. The most important subject is thetransportation sector, where the government is given to the following initiatives:

Bio-Refinery: Advanced technologies for fuel Ethanol from cellulosic (plantfibre) biomass - Budget $150 million.

Developing More Efficient Vehicles: The next generation of batterytechnology for hybrid vehicles and plug-in hybrids - Budget $30 million.

The Hydrogen Fuel Initiative: Development of hydrogen fuel cells andaffordable hydrogen-powered cars - Budget $289 million.

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


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2001, the government has spent nearly $10 billion to develop cleaner, cheaper, andmore 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


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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 tothe rise in petrol price; the Brazilianeconomic balance was damaged, whenfuel expenses increased from US$ 600 millionto more than US$ 2 billion.

In 1975 the government began a program,PROLCOOL, to find an alternative fuel toreplace Diesel and Gasoline and alsoinvested in technologies to find and extractpetrol. In PROLCOOL, the government

distributed incentives and subsidies toproduce alcohol from sugar cane.

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

In 1990 people began to lose their trust in this kind of fuel, and began to buygasoline-operated cars again. In 2003, Volkswagen put in the market the first flex-

fuel car, Gol, which runs with any percentage of Ethanol and Gasoline. Cars thatused two different fuels, like gasoline and alcohol, were not new; in the U.S., therewere cars that already offered this possibility; however, the technology used in Brazilwas much cheaper.

The production of flex-fuel cars was the great impulse to boost alcohol production inBrazil.Today Brazil is one of the biggest producers of alcohol in the world and evengasoline contains from 20 up to 25% of Ethanol, to help control the supply price. In2006, 17 billion litres of Ethanol was produced in Brazil38 and it is expected that therewill be an increase in Bio-Fuels production to about 60% by 2020.

38 (Sincalcool 2008)

Figure 23-Car production in Brazil

Figure 22- Ethanol Production in Brazil


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The Brazilian government is aware of the possibilities to export Bio-Fuel to the worldand is working to firstly ensure the quality of the production, and investing in newtechnologies to make the whole process of production more efficient, investing ingenetically modifying sugar cane, and new process to extract all useful substances

from the leaves and bagasse39. Secondly, dealing with several internationalinstitutions in order to get the best opportunities in international trade, and evenoffering 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 climatechanges and an energy crisis. There is a vital necessity to develop solutions towardsa less carbon-intensive, and more sustainable economy. A big leap is investment inresearch alternative sources of energy, especially fuels for vehicles such as Alcoholand Bio-Diesel. Bio-Fuels open opportunities for developing countries in terms of aless carbon-intensive economy, raise rural incomes, new opportunities of work,improve quality of life (increase GDP), clean energy diversification, enhance energysecurity and reduce expenditures on imported fossil energy.

Developing countries with productive capacity have an opportunity to devotebiomass, a favourable climate to grow them, and low-cost farm labour already areor may become efficient producers of Bio-Fuel. Developing countries, particularlyBrazil, have benefited from that dynamism, including by taking advantage ofexisting preferential trade arrangements. Governments, the private sector, workersand consumers are becoming aware that the future economies will be based onlow carbon emissions. This is changing the way institutions will do business, influencedevelopment cooperation, investment strategies and the ways in which developingcountries goods and services are traded.

A cleaner, more sustainable development path should be followed by developingand developed countries, especially developed countries. The carbon trade mustbe used as a tool to stimulate reduction of the amount of CO 2 deployed in theatmosphere, not simply as one more business opportunity. Developing countries arehaving a chance to have available credit to invest, especially in new technologies.

A portfolio of energy technologies to produce Bio-Fuel is required to stabilizegreenhouse gas emission concentrations in the atmosphere. Disseminating the useof these new technologies, it is expected that costs will decrease througheconomies of scale. Costs must thus be determined by the development pathwaypursued by countries and how the government encourages it. Several developed

39 (EMBRAPA 2006)


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and developing countries are establishing regulatory frameworks for Bio-Fuels,including blending targets. They are also providing different kinds of subsidies andincentives to support emerging Bio-Fuel industries. These developments areexpected to spur a sustained worldwide demand and supply of Bio-Fuels for the nextdecades.

Moreover with political instability in the Middle East, and petrol prices unstable dueto difficulty in defining the size of the reserves, production of liquid Bio-Fuels fromnearly any form of energy feedstock (sugar, maize, rapeseed, etc.) becomesprofitable: 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 asdeveloped countries raise their Bio-Fuel share in energy grid. While in Brazil 40% oftransportation 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 itsprimary energy consumption to 12%. Bio-Fuels will increase to 5.75% of total transportfuels. The USA also plans to more than double its current 2% share for Bio-Fuels by2016, but this may accelerate. Brazil plans to increase Bio-Fuels share from 37% toabout 60% by 2020.

High oil prices and the need to reduce greenhouse gas emissions are among theimportant drives in this fast expanding sector. Bio-Fuels offer a number of potentialadvantages over fossil fuels, but concerns have been raised regarding the potentialfor negative secondary effects on food security and the environment

Market and Regulatory

Bio-Fuel-related trade regimes in the United StatesThe importation tax of Bio-Fuel to the U.S. depends on the feedstock. A limitedamount 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 othercountries. If produced from at least 50 % local (CBI) feedstock, Ethanol may beimported 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 besupplied 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 roleduring the negotiations of the US-Central America Free Trade Agreement (CAFTA).

Bio-Fuel-related trade regimes in European UnionThe 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, evensome European countries complain about the duties, because the EuropeanEthanol production cannot supply the entire European market. The new GSPRegulation which applies from 1 January 2006 to 31 December 2008 no longerprovides tariff reductions for either denatured or non-denatured alcohol.


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Although the Regulation includes an incentive scheme for sustainable developmentand good governance of the EU, it is still limited. There has been no significantexternal trade, but there has been considerable intra-European trade. Brazilian Bio-Diesel 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 reducetaxes over green products in general, among them, Brazilian Alcohol. The idea isto try importing some products that can make the EU save energy.

Bio-Fuel-related trade regimes in BrazilBrazil has struggled against taxes paid to the United States at the World TradeOrganization, alleging that U.S. payments to farmers have exceeded WTO limits. In2007 at the Doha Round Negotiations, Brazil encouraged a larger participation ofdeveloping countries in this commerce and must promote their capacity to develop

environmental goods industries, argues the proposal JOB (07/146) "Bio-Fuels areessentially an environmental good," suggesting that trade barriers on them shouldbe reduced41. However, governments have remained divided on how to determinewhich products are eligible for accelerated liberalization.

Intellectual Property

With the importance and dimensions that Bio-Fuel trade is reaching, there arechallenges beyond the technique to produce Bio-Fuel. Many countries in the worldare developing new technologies in different fields as enzymes, bacteria or evengenetically improved crops. In a competitive market such as this, each country must

expand its business, exchange technologies and sometimes even importing newtechnology. However, all of these processes must be closely followed-up in order tonot lose the intellectual properties. For some technologies there are hundreds ofthousands of dollars in investments that can simply disappear.

All transactions in a market that is not consolidated are difficult. Each country shoulddefend its interests and face this situation as an opportunity to expand itsadvantages based in specific technology, at the same time that gets newtechnologies from others fields. All the technological trade must be done over fairbasis with a clear division of responsibilities. Technology developers have also to payspecial attention to countries that have a not fair intellectual property policy like

China. International organizations such as the United Nations, WTO, and the WorldBank must always be involved to ensure specially the rights of the developingcountries.

Bio-Economy Opportunity

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

40 (UNESCO 2007)41 (Bridgs-Weekly new trad digest 2007)


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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 anddevelopment 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 NewZealand have developed new revolutionary methods to produce alcohol frombiomass.

There are still many other investments to get energy from Hydrogen, more efficientbatteries and hybrid vehicles. This decade Brazil is leader in Bio-Fuel production, butthe world is going through a transition period and alcohol is not as solid a market aspetrol. 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 creatingCarbon Credit to get a significant rise in GDP.

Conclusion

The era of energy frompetrol is over.Governments,intergovernmental andprivate organizations areaware that oil isreaching its peak andglobal heating is areality that is alreadyshowing its effect.

Stabilising or reducingthe world`s powerconsumption is not apossibility, we do needto find alternative waysto produce energy assoon as possible in order to minimize its effect in our lives.Today petrol still has a great importance in the world economy, much bigger thanthe Bio-Economy, but it is a fact that is changing.

This new market will surpass the value of crude oil and become even more profitableover time. The biggest banks in the world already realize this opportunity and havecreated specific strategies to help consolidate this new market through carbonemissions management, trading and brokerage recognizing the need to change allenergy grids, especially fuel used in transportation.The investment in Bio-Economy has been increasing year after year with verysignificant values in renewable energy of U$200 Billion to 2030 and U$500 Billion to2050.

Figure 24- Future Energies


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Differing from petrol economy, where it is clear that producers are obtaining thebiggest profit, Bio-Economy is a door to new possibilities, where developing countrieslike 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 isresearching Bio-Fuels for A380. Last year (2007) Ferrari launched its first modelpowered by Ethanol, F430. Even petrol companies are heavily investing inrenewable energies. Shell invested in Logen Corporation in 2002, a Canadiancompany specialising in enzyme manufacture, solar panel, and wind power.CHOREN (2005) invested in a German company specialising in gasificationtechnology for biomass. BP has built a large stake in solar, wind and is investingaround US$59.8 million a joint venture established by Brazilian companies to produceEthanol.

We are undergoing a period of transition where the world is changing from aneconomy based on petrol, to producing a simple plastic bottle, up to the fuel for ourcars, to a new ecological and responsible economy, where there are new rulers toinvest money. Profit is not the only ruler, and our environment is a very importantfactor to be considered. Companies, institutions and countries have no choice, butaccept these new rules to make profit and even survive.


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