print ]Brazil overtakes US as top destination for investment in biofuels
While the countries of Latin America recorded increased investor interest, development on some key Asian markets such as Indonesia and India began to stagnate in the absence of government stimulus measures. Brazil’s top placement was boosted by the compulsory introduction of B-3 blending for motor fuels. This legal requirement precisely stipulates adherence to a mix of 3% biodiesel and 97% conventional fuel. As a result of B-3, annual biodiesel demand in Brazil has increased from 800 million to 1.2 billion liters. This has significantly increased Brazilian export potential.
“Brazil’s position has also been boosted by India’s increasing appetite for biofuels. Brazil is also importing increasing quantities of ethanol to the US and beyond, a strategy made possible by local investment in overseas distribution assets, which is expanding the international reach of Brazilian biofuels,” says Jonathan Johns, head of renewable energy at Ernst & Young.
The US’ attractiveness for investment has suffered because of the tightening of the credit markets and the weakening performance of listed biofuels companies. The growing scientific and political debate surrounding first generation biofuels and the impact on world food prices is compounding the problem.
“Recent research by the World Bank indicated that large increases in biofuel production in the US and Europe were directly behind the sharp increase in global food prices. This caused investors to carefully consider investing in these markets,” comments Johns.
An industry in transition
Increasing criticism of first generation biofuel is aiding the transition to second generation biofuel technologies, which involve the breakdown of nonedible crops and waste to create liquid motor fuels. Accelerating second generation biofuels will help the sector establish its long-term viability and attractiveness to investors. For this to happen, improved government incentives are required to attract the necessary capital into the market, to stimulate growth and accelerate the evolution of the industry. In the interim, first generation biofuel technologies will continue to have an important role.
“There is likely to be a shift in focus of production to a few key markets such as Brazil where first generation fuels can be produced most economically and sustainably,” adds Johns.
Europe update
Germany saw the biggest drop on the All biofuels index, falling from third to sixth. This was a direct result of the government’s decision to withdraw the E10 roadmap – the plan to blend 10% biodiesel with conventional fuel. The rise of France, Spain and Canada is predominantly due to Germany’s fall down the index. The UK retained ninth position, but investor confidence has been harmed by criticism over first generation biofuels by British non-governmental organizations and top environmental scientists.
About the Biofuels country attractiveness indices
Ernst & Young’s dedicated Biofuels country attractiveness indices ranks the attractiveness of global markets for investment in biologically derived renewable fuels incorporating both ethanol, a petrol substitute, and biodiesel, a substitute for diesel fuel. The Indices provide scores out of 100 and are updated on a regular basis. The Indices take a generic view and different sponsor/financier requirements will clearly affect how countries are rated.
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