Latin American Biofuels Loom Large

Latin America invested more than $8bn in biodiesel and ethanol in 2007 and has already launched new projects that could increase global energy production as demand from emerging-market economies outstrips growth in oil and gas production.

The efforts contrast sharply with the broad condemnation by leaders in the region, led by Venezuela's Hugo Chavez, that the fuels increase food prices and spur global hunger. Critics around the world have echoed such concerns, suggesting that farmers may divert crops toward biofuels and away from food crops.

A biofuels push could sustain energy flows from Latin America toward the United States, the world's top energy consumer, as falling oil output in Venezuela and Mexico has left Washington seeking new supplies in other regions.

Analysts say Latin America's soil and climate are ideal for developing ethanol from soy and sugar cane, which are more efficient than the corn-based ethanol dominant in the United States – the world's largest producer of biofuels.

"Latin America is the logical place to produce biofuels," said Brian Dean of the Interamerican Ethanol Commission in Coral Gables, Florida. "There is greater efficiency and a more sustainable environment particularly for ethanol, since sugar cane is a more efficient feedstock and can be grown easily."

Brazil is the region's undisputed biofuels leader, with ethanol mills expected to produce up to 27.5 billion litres in the 2008/09 season, up from 23 billion litres in 2007/08. Much of this is pumped into a vehicles outfitted to run on ethanol and gasoline.

Many countries in the region including oil producers Mexico and Venezuela are promoting renewable fuels as gasoline additives – selling cleaner-burning fuels at home while opening the door to export into growing markets abroad.

Latin America's biofuels production could eventually rival that of Asia, where China, India, and Indonesia are already among the top ten world producers, according to OECD data.

Food versus fuel

Plant-based fuels are increasingly viable with oil prices near $150 a barrel, but they have sparked a global debate over whether their production increases food prices and encourages encroachment on endangered rainforests.

Former Cuban President Fidel Castro described a broad US corn ethanol plan as 'genocide' and was quickly seconded by Chavez and Bolivia's Evo Morales, who berated the effort for using agriculture to feed cars instead of people.

But actions belie the words. Venezuela, despite the criticisms, is planning to produce ethanol as an additive to gasoline sold in the domestic market.

Colombia expects to produce one billion litres of ethanol a year by 2010, more than doubling current output, and plans to have enough production by the end of the year for export.

Argentina, the world's third-largest soybean exporter, in 2007 began exporting soy-based biodiesel and this year expects to more than double output, possibly strengthened by this month's rejection of a controversial tax hike on soy exports.

Peru this year opened a biofuels plant that processes soy but by 2010 will be fed with jatropha – a drought-resistant plant that can be easily grown in Peru's deserts. Mexico, a major oil exporter that imports much of its fuel because of limited refining capacity, has created incentives for biodiesel production from crops such as beets and sorghum.

"Brazil is the most advanced in biofuels because of its experience in ethanol," said Camila Ramos, head of Latin America research at renewable energy consulting company New Energy Finance. "But we're also seeing opportunities and investor interest in many other parts of Latin America."

The following are key facts about the region's biofuels efforts.

• Brazil is Latin America's leading producer of biofuels and the second-largest producer in the world due to an expansive sugar cane ethanol program that began decades ago. The vast majority of its 27.5 billion liters of annual ethanol production is consumed domestically, and most cars can run ethanol and gasoline.
• Exports of Brazilian ethanol to the United States have been limited in part because of a 54-cent-per-gallon U.S. ethanol tariff. Brazil is lobbying to have the tariff removed.
• Colombia, Latin America's second-largest biofuels producer, is increasing output through new investment in sugar production and palm oil, which can also be turned into fuel. Colombian officials say abundant grasslands are ideal for biofuels development since crops can be grown without cutting down rainforests.
• Latin American countries such as Peru and Venezuela are gradually introducing biofuels such as ethanol as additives in motor gasoline as they phase out more contaminating fuel additives.
• Caribbean and Central American countries including El Salvador and the Dominican Republic are developing biofuels facilities to tap into the U.S. market. The facilities often process Brazilian ethanol bound for the United States, letting Brazil sidestep the U.S. tariff through regional trade pacts.