estudo bid biocombustíveis - volume1

AMERICASA BLUEPRINT FOR GREEN ENERGY IN THE

Blueprint for Carbon Markets | Section 7 ii

2009Strategic Analysis of Opportunities Preparedfor The Inter-American Development Bank by:

GARTEN ROTHKOPF

VOLUME ONE

A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf iiiiii

A Letter to the Readers of A Blueprint for Green Energy in the Americas

This second edition of A Blueprint for Green Energy in the Americas explores a vital, rapidly changing subjectin the only way that effective analysis of an issue of such scope is possible: through an extraordinary andwide-ranging collaboration. The first part of that collaboration is our work with the Inter-AmericanDevelopment Bank. The IDB’s president Luis Alberto Moreno, since taking the helm of the bank, has made thedevelopment of green energy and the preservation of Latin America’s extraordinary resources one of theinstitution’s top priorities. The bank’s board and its staff have joined in, shaped, and built upon thatcommitment to create programs of real impact.

This report is a product of the bank’s commitment to sustainable growth throughout the Americas. However, itshould be noted at the very outset, the report is not a product of the bank. Rather, in order to ensure that theyare working with the latest thinking and the broadest array of views, the bank has asked our firm, GartenRothkopf, to provide a report to them that represents a full range of outside perspectives. Needless to say noreport on such a complex subject, even a fairly extensive one, can hope to be comprehensive. Rather, whatyou will find here is illustrative, and a hopefully a source of useful insights from experts throughout theAmericas and around the world. It is important to underscore, however, that the views in this report are notthose of the IDB; rather, they are offered to assist the bank in shaping internal positions and in keeping up withworldwide developments.

To prepare the report, Garten Rothkopf analysts have worked directly with over 300 experts, includingscientists, technology specialists, senior government officials, business leaders, investors, representatives ofnon-governmental organizations, and academics. We conducted four major scenario events at the IDB, whichgathered viewpoints from over 150 ministers, CEOs, Chief Investment Officers, and lead technologists on keyissues and likely developments in the region. We not only sought expert insights, but we also had selectedexperts review sections of the text to ensure they were up to date and represented as many key viewpoints aspossible.

The approach and structure of the book itself is also a consequence of the collaboration with the IDB. The firstedition of the Blueprint, which was published in 2007, focused primarily on biofuels in the Americas. Nothingbetter illustrates the volatility of the issues associated with green energy than the wild ride that atittudes onbiofuels have taken in the interim. When we started, they were a subject for specialists. When the book cameout, they were at the center of a worldwide frenzy of interest. In the months that followed, they were subject toa backlash because of some reasonable concerns (that they needed to be produced sustainably, and thatsome biofuels feedstocks and technologies were neither efficient nor ready for prime time), and someunreasonable ones (a widespread view—that later turned out to be undercut by events—that the biofuelsboom was playing a primary role in pushing up food prices). Today, finally, a more reasoned and rational view

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iivv A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf

of the substantial promise of biofuels (when handled responsibly and with appropriately measuredexpectations) is emerging. Fortunately, that is the view we encouraged in the first volume of the “Blueprint,”and we believe it illustrates the benefits of remaining objective and evidence-based in the assessment of afield that is today the subject of much hype and passion. The primary reason for pulling together such anextensive volume is to help policymakers and business leaders in their important efforts to drill down to thecore truths they will need to make sound decisions for the future.

Readers will note that the book itself is also not organized to cover each technology or set of policy options ineach country. Rather, the leadership at the IDB has requested that the report reflect the structure of theircenterpiece Sustainable Energy and Climate Change Initiative (SECCI). Thus, the body of the report focuseson several of the key pillars of that effort – renewable energy, biofuels and carbon finance. In each case, wewere asked to illustrate the coverage with examples of countries in the region that were active with thetechnologies or policy options being covered. As a consequence, not every country in the region is covered,but it is our sense that the vast majority of those that are most active are. Further, of course, not every detail ofevery initiative in every corner of the Americas could possibly be covered here; rather, we have tried to findthose that provide useful insights into the state of activity in countries of different types, with differentresources, and with different sets of concerns and priorities.

Overall, the structure of the report builds around this SECCI core with several other elements. The reportbegins with an executive summary that highlights key findings and recommendations. That summary is thenfollowed with a series of essays. While this is rather unorthodox in a report of this nature, we felt that given thesubject matter involved that it would be useful to look in depth at some of the cross-cutting questions with thegreatest resonance to those with active interests in the green energy in the Western Hemisphere. One suchessay looks at whether Latin America is treating the issue with the urgency it deserves. Another deals with thefact that many of the most important core concepts associated with this green revolution are not new at all,and that they in fact were well known to indigenous peoples of the Americas and worldwide many centuriesago. Another deals with an area of great opportunity, which we call micro-energy, and examines the ways newenergy technologies and distributed grid-thinking can bring power to the millions of people in the hemisphere(and worldwide) who have none and do so sooner, cheaper and more sustainably than traditional approaches.Yet another essay deals with the potential to apply a portfolio approach to the development of national energystrategies.

The one essay yet to be mentioned deals with a theme that has become central to the book: the relationshipbetween green energy and growth. As this book is being published, the world is in the throes of an economiccrisis that looks likely to be sustained and to deepen for some time before recovery begins. Leaderseverywhere are seeking both to offset the impact of the downturn and to lay the foundations for future growth.A recurring theme in this regard is associated with the subject of this book: green energy and climate change.New attitudes, innovation, regulation, investment, and growth in these areas suggest that they will be thesource of many new jobs and indeed of new industries worldwide. As a consequence, the book contains aseries of green boxes that focus on ideas that could be useful to policymakers when considering their owngreen stimulus and green recovery options.

The essays are followed by a summary of the scenario exercises mentioned earlier, which are, in turn,followed by the body of the text. In the course of that body we cover six different core energy technologiesthat are central to the IDB’s thinking—small hydro, geothermal, wind, solar, wave, and biofuels and bioenergy.A total of 16 country case studies examine the developments and challenges for these technologies and therelated issue of carbon finance. As a consequence, the book not only covers a wide range of key issues andquestions, but it also offers an overview of how half the world is dealing with one of the great challenges ofour time.

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Given the enormous amount of activity in the areas covered by this book and the likely increases ininvestments and project volume that will take place as leaders throughout the region implement new policies,a book like this can only hope to offer a snapshot of a scene that is rapidly changing. Over time, updates andfuture volumes will be required, including a focus on the critical issues of energy efficiency and the greening oftraditional energy sources. Indeed, one of the key challenges our research identified was the great difficultythat even the most informed policymakers in the Americas have with remaining current on issues that involveso many scientific, technical, business, investment, social, and other complexities. As a firm that has as itslargest practice a specialization in worldwide developments, opportunities, challenges, and trends in the areaof green energy and climate change, Garten Rothkopf is acutely aware of how daunting that challenge can be,especially given that many of the most important facts come shrouded in hyperbole, the self-interestedpleadings of special interests, and uncertainty. It is our hope that this book contributes to both betterunderstanding in this area and ultimately to efforts that will seize the promise of the energy alternativesexplored here to provide a more sustainable, prosperous future for the Americas.

Finally, we want to offer our own personal thanks to the team that put this book together, our terrific group ofanalysts and researchers in Washington, New York, and San Francisco. We especially would like to highlightthe leadership, creativity, and professionalism of Claire Casey, our Senior Vice President who leads our greenenergy practice. These books are very much the reflection of many, many hours of great work by a dedicatedteam and we are very grateful to them.

JEFFREY E. GARTENDAVID J. ROTHKOPF

Winter 2009Washington, DC

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A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf vviiii

Table of Contents

VOLUME ONE

1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2 Essays on Major Themes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

2.1 Green Urgency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

2.2 The Microenergy Opportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

2.3 Improving Energy Security: A Portfolio Approach to Energy Resource Management . . . . . . . . . . . . 65

2.4 The Culture of Green . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

2.5 Energizing Qualities of Green T[echnology] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

3 Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

3.1 Scenarios for Green Energy in the Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

3.2 Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

3.2.1 Pale Green . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

3.2.2 Out of the Blue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

3.2.3 Myths, Misconceptions, and X-Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

3.2.4 Bright Green . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

4 Global Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

4.1 Drivers of Global Energy Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

4.2 Small Hydropower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

4.3 Geothermal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

4.4 Wind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

4.5 Solar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

4.6 Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

4.7 Biofuels and Bioenergy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

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Table of Contents

VOLUME TWO

5 Blueprint for Renewable Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198

5.2 Key Factors Influencing Renewable Power Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201

5.2.1 Global and Regional Electricity Supply and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202

5.2.2 Renewable Resource Endowments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225

5.2.3 Renewable Power Investment and Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

5.2.4 Electricity Market Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247

5.2.5 Renewable Power Policy Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252

5.2.6 Social and Economic Impacts of Renewable Power:

Rural Electrification and Green Jobs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269

5.3 Renewable Power Technology Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285

5.3.1 Renewable Power Research and Development Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285

5.3.2 Emerging Renewable Power Technologies – Small-Scale Hydropower . . . . . . . . . . . . . . . . 293

5.3.3 Emerging Renewable Power Technologies – Offshore Wind Power . . . . . . . . . . . . . . . . . . . 297

5.3.4 Emerging Renewable Power Technologies – Concentrating Solar Power . . . . . . . . . . . . . . 302

5.4 Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307

5.4.1 Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307

5.4.2 Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330

5.4.3 Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365

5.4.4 Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389

5.4.5 Guatemala . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423

5.5 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451

6 Blueprint for Biofuels and Bioenergy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495

6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496

6.2 Macro Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 497

6.2.1 Economic Trends: The Impact of Commodity Prices on Food and Feedstocks . . . . . . . . . . 497

6.2.2 Environmental Policy Trends: Determining the Impact of First Generation Biofuels . . . . . . . 502

6.3 The Next Generation of Biofuels – Overcoming First-Generation Barriers

Through Technology and Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519

6.3.1 Biofuels for Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519

6.3.2 Biofuels for Electricity and Thermal Power Generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536

6.4 Trends in Latin American Biofuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545

6.4.1 Drivers in Biofuels Development in a Petroleum-Based Region . . . . . . . . . . . . . . . . . . . . . . 551

6.4.2 Agricultural Resource Endowments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 552

6.4.3 Potential Social Impacts of Biofuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 554

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6.4.4 Potential Environmental Impacts of Biofuels Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 556

6.4.5 Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560

6.4.6 Financing Feedstock and Capacity Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563

6.4.7 Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 568

6.4.8 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 579

6.5 Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .581

6.5.1 Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581

6.5.2 Peru . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618

6.5.3 Colombia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 648

6.5.4 Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 677

6.5.5 Honduras . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701

6.5.6 Dominican Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717


7 Blueprint for Carbon Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 763

7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 764

7.2 Global Carbon Markets – Latin America in Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 767

7.2.1 Where We Stand Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 767

7.2.2 A Short History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 768

7.2.3 Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 769

7.2.4 Mandatory Allowance-Based Emissions Schemes Worldwide . . . . . . . . . . . . . . . . . . . . . . . 773

7.2.5 Voluntary Carbon Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 776

7.2.6 Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 782

7.3 Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 785

7.3.1 Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 785

7.3.2 Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 798

7.3.3 Colombia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 805

7.3.4 Honduras . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 814

7.3.5 Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 823

7.4 Global Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 833

7.4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 833

7.4.2 People’s Republic of China (PRC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 833

7.4.3 India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 841

7.4.4 Latin America and Asia Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 847


xx A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf

EXECUTIVESUMMARY

SECTION ONE

Executive Summary | Section 1 11

2 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf

A Blueprint for Green Energy inthe Americas

In 2007, Garten Rothkopf prepared for the IDB the firstedition of A Blueprint for Green Energy in the Americas.Neither the IDB nor the authors anticipated theexceptionally positive response the book would get.Clearly, there is a great and rapidly growing demand forfact-based, hype-free analysis of what is happening in theareas of energy choice and climate change in the region.As a consequence, the IDB has commissioned anotheredition, this year’s focusing on all forms of alternativeenergy. The objectives, unlike last year’s book, are to focuson who is leading the way in each area, what the overalltrends are, what the obstacles to further progress seem tobe, and how these fit with the mission of the Bank and thegoals of its member countries.

The resulting study is even more comprehensive than lastyear’s, but it needed to be. This is a huge subject, and theissues involved are absolutely vital to the energy security,economic security, and environmental security of everycountry in North and South America. In order to make theinformation in the Blueprint as accessible and useful aspossible, not only has the book been carefully organized,indexed, and footnoted, but this detailed executivesummary has been prepared.

The summary is followed immediately by a series of fiveessays that explore key themes that have arisen in theyear of research that Garten Rothkopf has conductedwhile preparing this year’s edition of the Blueprint. Each ofthe essays looks at a cross-cutting idea that will helpframe the more technical assessments andrecommendations that follow.

Immediately following these essays is a summary of fourimportant events that shaped the study, a series ofscenarios with government, technical, business, andinvestment leaders that were conducted at theheadquarters of the Inter-American Development Bank.These scenario exercises explored just what was drivingthe growth of green energy in the Latin America and theCaribbean, what was impeding it, and where hiddenopportunities might lie. The more than 150 participantsincluded cabinet ministers, undersecretaries, CEOs,leading scientists, portfolio managers, and others whoshared their views with the Bank and made the events intoa great success.

What follows is the body of the book, organized aroundsources of energy and, within each of those sections, bycountry. Throughout, the mandate has been to be

scrupulously objective, technology-agnostic, and focusedon the pros and cons associated with each technologicalapproach. We have also sought to evaluate trends in termsof the differing needs and challenges associated withindividual countries. There are no magic bullets. There isno one-size-fits-all solution to rapidly reduce carbonemissions and meet, with greener technologies, theenergy needs of a rapidly growing and changing region.Each country must adapt a portfolio approach (seeSection 2.3 on this subject) and do so in a careful yettimely way (see Section 2.1, on the urgency of greenerenergy throughout the Americas). We believe this reportcan be a useful resource in helping each country, andcompanies within each country, to make key decisionsthat will lead them forward in what is certain to be arevolution that will change every country of the Americasin profound and lasting ways.


Executive Summary

Latin America and the Caribbean are lagging behind in theglobal green energy revolution. By any metric, whether it becapturing a share of the $148.4 billion in new investmentlast year, developing and deploying new technologies,participating in carbon markets or establishing supportivepolicy and regulatory frameworks, the regionunderperforms its competitors. And yet, thanks to its vastnatural resource endowment, there is no other region onearth that has greater potential to transform its energymatrix, leapfrog old technologies, and establish newengines for economic growth and social development.

This potential becomes all the more important in the midstof a global economic downturn. The crisis is forcinggovernments around the world to assess their policychoices and take major decisions on how to best spurgrowth over the long term, including infrastructuredevelopment, investment promotion, and technology. It isan opportunity to map out a smart, green recovery thatcreates new jobs, enhances competitiveness and reducestheir strategic vulnerabilities. Institutions like the Inter-American Development Bank will have a critical role to playin addressing both the short term challenges of access tocapital, and the long-term strategic planning for a greener,more competitive future for the region.

Perspectives on Green Energy and ClimateChange in LAC: Essays on Major Themes

Green Urgency

A direct human cost to climate change is being felt in LatinAmerica and the Caribbean, with millions of lives affectedeach year by natural disasters of increasing intensity. TheIPCC and others have projected that if we continue on ourcurrent course, the future will promise more severedroughts, heat waves, and tropical cyclones, among otherphenomena, putting the development imperatives of theregion at risk from rising sea levels, crop failures, watershortages and the proliferation of diseases. GreenUrgency examines the ways in which climate changeaffects countries in the region, its anticipated futureimpact, strategies for mitigation and adaptation, and thepotential opportunity to be seized by building on theregion’s low emissions profile and advancing a favorableagenda in global climate talks.

The Microenergy Opportunity

The advent of microenergy — small scale, decentralizedenergy systems fueled primarily by renewable energysources — presents an opportunity to leapfrog thetraditional model of electricity grid-expansion andaccelerate the spread of modern energy to millions in theAmericas and worldwide. This essay examines thismicroenergy opportunity. It highlights the potentialdevelopmental impact of extending modern energyservices to the 1.6 billion people who currently lack accessto electricity and explains why microenergy’sdevelopmental, decentralized, and diversified model

Chart 1.0a Global CDM Projects per Year

Chart 1.0d Total Global Commissioned Biofuels Projects

Chart 1.0b Annual Growth in Renewable Power Capacity(2004-2007)

Chart 1.0c Global Renewable Power Investments

44%48% 34%62

461

887

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0.02% 2.22% 1.31% 2.85%$12

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illio

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Sources: REN21, New Energy Finance, World Energy Council, CAMMESA, MEM, International Geothermal Association, Geothermal Resources Council,

Polaris Geothermal, Business News Americas, OLADE, Global Wind Energy Council, Latin America Wind Energy Association, ANES, MEM, SEFI


represents a marked improvement over traditional grid-based energy infrastructure, particularly in rural,impoverished areas. Small and medium-sized enterprises(SMEs), rather than large utilities, have been and will likelycontinue to be the drivers of sustainable growth in thefledgling microenergy industry. However, support fromgovernments, development banks, NGOs, and anincreasing number of private organizations, is critical torealize the full potential of the microenergy opportunity.The ability of these supporting organizations to improveand integrate their SME financing and capacity-buildingservices will determine the trajectory of this industry.

Improving Energy Security: A Portfolio Approach to

Energy Resource Management

The conventional wisdom that governs energy resourcemanagement needs rethinking. In today’s increasinglyrisky energy markets, continued adherence to thetraditional least-cost energy planning model exposesnational power infrastructures to significant price, supply,and environmental risks. To insulate national energymarkets from these risks, and thus to strengthen energy,economic, and national security, energy planners mustapply a portfolio approach to energy resourcemanagement. This essay examines the application ofwell-established financial portfolio theory to energyresource planning. It offers an overview of the principlesof portfolio theory, examines the various risks faced byundiversified energy portfolios in the Americas, andillustrates the key role that renewables play in achievingenergy diversification. Energy planners face severalpractical challenges to applying a portfolio approach toenergy resource management, such as high transitioncosts associated with portfolio redistribution, imperfectsubstitutability among energy options, and misalignedincentives between individual power producers andnational energy markets. Policymakers can employ anumber of alternative energy incentives and mandates,including feed-in tariffs and renewable portfoliostandards, to help energy planners overcome theobstacles to diversifying and strengthening nationalenergy portfolios.

The Culture of Green

The answers to today’s challenges of global climatechange and energy security can be found in principalsdeveloped thousands of years ago. The indigenouscultures of the Americas promoted principles ofinterconnectedness and balance not as lofty ideals, butas principles of survival. The Culture of Green examineshow indigenous views of nature and the environment canhelp development organizations integrate climate changeconsiderations into development strategies. Becauseclimate change poses a significant threat to economic

and human development, it must underlie all bankmissions and country policies, not just those that takeaim at the environment. Multilateral institutions, like theIDB, face significant barriers to integrating climatechange into development goals, yet they may begin todo so through the indigenous principles of countries theyare dedicated to serve. The concepts ofinterconnectedness, balance, cyclicality of time, andactive stewardship guide practical solutions forintegrating climate change. Approaches include fullgreenhouse gas emissions accounting, adaptivemanagement, longer project lifespans, and improvedmember country engagement.

Energizing Qualities of Green T[echnology]

Green technology has a broad range of energizing spillovereffects on economies — and nowhere is this potentialgreater than in emerging markets like those in LatinAmerica and the Caribbean, where new technologies canleapfrog existing infrastructure and provide low-cost,tailored power supplies to off-grid communities. While stillan understudied area, the evidence of the payoffs of greentechnology is becoming clearer and more quantifiable.Latin America and the Caribbean offer an abundance ofopportunities for the development and deployment ofgreen technologies. The region accounted for just over 5%of global investment in sustainable energy in 2007, withnegligible investment in innovation. This essay examinesthe energizing qualities of green technology on markets,scientific and technological innovation, social development,national security, policy, and the environment and offersguidance for Latin American and Caribbean countriestoward harnessing green technology’s potential.

Scenarios for Green Energy in the Americas

In the first quarter of 2008, Garten Rothkopf and the Inter-American Development Bank (IDB) convened threeday-long, invitation-only scenarios devoted to technology,investment, and policy trends in green energy. Thesescenarios brought together more than 150 leading expertsfrom throughout the hemisphere to game out the likelyimpact of three possible scenarios for our energy future: abaseline “Pale Green” scenario, an “Out of the Blue” shockscenario, and a “Bright Green” scenario for unprecedentedinternational cooperation on climate change. During thesessions, participants took part in anonymous polling toframe our discussion and gauge the sentiment in the room.The discussions and polling results together produced newinsights into the key challenges faced by this hemisphere inthe coming years, the areas of greatest opportunity, andhow the IDB can best help countries in the region adapt tothe changing energy and climate future.


The purpose of a scenario exercise is not to predict thefuture, but rather to allow a group of leaders to considercollectively how they might be affected by differentoutcomes, what their vulnerabilities and risks are, what theircomparative strengths are, and which approaches make themost sense. Across scenarios and sessions, the vastmajority of participants identified three critical gaps as themost significant barriers to green energy development in thehemisphere — policy, infrastructure, and technology — aswell as proposals for how the IDB might help address them.

Participants overwhelmingly identified the policy gap as thegreatest barrier to green energy in the Americas, followed bytechnology and innovation issues. According to 42% ofparticipants, policy is the greatest gap. Another 24% citedR&D, while 51% cited political will as the greatest challengeto green energy. Lack of technology was the answer of 19%.It was nearly unanimously believed that countries in theregion lack sufficient energy and climate change planningand have insufficient resources dedicated to these issues(94% and 88%, respectively). The issue extends beyond amere lack of will or interest, with 68% of participantsdeeming policymakers in the region to be lacking in theunderstanding and knowledge necessary to develop soundpolicies in this area. Multilateral financial institutions,however, were seen as having an important role to play inaddressing these gaps, with 86% of participants agreeingthat institutions like the IDB should work with countries todevelop new models for green energy in developingcountries. A number of very specific proposals were offered:

• The IDB should sponsor a study of the economic impactof climate change on the hemisphere, at a regional, sub-regional, or national level to increase knowledge on thecosts of climate change and support sound decision-making and allocation of resources by governments.

• The IDB should focus special attention on the islandsand shorelines uniquely exposed to the impact of climatechange.

• The IDB should consider enhancing the environmentaland energy economic analysis capacity at the Bank andestablish a clearinghouse for regional data.

• The IDB should continue activities like the scenario series,with a more specific regional or even national focus.

As stated above, local innovation and access totechnologies were seen as the next most important barrierto the development and deployment of renewable energyin the Americas. Only 9% of participants did not perceivethe region as dependent on technology imports, withexperts time and again citing multi-year waiting lists forcapital equipment imports such as wind turbines and thelack of tailored solutions for local conditions. Again,specific ideas were given for ways in which the IDB could

help address these issues, including the facilitation ofSouth-South technology transfer and investment throughcoordination with other regional development banks. Withregard to catalyzing local R&D, participants pointed first toproviding financial and technical support for thedevelopment of appropriate policy frameworks (42%),followed by the direct funding of centers of excellencededicated to green energy in the region (23%).

Finally, participants predicted the need for massiveinvestments in new energy infrastructure over the next fiveyears, with 75% of those polled expecting the bill to be inthe range of $50 billion to $100 billion. The focus here wason the power-generation sector, particularly connectingthe 40 million people living in the Americas today who arewithout access to electricity. In this context, 45% said thattransmission lines to rural areas should be the priorityinfrastructure gap addressed in the region, with anadditional 30% citing upgrading existing grids. What wasnot captured in these raw numbers, but was pointed toconsistently throughout the sessions, was the potential forrenewables to play a role in leapfrogging existing systemsand providing off-grid power to rural communities.

Global Outlook

A review of the world’s leading energy information sourcespoints to a period of substantial transition and turbulencein the global energy sector. With three of the mostpowerful drivers of energy markets — demand, supply,and the environment — undergoing considerable change,the future composition of the energy system remainshighly uncertain. Economic growth in the developing worldhas caused an unprecedented increase in energy demand,with increased industrialization, urbanization, andpopulation levels driving much of the exponential growthin demand. Although the increase in demand is a cleartrend, the future availability of supply is much less certain.Several leading energy information sources predictinsufficient supply levels. As the world scrambles forsolutions to the current energy dilemma, environmentalconcerns have risen to the top of the agenda, prompting aglobal trend, at both the national and local levels, to enactnew policies not only to reduce greenhouse gas emissionsand their environmental impacts, but also to diminishdependence on fossil fuels through the diversification ofenergy supplies.

Renewable Power in Latin America

LAC’s prodigious renewable resources offer a true solutionto the region’s energy security woes in the power sector,


but major gaps in policies and financing are preventingthis potential from being realized. The lack of support forrenewables in most countries in the region is primarilydue to their higher costs compared to conventionalgeneration sources, a disadvantage that has beenexacerbated by a precipitous fall in fossil fuel prices inthe last quarter of 2008. This section aims to identifyand explain the opportunities and challenges facingrenewables in the region within the context of the powersector more broadly, as well as to propose a series ofmeasures that the Bank could pursue in order to helpfacilitate the development of these critical energyresources for the region’s future. In order to do so,Garten Rothkopf has analyzed the key drivers and trendsshaping the renewable power sector globally andregionally and has explored the interplay of these factorsat the country level through five case studies. A widerange of sources were drawn upon, includinggovernment, academic, and non-profit analyses, publicand private data sources, news articles, and primary-source interviews in English, Spanish, and Portugueseconducted between February and September 2008.

Energy Security in LAC and the Promise of

Renewables

The drive for the development of renewable power sourcesin Latin America is rooted in the shortcomings of its present,crisis-prone electricity supply mix. Historically, mostcountries in the region outside of the Caribbean (whichrelies mostly on fossil fuel-fired generation) have dependedheavily on large-scale hydropower installations for most oftheir electricity, including Brazil’s reliance on hydropower formore than 90% of its generation.1, 2 This has left the regionhighly vulnerable to drought-induced power crises, whichare likely to increase in severity in the future as climatechange leads to more intense El Niño events.3

In the 1990s, regional struggles with these power shortages,increasing recognition of the environmental and social costsof large-scale hydropower, and widespread liberalization ofthe region’s power sectors resulted in a shift in mostcountries to fossil fuel–fired plants for new generatingcapacity. While private investors strongly favored thesethermal generators due to their fast construction times, lowup-front costs, and then-inexpensive supplies of natural gasand oil, skyrocketing fossil fuel prices in recent years havecaused generating costs in the region to soar. Moreover,the politicization of the energy sectors of key regionalexporters, including Mexico, Venezuela, Bolivia, Ecuador,and Argentina, has created further distortions inconsumption patterns and uncertainties over long-termproduction. Thus, large hydropower as well as fossil fuelgeneration are both demonstrably volatile sources of powerand are likely to become increasingly insecure with time.

The problems that this dependence poses are becomingmore acute as economic growth leads predictably torobust electricity demand growth, with average annualincreases in power consumption of 4.9% in SouthAmerica and 5.8% in Central America over the past fiveyears (although the Caribbean has lagged, at just 2.7%).4

This growth has increasingly strained the ability of manypower systems in the region to keep up with demand,leading to an increasing risk of outages and powerrationing from droughts or decreases in fossil fuelsupplies. At the same time, the urgent need to increasepower generation has led most countries to focus on thecontinued development of these unsustainableconventional power sources to satisfy growing demand.This is due primarily to their proven track record andhistorically lower costs, despite their proven risks and achanging supply landscape.

Renewable energy sources offer truly secure, long-termsolutions to the region’s power supply needs. Geothermalenergy provides some of the most reliable baseload powerin the world, and while solar and wind generation may notbe able to provide baseload power without storage, theycan replace a substantial fraction of conventionalgeneration and are not vulnerable to price spikes orunexpected supply interruptions. Small hydropower is alsoincluded in this study as an important and under-utilizedsource of renewable power that avoids the environmentaland social costs of large-scale dammed hydro, althoughlike larger hydro installations it is subject to drought-induced shortages. In the long-term, wave and tidalpower technologies also promise further diversity for theregion’s power mix.

Renewable energy sources offertruly secure, long-term solutions tothe region’s power supply needs. Further, advocates of renewable power worldwide aretouting the potential social and economic developmentimpacts of greater use of these resources, an argumentthat has particular appeal in Latin America and theCaribbean. In the rural development context, renewableshave been used to provide the benefits of modern powerservices to isolated households and communities, with 13countries in the region having created dedicatedrenewable power initiatives as part of their ruralelectrification programs. More broadly, slow employmentgrowth in traditional energy industries, fast-growingdemand for renewable power, and the greater laborintensity of renewables due to their smaller scale, have ledto hopes that a more widespread adoption of renewablepower could lead to a surge in new “green jobs.” 5 While


data on the concrete impacts of renewables on socio-economic development objectives are currently verylimited, they could potentially play an important role increating political support for the sector.

However, while all of these renewable powertechnologies offer opportunities to provide neededimprovements to reliability and price stability for theregion’s power sectors — and to create positiveexternalities that contribute to socio-economicdevelopment goals — their adoption in LAC has beenmuch slower than in other regions of the world.

The Current State of Renewable PowerDevelopment in LAC

Latin America and the Caribbean have lagged behindthe global pace of adoption of new renewables, withgeothermal, wind, and solar energy accounting for just1.9 GW out of a total of 267 GW in the region in 2007 —approximately 0.7% of the total.6 This is significantlyless than the role these three technologies play in the

overall global mix, where they account for 113 GW, orabout 2.5% of the 4,300 GW total worldwide capacity.7

When small hydro installations are included, thesefigures increase to a total of 4.6 GW in LAC (1.7%) and186 GW (4.3%) globally. The lag is even more dramaticwhen considering the miniscule portion of total globalrenewable energy investment flows entering the region,with LAC receiving $2.5 billion in renewable powerinvestments in 2007 — less than 3% of the global totalof $87 billion, according to New Energy Finance.8

Renewable Power Deployment in LAC

The development trajectory of renewable power in LACvaries significantly by technology as well as by country.

Technologies

Small hydro: Due to its relatively low costs and theregion’s long experience with hydropower, small hydro isthe largest source of renewable power covered in thisreport in LAC, with an estimated 2.7 GW of installedcapacity. This is less than 4% of a global total of 73 GWof small hydropower, including 47 GW in China alone,

Regional Leaders:

Brazil: Brazil has set the pace for wind and smallhydropower development in the region, thanks toits PROINFA feed-in tariff incentive and readilyavailable domestic long-term financing from theBrazilian National Social and Economic Develop-ment Bank (BNDES).

Chile: Chile has one of the most well-regulatedpower markets in LAC, which has been madeeven more attractive for renewables developers,thanks to funding for feasibility studies and finan-cial consulting from CORFO, the state economicdevelopment agency, as well as a new renewableportfolio standard (RPS) incentive that will require5% of the country’s power to come from renew-ables by 2010.

Costa Rica: Costa Rica has long been a leader inthe development of renewables in Central America,with an effective system of government-run auc-tions for wind and geothermal power. It could fur-ther harness the country’s resources with recentconsideration of a bill that would open parts of thecountry’s park system to geothermal development.

Laggards:

Argentina: Argentina’s power sector development, asa whole, was derailed by the economic crisis of2001–2002, and the maintenance of tariff freezes en-acted during the crisis have caused private sector in-terest in the sector to vanish. Wind powerdevelopment is thus almost completely stagnant,with only government-sponsored projects being ex-plored, despite attempts to introduce new incentiveprograms.

Mexico: Mexico has maintained its power sector as astate-owned monopoly, which has struggled to con-cession wind farms due to the below-market prices ithas offered. New rules and incentives for renewablesin November could stimulate investment in the sector,but details of their implementation will not be finalizeduntil mid-2009.

Colombia: Despite a wide range of renewable re-sources and financing assistance in recent years forrenewables from the World Bank and IDB, Colombiahas yet to pass any incentives to support the sec-tor’s development, limiting prospects for privatesector investment.


where it has been used as a primary resource forextending electricity access to rural communities.9 While itis also one of the most widely used renewable powertechnologies in the region, with significant installationsidentified in nine countries in both Central and SouthAmerica, this capacity is heavily concentrated in Brazil,which alone accounts for nearly 1.9 GW.10

Small hydropower’s low costs, particularly whenintegrated with existing hydraulic infrastructure such asirrigation canals, will likely ensure that it will continue toplay a leading role in the development of the region’srenewable resources. Moreover, these projects canprovide more robust power supplies for rural developmentthan photovoltaics and are increasingly being integratedwith local environmental initiatives, which can serve toimprove generation performance as well as create jobsand enhance relations with local communities. However,its usefulness in enhancing energy security is limitedbecause it is even more vulnerable to droughts than largehydro due to a lack of dam storage.

Geothermal: Geothermal is the largest and mostestablished source of non-hydro renewable power in LatinAmerica and the Caribbean, but this generation iscurrently confined to Central America and Mexico, and itsexpansion has been slow. There is 1.4 GW installedthroughout the region, of the roughly 10 GW worldwide.11

Mexico leads by far, with its 960 MW ranking third in theworld in installed geothermal capacity.12 Despite its

unsurpassed reliability and competitive costs, high up-front project risks and a limited number of potentialdevelopment sites have made geothermal the slowest-growing renewable power source worldwide, with annualgrowth of just 2%–3% per year, and it has similarly seenjust 26.5 MW added in LAC since 2005.

Geothermal power capacity is expected to continue togrow in Central America, and potentially at an increasedpace, thanks to a new geothermal feed-in tariff inNicaragua and a plan to open sections of Costa Rica’snational park system to geothermal development.Moreover, moves to develop the excellent geothermalpotential in northern Chile’s mining areas could mark animportant first step toward the wider development of thevast geothermal resources located along the continent’sPacific coast.

Wind: Wind is the fastest growing non-hydro renewablepower source in Latin America, but two-thirds of windcapacity added since 2005 have come from Brazil,13

where future growth is uncertain due to the windingdown of its PROINFA subsidy program. Wind power’sfast construction time, widespread applicability, andincreasing competitiveness with conventional powersources have made it the largest and one of the fastest-growing renewable power sources worldwide, expandingat a pace of 25% per year between 2002 and 2006 andreaching 95 GW installed worldwide at the start of2008.14 This study has identified 506 MW of installed

Chart 1.0e Small Hydro Capacity, LAC Region

Sources: New Energy Finance, World Energy Council, CAMMESA, MEM

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Chart 1.0f Geothermal Capacity, LAC Region

Sources: International Geothermal Association, Geothermal Resources Council, Polaris Geothermal, Business News Americas

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Chart 1.0g Wind Capacity, LAC Region

Sources: GWEC, OLADE, LAWEA, NEF

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wind power capacity in LAC, nearly half of which is inBrazil. The rest is spread across nine other countries inCentral and South America as well as the Caribbean,making this already the most widely used renewablepower technology in the region.

Wind power’s costs are increasingly similar toconventional power in many cases, but they are higher onaverage than small hydro or geothermal and are thus moresensitive to the availability of incentives to attractinvestors. The most proven incentive program in theregion by far, Brazil’s PROINFA, is winding down, whichcould jeopardize continued growth in this key market.However, a number of countries have recently createdpolicies of their own that are expected to benefit windpower, including Chile, the Dominican Republic, andGuatemala. Two of the region’s most promising windpower markets, Argentina and Mexico, have seen theirdevelopment of this resource hamstrung by heavilypoliticized energy sectors, although in November 2008Mexico passed a renewable energy law that will requirethe creation of Mexico’s first renewable power incentiveprogram by mid-2009.

Solar: The high costs of solar power have made itsdevelopment almost completely dependent on theavailability of generous subsidy programs that have beenlargely absent in LAC, resulting in negligible developmentof this resource. Grid-connected solar is the world’s least-developed renewable power source, with an estimated 7.8GW capacity at the end of 2007, but it is also the fastestgrowing, with 50% annual increases in installed capacityin both 2006 and 2007, thanks largely to feed-in tariffincentives in Germany and Spain.15

While Brazil’s PROINFA program included incentives forsmall hydro, biomass, and wind, it offered no support forphotovoltaics. Ecuador and Argentina have passed theirown regulations for feed-in tariff incentives that includedsubsidies for solar, but they have not been utilized, aspolitical risks in both countries have virtually eliminatedprivate sector financing, and heavily subsidized tariffs forend-users have removed the incentive to developdistributed generating sources. Mexico created theregion’s first net-metering policy, which allows any solarPV generation to count against a consumer’s electricitybill, but, as with Ecuador and Argentina, subsidizedpower tariffs give users little incentive to invest in theirown power generation. Power sector reforms in thesecountries could help catalyze solar power developmentin the region, but otherwise the use of this huge potentialresource will be limited to small-scale, off-gridapplications until countries develop effective incentiveprograms and solar generation costs drop overall.

Renewable Power Potential in LAC

This relatively low level of renewable power developmentis a shadow of Latin America and the Caribbean’senormous potential, as its diverse geography has richlyendowed it with a broad range of renewable resources.These include:

• Substantial untapped small hydro resources throughoutthe region, including Mexico and Guatemala in Centraland North America, the Dominican Republic in theCaribbean, and Brazil, Peru, and Colombia in SouthAmerica;

• Widespread wind energy resources including some ofthe world’s most promising sites, such as Oaxaca inMexico, Southern Patagonia in Argentina, and thePedernales region in the Dominican Republic;

• Geothermal resources along the region’s Pacific coast,thanks to the “Ring of Fire,” the volcanically active areaaround the borders of the Pacific tectonic plate thataccounts for most of the world’s present geothermalgeneration;

• High levels of solar insolation in many countries,including Mexico, Guatemala, Cuba, and Haiti north ofthe Equator, and northern Chile, southwestern Bolivia,northeastern Argentina, northern Brazil, and southernPeru in South America; and

• Promising wave and tidal resources that have only justbegun to be considered, including the superior waveenergy resources off Chile’s long coastline and expectedtidal generation potential in Mexico and Argentina.

This lack of renewable power development is thus dueprimarily to a lack of regulatory support and financingbarriers, and not a lack of potential for these forms ofgeneration.

Gaps Preventing the Wider Adoption ofRenewables in LAC

Renewable power technologies face similar challengeswhen competing with conventional generation sourceseverywhere, primarily due to their higher up-front costs.However, Latin America and the Caribbean have been muchless successful than other regions of the world inovercoming these obstacles, due to regulatoryshortcomings, a lack of policy incentives, and limited accessto financing. The region’s renewable power development isalso hindered by a lack of funding for innovative researchand development and demonstration projects, including


adaptations of existing technologies to regional needs, aswell as opportunities to become an early leader in theadoption of newer renewable power technologies.

Electricity Sector Regulation

Following the perceived and real failures of the region’smove toward deregulation in the 1990s, power sectorsin Latin America and the Caribbean today are frequentlycharacterized by ad hoc mixtures of regulated andderegulated approaches, reflecting global trends awayfrom rigid ideological prescriptions and toward morepragmatic approaches to regulation.16 However, somecountries in the region have moved to roll back elementsof previous reforms in dramatic ways, which has oftennegatively impacted the development of renewables andthe power sector more broadly by driving away privateinvestment. In Argentina and Ecuador, governmentinterference in tariff-setting has made power sectorinvestments unprofitable and has scared off foreigncapital, and in Venezuela the 2007 nationalization ofAES-owned La Electricidad de Caracas (EDC), thecountry’s largest private power producer, was only onein a string of a moves by President Hugo Chávez toassert political control over the energy sector.

Power sectors in Latin Americaand the Caribbean today arefrequently characterized by ad hocmixtures of regulated andderegulated approaches.

At the same time, elements of liberalization that have beeneither retained from previous reforms or created as partsof newer policies hold the promise of opening the powersector up to a broader range of actors, including smallIPPs as well as large industrial and commercialconsumers. Although Brazil has taken steps to increasethe regulation of its power sector in the aftermath of the2001 power crisis, it has also created a new category ofconsumers that allows commercial or industrial userscontracting for 0.5 MW or more of renewable power toparticipate in the spot market, compared to a 3 MWminimum for regular users. This offer is attractive becausespot market prices are generally lower than the regulatedmarket, and a growing number of users are takingadvantage of this opportunity.

Mexico provides a dramatic example of this dynamic aswell, where very high commercial tariffs — the result oflarge and highly inefficient subsidies to residential users —have driven a wide range of these large consumers to plan

up to 2 GW in combined wind power projects in Oaxaca.17

These projects are being developed in joint ventures withwind power developers under “self-supply” arrangementscreated by 1996 reforms to the country’s constitutionallymandated state-run power sector, one of the few avenuesavailable for private sector development.

Policy Incentives

Patterns of renewable power development globally havebeen strongly determined by the availability of adequatepolicy incentives to make up for gaps incompetitiveness with conventional sources of power.Brazil’s PROINFA feed-in tariff program has played acentral role in making it the region’s biggest renewablepower developer by far since 2004, but its abandonmentof this policy in favor of a competitive auction system forrenewables could endanger this leadership. Whilegovernment tendering policies have been successful incatalyzing wind and geothermal power projects in CostaRica, they have struggled in Mexico and countries inother areas of the world, such as the UK, where auctionprices were set too low to attract developers. Similarly,the first renewable power auction in Brazil, in June 2007,failed to attract any bids from wind projects due to a bidceiling set more than a third below the level thatdevelopers claim is necessary.

The nascent policy landscape in the region outside of Brazilis largely characterized by potentially successful but largelyuntested policies, along with policies that have beenrendered ineffective by regulatory or policymaking failures.

• Several countries in the region have created a range ofpromising incentives for renewable power development in2008, including a renewable portfolio standard (RPS) inChile, a feed-in tariff for geothermal in Nicaragua, and apackage of tax credits and exemptions in the DominicanRepublic. A range of new projects is currently planned ineach of these countries, auguring well for their success,even if their impact has yet to be felt.

• At the same time, several major policies in the regionhave been ineffective due to broader regulatory issues orimplementation difficulties, demonstrating that adequateincentives are a necessary, but not sufficient, conditionto stimulate renewable power development. Argentinaand Ecuador have both created feed-in tariff programs,but these have barely been utilized due to political riskssurrounding their power sectors; Ecuador’s program willclose at the end of 2008. In Mexico, the government firstproposed a wide-ranging incentive law in 2005, butstruggled to pass it for years. In November 2008, a newrenewable energy law was finally passed, but thislegislation only outlined a strategy for the Secretary of


Energy (SENER) and Energy Regulatory Commission(CRE) to develop several new rules and incentives forrenewables over the course of 2009, and did not includespecific implementing policies.

Access to Financing

Renewables often face greater challenges thanconventional power plants in securing sources of debtfinance, for a range of reasons including high up-frontcosts, perceived riskiness, and a lack of a commercialtrack record with some areas and technologies.18 Brazilhas garnered over 90% of the region’s investments in newrenewable power generation since 2005, due not only toPROINFA but also to the availability of long-term, low-interest loans from the Brazilian National Social andEconomic Development Bank (BNDES).19

By contrast, outside of Brazil, debt financing for renewablepower projects in LAC has been rare, and it has consistedalmost entirely of concessionary loans from multilateraland international development banks. This has helped tolimit the universe of renewable power project developers inmost countries to large entities with access to largereservoirs of their own capital, including majorinternational developers like Iberdrola and Enel, state-owned utilities and energy companies, and governmentsthemselves. Moreover, available sources of concessionaryfinance are often biased toward larger projects, due to thelending economies of scale of these international andmultilateral institutions. The lack of financing for smallerdevelopers is a major hindrance to the unlocking of therenewable power sector’s full potential.

Outside of Brazil, debt financing forrenewable power projects in LAChas been rare, and has consistedalmost entirely of concessionaryloans from multilateral andinternational development banks.

This may change, as opportunities for domestic loans inMexico and Chile are beginning to emerge throughprograms administered by Banobras, the Mexicandevelopment bank, and CORFO, Chile’s economicdevelopment agency. However, most projects in theregion outside of Brazil will likely depend on financingfrom developer equity and/or loans from internationaland multilateral banks, making it critical for theseinstitutions to provide financing instruments that addressthe unique challenges and opportunities of the renewablepower sector.

Innovation in LAC

Energy sector R&D in LAC is extremely limited in size andscope, compared to the U.S., the EU, and Asia, and thisimbalance is even more pronounced in the renewableenergy segment, due to the relative newness and technicalchallenges posed by many of these technologies.20

Although it is unlikely that the region will produce its ownrenewable energy manufacturing giants that can competewith international leaders like Vestas, General Electric, orQ-Cells anytime soon, it still could benefit from thestimulation of domestic renewable power R&D andmanufacturing capacity geared toward the needs of localmarkets. There are already efforts underway to adapt windturbine designs to the harsh winds of Mexico andArgentina, and there is substantial untapped opportunity todevelop applications for small hydro and solarphotovoltaics that are appropriate to the region’s needs.The encouragement of this in-region R&D capacity couldhelp ensure the availability of equipment and plant designssuitable to local conditions, increase the jobs created bythe renewable power sector, and encourage growth indomestic science and engineering education.

Looking beyond existing renewable power technologies,the LAC region also has excellent resource bases thatcould be harnessed by emerging renewabletechnologies such as wave power, tidal power,concentrating solar power (CSP), and engineeredgeothermal systems (EGS). Although there has beennegligible research within the region on thesetechnologies so far, there are a fast-growing number ofstart-ups pursuing their commercialization in the U.S.(and in Europe to a lesser extent), and these companiesmust frequently compete for a limited number of suitabletesting sites, transmission capacity, and financing intheir home countries. Due to its wealth of resources,LAC could provide an appealing alternative destinationfor these early-stage projects, given sufficient financingincentives, potentially including financing for necessarytransmission capacity, as well as sufficient intellectualproperty rights assurances.

Recommendations

While realizing the region’s renewable power potential willpose requirements that will vary widely by country and bytechnology, five core pillars will undergird anycomprehensive effort on this front. The IDB can play amajor role in providing guidance as well as support foreach of these pillars through loans, loan guarantees,policy-based and innovation loans, and other instrumentsadministered by the Bank and its International InvestmentCorporation (IIC) and Multilateral Investment Fund (MIF).


I. Establishing the Potential for Renewable Power

While low-resolution maps are available for basicevaluations of renewable resources in the region, moredetailed, higher-resolution maps of the most promisingareas can play a significant role in encouraging projectdevelopment by reducing the time and cost of resourceprospecting. In addition to providing valuable informationfor project developers, these efforts can play a critical rolein informing policymakers who are formulating goals forthe sector’s development.

More detailed studies of specific low-cost, high-impacttechnology applications, such as irrigation canal–integratedsmall hydro projects, can also help to ensure that “low-hanging fruit” in the sector are picked. Broad-basedtechnical assistance for feasibility studies for small andmedium-sized project developers can also serve to lowerthe information and up-front investment barriers toparticipation in the sector by a broad range of generators.

Program Ideas

• High-Resolution Resource Mapping Project: Providetechnical assistance and financing for the developmentof improved, high-resolution mapping of promisingrenewable resources, including both established andemerging technologies.

• Inventories of Low-Cost, High-Impact Project Sites:

Technical assistance and financing for surveys of low-cost, high-impact renewable power applications thatrepresent “low-hanging fruit” for project developers.

• Feasibility Study Funding — Small and Medium-Sized

Project Developer Program: Expand existing feasibilitystudy funding through the Multilateral Investment Fund(MIF), with a focus on grants for small- and medium-sized enterprises and potentially paired with ongoingfinancial consulting and business-developmentassistance.

II. Encouraging Renewable-Friendly Regulation

The smaller scale of renewable power plants has thepotential to open the sector to a wide range of participantsbeyond traditional utility players and internationalindependent power producers, including local developers,municipalities, cooperatives, and large commercial andindustrial users. However, in order to facilitate this broaderparticipation, electricity sectors must be well regulatedenough to attract a broad pool of private sectorinvestment and must have provisions that allow and/orencourage smaller generators.

Furthermore, although the gap between the cost ofconventional power generation sources and renewable

alternatives is closing, the development of the renewablessector remains largely contingent on the creation ofappropriate regulatory and policy supports. Few countriesin LAC have had significant experience with them, mostnotably Brazil and Costa Rica, but a growing number ofare adopting new incentive policies of their own.

Program Ideas

• Latin America and Caribbean 21st Century Power

Markets Initiative: Develop a regional initiative to assistin the transition toward a more decentralized, energy-secure, and low-carbon power sector based onincreased renewable power generation, including stepsto identify key market frameworks and the use of policy-based lending (PBL) to support their proliferation.

• LAC Renewable Power Policy Incentives Working

Group: Create a regional forum to share experienceswith the region’s growing range of renewable energypolicies, with participation from policymakers, regulators,investors, and other relevant stakeholders and experts.

• International Exchange Program for LAC Legislators:

Hold a series of exchanges to bring LAC elected officialsabroad to learn from countries that have had longerexperiences with renewables-appropriate policies, aswell as bringing legislators from abroad to key countriesin LAC to share their views.

III. Expanding Access to Finance for Renewable Power

Projects

Brazil’s BNDES is the only widely used source ofdomestic project finance for renewable power projects inthe region, forcing projects to rely on international andmultilateral lenders for debt financing or else to fundprojects wholly through developer or syndicated equity.While reforms to the region’s banking sectors areimproving access to finance in general, long-term loansfor renewable power projects are very rare due to the highup-front costs of these technologies as well as perceivedrisks due to their lack of a track record. Particularly giventhe recent turmoil in global credit markets, internationaland multilateral finance will likely continue to be critical tothe expansion of the renewables sector. Moreover,finance must not only be available in general, but it mustbe scaled to project sizes smaller than many of theseinstitutions typically fund.

Program Ideas

• LAC Renewable Power Financing Facility: Targetexisting IDB financing support to the smaller averagesize of renewable power projects in several ways,including loan guarantees for domestic banks, IIC loansfor small- and medium-sized developers (including


large commercial and industrial end-users), and thepackaging of several similar projects together inportfolios.

• LAC Renewables Exposition for International

Developers: Hold an annual LAC Renewables Expositionto bring together top international renewable powerdevelopers and energy officials from LAC countriesseeking to promote potential projects in their countries,possibly including international financiers as well.

• LAC Microenergy Initiative: Instead of providing directfinancing and assistance for rural electrificationprograms using renewables, IDB would provide supportfor SMEs and microfinance institutions capable ofbundling together many small-scale microenergyprojects into attractive investment portfolios through aMicroenergy Support Fund. Experiences could beshared with similar initiatives in other regions of theworld through a Global Microenergy Network.

In addition to these overarching program changes, a numberof more region- and technology-specific programs could becreated to improve access to financing in key areas.

• Loans and Loan Guarantees for the Development of

Wind and Solar Manufacturing Plants: Provide loansand loan guarantees to support the development ofmanufacturing plants in key markets, boosting potentialfor job creation and technology transfer.

• South American Geothermal Fund: Create a programoffering grants and loans for geothermal projectdevelopment as well as geological risk insurance,focused on the undeveloped geothermal resources ofSouth America.

• Small Hydro for Community-Based Rural Electrification:

Expand support for off-grid small hydro installations, wherethis technology is relatively underutilized compared to solarPV and in absolute terms compared to its enormouspotential for this type of application.

• Integrated Support Packages for Solar PV Programs:

Design integrated support packages for public-privatesector solar initiatives focused at the national, state, oreven city levels that bring together assistance for a widerange of stakeholders, including suppliers; developers;installers; commercial, residential, and institutional end-users; policymakers; and other relevant parties.

IV. Providing Funding for Innovation and Cutting-Edge

Technologies

While there are limited near-term opportunities for Latin

American companies to compete directly with highlycompetitive international renewable power equipmentmanufacturers like Vestas, Q-Cells, or Ormat, there issignificant potential for research and development fundingefforts by regional manufacturers to adapt existingtechnologies to local contexts, particularly with small hydroand solar power. R&D labs in the region’s larger marketsare also working on long-term efforts to develop their ownwind turbine designs, including Argentina’s IMPSA andINVAP and the CERTE research center in Mexico.

In addition to opportunities to adapt and manufactureexisting technologies where possible, the region couldseek to achieve leadership in the development of keyemerging technologies. A growing number of cleantechstartups are developing new renewable power generationtechnologies that often struggle to secure permits andfinancing for demonstration or commercial-scale plantsas well as the transmission lines needed to serve them.By providing funding for demonstration projects and/orR&D testing facilities, the region could attract projectsusing these early-stage technologies, potentiallyestablishing it as a leader in their development as well asdeployment.

Program Ideas

• Innovation Loans for LAC Renewable Power

Research and Development: Offer innovation loanstargeted toward both relatively simpler, near-term effortsto license and adapt technologies to local conditions aswell as more comprehensive, long-term R&D to developoriginal technology designs.

• Financing for Demonstration and Deployment of

Emerging Renewable Energy Technologies: Providetechnical assistance grants and innovation loans tosupport small-scale pilot projects as well as loanguarantees for larger, utility-scale plants usingemerging technologies such as concentrating solarpower (CSP), wave power, and enhanced geothermalsystems (EGS).

V. Understanding the Impacts of Renewables

As noted above, the availability of appropriate policyincentives is critical to the development of renewablepower technologies, but these programs require ongoingpolitical support to maintain. Given rising energy prices aswell as growing economic fears, energy policymakers willbe pressed to justify incentives that promote a wide rangeof social, environmental, and economic benefits in thelong term but cost taxpayers and/or ratepayers in theshort term. Thus, the availability of improved data on thesewider benefits — including improved energy security, ruraleconomic development, and the creation of green jobs —


could play a critical role in creating and maintainingpolitical support for renewable power incentives.

Program Ideas

• Measuring the Benefits of Renewable Power in LAC

Initiative: Offer technical support grants for theexecution of important studies in a number of areas thatcurrently lack significant LAC-specific data, includingdeveloping new accounting methodologies to accountfor the long-term energy security benefits of renewables,improving data on rural electrification projects that use orcould use renewables, and monitoring the “green jobs”created by the industry’s development.

Biofuels in Latin America

In the midst of a global backlash against biofuels, LAC is wellpositioned to emerge as a leader in the sustainableproduction of biofuels and bioenergy. However, bridging thecurrent technology gap through homegrown innovation willbe critical to determining the direction of LAC’s biofuel future.This section seeks to identify the major trends impacting thedevelopment of the biofuels and bioenergy sectors and toidentify means by which the IDB can assist stakeholders inthe region in a strategic and sustainable manner. As eachcountry faces a unique set of challenges, the report does notassert a blanket prescription for sector development butrather seeks to identify the tools necessary to make informeddecisions regarding potential biofuel expansion, including in-depth feasibility studies, R&D centers, financing foragricultural and industrial capacity expansion, andinvestment in infrastructure projects.

The spike in food and feedstockprices challenges biofuelssustainability and alters the biofuelslandscape.

To this end, Garten Rothkopf has analyzed the primarydrivers and trends in the global and regional biofuel sectorand has selected Brazil, Peru, Colombia, Argentina,Honduras, and the Dominican Republic as case studies tohighlight areas of success and to outline the challenges thatapply to the rest of the region. The information contained inthis report stems from a range of primary and secondaryresearch sources from government, academic, and scientificdata, including direct interviews and in-country research.

An Altered Landscape

Despite the rise in energy commodity prices, increasedenergy insecurity, and growing awareness of the potential

impacts of global warming, the role of biofuels inaddressing these challenges has been questioned. Whilethe region experienced a surge of investment in the sectorover the last two years, the initial optimism surroundingglobal and regional biofuels potential has since waned.First-generation biofuels projects that are dependent onedible feedstocks have come under intense scrutiny andskepticism in the context of rising agricultural commodityprices and concerns over food security, worries about theirenvironmental impact, skyrocketing feedstock costs, anddoubts about their economic viability. The strategicexpansion of biofuels and bioenergy projects within theregion continues to hold tremendous promise fordiversifying the region’s energy base, adding value toLAC’s agricultural sectors, and attracting privateinvestment. The region has an opportunity to strengthenits competitive advantage vis-à-vis the relatively inefficientgrain-based biofuels industries of the U.S. and the EU andto become a leader in sustainably produced biofuels.

Given Latin America’s vast wealth of natural resources,favorable climates, and available arable land, the regionhas been, and continues to be, well positioned to becomea leader in the generation of biofuels and bioenergy andmust harness the benefits of advanced technology tomaintain a competitive edge. Biofuels and bioenergy arenot a panacea for fossil fuel displacement, but they canprovide a means of energy diversification, economicgrowth, and rural development, provided that policies arebalanced with sound sustainability criteria, agriculturalbest practices, appropriate technology, and provisions forfood security.

The spike in food and feedstock prices challengesbiofuels sustainability and alters the biofuels landscape.From 2003 to their peak in July 2008, the prices of maize,soy oil, and palm oil - primary biofuels feedstocks - rose135%, 166%, and 139%, respectively.21 While the highcommodity prices are a boon for farmers, particularlythose who are integrated into global markets, they have astinging impact on consumers and first-generationbiofuels producers. The rapid escalation in food priceshas sparked riots in Mexico, Haiti, Ethiopia, andelsewhere throughout the developing world.

While biofuels have shouldered much of the blame for so-called “food inflation,” the diversion of corn to ethanolproduction is only one in a myriad of factors currentlydriving up commodity prices. Other primary factorsinclude:

• High oil prices increasing cost of production until late 2008• Decrease in global stocks in the midst of increasing

demand


• Inclement weather damaging harvests • Global population growth and increased food demand• Increased incomes in emerging markets and dietary shift

to include grain-fed meat

The confluence of factors has contributed to a generalizedincrease in food prices. Consumer demand is relativelyinelastic, with consumers unable to substitute away fromhigher-priced staples. Mexico’s “tortilla crisis” in January2007 marked a turning point for the global biofuelsindustry, as the tripling of corn prices led to riots in thestreets of Mexico City and forced President Calderon toinstitute temporary price controls.22 While a variety ofcomponents contributed to the price spike, the situationillustrated the harsh impact of food inflation on the poorand underscored the need for the biofuel industry toevolve away from dependence on edible feedstocks.

Deteriorating biofuel economics for grain and oilseedproducers challenge many first-generation biofuelsproducers. In addition to fueling concern over foodsecurity, grain and edible-oil price increases havechallenged the economics of first-generation biofuelproduction as feedstocks account for 50%–70% and70%–85% of overall production costs for ethanol andbiodiesel, respectively.23 Record high prices havedirected feedstocks toward the commodity marketsrather than biofuels projects, limiting access tonecessary inputs. Further, as recently reported by theUN, biofuels subsidies and tariffs, primarily in OECDcountries, increasingly distort the market and limitopportunities for developing countries to benefit fromgrowing global biofuels use.

A noticeable reduction in investment in the sector reflectsthe deteriorating economics, with asset-based financingslipping from $1.82 billion in the first three quarters of2007 to $805 million during the same time period in2008.24 High operational costs, coupled with reducedmargins, have forced smaller players out of the market andhave resulted in the consolidation of the industry acrossglobal biofuel markets. Such consolidation could limit thedegree of participation by small- and medium-scaleproducers, necessitating targeted assistance to helpSMEs access supports for biofuels and bioenergy.

Developing sustainability criteria are forcing changes inthe industry. In addition to food security, rapidexpansion of feedstock cultivation has sparked concernthat unsustainable agricultural and industrial practiceswill lead to widespread deforestation, illegal logging,biodiversity loss, and pollution and hasten climatechange. Such concerns have induced national andinternational coalitions to develop criteria and related

certification schemes for sustainable biofuels. While atpresent the guidelines lack harmonization, arevoluntary, and are largely unenforceable, they aredriving changes within the industry. As such criteriamay present barriers to biofuels trade, major producersin countries such as Brazil are committing to agro-environmental protocols and improved harvesting tomaintain international market access. The earlyestablishment of land-zoning and permitting programscould help to diminish risks to biodiversity throughoutthe region by directing feedstock cultivation andexpansion to underutilized areas that are suitable foragricultural production and not deemed ecologicallysensitive. Monitoring will be a critical component ofsuch programs to help ensure compliance and enhanceenvironmental protection over the long term. The IDB’spioneering “Biofuels Sustainability Scorecard” providesa useful tool that can be utilized by variousstakeholders to evaluate the environmental and socialimpacts of projects throughout the project lifecycle.While this Scorecard could be augmented further toincorporate food security provisions, it does provide ameans to preliminarily assess project performance. It,as well as other tools, will need to be periodicallyupdated as evaluation methodologies are refined.

Current State of Biofuels DevelopmentIn LAC

Expanding Legal and Regulatory Frameworks

Since the publication of the first Blueprint, a number ofcountries in the region have adopted legislation and haveestablished regulatory frameworks for biofuels andbioenergy production and commercialization, but newchallenges facing the industry necessitate that eachcountry adapt its biofuels strategy in the context of itsnatural resource base, energy mix, and socio-economicand environmental goals. Of the 20 countries in LAC, 11have legal frameworks in place, six are underpreparation, and three have laws under revision. Whilecountries in the region are currently at varying stages ofdevelopment, experience throughout the region hasdemonstrated that biofuels sectors cannot advancewithout an established legal and regulatory frameworkthat sets the parameters for biofuels production andconsumption and provides clear indication ofgovernment support for biofuel-related investment.

This is also the case for bioenergy. The paucity offrameworks and incentives for biomass and biogasrepresent a barrier to sector investment. While the IDB hasprovided support in this regard, additional strategicplanning support will be needed to account for socio-


economic, environmental, and technological considerationsas well as technical assistance to strengthen the regulatoryinstitutions that will be implementing policy.

Fossil Fuel Dependence

Record high energy prices have made energydiversification a high priority. With 39% and 27% of theregion’s energy derived from petroleum and natural gas,respectively, the development of alternative energies isurgent, particularly for countries in Central America andthe Caribbean that rely highly, if not exclusively, on theimportation of fossil fuels. In addition to reducing relianceon petroleum-based fuels, the evolving geopoliticalsituation in South America, and the Southern Conespecifically, has hastened the transition toward biofuels.In fact, the decrease in natural gas supplies from Argentinato Chile prompted the Chilean Ministers of Economy,Energy, Agriculture and Revenue to eliminate a specific taxon biofuels, which in effect reduced prices to one-thirdthat of fossil fuels, to promote consumption.25

Ironically, the shift away from fossil fuels is being drivenlargely by national oil companies, notably Brazil’s Petrobras,Colombia’s Ecopetrol, Mexico’s PEMEX, and Uruguay’sANCAP, whose investment in biofuels production is naturallyfacilitated by the fact that they are often the entities chargedwith the blending and distribution of the fuels. Engagementby the national oil companies has injected significant capitalinto biofuels development, with the companies oftenbecoming major players in influencing the direction ofbiofuels policy. State and private oil companies will likelycontinue to drive biofuels development in LAC as thecompanies expand investments into logistics, infrastructure,and trade, but safeguards should be put in place tomaintain market competitiveness and participation ofindependent producers.

Current Capacity for Biofuels Development

Land Resources and Current Feedstock Cultivation

With the exception of the Caribbean Basin, most countriesin the region have vast expanses of land available for theexpansion of biofuel feedstock cultivation, withoutcompromising the food supply. The countries with thegreatest potential for sugarcane expansion include Brazil,Bolivia, Argentina, Colombia, Paraguay, and Uruguay,while those with the greatest potential for palm oil andsoybeans expansion are Brazil, Argentina, Peru, Colombia,and Bolivia.26 In principle, land need not be a constraint forfood or feedstocks cultivation, and prudent biofuelsexpansion need not infringe on agricultural processes ordisrupt the food chain.

Research suggests that sugar and palm oil present lessof a food security risk to the region than do fluctuations

in corn and soybean prices. While sugarcane, palm oil,and soy oil continue to be primary feedstocks throughoutLatin America, their expanded use should not bepromoted in countries where they are a primary foodstuffand in short supply. The productive efficiency offeedstocks per acre of land and per unit of water will becritical to ensure that first-generation feedstocks to notdivert resources from edible crop production.

Expanding the production of alternative, inediblefeedstocks on marginal land could help alleviate pressureon edible commodities. A variety of alternativefeedstocks for ethanol, biodiesel and biomass arecurrently being developed including canola, sugarbeet,sweet sorghum, jatropha, and miscanthus. Yet projectsare dispersed and uncoordinated and unable to benefitfrom the other test trials and demonstrations occurringthroughout the region due to the absence of formalnetworking, resource and collaboration channels.

Expanding the production ofalternative, inedible feedstocks on marginal or under-utilized landcould help diminish competition for arable land.

Concentrated Industrial Base — Need for Technology

Upgrades and Bioenergy Capacity

Latin America and the Caribbean accounted for 10.1% ofworld biodiesel capacity and 22.3% of ethanol capacity,respectively, with 9,655 and 41,027 million liters perannum, respectively, in 2008,27 yet, the region couldcapture a larger share of the world market if gapsidentified in this report related to R&D development,expanded financing, and infrastructure are addressed. Theopportunity to secure a larger market share grows asbiofuels producers in the U.S. and Europe (corn-ethanolproducers in the U.S. and rapeseed-biodiesel producers inEurope) are pressured by falling margins and as new, morecompetitive projects come online in Latin America and theCaribbean.

The relative competitiveness of sugarcane ethanol hasfortified Brazil’s major producers and inducedconsolidation. The industry’s consolidation trend hasbeen most noticeable in 2007, evident in the 25 mergersand acquisitions carried out in the industry that year, ascompared to nine in 2006. Observers estimate that within10 to 15 years, the Brazilian ethanol industry will compriseof 20 large groups. A similar phenomenon is occurring inArgentina’s soybean-based biodiesel industry. Maintaining


a competitive edge will require the integration of advancedtechnologies for greater efficiency.

The region has seen an increase in development in thebioenergy sector, much of it driven by revenues from the saleof emissions reduction through the Clean DevelopmentMechanism (CDM). According to New Energy Finance,bioenergy capacity in LAC for 2007 totaled 5.5 GW, a paltry6.7% of world bioenergy capacity, which totals 81.3 GW,mostly concentrated in Asia, and barely 2.1% of regionalinstalled capacity. Yet, within renewables, bioenergy standshead and shoulders above other sources. Solar, wind, andgeothermal, combined, account for 1.9 GW (.7%) of capacityin a region with total installed capacity of 267 GW. Still,additional industrial capacity is needed to harness the latentenergy potential of the region’s vast biomass resources.

Financing for Feedstock and Industrial Capacity

A range of actors have played an important role infinancing biofuel capacity to date, including: multilateral,regional, and private lending institutions; regional lendinginstitutions; investment banks; domestic private andpublic-private lenders; and private-sector investors. Withinthe private sector, intra-regional South-South investmentis an important trend. Another source of financingfrequently used in biomass and biogas projects is theCDM, usually with the involvement of carbon creditaggregators and brokers such as Ecosecurities, thoughuncertainty about the replacement framework beyond2012 inhibits further expansion of these projects.Additionally, multilaterals and governments frequently actas brokers and guarantors to facilitate debt financing.

As more governments define their legal and regulatoryframeworks for biofuels and bioenergy in the region, localand foreign equity investors and lenders of all types haveengaged in the region by financing projects that expandfeedstocks and bioconversion capacity. Brazil leads in allcategories, though significant investments have beenreported in Mexico, Argentina, Peru, and Colombia.Private investment into the region’s biofuels sector willlikely continue apace, with the countries that have theclearest and most stable legal and regulatory frameworksattracting the bulk of the investment.

The majority of financing that has occurred has largelybeen limited to first-generation production. Selectsugarcane and ethanol producers in the region, primarilyBrazil and Colombia, have installed or plan to install high-efficiency bagasse boilers for electricity co-generation andsales of excess power to national grids. However, additionalresources are needed to upgrade technology in dilapidatedsugar mills and to integrate advanced technology in existingfirst-generation facilities throughout the region.

Investment in second-generation biofuels, biomass, andbiogas has not been nearly as vigorous reflecting the lack ofincentives and regulatory signals from regional governments.Several large-scale second-generation feedstock andcapacity-expansion projects have been announced; mostare jatropha-based, such as a 100,000 hectare privatesectorjatropha investment in Colombia. However, few are actuallyunderway or completed. Biomass-to-liquids fuels projectsare beginning to take hold in Argentina and Chile.

Small- and medium-scale producers often lack theresources to engage in agricultural or industrial biofuelproduction. Other barriers that SMEs face are the lack ofeconomies of scale inherent in their mode of production,the need for individual growers and producers to associateor enter into cooperative arrangements, and a lack oftechnical and administrative expertise. Many regionalgovernments are attempting to overcome these barriersthrough tax incentives, though governments are notmandated to originate or identify projects that can takeadvantage of the fiscal incentives. NGOs and multilateralfinancial institutions are attempting to bridge that gap byproviding preferential financing and technical assistancetargeting relatively small-scale projects.

Research and Development Lagging

Biofuels R&D is occurring throughout the region, but it oftenoccurs in isolated pockets. With the exception of leadingcountries such as Brazil and Colombia, R&D is often notcoordinated with biofuel producers or with the entitiesdeveloping and implementing biofuel policy. Within theprivate sector, some sugar industry producers and oil palmtrade associations in the region fund sugarcane researchthrough dedicated institutions. While a myriad of large-scaleprojects have been announced, private-sector R&D insecond-generation feedstocks and biofuels production islargely limited to demonstration plots, often ranging from10-50 hectares in size, for sweet sorghum, sugar beet,jatropha, and castor oil plant. Several national andmultinational oil and energy companies are also investing inbiofuels development in the region, but their public is oftennot able to benefit from their proprietary research.

Developing Latin America’sinfrastructure will be a criticalcomponent of strengthening theregion’s biofuel competitiveness.

LAC countries have lagged the U.S. in advancedbiofuels and bioconversion investment and R&D, thoughsome indigenous efforts that circumvent expensiveenzyme development have taken place in Brazil. The


vast majority of ethanol and biodiesel projectsthroughout the region were developed with first-generation technology and have yet to integrateadvanced technologies, such as high-pressure boilers,cogeneration, and recycling techniques for greaterefficiency. While select biomass-to-energy projects areunderway, they are largely at the hands of foreigninvestors with imported technology. While advancedtechnologies have application across the region, localtechnology development and technology transfer remainlimited, particularly with respect to SMEs in rural areas.The ability to bridge the technology gap for bothindustrial and small-scale producers will largelydetermine LAC’s biofuel future.

Underdeveloped Infrastructure

Infrastructure remains a primary barrier to biofuelsdevelopment in the region. Despite favorable agriculturaland political conditions, many countries in Latin Americaand the Caribbean continue to suffer from underdevelopedor dilapidated infrastructure, which affects bioenergy-sector competitiveness and hinders expansion of biofuelsproduction due to increased logistical costs and biofuelsuse by limiting access and distribution. Transport costsexceed tariffs and export costs across the region with fewexceptions.28 Infrastructure expansion over the last twodecades has been slow in LAC inasmuch as barely 2% ofGDP is invested in infrastructure regionally (except forChile with 6% and Colombia with 4%); just enough toconserve the existing infrastructure base. CEPALestimates that countries in the region would have toincrease their infrastructure investment by 2%–4% inorder to prevent the infrastructure gap with respect tosoutheast Asia from growing.29

Developing Latin America’s infrastructure will be a criticalcomponent of strengthening the region’s biofuelcompetitiveness. While grid development and extensionwould facilitate the uptake of biomass-based energy, theexpansion and upgrade of roadways and highways willmost readily facilitate the expansion of both agro-industrialand liquid biofuels production throughout the region. Poorconditions of roadways and congested ports are alreadyimpacting the efficiency and increasing the cost of biofuelsoperations throughout regional supply chains.Furthermore, agricultural expansion projects, particularlythose targeting under-utilized land, will likely be inhibitedwithout access to improved and expanded infrastructure.In many countries in the region, waterways and ports alsoserve as essential links in the biofuels logistics chain.These connections are particularly critical for intra andinter-regional transportation of feedstock; the heavysoybean trade on the Parana River from Brazil andParaguay to crushing facilities in Argentina is a case in

point. Further, waterways serve as a means to transportbiofuels from producing regions to the coast, as is thecase with the Amazon river in the transport Peruvianbiodiesel from the port of Ipaiales. Peru provides a clearexample of how cabatoge could be explored as analternative to costly ground transport. Pipelines will help tofacilitate the transport of biofuels from remote regions toconsumption centers, particularly in Brazil, but portmaintenance and expansion must remain priorities lestLAC’s already high logistics costs grow and furtherweaken its export competitiveness.

Two regional initiatives, the Meso-American Integrationand Development Project (PIDM — previously known asPlan Puebla-Panama) and the Initiative for the Integrationof Regional Infrastructure (IIRSA), seek to adress theinfrastructure investment gap at a supranational level.These mechanisms could emerge as one of the mainregional platforms for the facilitation of biofuels andbioenergy production and distribution. Developments inrail network expansion and modernization related to thetwo regional initiatives could help mitigate some of theregion’s road infrastructure shortcomings in the medium tolong term, though they are not significantly represented inthe design- and execution-phase portfolios of the tworegional initiatives. Riverine waterway and portrehabilitation, expansion, and construction could also playa major role in the expansion of biofuels production,especially in remote growing areas, but IIRSA’s prioritiesindicate that these projects will not be designed, muchless executed, in the near future.

With the exception of the highest-profile projects, theprivate sector will not likely replace the public ormultilateral sector as the primary funding source for themajority of roads, rail, and waterway projects, and thesuccessful attraction of private funding may depend oncreative intergovernmental cooperation and low-costfinancing from sources such as the Inter-AmericanDevelopment Bank, the Inter-American InvestmentCorporation or other such institutions.

Potential to Lead Through Best Practices,Technology and Innovation

Improving Land and Resource Efficiency with

Advanced and Alternative Feedstocks

Advanced ethanol feedstocks, such as energy cane andsweet sorghum, have the potential to further enhance thecompetitiveness of sugarcane-based ethanol and diminishthe sector’s impact on the environment and foodproduction. Enhanced varieties can substantially increaseethanol and biomass yields while reducing agricultural


inputs and water requirements. Countries with advancedsugar and sugarcane ethanol industries, such as Colombiaand Brazil, could translate higher yields into higher ethanolproduction. Others with less-developed sugar and ethanolindustries, such as Peru, Argentina, and the DominicanRepublic, could benefit as well but require major capitalinvestments in sugar and ethanol plant equipment.

With respect to biodiesel, inedible feedstocks, such asjatropha, animal fats and grease, and algae, providealternatives to conventional oilseeds. While palm oil remainsa superior feedstock in terms of yield, jatropha is apromising high-yield and low-input alternative. Tallow fromconcentrated cattle operations in Argentina and Brazilpresents another low-cost alternative. Fish oil is used inHonduras to produce biodiesel, and there are already small-scale projects that incorporate residual oils and fats into thediesel supply chain in Dominican Republic and Peru.Greater integration of animal fats, used or residual oils, andgreases would increase access to low-cost feedstocks,reduce industrial waste, and add value to waste products.

Potential to Develop R&D Capacity for Feedstock and

Bioconversion Technology

While biofuels R&D is occurring throughout the region bypublic, private, and non-profit groups, it is often clusteredin leading agricultural producing nations anduncoordinated with biofuel entities. R&D in second-generation feedstocks is occurring on demonstration plotsfor sweet sorghum, sugar beet, industrial yucca, jatropha,and castor oil plant, but researchers lack integrated meansof sharing results and benefiting from regional expertise.Millions of dollars are being channeled into advancedfeedstock R&D globally, particularly in U.S. universitiesand dedicated bioenergy research institutions, with LatinAmerica and the Caribbean falling behind.

While a few countries in the regionare beginning to produce ethanoland biodiesel equipment, thegrand majority of producers aredependent on costly, importedtechnology.

With the clear exception of Brazil, there is even less R&Din bioconversion processes, be it for ethanol, biodiesel, orbiomass and biogas power generation. The noticeabledearth of research and development into industrialtechnology necessitates the import of costly processingtechnology from abroad. While a few countries in the regionare beginning to produce ethanol and biodiesel equipment,

a large majority of processing plants have been importedfrom U.S. and European manufacturers at great cost toproducers. Bioconversion technologies are being developedand employed in the U.S., the EU, and India, catalyzing thetransition to next-generation production. Developing adomestic industrial production capacity through thesupport and financing of technology corridors ortechnology incubators could help LAC countries expandtheir industrial base as well as reduce the current costsassociated with expanded domestic biofuels programs.

With respect to both feedstock and bioconversiontechnology, R&D institutions in the region need to benetworked so that existing and potential projectdevelopers may access existing knowledge throughmore centralized means. Centers of Excellence, such asthose recommended in the first Blueprint and now underdevelopment in Brazil, are working toward this end, butsimilar coordination is needed elsewhere in the region.

Harness LAC’s Vast and Underutilized Biomass

Resources through Advanced Technology

Biomass and biogas technologies are expanding, but theystill represent great unrealized potential. Biomassrepresents 13% of the region’s primary energy supply,mainly woody biomass consumed inefficiently in theresidential sector, and bagasse and other agricultural wastein the agricultural sector. Biogas is hardly represented at allin the region’s energy matrix. Industrial biomass- andbiogas-based heat and electricity generation haveunrealized potential to displace fossil fuels in the region,especially in the rural sector and in nations such asHonduras and the Dominican Republic, which are highlydependent on imported diesel for power generation. Woodresidues from forestry industries in Peru, Chile, andArgentina in particular are an untapped energy source.

Capture Latent Waste Energy Ripe for Biogas

Conversion

While biomass has been utilized for decades as a powersource, biogas production is just beginning to gainground. Anaerobic digestion of municipal solid waste(MSW) can convert waste into electricity, biodiesel, water,and animal feed, a process that generates revenue fromelectricity sales to the grid and reduces the pollution thataccompanies straight incineration. Such technology hasdirect application across LAC’s major cities, where wastemanagement has become a burden. Far from urbanareas, biogas can also be captured from industrial andsmall-scale agricultural activity for sale to the grid or useas heating and cooking fuel. Biomass is the primarysource of heat and cooking energy in rural areas, and theanaerobic digestion of biomass is among the mostpromising renewable energy processes, particularly for


developing countries, as it converts organic waste streamsinto renewable energy, heat, liquid fuels, compost, andfertilizer while reducing pollution. While such technologieshave ubiquitous application across the region, technologydevelopment and transfer remain elusive, particularly withrespect to SMEs in rural areas.

Incorporate Sustainable Practices for Greater

Efficiency and Competitiveness

While methodologies vary, such sustainability andemissions-reduction requirements could actually bode wellfor LAC producers that are able to demonstrate and verifytheir production methods. Corn-based ethanol andrapeseed-based biodiesel, primary biofuel products in theU.S. and EU, respectively, have relatively low energybalances when compared to sustainably producedsugarcane-based ethanol and palm oil–based biodiesel,and they have been demonstrated to be greatercontributors to food shortages and price inflation. Whilefirst-generation feedstocks that are utilized in LAC — forexample, sugarcane, soy oil, and palm oil — still presentchallenges, sustainable agronomic practices coupled withadvanced technology can help producers in the LACregion to capture the energy, socio-economic, andenvironmental benefits of biofuels-sector expansion.However, this will require additional support to improveproduction practices and establish monitoring andcertification systems to help secure a competitive positionin the increasingly discriminating global biofuels market.The convergence of factors presents an opening for LACto become a world leader in sustainable biofuels.

While the impacts on water, air, and soil quality could bedegraded by both agricultural and industrial processes, theincorporation of advanced agronomic techniques andtechnology can mitigate environmental impacts and reduceoperational costs. Zoning programs can identify suitableland for feedstock expansion that does not encroach onecologically sensitive areas. Reduced use of chemicalfertilizer, utilization of organics, and the controlledapplication of treated vinasse can minimize contaminationwhile the elimination of cane trash burning and utilization ofagricultural waste for co-generation improve air quality andminimize erosion. Further, incorporation of advancedfeedstocks, such as energy cane or sweet sorghum, hasthe potential to double yields with a fraction of the waterrequirements, further reducing biofuels’ environmentalfootprint and promoting food security.

Recommendations

By matching assistance with regional needs, the IDBcan continue to play an important role in facilitating

biofuels and bioenergy expansion in the region. The fivemain action areas are described below, accompanied byfour program ideas. In all of its biofuels efforts, the IDBshould strive to tie financing to socioeconomicsustainability criteria including food security.Establishing a clear legal and regulatory evaluationmethodology or rubric that incorporates such criteria willhelp to ensure that public and private investments aresustainable.

I. Strengthening Policy Support for Biofuels and

Bioenergy

The need for a regional initiative at the IDB that wouldprovide technical assistance for the regulation of biofuelsand bioenergy production has become more acute sincethe publication of the original Blueprint, where this sameprogram idea was first proposed. A growing number ofcountries in the region have acted to remove policy- andregulation-based barriers to biofuels production withassistance from the IDB. Yet there is no systematic, long-term, regional initiative to identify and disseminateinformation regarding effective regulatory frameworksestablished in specific countries. The need is all the greaterin the bioenergy sector, where significantly fewer advanceshave been made in terms of regulation and policydevelopment. Furthermore, incongruent policies amongnations continue to impede potential for international tradein biofuels. Greater harmonization of regulatoryframeworks and technical standards would facilitategreater engagement in expanding global biofuels markets.

Program Ideas

• A Hemispheric Biofuels and Bioenergy Regulatory

Initiative: Such an initiative would establish a platformfrom which the Bank could provide technicalassistance for development of regulatory frameworksand strategic planning, increasing support forbioenergy frameworks in particular. Such an initiativecould establish a methodology for benchmarking andmeasuring regulatory progress as well as providetechnical assistance for institutional strengthening ofdesignated biofuels and bioenergy regulatoryagencies and bodies.

• A Sustainable Biofuels Certification Initiative: The IDBcould assist policymakers in integrating sustainableproduction criteria into existing legal and regulatoryframeworks. The policy support could be supplementedwith a program designed and funded to conduct life-cycle assessments of biofuels and bioenergy projectsand develop a sustainable biofuels certification schemein line with developing international criteria to helpproducers improve production and remain competitive inthe increasingly restrictive global biofuels markets. Such


a program could utilize the IDB’s recently developed“Biofuels Sustainability Scorecard” as a tool to facilitatethe certification process.

II. Supporting Innovation and Technology

For countries across the region, there continues to be aprofound need to advance technology and training tosupport the development of competitive and efficientbiofuels industries. The lack of technology-developmentcapacity in the region threatens to undermine the region’scompetitive edge in the sector. As proposed in the firstBlueprint, efforts need to go beyond supporting andcultivating individual efforts to advance innovative capacitywithin countries to support countrywide and regionallybased innovation centers. A Biofuels and BioenergyInnovation Initiative would create an umbrella program forprojects aimed at promoting research and development, aswell as a platform to promote technological cooperationand integration at a regional level. Such an initiative, ifundertaken, would lend substantial support and leverage tothe formation of regional Centers of Excellence in Biofuelsand Bioenergy recommended in the first Blueprint.

Program Ideas

• Conduct Feasibility Studies for Integration of

Advanced Technologies: Such studies would bedesigned to examine agronomic variables, such as soilquality and climate regimes and water resources, andpilot cultivation programs to test various first- andsecond-generation biofuels and bioenergy feedstocks.

• An Advanced Biofuels and Bioenergy Technology

Education Initiative: The initiative could lend region-widefinancial support for advanced studies in science andengineering fields relevant to biofuels and bioenergythrough the provision of funds and expertise forscholarships, fellowships, and grants; improving curriculaand education infrastructure; support for biofuels andbioenergy research initiatives; support for inter-countryexchanges, internships, and distance learning.

• Next-Generation Support Programs: These programscould lend technical and financial assistance topromote advanced feedstocks and bioconversion R&Dprojects through feasibility studies and assessments fortechnology upgrades to existing first-generationprojects; loan guarantees to producers seeking tointegrate advanced technology into current biofuelsprojects; support for public-private partnerships toadvance pilot projects incorporating next-generationtechnology; and support for the strengthening ofregional trade agreements and patent-enforcementlaws to facilitate the transfer of ideas and technologyacross borders.

III. Enhancing Sustainable Biofuels and Bioenergy

Production

As several countries in the region have moved forwardwith plans to initiate or expand biofuels and bioenergyproduction, the IDB and other multilateral or bilateralagencies have responded with several feasibility studiesand pilot projects in various stages of execution.However, existing methodologies do not incorporateprovisions for indirect environmental or socio-economicimpacts of production. Further, efforts to improve theenvironmental and socio-economic performance ofprojects remain isolated, with producers unable to accessinstructive information from successful initiativeselsewhere in the region.

Program Ideas

• Life-Cycle Analysis (LCA): Each biofuel project underconsideration would undergo a thorough LCA withconsideration for earth-to-engine production thataccounts for carbon and other pollutant emissions fromland clearing, cultivation, and biofuels and bioenergyproduction.

• Food Security Impact Assessments: Suchassessments would be designed specifically for biofuelsprojects, would carry the same weight as environmentalimpact assessments and follow the four dimensions setforth by the Food and Agriculture Organization:availability, access, utilization of resources, andremuneration.

• Land Zoning for Efficient and Sustainable Land Use:

Government officials and project developers wouldconduct surveys of available, under-utilized and marginalagricultural land to provide basic parameters forexpanded biofuels feedstock cultivation based onadequate first- or second-generation feedstocks.

• Biofuels and Bioenergy Information Warehousing

Project and Resource Directory: Such a directorycould provide players in the biofuels and bioenergysectors with a centralized, web-based and publiclyaccessible data repository that would includeinformation on pilot projects, R&D project plans, policyframeworks, and technical specifications. TheWarehouse and Directory would gather existing data oncurrent projects in the region and provide a forum forstakeholder exchange of expertise.

IV. Financing for Broad-Based Technology Upgrades

and Support for SMEs

While there has not been a shortage of financing for large-scale biofuels producers, small- and medium-scaleproducers continue to lack access to low-cost financing to


invest in feedstock and bioconversion technologies,limiting the potential for biofuels to contribute to ruraldevelopment in the region. Financing bottlenecks not onlyimpede the development of new projects, but they alsoinhibit existing first-generation producers, small- andlarge-scale, from integrating more advanced and efficienttechnologies into current operations. Primary targets forfinancing include:

Program Ideas

• A Financial Education and Public Outreach Initiative:

Such an initiative would provide finance workshops andtrainings to small- and medium-scale producers tosupport business planning and provide criticalinformation regarding available financing options andapplication procedures.

• Targeting Financing to Small- and Medium-Scale

Producers: Programs could be designed to extendfinancing support through loan guarantees, purchaseguarantees, or equity shares for SMEs that are unable toaccess capital markets. Such programs would also helpSMEs to access existing fiscal incentives for biofuelsand bioenergy.

• Financing Technology Deployment: Financing supportshould target existing facilities where technologyupgrades would improve efficiency and environmentalperformance. In addition to continued financing for well-established technologies such as cogeneration,financing can be extended to greenfield, second-generation feedstock and bioconversion projects to helpoffset technology risk.

V. Expanding Biofuels and Bioenergy Infrastructure

Inadequate infrastructure remains a primary obstacle toefficient and competitive biofuels production in the region.Dilapidated roads and railway networks, coupled withcongested ports, continue to create bottlenecks betweenmajor supply and demand centers. Routes connectingremote agricultural areas with demand centers remainamong the most neglected of these bottlenecks, yet theyhave the greatest potential to boost agriculturalproductivity, enhance competitiveness, and extend thebenefits of biofuels to the rural poor. As the private sectorhas largely failed to engage in this sector, there remains anopportunity for the IDB to fill the gap.

Program Idea

• An Agro and Bioenergy Infrastructure Investment

Initiative: Such an initiative would serve to expandtraditional IDB investment in transportation infrastructurein support of biofuels production and distribution beyondexpanding road networks, to include pipelines,

rehabilitating and expanding rail networks, establishingdedicated fuel export terminals and facilities, andpromoting waterway and maritime cabotage. The initiativewould provide continued support for grid expansion,interconnection, and facilitate bioenergy uptake.

Carbon Markets

LAC’s natural resources offer a considerable force forsustainable development in the form of carbon marketprojects, but policy, finance and institutional gaps inmany cases inhibit the region’s true potential. Thissection of the report seeks to identify and explain theopportunities for success as well as the challengesfacing specific countries in the region. It also proposes aseries of measures that the IDB could pursue in order tofacilitate the development of these developmentresources to better the prospects for the region’s future.

The worldwide carbon marketgrew almost twelve-fold between2005 and 2008, from $10 billion to$118 billion.

For this analysis, Garten Rothkopf has analyzed the keytrends shaping the carbon markets in five countries in theregion as well as two in Asia — China and India — in anattempt to compare the relative strengths and weaknessesof each. The analysis that follows is derived from a widerange of sources, including government, academic, andnon-profit analyses, public and private data sources, newsarticles, and primary-source interviews in English,Spanish, and Portuguese conducted between Februaryand September 2008.

The worldwide carbon market has seen tremendousgrowth over the past few years. After tripling in sizebetween 2005 and 2006 to reach an estimated $30 billion,it doubled again in 2007 to reach $64 billion. Analystsestimate that the world’s carbon markets reached a valueof $118 billion in 2008. The regulated European UnionEmissions Trading Scheme (EU ETS) accounts for about80% of the current market value. Regulated accounts willlikely dominate for the foreseeable future, but the voluntarycarbon market is also emerging as a force of its own,especially in the developing world.

For the purposes of this study on carbon markets in LatinAmerica and the Caribbean, most of the focus will be onthe Clean Development Mechanism market and thevoluntary carbon offset market, as these are the two


markets that are most involved in the region today. TheCDM market is the second-largest component of carbonmarkets worldwide, both in terms of volume transactedand value. The voluntary market, by comparison, is muchsmaller, though it is showing impressive growth. Takentogether, these two markets could prove to be aconsiderable force for sustainable development in LatinAmerica and the rest of the developing world.

The Current State of Carbon Marketsin LAC

Latin America is among the world leaders today inhosting CDM projects. Along with Asia, the two regionstogether account for more than 95% of all projectsglobally. In Latin America, Brazil and Mexico stand out asregional leaders, hosting a majority of all projects in theregion and together accounting for almost one-fifth of allprojects globally. In addition to the CDM sector, LAC andAsia are also involved in the creation and implementationof projects designed for the voluntary carbon market.Asia is also by far the world’s leader in terms of thenumber of voluntary offset projects hosted, with over40% of the global total. Latin America, though active,garnered just about 8% of global voluntary offsetprojects in 2007. While Asia is the leading region forhosting carbon projects worldwide, Latin America is adistant second and has considerable room for growth.

Latin America and the Caribbean lag behind Asia in termsof CDM projects and voluntary carbon projectsimplemented and in the pipeline. This was not always thecase. During the first year of the Clean Development

Mechanism, from November 2004 to November 2005, 39CDM projects were developed worldwide. Latin Americanprojects accounted for 18 of these, including the first twoto be registered, and three of the first five. It was apromising start for the region in terms of the beginning ofan era in sustainable development. Today, Asia hostsmore than 65% of all CDM projects in the world, whileLatin America hosts about 30%. This is almost entirelydue to the burgeoning economies of China and India,which account for the vast majority of projects in Asia.Moreover, while certain advantages are inherent to eachregion, Asia has arguably pushed more forcefully and hastaken advantage of more opportunities to ensure itsprimacy in the sector.

One reason for investors to look to implement carbonoffset and CDM projects in Latin America and theCaribbean, however, is the general treatment of climatechange at the national level in many countries. Of thecountries that were analyzed in this study, Mexico hasrecently released its Climate Change 2008 to 2012roadmap; the Brazilian government declared 2007 the“National Clean Development Year”; Colombia is gearingup to develop a National Climate Change Policy; andChile in the past two years has created a Ministry ofEnvironment and a Ministry of Energy, each of which lendinstitutional support for the implementation of carbonprojects. This open support for projects to help mitigatethe effects of climate change is an indication of theseriousness with which national governments are treatingthe issue and the extent to which they plan to address itin the context of sustainable development. The region isrich in natural resources that can be utilized for theimplementation of carbon projects. It is a growing

Chart 1.0h Percent of Registered Global CDM Projects by Country/Region

India 30%

China 27%

Brazil 11%

Other LAC 10%

Other Asia/Pacific 10%

Mexico 8%

Africa/ME 4%

Source: UNFCCC


agricultural powerhouse and thus could become animportant source for certain renewable energy projectsthat rely upon biomass for production. The region is alsorich in forests, which are disappearing in recordnumbers. Protecting these resources represents a greatopportunity for investors looking to develop carbonoffset projects.

Today, hydroelectric projects represent one of the mostcommon types of CDM projects in the hemisphere,while forestry projects are among the most numerousin the voluntary sector. Of the five countries in theregion that this study analyzed, hydroelectricityprojects are the most common or the second mostcommon type of project in four of them. In places likeBrazil, Chile, Colombia and Honduras, this is areflection of the ample fluvial resources that exist inthese countries. At the same time, however,hydroelectric projects are subject to climate changerisks. A severe drought in Brazil in 2001 played a rolein the virtual breakdown of hydroelectricity as riversdried up, contributing to a 1.5% reduction in GDP.Looking ahead, helping countries in the region to

diversify their energy matrices — as well as theircarbon portfolios — could help them to avoid climatechange-related risk. Forestry projects in the voluntarysector are found throughout the region and, in manycases, reach isolated areas where CDM projects do notgenerally exist. This type of project’s promise for theregion is that it can be implemented almost anywhere,and has already shown that it can contributesignificantly to sustainable development.

Several countries in the region are taking innovativesteps to augment their involvement in, and treatment of,the carbon market. In Chile, the government has begunto make a serious commitment to the diversification ofthe country’s energy matrix. Included in this effort is amandate that 15% of the new energy capacity in thecountry come from renewable energy sources.Furthermore, the state is encouraging green building andenergy-efficient construction. Mexico’s Secretariat of theEnvironment and Natural Resources (SEMARNAT) hasworked with the Centro Mario Molina and BANCOMEXTto create the Mexican Carbon Fund (FOMECAR), whichis designed to support activities related to emissions

Chart 1.0i Percent of Global CDM Projects in the Pipeline

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08

IndiaChinaBrazilMexico

Source: UNFCCC


reduction. FOMECAR’s goal is to increase Mexico’sparticipation as a host country within the CDM. TheNational Development Bank of Brazil has begun a CleanDevelopment Program that launched two closed-investment mutual funds to support projects that cangenerate certified emissions reductions (CERs). Suchundertakings indicate that the region’s approach tocarbon markets is becoming more robust.

Gaps Preventing the Wider Adoption ofCarbon Markets in LAC

Carbon projects, whether as part of the regulated orvoluntary market, face myriad challenges in theirimplementation. For the Americas, one of the mostfundamental challenges vis-à-vis its competition withAsia to implement projects that it cannot offer the samenumber of emissions reductions to investors for thesimple reason that its energy matrix is less heavilygeared toward traditional fossil fuels than are China’sand India’s. While this is an inherent disadvantage forthe region, there are other disadvantages in policy,financing, and institutions that can be smoothed out orovercome in order to better the prospects for carbonmarkets in the region.

Lack of Policy Initiatives

The extent to which governments take an active role inpromoting carbon projects is strongly correlated to thesuccess that these countries have had in the carbonmarket. The Brazilian government declared 2007 the“National Clean Development Year,” which included at itslaunch a protocol signed by 15 government bodies to takeaction to reduce greenhouse gas emissions through theuse of CDM projects. This type of action by a nationalgovernment is a clear instance of leading by example. InMexico, SEMARNAT created FOMECAR to increase thecountry’s participation as a host country within the CDMframework and to gain further benefits in the form offoreign investment and technology transfer. Chile’sNational Commission on the Environment (CONAMA)created a strategy to support sectors where CDM projectsneed to be developed, including recommending specifictechnologies or procedures for potential CDM projects.These proactive policy initiatives have helped to build andsustain lively carbon markets in several countries.

Some countries in the region, however — even those thathave had relative success within the carbon market arena— have had particular trouble with gaps in policy. InHonduras, for example, convoluted procedural standardsthat vary among government offices create uncertainty thatcan deter developers and investors. Brazil has facedcertain issues as well, including the undefined fiscal status

of CDM projects. Policy initiatives must be not onlyproactive, but also consistently applied throughout acountry. Ensuring that this is the case not only makes theprocesses of project proposal and implementation lesscumbersome for developers and investors, it also speedsup the project-development process and lowerstransaction costs.

The extent to which governmentstake an active role in promotingcarbon projects is stronglycorrelated to the success thatthese countries have had in thecarbon market.

Access to Financing

Among the most challenging aspects of project designand implementation in the Americas is project financing.This is especially true in smaller countries with lessinvestorconfidence and also for smaller projects.

Several countries are better placed than others to helpproject developers access financing. Because ofinstitutional parameters set out in countries like Brazil,Chile, and Mexico, project proposals are more easilychanneled so that the best projects are consistently givenprecedence over those that might need more work. Incountries like Brazil and Mexico, where investors are morelikely to look for opportunities, institutional and policybenefits play an important role in attracting financing.

However, lack of financing for small projects continues tohamper growth efforts throughout the region, especially insmaller countries such as Honduras. Projects that aresmaller in terms of emissions credits produced are notnecessarily small in terms of the impact they can have onsustainable development. But because these projects donot provide the same return on investment as largerprojects, investors are often unwilling to pursue them, justas lending institutions may be. Even when lendinginstitutions do provide funding, the rural nature of smallerprojects often affects the speed with which they can becompleted, due to infrastructural limitations. In this context,Garten Rothkopf found that financing opportunities areoften limited to one round and, should construction runover the expected budget, project developers are forced toseek additional financing elsewhere.

Institutional Gaps and Inefficiencies

The institutionalization of standards and norms relating tothe carbon market is another area that helps to guide


project developers and channel projects through a setsystem on their way from project design to implementation.Brazil, for example, was one of the first in the region toestablish an institution, the Inter-Ministerial Commission onClimate Change (CIMGC), to coordinate discussions onclimate change issues and integrate the discussions intogovernment policies. Today, CIMGC is composed of nineministries that are responsible for approving projectactivities eligible for CDM as well as creating additionaleligibility criteria beyond those rules established under theKyoto Protocol. Similarly, Mexico’s Inter-MinisterialCommission for Climate Change (CICC) and its Secretariatof the Environment and Natural Resources (SEMARNAT)both work to channel the efforts of diverse stakeholderstoward concerted efforts to develop carbon projects for thesake of sustainable development.

In Honduras, institutional delays created by long periodsfor completing feasibility studies and the lengthy project-approval process act to drive up transaction costs whichare already prohibitive in many cases. In the course of thisstudy, Garten Rothkopf identified one privately-financedhydroelectric project in the country that had to wait threeyears just to complete the permit process to beginconstruction. In Chile, the designated authority, CONAMA,requires project developers to ask for a separate Letter ofApproval (LoA) for any new information that is addedduring the course of project design and implementation.This makes the project approval process much more timeconsuming and drives up transaction costs for all partiesinvolved.

Recommendations

Though countries in the Americas vary to a large extentin terms of the potential for their participation in thecarbon market, four pillars will help each country tobecome as robust as possible in the field. In order forcarbon markets to continue growing in Latin America, theIDB must play a leading role to support these pillars bylending financial support, heightening building capacityin the region, and helping countries to design andimplement institutional programs to streamline andenhance their carbon sector.

I. Establishing the Potential for Carbon Markets

The key to understanding the process of emissionsmitigation is an all-encompassing view of nationalemissions portfolios. Fully comprehending the contoursof national emissions on a sector-by-sector basis can aidlocal and international institutions in bringing about themost appropriate emissions-mitigation and sustainable-development projects for each country. In Latin

America’s case, taking stock of individual countryendowments may result in a more nuanced approach toproject development and could help to identify specificpotential emissions mitigation projects in each country.As the IDB has already accomplished an inventory of itsown corporate greenhouse gases as part of its CarbonNeutral Initiative, it can translate this knowledge throughcapacity building in the region to help governmentinstitutions understand how to inventory emissions. This,in turn, will help countries identify emissions-mitigationprojects that may have been overlooked up to this point.

Program Ideas

• National Greenhouse Gas Inventories Project:

Undertake a thorough inventory of national greenhousegas emissions by sector throughout the region, includingthose from deforestation, in order to highlight troublingtrends as well as to identify the potential for new types ofemissions-mitigation projects.

• Private Sector Carbon Footprint Initiative: Promoteprivate sector emissions accounting through the bank’sown efforts as part of the Carbon Neutral Initiative andtie private carbon mitigation efforts regionwide to localoffset projects in order to establish a link between localcorporate efforts to reduce emissions and sustainable-development projects to generate offsets.

II. Streamlining Institutional Structures and Procedures

Central coordinating bodies for the Clean DevelopmentMechanism (CDM), referred to as Designated NationalAuthorities (DNAs), already exist as important centralinstitutions for the promotion and approval of carbonprojects in many countries in the region. These institutionsoften play a key role in helping project developers designand implement the best projects possible. In many cases,however, these institutions also create a certain amount ofinstitutional inertia, prolonging the project developmentprocess and upping transaction costs for all partiesinvolved. In order to streamline the project approvalprocess, legal and procedural gaps need to be addressedso that fewer projects do not fall through the cracks.

These DNAs only address the process of CDM projectdevelopment. In order to facilitate broader participation,individual governments can create a single centralcoordinating body for any project seeking carbon credits,in the voluntary sector as well as the CDM. Doing sowould ensure that each country properly utilizes all thecarbon assets available, not just those that are the largestand seem the most lucrative. Such institutions could alsohelp to facilitate an increase in the number of voluntaryprojects in a relatively short time span, as the voluntarymarket is unregulated and does not have to contend with


the inefficiencies associated with policy, financial, orinstitutional gaps. This would help the region to becomemore active and more innovative in the market and couldhelp in terms of development on a very local level.

Program Ideas

• Institutional Capacity Building Plan: Identify legislativeand procedural gaps that concern the implementation ofcarbon projects by interviewing project developers, andbuild government capacity to fill them by increasingtechnical support throughout the project-developmentand -implementation phases.

• Carbon Project Clearinghouse Program: Centralize allmatters regarding CDM and voluntary carbon offsetproject proposals to give project developers a single placeto submit their applications for any project that they wantto pursue, no matter the size or type, ensuring that smallprojects that do not qualify for the CDM are not thrownout but instead incorporated into the voluntary market.

III. Promoting Specific Types of Carbon Projects

Many countries have already begun initiatives to harness thepotential for renewable energy. Developing a plan for theimplementation and use of a renewable energy sector isespecially important for smaller countries in the region, whichgenerally do not have sufficient alternatives to traditionalfossil fuels when confronted with drastic oil price fluctuations.This can lead to considerable economic hardship. Pursuingrenewable energy projects beyond the hydroelectric sectorwill help countries to become less dependent upon foreign oilthrough the diversification of energy matrices and will alsowork to reduce national emissions portfolios.

At the same time, there is a tremendous opportunity inLatin America for carbon-offset projects in the forestrysector. Deforestation is rampant in the region: From 1990through 2005, it accounted for over 60% of globalprimary forest loss. Central America has the highest rateof deforestation of any region in the world over the past15 years, with Honduras leading the way. Today, thereare a number of forestry projects that are CDM-certifiedor registered in the voluntary market. Some paycommunities to plant trees in previously forested areas,while others take a more holistic approach thatemphasizes land management and sustainableagriculture in the context of the replanting of indigenoustree species. Given the staggering rate of deforestation incertain areas of the region and the sustainabledevelopment benefits that can be gained, there is todayhuge latent potential for the promotion of such a sector.

Program Ideas

• Renewable Energy Projects for the CDM Program:

Map national endowments for various types of cleanenergy, and promote the implementation of renewableenergy projects by offering preferential financing toprivate sector project developers.

• National Forest Protection Program: Work withgovernments to map national deforestation, implementcapacity-building measures to educate communities inthose areas in long-term sustainable land-usemanagement, and finance initial replanting and avoided-deforestation projects, which can then compensatecommunities in the long-term through the sale ofvoluntary carbon offsets.

IV. Improving Access to Financing

Lack of financing is one of the key hurdles inhibiting thegrowth for the carbon sector throughout the region. Somenational institutions have addressed this shortcoming. TheBrazilian National Development Bank (BNDES) and theMexican Carbon Fund (FOMECAR), for example, haveinstituted programs to support emissions-mitigationprojects. These types of institutions play an important rolein expanding the scope of projects suitable for the carbonmarket and act as useful examples of how relatively well-endowed countries can go one step further to supportmarket development. Most countries in the Americas,however, do not have the resources necessary to fundsuch institutional programs. The ability of countries to fundcarbon projects will be increasingly important, as it will actto build investor confidence and to foment interest fromproject developers seeking to implement new projects.

Program Ideas

• Public-Private Partnership Working Group: Matchinterested private project developers with potentialpublic-works projects throughout the hemisphere thatcan be utilized to generate offsets, such as innovative,low-emissions public transportation or landfill gasprojects.

• Latin American Carbon Fund: Create a trust fund toobtain future flows of certified emissions reductions(CERs) on behalf of participants, in return for up-frontproject finance support.

• Latin American Carbon Market Plan: Increase thenumber of bank-sponsored clean energy projects byproviding additional early-stage project developmentfinancing as well as technical support to validate projectdesigns and certify emissions reductions that result fromthese projects.


Endnotes Section 1

1 International Energy Agency. “Energy Balance of Non-OECD Countries – 2008Edition.” International Energy Agency. 2008. 30 Oct. 2008<http://www.iea.org/textbase/publications/free_new_Desc.asp?PUBS_ID=1078>.

2 Operador Nacional do Sistema Elétrico (ONS), “Dados Relevantes 2006.” 5 Apr.2008. 9 Sept. 2008<http://www.ons.org.br/biblioteca_virtual/publicacoes_operacao_sin.aspx>.

3 Intergovernmental Panel on Climate Change (IPCC). “Climate Change and Water.”UNEP and WMO. June 2008. 30 Oct 2008 < http://www.ipcc.ch/pdf/technical-papers/climate-change-water-en.pdf>.

4 OLADE. “Sistema de Información Económica Energética.” OLADE. Nov. 2007. 1Sept. 2008 <http://www.olade.org/documentos2/plegablecifras-2006.pdf>.

5 Renner, Michael, Sean Sweeney, and Jill Kubit. “Green Jobs: Towards SustainableWork in a Low-Carbon World.” UNEP. Sept 2008. 31 Jan. 2009<http://www.unep.org/labour_environment/PDFs/Greenjobs/UNEP-Green-Jobs-Report.pdf>.

6 OLADE. “Sistema de Información Económica Energética.” OLADE. Nov. 2007. 1Sept. 2008 <http://www.olade.org/documentos2/plegablecifras-2006.pdf>.

7 REN21. “Renewables 2007 – Global Status Report.” REN21. 2008. 20 Apr. 2008<http://www.ren21.net/pdf/RE2007_Global_Status_Report.pdf>.

8 Sustainable Energy Finance Initiative and New Energy Finance. “Global Trends inSustainable Energy Investment 2008 – Dataset.” UNEP. 2008. 5 Sept. 2008<http://sefi.unep.org/fileadmin/media/sefi/docs/publications/data_2008.pdf>.


10 New Energy Finance. “NEF Desktop 3.0.” 10 Sept. 2008<http://www.newenergymatters.com>.


12 International Geothermal Association. “Installed Generating Capacity.” 29 July2008. 1 Sept. 2008 <http://iga.igg.cnr.it/geoworld/geoworld.php?sub=elgen>.

13 Global Wind Energy Council. “Global Wind 2007 Report – Second Edition.” May2008. 1 Sept. 2008 <http://www.gwec.net/fileadmin/documents/test2/gwec-08-update_FINAL.pdf>.



16 Fay, Marianne and Mary Morrison. “Infrastructure in Latin America and theCaribbean: Recent Developments and Key Challenges.” The World Bank. 2007. 3Jan. 2008 < http://www.iadb.org/sds/conferences/infrastructure/WB-IDB%20Infrastructure%20in%20Latin%20America.pdf>.

17 AMDEE. “Perspectiva del Mercado.” Primer Encuentro Internacional para elFomento de las Energías Renovables en el Estado de Oaxaca. 29 Feb and 1 Mar2008. 10 Apr 2008 < http://www.oaxacaenergialimpia.com.mx/bloque02/10.ppt>.

18 Sonntag-O’Brien, Virginia and Eric Usher. “Mobilising Finance for RenewableEnergies – Thematic Background Paper.” International Conference for RenewableEnergies, Bonn 2004. Jan. 2004. 9 Jan. 2008<http://www.uneptie.org/energy/act/fin/docs/TBP05-Financing.pdf>.

19 New Energy Finance. “New Energy Finance Desktop 3.0.” New Energy Matters. 7Sept. 2008 <http://www.newenergymatters.com>.

20 Jannuzzi, Gilberto De Martino. “Public Interest Research and Development:Electricity Sector Reforms and the Effects in Energy R&D Activities.” InternationalEnergy Initiative – Latin America. Energy Discussion Paper No. 2.62-01/03. Apr.2003. 23 Jan. 2008 <http://www.iei-la.org/documents/RelIEI2-62-01-03.pdf>.

21 Maize U.S. #2 Yellow, USDA; Soy Oil FOB Argentina, USDA FAS; Palm Oil CIFRotterdam, Malaysian Palm Oil Board

22 Roig-Franzia, Manuel. “A Culinary and Cultural Staple in Crisis.” The WashingtonPost. 27 Jan. 2007. <http://www.washingtonpost.com/wp-dyn/content/article/2007/01/26/AR2007012601896_pf.html>.

23 International Energy Agency. “Biofuels for Transport: An International Perspective.”Paris, 2004.

24 New Energy Finance, statistical database, accessed 05 Sept. 2008. 25 N.a. “Chile slashes taxes on biofuels to avoid social and health crisis.” Biopact. 18

May 2007. <http://biopact.com/2007/05/chile-slashes-taxes-on-biofuels-to.html>.26 “Oportunidades y riesgos de la bioenergía.” Comisión Económica para América

Latina y el Caribe (ECLAC). Centro de Prensa. 07 May 2007.<http://www.eclac.cl/cgi-bin/getProd.asp?xml=/prensa/noticias/comunicados/6/28506/P28506.xml&xsl=/prensa/tpl/p6f.xsl&base=/prensa/tpl/top-bottom.xslt>.

27 New Energy Finance, accessed 01 Oct. 2008. 28 Mesquita, Mauricio. “IIRSA Economic Fundamentals.” IADB. N.d. Aug. 2006.29 Rozas Balbontín, Patricio. Powerpoint presentation. CEPAL. APEC 3rd Senior

Officials’ Meeting and Related Meetings: Seminar on Best Practices in Regulationand Promotion of Efficiency in Transport Infrastructure Facilities. Lima, Perú. 15–16Aug. 2008.

ESSAYS ON MAJORTHEMES

SECTION TWO

Essays on Major Themes | Section 2 3311


2.1 Green Urgency

2007 was a busy year for the UN Office for the Coordinationof Humanitarian Affairs (OCHA), which had to dispatch arecord nine missions to the Americas out of a total of 17around the world in response to an unusually high number ofnatural disasters in the region. Of these missions, 70% werein response to hurricanes and floods, prompting OCHA torefer to these disasters as “a possible glimpse of the shapeof things to come, given the reality of climate change.”1

Throughout the Americas, these disasters stood out asperhaps the most tangible examples yet of the immediateand impending effects of climate change on the region.Rains left most of Mexico’s Tabasco state under water forweeks, including large parts of Villahermosa, a city of over650,000. At least 700,000 people in the region saw theirhomes flooded, and the aftermath brought fears ofoutbreaks of water-borne illnesses.2 The state of Tabascosaw 100% of its crops disappear under water and 70% ofthe entire state flooded.3

Elsewhere, in the Dominican Republic, Tropical Storm Noeltriggered floods that killed dozens of people. Category fiveHurricane Felix hammered Honduras. Meanwhile, Uruguaysuffered from its worst flooding in 50 years, while in Boliviatens of thousands were left homeless, and an area the sizeof Britain was left under water by the worst flooding inmore than a quarter century. The flood’s effects wereexacerbated by deforestation in the Amazon Basin broughtabout by large-scale cattle ranching and soy production.4

These events are just a few of the most recent examplesof what is a growing trend in the Americas as a whole:tangible evidence of global climate change. The effectshave not been limited to storms or floods. Drought, in fact,is likely to become the norm in much of the region shouldcurrent trends persist, and it could have staggeringconsequences for the region’s role as a global agriculturalsupplier for decades to come.

The warning signs are already here. In 2005, Brazil’sAmazon suffered its worst drought in more than 100 years;that is, since record-keeping of this sort first began. As aresult, production of corn dropped 13.5%, while that ofsoybeans fell 4.6%, even though the area in which it wasplanted had increased 16% from the year before.5 Thesewere not trivial reductions — together, the two cropsaccount for more than three-quarters of Brazil’s grainproduction. The drought caused rivers and lakes to dry upcompletely, prompting states of emergency to be called inall 61 municipalities of the country’s Amazonas state.Brazil’s military was dispatched to supply water, food, andmedical supplies to tens of thousands of people left

stranded by the drastic drop in water levels.6 On theMadeira River, a main artery for products like soybeansand diesel oil, navigation had to be suspended whenwater levels fell to barely one-tenth of their rainy-seasonaverages. Crops rotted because they could not beshipped to market. Communities that relied on rivers tocarry away human waste risked outbreaks of cholera andother diseases.7 Analysts at Brazil’s National SpaceResearch Institute (INPE) later determined that the droughthad been caused by global warming.8

What should we make of all these events? Skepticsalternately discount the trend of global warming or, if takenas a given, argue that there is scant evidence that suchwarming is human-induced. Both of these assertions missan important point — that countries in Latin America andthe Caribbean are already living through global warming’sdaily effects. According to the IPCC, these include“widespread changes in precipitation amounts, oceansalinity, wind patterns . . . droughts, heavy precipitation,heat waves and the intensity of tropical cyclones.”9 For thesake of the people living in these areas, policymakers donot have the luxury of merely debating the scientific meritsof climate change. Disasters are already occurring, and asense of urgency needs to take hold in order for leaders inthe region to address this issue through collective actionon a scale never before seen. The Americas could have abright future if concerted efforts are made on this front. If,instead, the buck is passed to countries that are viewed ashaving been responsible for much of the change up to thispoint, then the region will have missed a goldenopportunity to act decisively while it stands on theprecipice of irreparable disaster.

This essay will take a look at the myriad ways in whichclimate change today affects the Americas and how theactions and inactions of governments and other regionalactors in turn exacerbate the effects of climate change totheir own detriment. Five major channels are discussed;three regarding climate change’s effects on the humanpopulation in the region, and two exploring how humanactivity makes these effects worse. First, the paperprovides evidence that global climate change is leading toan increase in the intensity of natural disasters in theregion. Second, it explores the ramifications of thisincreased intensity in the context of long-term efforts todevelop. Third, it demonstrates the ways in which climatechange will threaten public health throughout the region.Regarding human actions, the final two sections discusshow urbanization and deforestation magnify the effectsthat climate change has on populations in the region.Finally, a series of recommendations is given for ways inwhich the Americas can take concrete steps to addressmitigation and adaptation strategies.


The Setting

Latin America and the Caribbean is a region of naturalbounty. With just one-sixth of the total land area of theplanet, the region has more than 40% of its animal andplant species and over one-quarter of the planet’s forests.10

Those who live there, representing about 8% of the world’spopulation, enjoy 29% of global precipitation and morethan one-third of all fresh water.11 They also make use ofthe world’s largest reserves of arable land, which accountfor almost one-quarter of the world’s total andapproximately 30% of the region’s entire area.12

Despite these benefits, Latin America and the Caribbeanremains a place where inequities in the distribution ofwealth are among the most severe globally, making theregion one of the most vulnerable to the effects of climatechange. The poverty rate is 44%.13 One in seven of itscitizens has no access to a safe water supply, a majority ofwhom live in rural areas.14 Such geographic and economicdisparities intra-regionally present challenges for LatinAmerica and the Caribbean. In a place sorely in need ofinfrastructure to better its prospects for economicadvancement and adaptation to climate change, theregion has the highest incidence of cancellation forinfrastructure projects of any region in the world.15 Theseshortcomings highlight the systemic challenges that theregion faces in confronting climate change.

The Americas have been at the center of attention before,regarding efforts to tackle climate change collectively. Riode Janeiro played host to the 1992 UN Conference on theEnvironment and Development (UNCED), which promptedcountries to agree that “states shall enact effectiveenvironmental legislation” and “cooperate in the spirit ofglobal partnership [in order] to conserve, protect andrestore the health and integrity of the Earth’s ecosystem.”16

While acknowledging its limitations at the time, one U.S.State Department official claimed on the first day of theconference that “the history books will refer back to thisday as a landmark in a process that will save the planetfrom destruction.”17 Now, more than a decade and a halflater, the prognostications of the beginning of the end foranthropogenic destruction have been replaced bywarnings that we are only now witnessing global climatechange’s initial effects.

That is not to say that the world, including the Americas,has not accomplished meaningful progress towardidentifying local climate change phenomena and takingcertain steps to adapt since 1992. The meeting to takeplace in Copenhagen in December 2009 to determine apost-Kyoto Protocol agreement is a testament to the utilitythat that the Protocol has served up to this point, as well

as to the aspirations for a meaningful post-Kyotosuccessor. In the wake of the Rio summit, regionalcountries rolled out environmental secretariats andministries to evaluate environmental impacts and to createnorms and instruments for environmental management. Insome countries — Mexico, Brazil, Chile, and Colombia —specific institutions were created for the generation ofenvironmental data on a national scale.18 These actionswere taken with the understanding that governmentsneeded to do more to address climate change.Quantifying it was one way to measure its effects overtime and to make comparisons inter- and intra-regionally.

For the Americas today, even the countries that thedeveloped world sometimes derides for not doing enoughto address climate change often do more than theirdeveloped-world counterparts. Mexico, for example,recently finished fourth in a climate change global-performance index, trailing only Sweden, Germany, andIceland. Three countries from the region — Mexico, Brazil,and Argentina — finished in the top ten.19 The U.S.finished in 55th place out of 56 countries. For Mexico, thehigh ranking came as the result of the development of acomprehensive climate change mitigation strategy andefforts to develop the first voluntary corporate greenhousegas emissions inventory.20

Meanwhile, recent efforts by Brazil to find a solution to itsdeforestation problem highlight the challenges the countryfaces, but also the measured success that it has alreadyachieved. The country’s “Plan for a Sustainable Amazon”(PAS) is setting up a tax regime to benefit those whoemploy sustainable practices, establishing a legalframework for transferring parts of the forest from public tocommunity control. This plan is adding three millionhectares to the government’s “officially protected” zoneand is seeking ways to allow the international communityto help preserve the forest. In Amazonas state — 98% ofwhich is pristine forest — the “Bolsa Floresta” has beendeveloped as a conditional cash-transfer system tocompensate people living in the state or not cutting downtrees.21 Brazil’s President, Luis Inacio Lula da Silva,recently launched an international fund to protect theAmazon and help combat climate change, hoping to raise$21 billion for the effort by 2021.22

Not only the biggest countries in the region have sought toaddress climate change through policy initiatives. In 2007,Costa Rica announced that it would aim to go carbon-neutral by 2021, just in time for the country’s 200thbirthday. In order to do so, it plans to clean up its fossilfuel–fired power plants, promote the use of hybridvehicles, and increase tree planting. In the final case,Costa Rica has already accomplished a lot — tree cover in


the country has increased from 40% to 51% of thecountry’s total area in the last decade.23

While some governments in the region have undertakeninitiatives to address the climate change issue, progresshas tended to be concentrated more in countries andregions that are generally better off, while climate changemore gravely affects those who are least well off. Even incountries where it is addressed, the problem of climatechange has not been attacked with the fierce urgency thatit should be. In many cases, pledges to reach climatechange policy goals by a certain date decades into thefuture are belied by facts on the ground, and in otherssome of the most obvious solutions for protecting citizensand the world from the effects of climate change areseemingly overlooked or given short shrift. Furthermore,problems of enforcement have tempered, or evenundermined, executive and legislative successes in theregion meant to mitigate climate change’s effects.Meanwhile, the low-hanging fruit of urban planning andemergency-disaster response, both of which would helpthe region to adapt to climate change, simply are not giventhe same attention as more fashionable efforts to combatclimate change on a larger and more profitable scale.

These often-overlooked solutions to adaptation andmitigation are not the only way forward, however, and mustbe implemented in conjunction with more diversified energymatrices. 2008’s oil-price spikes made it even more difficultand costly for the region to develop. While 26 million LatinAmericans climbed out of poverty between 2002 and 2006,the UN World Food Program estimates show that 15 millioncould slide back into poverty if the price of oil were to jumpso high again. In 2007 alone, 500,000 toppled back intopoverty in El Salvador and Guatemala.24 Such a backwardslide is especially threatening in Central American countries,which import much of their grain and nearly all of their oil.

While 26 million Latin Americansclimbed out of poverty between2002 and 2006, the UN WorldFood Program estimates that 15 million could slide back intopoverty if the price of oil were to jump to mid-2008 levels againfor a sustained period.

Elsewhere in the Americas, the effects of high oil pricesearlier in the year forced governments to dole out fuelsubsidies. The Colombian government recently raised its

subsidy to $3 billion after 145,000 truck drivers went onstrike over fuel costs. In Argentina, $11 billion was spenton fuel oil subsides in 2007, while the figure reachedalmost $2 billion in Ecuador.25 In Mexico, meanwhile, thegovernment spent about $20 billion on gasoline subsidiesin 2008, an amount four times that given in 2007.26 Thoughthe country has recently announced plans to phase outthese subsidies, Mexico and other countries are stillpouring valuable resources into maintaining unsustainableenergy matrices. Regional governments must expendgreater effort and spend more money to consider ways todiversify their energy matrices in order to address the twinthreats of climate change and underdevelopment.

Up to this point, policy efforts regarding climate change inthe region have fallen short. The main obstacles to climatechange policy implementation throughout the region havebeen political will and lack of data and technical knowhow.All three, if addressed together, could go a long way to helpthe Americas tackle the issue. Technical studies of climatechange in the region must be undertaken to determine theextent to which various countries are affected. At the sametime, international institutions have a role to play inharmonizing data collection intra-regionally and in helpingto increase technical capacity so that such collection canbe expanded. Finally, once these pieces are in place,governments have an obligation to address the issue ofclimate change policy implementation as urgently aspossible.

It is time for the Americas to take urgent action regardingclimate change policy. Countries in the region must worktogether, alongside inter-governmental institutions, toimplement short-, medium-, and long-term goals toaddress these challenges. Not doing so could have gravehuman and economic implications years into the future.The effects of climate change in the region are, after all,already being felt. Governments that address them afterthe fact will incur a much higher cost in terms ofdevelopment and human well-being than those that takeambitious steps to implement measures today.

Why the Americas Need to Do More

Before getting to what could and should be done, it is firstimportant to tackle why it is so important that actions aretaken. Simply put, climate change is already threateningthe region in such a variety of ways that it is easy to forgetthe scope of such changes. According to the IPCC,“highly unusual extreme weather events” have hadnegative impacts on populations, increasing mortality andmorbidity in affected areas.27 The economic viability ofcertain regions will also be threatened. While natural


disasters are a major part of it, a place also needs to beheld for the man-made actions that exacerbate the effectsof these disasters (for example, urbanization anddeforestation). Only by understanding the ways in whichcountries in Latin America and the Caribbean are alreadyaffected can we even begin to consider how the regionshould go about taking a more active and leading role inmitigating the disastrous effects from which it suffers.

The Intensity of Natural Disasters Will Continue to

Increase...

Several types of natural disasters will affect the Americaswith increasing frequency. Hurricanes and other stormsare probably the most visible of the regional naturaldisasters, in part because they are relatively easy topredict and prepare for in short time spans. A few in thepast decade stand out as exceptional examples of thetypes of events that the region should better prepare for,especially given the warning put forth in a recent reportfrom the UN Environment Program (UNEP) stating that theregion should expect “an increase in the intensity andfrequency” of these events.28

The first of these was one of the deadliest and mostpowerful storms ever recorded in the Atlantic Basin. In lateOctober 1998, Hurricane Mitch formed in the Caribbeanand quickly strengthened to Category Five status.Maximum sustained winds reached 180 mph. Eventhough Mitch subsided to a Category One storm with 80mph winds by the time it made landfall in Honduras, its tollon human and economic well-being was catastrophic.

Some 7,000 people died in Honduras, and another 3,000died in Nicaragua, with an additional 80,000 people in theregion sustaining injuries.29

In addition to increasing in intensity and frequency,hurricanes may show up in places that are notaccustomed to their effects. In March 2004, Brazilunexpectedly found itself face to face with the firsthurricane ever recorded in the South Atlantic. NamedCatarina, after the state in Brazil that it hit, the hurricanewas more of a disturbance than a catastrophic event. Still,some 40,000 students in Catarina were out of class formore than two weeks. Total economic damage wasestimated at around $420 million.30 Twenty-three citieswere severely struck, and some 33,000 people were lefthomeless.31 October of the following year saw the mostintense hurricane ever recorded in the Atlantic Basin,Wilma, make its way through the Caribbean to Mexico’sYucatan Peninsula before turning northeast to makelandfall in Florida.

Floods are even more calamitous than hurricanes in termsof the number of people killed throughout the Americas overthe past few decades. Many are caused by hurricanes, asevidenced by the large amounts of rainfall accompanied byHurricane Mitch in Central America in 1998. Others,however, come about as the result of heavy rains that affecthighly vulnerable areas. Throughout the Americas, acombination of steep slopes, saturated soils, variations inprecipitation patterns, unsuitable infrastructure, and heavyoccupation of riverbeds — together with persistent rainfall

Chart 2.1a Number of Major Hurricanes Per Year and Ten-Year Averages in the Atlantic Basin, 1851–2006

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1851 1876 1901 1926 1951 1976 2001

# of Major Hurricanes

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Source: Atlantic Oceanographic and Meteorological Laboratory


and glacier melting — will lead to an even worse situationfor the region if more intense rains fall, as predicted bytoday’s climate change models.32

This was the case in Venezuela in 1999. Two weeks oftorrential rains in the second half of December causedflooding and landslides that led to the deaths of between30,000 and 50,000 people.33 Another 200,000 people wereleft homeless, with entire towns along the Caribbean coastwashed away. About 230,000 jobs were lost as a result ofthe floods.34 Meanwhile, in 2007, the worst flooding in 50years hit Uruguay, where it forced the relocation of 12,000people, closed schools, brought down electricity andphones lines, submerged farm land, and contaminatedwater supplies.35 These events have extracted both humanand economic costs that cannot be recovered. They areespecially important to address, given IPCC modelspredicting that floods will become more frequent, whichwill increase the amount of sediment and degrade thequality of water in certain parts of Latin America and theCaribbean.36

Two weeks of torrential rains inVenezuela in 1999 caused floodingand landslides that led to thedeaths of as many as 50,000people and economic damagesestimated at $9 billion.

Glacial melt will also threaten the region. The ice-coveredarea of the Peruvian Andes, where 70% of the Earth’stropical glaciers exist, decreased by 22% from 1970 to1997. Meanwhile, the rate of the melt is increasing.Quelccaya, the world’s largest tropical ice cap, located inPeru, is retreating at about 200 feet per year, up from 20feet per year during the 1960s.37 The same is happening inColombia.38 There, snowcaps are receding at a rate of 80feet per year, up from 50 feet per year just a few yearsago. From Ecuador to Chile to Argentina, temperaturechanges and humidity are causing glaciers to retreat. Thismelting plays a role in “significantly affect[ing] wateravailability for human consumption, agriculture and energygeneration.”39 It will also alter shipping and boating routesused for commerce and tourism.40 The impact of glaciersmelting in the Andes will change river flows and threatenwater supplies for people, industry, agriculture, and nature.It could even lead to inter- and intra-national disputes overaccess to water resources.41 The disappearance of theseglaciers will also play a significant role in the increasedoccurrence of drought in the region.

The effects of these natural disasters, while notnecessarily avoidable even in the absence of globalwarming, can be mitigated with the implementation ofnational and regional policies aimed at taking on veryspecific areas. The incidence of hurricanes and droughtsand the rate of glacial melt will not diminish overnight,even given a strong effort to tackle climate change today;however, the effect they have on the region can bereduced if governments take climate change seriously.With its citizens already threatened, now is the time forregional governments to address development patternsand adapt accordingly. If measures are not taken, thelong-term impact could be drastically worse.

…Hampering Efforts at Long-Term Development,

Especially in Agriculture…

Human suffering as the result of these disasters will not betemporary, and in many cases they will irreparably damageareas on which people depend to make their livelihoods.Hurricane Mitch’s impact on food availability in Honduras,Nicaragua, El Salvador, Guatemala, Belize, and Costa Ricawas devastating. Honduras was hit the hardest, with over50% of its infrastructure and production severely affectedor completely destroyed.42

The long-term economic effects of this storm weredebilitating. In Mitch’s wake, the USDA initially estimatedthat export earnings in the region would be much lower forat least two years, due to plant and infrastructure losses.43

Hundreds of thousands were left without work or any

0%

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Chart 2.1b Percent of All Deaths Caused by Natural Disasters in the Americas, 1970–2001

Source: UNEP Global Environmental Outlook 2007


means of income. More than 30% of the assets of thepoorest quarter of the population were destroyed, whilethe proportion of children in homes affected by thehurricane who had to work instead of going to schooljumped from 7.5% to 15.6% overnight.44 According to theUN Food and Agriculture Organization, the hurricane’sdamage to basic infrastructure, agricultural production,and the industrial sector “virtually destroyed more thantwo decades of progress” in the region.45 This is the sort ofnightmare scenario with which regional governments haveto contend.

In 2005, hurricanes in LatinAmerica and the Caribbean killedover 4,500 and caused economiclosses valued at over $205 billion.

These storms are wide reaching. In 2005, hurricanes alonein Latin America and the Caribbean left 4,598 dead andleft seven million affected.46 They also caused economiclosses valued at over $205 billion, or the equivalent ofHong Kong’s entire economy, the 37th–largest in theworld. To put it in the proper context, those losses are the

equivalent of about 16% of Brazil’s economy, 23% ofMexico’s economy, and 79% of Argentina’s economy,Latin America’s three largest.47 Clearly, these are notlosses that can be sustained in the long term, especiallygiven predictions that hurricanes may become morefrequent and are likely to become more powerful.

Estimates of the total losses brought about by the floodsin Venezuela in 1999 reached as much as $9 billion.48 Inthis particular case, mudslides and raging rivers sweptaway shantytowns perched on steep slopes.49

Subsequent floods in the country in 2002 affected almost60,000 people and led to the loss of at least 200,000 acresof farmland.50 Floods and landslides brought about byHurricane Mitch, prompted by as much as six feet of rainreleased in the interior of the country, were felt throughoutthe country.51 Over 150,000 tons of grain were lost.

Continued glacial retreat also has grave implications forLatin America, especially South America. As this retreatcontinues, water availability and hydropower in the regionwill be affected significantly. This is no small considerationfor a region in which 14% of the population today has noaccess to safe water.52 Peru will be hit especially hard, asglaciers account for 80% of the freshwater in the country’s

Diagram 2.1a Estimated Impact of Climate Change

Source: Environmental Health Perspectives, April 2007

Africa AsiaLatin

America Oceania EuropeNorth

AmericaPolar

Regions Islands

Water resourcesMarine ecosystemsForest ecosystems

Grassland ecosystemsLakes, rivers and wetlands

Coastal ecosystemsWildlife

Strongly positive

Commercial agriculture

Positive

Subsistence agriculture

Neutral

Livestock

Negative

Forestry

Strongly negative

Coastal settlements

No information

Urban areasHeat stress

Vector-borne diseasesIncreased energy demand

TransportConstruction industry

Tourism


cities.53 Nor is glacial retreat trivial for a country like Brazil,which lies downstream from the Peruvian Andes andgenerates 84% of its electricity from hydroelectric power.54

There, in 2001, a combination of increased energydemand and drought brought about the virtual breakdownof hydroelectricity, contributing to a reduction in GDP of1.5%.55 Perhaps even worse for Latin America is the effectthat reduced glacial melt will have on agriculture, to whichalmost 74% of all freshwater in the Americas isdedicated.56 According to the IPCC, glacial water loss willlead to the salinization and desertification of 50% of theregion’s cultivated land, leading to less agriculturalproductivity.57 Rising temperatures of 2 degrees Celsiuswould lead to a 60% loss of unirrigated maize in Mexico,upon which two million farmers count for survival. Theimplications for regional development are grim.

Tropical glaciers today providePeru’s cities with 80% of theirfreshwater. It is estimated that theseglaciers will disappear completelybetween 2020 and 2030.

Increased drought — brought about by glacial melt,deforestation, increases in temperature, and subsequentchanges in rainfall patterns — could lead to more massivecrop failure and subsequent demographic shift than italready has. Current estimates are that as much as 75% ofthis region is at risk of being turned into desert, broughtabout by higher variability in rainfall patterns that resultfrom global warming.58

The UN Development Program has warned that there is a“high probability” that “crop yields will diminish significantlyin climate change conditions for most of the countries inthe Americas, and … soil degradation processes willcontinue to increase.” Such effects will likely lead to a dropin maize production in the Americas of 15% on average.59

Given that Latin America today produces 47% of theworld’s soybean crop, such events could be catastrophicfor its economic development.60 Furthermore, as witnessedin Brazil in 2001, droughts can also lead to the drying-up ofhydroelectric power sources. That drought led tohydroelectric plants that could not function and to asubsequent decrease in GDP of 1.5%.61 At the same time,droughts increase the probability that sudden and intenserainfall will lead to flooding, as the ground is less able toabsorb water.62 Meanwhile, the result of spreading droughtthroughout Latin America will be increased rates of rural-urban migration. In northeast Brazil during the early 1980sand 1990s, prolonged droughts provoked rural-urban

migration of subsistence farmers on a large scale.63 Themore the intense droughts move forward, the more suchmigration is likely to increase.

…And Increasing Threats to Public Health

These disasters can bring direct and indirect consequences.Epidemics are probably among the most underestimatednatural disasters in the Americas and also among the mostpreventable. Infrastructural development and proper long-term planning could help guard against the spread ofcholera, giardia, and typhoid in a disaster’s wake.

The Americas are already witnessing the effects thatepidemics can have. In the wake of Hurricane Mitch,flooding brought about a six-fold increase in cases ofcholera to Nicaragua. In Guatemala, cholera cases jumpedfour-fold.64 Meanwhile, the World Health Organizationpredicts that general changes in the region’s climate arelikely to lengthen the transmission seasons for importantvector-borne diseases.65 Thus, in addition to epidemicsbrought about by natural disasters, increased temperatureswill lead to at least a heightened probability that epidemicsoccur. Changes in temperature and surface water will, forexample, affect the life-cycle of mosquitoes, which canlead to the spread of diseases like malaria and dengue tocountries in more temperate zones that are not currentlyaffected. As temperatures increase, climate change is alsolikely to lead to an increase in rodent-borne disease.66

Flooding in the aftermath ofHurricane Mitch in 1998 broughtabout a six-fold increase in choleracases in Nicaragua and a four-foldincrease in such cases inGuatemala.

Drought can also help fuel epidemics, just as floods can.As droughts diminish water availability, there is usually anincrease in the amount of drinking water shared betweenhuman populations and the livestock from which theymake a living. Heavy downpours during a drought cancause sewers to overflow, leading to rain runoff thatwashes microbes off farms and streets and into watersupplies. A number of studies have demonstrated acorrelation between heavy downpours and outbreaks ofwater-borne diseases such as cryptosporidiosis,giardiasis, and cyclosporidiosis.67 Major droughts in thenortheastern Brazilian cities of São Luís and Teresinhabetween 1983 and 1985 and 1992 and 1994 coincidedwith important epidemics. There, kala-azar, a potentiallyfatal parasitic disease, re-emerged. On the coast of


Colombia in 1995, heavy rainfall following the worstsummer drought in 50 years precipitated a cluster ofdiseases involving mosquitoes, such as equineencephalitis and dengue; rodents, such as leptospirosis;and toxic algae, which resulted in the death of 350 tons offish in the country’s largest coastal lagoon.68 More recently,in 2007, changing weather patterns contributed to adengue epidemic in the Americas. Through the first ninemonths of 2007, the Pan American Health Organization(PAHO) logged more than 630,000 cases, or 11% morethan in all of 2006.69 By the end of 2007, PAHO reportedover 900,000 cases, the equivalent of a 63% increase inthe number of cases of dengue in just one year.70

Also contributing to the rise of epidemics in the region willbe the increased rate of glacial melt brought about byglobal warming. Glaciers help to regulate the region’sresources by contributing to runoffs during warm and dryperiods and by storing water during cold and wet periods.71

In Central and South America today, glacial retreat broughtabout by global warming is enabling plant communities tomigrate upward, and mosquitoes and mosquito-bornediseases are being found at higher altitudes.72 This couldbring malaria back to major cities like Quito, Ecuador, andMexico City, where it has not been for decades.73 The trendis likely to continue in other cities as well, as analystsexpect most tropical glaciers in the region to be completelydestroyed between 2020 and 2030.74

Meanwhile, Human Actions Will Continue

to Exacerbate the Effects of Climate Change…

In addition to natural disasters, certain human actionsexacerbate the effects of global climate change in theAmericas. Among the most important are deforestationand urbanization, both of which act to intensify theoutcomes of climate change that many people alreadyfeel. These activities highlight the areas in whichpolicymakers can make the greatest gains in order tolessen the impact of global climate change.

…As Urbanization Continues Apace…

2007 marked the first year in history that more people inthe world lived in cities than in rural areas. The trend is setto continue: Estimates are that some five billion people outof a total global population of 8.1 billion will be living incities by 2030.75 Urbanization itself is not necessarilysomething that the world, or the Americas, can or shouldstop. Governments can, however, implement policies tomitigate the often-destructive process of urbanization. Twobillion of those five billion urban citizens, for example, willlive in slums. This is a statistic that could be altered withproper planning. The trend is especially pertinent to theAmericas, which is the most urbanized region in thedeveloping world. Seventy-five percent of the region’s

population lives in urban areas, where 90% of alleconomic activities take place.76 Estimates are that by2050, almost 90% of the region’s population will live inurban areas.77 By the end of the 21st century, sea-levelrise will threaten increasingly urbanized and low-lyingcoasts in Argentina, Colombia, Costa Rica, Ecuador,Guyana, Mexico, Panama, El Salvador, Uruguay,Venezuela, and the Caribbean islands.78

Throughout the Americas, urbanization is leading to forestloss, ground-surface hardening, and temperatureincreases. This last outcome, known as the “heat-island”effect, is the result of lower evaporative cooling, increasedheat storage, and heat flux caused by lower vegetationcover in cities. Individual cities can show a large heat-island effect, measuring between nine and 20 degreesFahrenheit warmer than in surrounding rural areas.79 Theeffect can lead to massive heat waves, given the rightconditions, like those that persisted throughout Europe in2003, when a heat wave caused the deaths of between27,000 and 35,000 over two weeks.80 Populations in largerurban areas, like Mexico City, São Paulo, Caracas, andHavana, may be especially vulnerable to heat waves.81

Furthermore, heat waves exacerbate the already ill effectsof air pollution in these cities. Some 80 million people in theregion are affected by air pollutants on a daily basis. This isespecially true in São Paulo, Rio de Janeiro, Santiago andMexico City, where air pollutants exceed the maximumlimits recommended by the World Health Organization. Bysome estimates, urban air pollution in Latin American andthe Caribbean is the leading cause of about 2.3 millionannual cases of chronic respiratory illness in children andsome 100,000 cases of chronic bronchitis in adults.82 Theresult is the loss of close to 65 million days of work in LatinAmerica and the Caribbean every year.83

Urban air pollution in the region isthe leading cause of about 2.3million annual cases of chronicrespiratory illness in children and100,000 cases of chronicbronchitis in adults.

Climate change will affect urban populations, just asurbanization will exacerbate climate change’s effects.Most threatened by climate change’s consequences onurbanization are those who live on the periphery of cities,often in areas unsuitable for settlement. This urbanexpansion “has altered the hydrological ecosystems whileincreasing the [population’s] vulnerability and risks to


natural disasters.”84 Evidence of such instances is not hardto find. In a report to assess the direct and indirectimpacts of Hurricane Mitch on Central America,researchers found that the human and economic toll was“the result of a powerful storm that encountered profoundhuman vulnerability.” Mitch, they wrote, is “a harbinger offuture disasters unless actions are taken to reduce societalvulnerability.”85 This type of vulnerability also led to manyof the 30,000 deaths from the floods in Caracas in 1999.There, the precarious placement of shantytowns on steepslopes of the Avila Mountain enabled raging rivers andmudslides to sweep away entire settlements.86

In Rio de Janeiro, most of the deaths due to floodepisodes result from either mudslides or fromleptospirosis, an infectious disease transmitted by theurban sewer rat, which thrives under such conditions.87

These threats will affect places like Brazil the most, where76% of the country’s poor live in urban shantytowns.88

Given the expected increase in intensity of storms,droughts, and floods, regional governments overlookproper human-settlement planning at their own peril.

…And Deforestation Threatens the Region’s

Agricultural Sector….

Coupled with urbanization is deforestation, probably theissue that receives the most media attention of any land-use change in the Americas. It is also likely one of the

most important for the future of the region’s well being,with grave implications for the availability of water, thequality of air, weather patterns, and the economic viabilityof agriculture.

The Americas today house about 25% of the world’s forestcover on just one-seventh of its total land. South Americaalone holds about 92% of these forests, mainly in Brazil andPeru.89 Today, however, deforestation is threatening theregion. Of the 400 million hectares (1.54 million sq. miles) ofnatural forest lost worldwide between 1972 and 2002 —approximately the size of Sudan, the tenth-largest country inthe world — 40% was in Latin America.90 From 1990 to 2005,the Americas accounted for over 60% of global primary forestloss (see chart 2.1d).91 Over the medium term, deforestationthroughout the region will likely lead to less rainfall, higher airtemperatures, more flooding; the loss of food, medicines, andfuel brought about by land-use degradation; a reduction ofcrops and loss of vital nutrients; the spread of tropicaldiseases due to an increase in pathogen-development ratesand transmission; and the worsening of climate change.92

Deforestation will act as a negative feedback loop, creatingcycles of further climate destruction to which the world will beharder pressed to adapt.

The Amazon is at the heart of this debate, not onlybecause of the staggering biodiversity housed within it butalso due to the role it plays in regulating the continent’s

Chart 2.1c Urban Population Growth in the Americas, 1950–2050 (Projected)

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climate. The Amazon helps to regulate the amount andquality of water resources available for surroundingregions and also helps to prevent soil erosion and thesedimentation of rivers.93 Moisture injected into theatmosphere by the Amazon plays a critical role in SouthAmerica’s precipitation patterns, the serious disruption ofwhich could lead to desertification over vast areas.94 Thisis no small consideration for a region that depends onagriculture to survive. Nor is it small for the world at large,as estimates have it that the Amazon stores about 20times the world’s annual greenhouse gas emissions in thebiomass of its tropical forest,95 or some 49 billion metrictons of carbon.96 These forests generate evaporation andcondensation over Amazonia, acting as “engines of globalatmospheric circulation” that have “downstream effects onprecipitation across South America and further afield in theNorthern Hemisphere.”97 The potential effects of forestloss in the Amazon are all the more frightening for theworld, given the recent finding that untouched naturalforests store up to three times more carbon dioxide thanpreviously estimated.98 It will not be enough merely toreplant trees in the wake of deforestation.

Regionally, the effects of Amazonian deforestation will begrave. Perhaps the most important regional ecosystemservice that the Amazon provides is the extraction of soilwater by tree roots more than 10 meters deep and itssubsequent return to the atmosphere. Through thisprocess, as much as 50% of rainfall throughout the entireAmazon Basin is recycled from forests. Large-scale forestloss, then, will have the effect of reducing rainfall in theregion. By one estimate, the removal of 30% to 40% ofthe forest “could push much of Amazonia into a

permanently drier climate regime.”99 The disturbance ofthis process will have significant consequences incountries like Bolivia, Brazil, Colombia, Ecuador, and Peru,for each of which the Amazon Basin makes up more thanone-third, and as much as three-quarters, of its territory.

As much as 50% of rainfallthroughout the entire AmazonBasin is recycled from forests,which are disappearing at the rateof an area the size of a soccer fieldevery eight seconds.

Deforestation in the Amazon is a reality. Current studiesindicate that the tipping point of deforestation there — thepoint at which the composition and ecologicalcharacteristics of the Amazon could be changedirreversibly — would be the destruction of approximately30% to 40% of the total forest area. While this does notsound particularly threatening, it is much closer than manypeople realize. Already, 17% of the Amazon has beendestroyed. Most recently, in the five months from Augustthrough December 2007, an explosion of deforestation inthe Amazon saw the destruction of an area almost twicethe size of the state of Delaware.100

The results of continued large-scale deforestation could bedisastrous for human health and economic livelihoods. Inaddition to helping to regulate regional climate andweather, forests in the Amazon help to maintain the

North America 1%

Africa 5%

Asia 30%

LAC 64%

Chart 2.1d Percent of Global Primary Forest Loss, 1990–2005

Source: FAO, Global Forest Resources Assessment, 2005


quantity and quality of water. This is a huge considerationin a region that houses two of the world’s six largestwatersheds: the Amazon and Paraná-La Plata Rivers.101

The Amazon River alone is the largest single source offreshwater runoff on Earth, representing up to 20% ofglobal river flow.102 For a region where 70% of thepopulation is expected to live in places with a low watersupply by 2025, the quality of water itself should not be anadditional burden on the population.

The country that is most able to address this problem,Brazil, also stands to lose the most of any other countryin Latin America. An emerging agricultural power,scientists note that Brazil’s southern breadbasketflourishes largely due to today’s rainfall patterns, whichcould be altered in the face of droughts anddesertification.103 Aware of this, Brazil’s Ministry ofAgriculture is already planning for a dramatic geographicreorganization of the country’s agricultural production.104

Still, the outlook is uncertain. Even today, withenforcement stepped up to some extent, 80% of alllogging done in the Amazon is illegal, and an area aboutthe size of a soccer field is lost every eight seconds.105 Itcertainly does not help that, in the face of the currentworld food crisis, the governor of Mato Grosso, Brazil’slargest soybean-producing state, called for more of theAmazon to be cut away in order to make way for morefarmland. In his eyes, “There is no way to produce morefood without occupying more land and taking downmore trees.”106

That is not only a dangerous assessment, it is a falseone. A recent report by McKinsey points out that ofBrazil’s endowment of arable land — roughly the size ofthe EU 25, before Bulgaria and Romania joined — only17% is now in use. The country could more than doubleits current utilization level without harming the Amazonforest.107 In fact, Brazil today has more farmland at lowerutilization levels than China, India, or the U.S.108

Furthermore, with agricultural labor productivity in thecountry at only 5% of what it is in the U.S., there arehuge efficiency gains that could be made before seriousconsideration would need to be given to cutting downmore forest.109 Finally, concerted efforts to heighteninfrastructural capabilities would also increase theamount of food available to the market. With 7% ofsoybeans and as much as 12% of all grains spoilingbefore reaching either ports or consumers due toinfrastructural limitations, Brazil has the opportunity toincrease the amount of food that reaches marketswithout touching any more forest acreage. Right now,such limitations lead the country to waste about 26million tons of food each year, or enough to feed about35 million people.110

Brazil could more than double itscurrent utilization of arable landwithout harming the Amazon forest.

Clearly, cutting down the Amazon to meet Brazil’s growingagricultural production goals is not the answer, especiallygiven the implications for deforestation. The zones of mostactive deforestation are also the zones of highest risk fordrought.111 Increasing deforestation for the sake ofagricultural output could backfire dramatically, seriouslyundermining Brazil’s status as an agricultural power aswell as the agricultural prowess of other countries in LatinAmerica. In 2006, agribusiness represented 36% ofBrazil’s exports and 52% of Argentina’s. In both places,agribusiness and related activities generate roughly one-third of GDP.112 Given that Brazil is the world’s largestproducer of poultry, sugar, frozen orange juice, beef, andcoffee, and the second-largest producer of soybeans, theimplications for decreasing crop productivity go farbeyond local considerations.113 With as much as 40% ofthe regional working population employed by theagribusiness sector, the region stands to be hit hard by thecombined impacts of deforestation and climate change.114

What the Americas Must Do

At the heart of the climate change issue for the Americasare adaptation and mitigation. As the region alreadycontends with climate change’s effects, adapting to andplanning for those effects will be crucial for the humanand economic well being of the region going forward. Atthe same time, mitigating the region’s own climate-worsening actions is a must in order to ensure thatlong-term threats are not exacerbated by the hope ofshort-term economic benefits.

The long-term benefits of major investments in cuttinggreenhouse gas emissions would vastly outweigh thecosts.115 According to the World Bank, some developingcountries already lose 4% to 8% of their GDP annually byproductive and capital loss related to environmentaldegradation.116 The UN Human Development Report hasstated that for every $1 that is invested in improvingnatural disaster prevention in the developing world, morethan $7 in losses could be avoided.117 And while it is anunfortunate twist of fate that those affected mostimmediately and most dreadfully are often countries thathave contributed little to the problem and are least able toafford the costs of adaptation, they can afford even lessnot to adapt.118 Included under this umbrella are severalsteps that the Americas must take to combat the directeffects of climate change.


Improve Natural Disaster Preparedness

Today, not nearly enough is invested. Current multilateralinvestment in adaptation to climate change in developingcountries is about $26 million, which is on par with whatthe UK spends each week to protect its land from floods.119

Establishing alert and support systems to improve natural-disaster prevention and adaptation will be pivotal.

Several examples highlight the cost-effectiveness of doingso. A flood-reconstruction and prevention project in Riode Janeiro has yielded an internal rate of return of over50%. Disaster-mitigation and preparedness programs inIndia and Vietnam have achieved cost-benefit ratios ofover 13 and 52, respectively, in the period from 1994through 2001. The experience in these places has helpedto underscore the point that improving disasterpreparedness and management both saves lives andpromotes early and cost-effective adaptation to climatechange risks.120

Cuba serves as an instructive case in this context as well.Though the country has limited resources, it has built upondecades of experiences in battling hurricanes. Among thetangible assets that Cuba relies upon for success in thisregard are an efficient early-warning system, a strong andwell-organized civil defense, well-equipped rescue teams,and emergency stockpiles of goods. The results havebeen impressive: In the seven years from 1996 through2002, only 16 people died in the country from six majorhurricanes. In each case, hundreds of thousands of people

were evacuated. When the most intense hurricane ever tostrike the Atlantic Basin hit Cuba with 160 mph winds in2005, no deaths or injuries resulted in Havana, despite thefact that the sea made its way more than one half-mileinland to flood the capital.121 Recently, Category FourHurricane Gustav flattened 100,000 homes on the islandbut did not kill a single person. In Louisiana, the hurricanekilled 26 people despite a massive evacuation. Andthough the death toll from more recent Hurricane Ike washigh by Cuban standards at five, it paled in comparison tothe hundreds killed by the same storm in nearby Haiti.122

What these facts imply is that support for community-based coping strategies must be increased. Among thesestrategies, capacity-building and the implementation ofearly-warning systems can help to mitigate rural-urbanmigration in a disaster’s aftermath.123 Institutionalizedmethods for disaster relief and reconstruction can go along way toward ensuring that settlements are notabandoned and that sustainable development methodsare utilized.

Promote Sustainable Urban Development

The problems associated with urban development in theAmericas are manifold and extend far beyond the issue ofclimate change. Given the current extent of it in the regionand the expectations for future urbanization, planningahead to ensure that urban growth is undertakensustainably and in such a way as to minimize potentialharm to citizens will be of the utmost importance.

Chart 2.1e Percent of National Territory as Part of the Amazon Basin

Source: IPCC

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Past disasters, such as the floods that killed tens ofthousands in Venezuela in 1999, should act as remindersof the harm that unplanned and misplaced urbanizationcan have on large populations. Lack of water resourcesin urban areas will be an increasingly pervasive threatover time. Soil impermeability caused by constructionprevents rainwater from seeping into aquifers andaccelerates runoff during periods of high precipitation,heightening the risk of floods.124 In addition, acceleratedurban growth throughout Latin America will lead to highpercentages of people in cities who have little or noaccess to sanitation services, an absence of water-treatment plants, high groundwater pollution, and a lackof drainage, which could lead to other threats such asdisease outbreak.125

As in other policy realms, proper planning andmanagement can dramatically reduce the number ofpeople who, perhaps unknowingly, situate themselves inharm’s way. More specifically, integrating sustainabletransport considerations into business development, roadinfrastructure development, and local communitydevelopment will be significant, as will the utilization ofalternative energy technologies and proper watermanagement. This will be done through long-termgovernment planning and greater investment in capacitybuilding and project development. Public-privatepartnerships should be sought to help fund such efforts.Rapid urbanization need not mean increasedenvironmental degradation and heightened exposure tonatural disasters.

Continue to Develop Clean and Efficient Energy

to Diversify Energy Matrices

The use of fossil fuels in countries large and small in theAmericas does little for the long-term security of thepopulation. Much the region depends heavily on fossilfuels, especially oil and natural gas, to meet its needs. Thepotential for sustainable and renewable energy in LatinAmerica and the Caribbean, however, is enormous. Brazil,Colombia, and Peru, for example, all derive more than30% of their total energy consumption fromhydroelectricity.126

Still, developing and deploying renewable resourcesthroughout the region is not a one-size-fits-all challenge,nor should it be a practice of finding one solution andsticking to it. If there is one thing of which governments inthe region must take account looking ahead, it is thatclimate change will affect the Americas in a variety ofways. Just as there is not one renewable source to act asa panacea for clean development, neither is there just oneway in which any country in the region will feel climatechange’s effects.

Countries in the region must develop a diverse array ofenergy sources in order to meet their own needs and also toensure that their plans do not fall victim to the results ofclimate change. Brazil, which today relies upon hydropowerto meet 84% of its electricity, runs the risk of losing capacitydue to drought and glacial melt. Construction of the damsmade to produce hydropower, meanwhile, has resulted inthe loss of over 21,000 square miles of productive landsand forests and has forced the relocation of about 1 millionpeople.127 The same will go for future endeavors all over theAmericas to grow crops for biofuels. Given the increasingrisks of drought and desertification brought on by climatechange and deforestation, countries will have to look tovarious methods in order to generate clean energy.

To that end, rigorous management will be needed toensure that crops that are grown for biofuels productionhave a net benefit to the environment. It must be kept inmind that the successful development of biofuels in theAmericas is both an opportunity and a threat, as thebenefits of increased energy independence are partiallyoffset by the pressure that agricultural land use puts onbiodiversity in tropical forests.128 Managing andmaintaining the biodiversity is one sure way to avoidexacerbating climate change’s effects.

Support Agricultural Methods that Require Less Water

About three-quarters of all freshwater in the Americastoday goes toward agricultural production.129 At the sametime, three-quarters of all agricultural land in the region isalready affected by mild to severe degradation due to soilerosion caused by deforestation, overgrazing, andchemical contamination. Degraded soil is less able toabsorb heavy rainfall, resulting in more frequent flashfloods. Deforested slopes, meanwhile, become less stableand more susceptible to collapse.130

With a net increase in the number of people in theAmericas experiencing water stress due to climate changeestimated at 77 million by 2020, agricultural producers willhave to find a way to produce even more food by usingless water.131 The result will be increased competitionamong agriculture and drinking as well as industrial users,making agriculture itself more expensive.132 Utilizinggenetically modified, drought-resistant crops is onemethod for potentially mitigating this competition. Anotherway to address the issue would be for governments anddevelopment agencies to promote crops that provide thenecessary benefits but utilize less water in production.

Rein in Land Use Changes and

Manage Conservation Efforts

Land-use changes have intensified the use of naturalresources and exacerbated land degradation. Much of this


land-use change is due to cattle ranching. According to areport by researchers published in Science, about 70% ofthe deforestation that has occurred in Brazil’s Amazon, forexample, has been provoked by cattle ranching.133 Buteven addressing that issue alone will not solve the largerissue, as higher beef consumption accelerates grainproduction as well. With OECD predictions that sales ofbeef in the developing world will rise by 31% by 2015,stymieing the growth of important and lucrative exportindustries is unlikely to be politically or economicallyexpedient in the near term.134 Given such considerations, itis estimated that by 2050, 50% of all agricultural lands inLatin American are very likely to be subject todesertification and salinization.135

These changes are not only limited to the Amazon either.Central America, over the past five years, has the highestdeforestation rate of any region in the world. Between1990 and 2005, it lost over 19% of its forests, mostly dueto subsistence activities and agricultural schemes.136 Thelarge-scale conversion of tropical forest into pasture willlikely lead to changes in local climate through increasedsurface and soil temperatures, greater temperaturefluctuations, and reduced evapotranspiration, from whichprecipitation over the Amazon originates.137

Regional governments must set clear targets andtimetables for reducing deforestation, including increasing

local governance and providing economic incentives forsustainable forest management, while effectivelyimplementing protected areas.138 Governments must alsoeducate their citizens, enforce restrictions, and incentivizethe use of better cattle-grazing management, which iscurrently done illicitly on a large scale. Undertaking thesesteps is a matter of future prosperity. At the same time,governments can reduce the risks of flooding and droughtby promoting wetland and watershed protection andrestoration and taking a greater hand in land-useplanning. Regional leaders have a responsibility to assistthose countries that are deemed particularly vulnerable tothese effects.

Map Vulnerabilities and Establish Monitoring Systems

Establishing monitoring systems is fundamental to stayingapprised of threats that are likely to affect various regionsand enabling countries to better implement steps tomitigate the impacts of climate change on humanpopulations. To date, there has been a lack of analysis ofclimate vulnerability and its risks, and also a limitedunderstanding of the best methods to maximize humanresilience at local and national levels.139 Governmentsneed to be aware of the most imminent threats to theircountries and must convey that knowledge down to thelocal level. Establishing national monitoring systems tomeasure the various effects of climate change could play arole in preventing harm to citizens by allowing

Chart 2.1f Total Energy Consumption by Type (2005)

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policymakers to make more informed decisions. Havingthis ability would also enable better-informed economicdevelopment and public health policy throughout theregion, ensuring that such efforts do not inadvertently putpeople at greater risk. Finally, this action is needed toavoid a “one-size-fits-all” approach to mitigating theeffects of disasters as well as adapting to them.

Work Multilaterally to Address These Issues

and Implement Solutions

Just as each government in Latin America has aresponsibility to act now to avert future disaster, so mustthe region utilize the many resources it already has toattack these problems head-on. The Pan American HealthOrganization (PAHO), for example, already has vast storesof data regarding public health information. Countriescould tailor their adaptation responses to take intoaccount what the most severe public health threats of thepast have been and what they are most likely to be underincreased global climate change in the future.

Similarly, the OAS and similar inter-governmentalorganizations can act as important forums for thediscussion of best practices in climate change policy.Countries in the region have different experiencesexperimenting with different strategies and taking onvaried responses to climate change and disasterresponse. Countries in the region can and should learnfrom each other regarding successes and failures so thatbest practices are utilized and past failures are avoided.

Finally, there is ample room for bilateral and multilateralefforts between and among governments. The sevencountries that house the Amazon Basin, for example, eachhave a stake in properly maintaining it. Workingintergovernmentally to address issues is the surest way toenable the most comprehensive and thought-provokingadaptation and mitigation responses. Two governmentssharing riparian borders must work together to ensure thatboth countries are doing the most possible to maintainfluvial ecosystems. The key to designing the mostresponsive and effective strategies to future climatechange challenges will be multilateral work at both themacro and micro levels.


2.2 The Microenergy Opportunity

Technological advancement and entrepreneurial ingenuityhave created an opportunity for discontinuous change inenergy markets in the developing world. The traditionallarge-scale, centralized, grid-based energy model, whichhas failed to provide electricity to 1.6 billion people,1

stands to be supplanted by “microenergy”: small-scale,decentralized, renewable energy resources. This shiftpromises to create new energy markets and, perhapsmore important, offers the chance to improve thedevelopment trajectory of billions of people.

A decade ago, the telecommunications industry faced,and seized, a similar opportunity for discontinuouschange. The introduction of mobile phone technology,strong demand for basic communication services in thedeveloping world, and the industry’s willingness to adaptnew business models to fit the needs of this new marketbrought modern communication services to millions ofpeople who had never heard a dial tone.2 The new modelfor telecommunications infrastructure — flexible,decentralized, and freed from costly landlines — facilitatedthis industry leapfrog. For service providers, new marketssuch as Africa and India present incredible economicopportunity. For new clients, mobile phones save the timeand cost of travel, offer access to modern services (e.g.,personal banking) and information (e.g., commoditymarket price projections), accelerate the growth of smallbusinesses, and, in many cases, have sparked the growthof a new, entrepreneurial cell-phone rental and salesindustry.3

Though the comparison is not perfect, the cell-phoneleapfrog offers an important lesson for the energy industry.The traditional energy model, like the old telecommunicationsmodel, is limited by a system of static landlines. Thoughthe grid will certainly expand, in 2030 1.4 billion people areexpected to remain without access to electricity,4 leaving

vast markets untapped and great potential fordevelopment unmet. Just as the introduction andsuccessful commercialization of cell phones enabled anexponential jump forward in terms of communicationscoverage, today, the microenergy model presents anopportunity for a vast expansion of energy access.

If pursued deliberately andaggressively, the microenergymodel offers a means tofundamentally transform thetraditional energy generationparadigm.

The corresponding development opportunity isenormous. The provision of modern energy services is akey enabler of social and economic growth. Each of theUnited Nations’ Millennium Development Goals—whichrange from halving extreme poverty to halting the spreadof HIV/AIDS and providing universal primary education bythe target date of 20155—is essentially dependent onaccess to modern energy. Moreover, leveragingrenewable resources to provide energy access to thedeveloping world has great environmental potential.Replacing traditional fuels such as biomass, oil, andkerosene with clean alternatives will significantly improvelocal and global climates; building an energyinfrastructure grounded in sustainable energy will lay apath toward a cleaner energy future.

The microenergy model has proved to be effective.Successful projects span the globe from South and EastAsia to Latin America and Africa. Microenergy is far frombeing an established industry, however, and economic,regulatory, and social obstacles remain in the way of itsexpansion. Traditional utilities have struggled to adaptestablished business models and static corporatecultures to respond to the unique challenges andopportunities presented by microenergy. Small andmedium microenergy enterprises (SMEs) — ranging fromseveral to several dozen (and sometimes severalhundred) people in size — have struggled to build thecapacity and access the financing necessary to launch,sustain, and scale energy service operations. In the nearto medium term, large, risk-averse utilities will likely playa smaller role in driving microenergy forward, whileinnovative, dedicated SMEs will provide the engine ofgrowth. Many key stakeholders, including governments,multilaterals, development banks, and traditional utilities,must provide capacity-building and financial services tothese organizations to support their efforts. There is great

Table 2.2a Conventional Generation vs Microenergy: Size and Cost Comparison

Conventional Generation Approximate Size Approximate Cost

Natural Gas 600 MW $400-$500 million

Coal 250 MW $720-790 million

Nuclear 1,000 MW $6-8.5 billion

Microenergy

Biogas Digestor 300 m3 $200-$250biogas/year

Solar Home System 60-150 Watts $500-$2,000

Small Wind Turbine 1-3 kW $3,000-$5,000

Microhydro Installation 10-50 kW $10,000-$50,000

Sources: REN21, National Renewable Energy Laboratory, Reuters

Note: Estimates for conventional generation are based on projects announced in the US in 2008.


potential to strengthen the microenergy industry’ssupport network through the development andproliferation of enterprise-development financiers, whichoffer both capacity-building and financial servicesconcurrently to SMEs.

If pursued deliberately and aggressively, the microenergymodel offers a means to fundamentally transform thetraditional energy generation paradigm. This is not tosuggest that there is an opportunity to soon replaceexisting, mature, grid-based systems with thousands (ormillions) of small, decentralized generation networks. Butacross the large areas of Africa, Asia, and Latin Americawhere robust and reliable energy infrastructure has yet tobe developed, microenergy presents an opportunity toleapfrog an old, inadequate, unsustainable model with apromising alternative.

Traditional Model: Centralized Generationand Grid-Based Distribution

In the traditional, grid-based energy model, prevalentthroughout the developed world and across urbanizedareas of developing countries, power is generated in large,centralized power plants and delivered to end-users

through a series transmission lines. Rather than a truegrid, at the macro level, the system more closelyresembles a spoke and wheel. Access to power is firstprovided to a dense population center and, as demandoutside that center grows, lines are extended outward toprovide power to more distant areas. Each addition to thegrid requires additional investment in costly transmissioninfrastructure, and the decision to extend coverage isbased squarely on an assessment of whether theinvestment will be profitable given the size and reliability ofdemand on the other end of the line.

This model has not experienced significant changes sinceits advent in the late 19th century. Innovation intransmission technology has enabled the grid to carryincreasingly more power across expanding distances, butthe basic structure — centralized generation serving bothurban and remote demand — remains the same. This isnot surprising, as the model has been, on the whole,successful. Today, nearly five billion people worldwidehave access to electricity, the vast majority of whomreceives that electricity via connection to a grid.

The Traditional Model Will Fail to Alleviate

Energy Poverty

Continued reliance on the grid-based model poses aseries of significant development challenges. Over 1.6

Chart 2.2a Urban and Rural Electrification Rates by Region (2002, 2015, 2030)

0

20

40

60

80

100

Urban Rural Urban Rural Urban Rural Urban Rural Urban Rural Urban Rural

North Africa Sub-SaharanAfrica

China and EastAsia

South Asia Latin America Middle East

% Urban 2002

% Urban 2015

% Urban 2030

% Rural 2002

% Rural 2015

% Rural 2030

Per

cent

Source: IEA


billion people lack electricity, primarily in the developingworld; Sub-Saharan Africa and South Asia togetheraccount for over 80% of the world’s non-electrifiedpopulation.6 Lack of access to modern energy is alsoconcentrated among rural populations: four out of fiveindividuals who lack access to power live in rural areas ofdeveloping countries.7 An examination of electrification inLatin America illustrates this pattern. In 2002, urban areasin the region, electrified at an average rate of 98%,accounted for only 1 million people without electricity. Incontrast, 61% of the rural population — a total of 39million people — lacked access to power.8 This trendholds true across the world. As can be seen in Chart 2.2a,the IEA projects that by 2030, urban electrification rateswill exceed 80% in every region but Sub-Saharan Africa,while rural electrification rates will lag far behind.9

The IEA projects that absentradical policy changes, in 2030 1.4 billion people will still lackaccess to electricity.

The central obstacle to electrifying rural regions is afinancial disincentive for traditional utilities to extendservice to those areas. Specifically, high costs associatedwith extending transmission lines to remote areas, and thelower demand for electricity services among ruralcustomers, make grid extension a high-risk, low-returninvestment. As a result, the rate of grid extension to theseareas is very slow. Data on electrification rates illustratethis fact: The IEA projects that, absent radical policychanges, in 2030 1.4 billion people will still lack access toelectricity.10

Lack of access to electricity is not the only energy-deprivation challenge. Over 2.4 billion people — many ofwhom are connected to the grid — still rely on traditionalfuels such as biomass (for example, wood, manure, andresidues), charcoal, and kerosene for daily cooking andheating purposes.11 These individuals also suffer fromenergy poverty and face significant developmentobstacles, as described below.

Development Impacts of Energy Poverty

The negative development impacts of energy poverty —defined as the lack of access to reliable, affordable, safeenergy — have been well documented.12 Broadly, energypoverty impacts individuals’ personal, social, andeconomic well-being. For example, individuals who areforced to burn traditional biomass for cooking purposessuffer high levels of indoor air pollution, which contributesto as many as two million deaths each year.13 Limitedand/or unreliable light limits time for study and work,hampering academic and economic pursuits. Withoutelectricity, life-improving services, such as refrigerationand modern communication, are inaccessible.14 Whileresearch confirms that escaping energy poverty is notitself sufficient to drive social or economic growth,15

energy security establishes a solid foundation upon whichto build toward a robust set of development objectives.16

The Millennium Development Goals offer a comprehensivecatalog of development imperatives and serve as a helpfulguide to examine the positive impacts of electrificationand energy security. Several studies have examined therole that energy can play in achieving each of the goals.17

A summary of those findings, supplemented with findingsregarding additional potential benefits of energy access, ispresented in Table 2.2b.

Table 2.2b Impact of Improved Energy Access on the Millennium Development Goals

Development Goal Role of Improved Energy Access

MDG 1: Eradicate extreme poverty and hunger • Access to energy services facilitates economic development—including development of microenterprises,

livelihood activities, and locally owned businesses—which helps to reduce poverty

• Energy enterprises create job opportunities in rural communities

MDG 2: Achieve universal primary education • Energy services reduce time spent by school-going children on basic survival activities

• Lighting permits home study, increases security, and enables the use of educational media and communication

MDG 3: Promote gender equality and empower women • Improved energy devices reduce the household burdens of girls and women, allowing them time to stay in school and

pursue productive activities outside the home

MDG 4, 5, 6: Reduce child mortality, improve mental • Energy contributes to a functional health system by lighting operating theaters, refrigerating vaccines and drugs,

health, and combat disease sterilizing equipment, providing transport to clinics, and providing clinics with operating power

• Improved energy reduces air indoor pollution

• Energy services can provide clean pumped water and fuel for cooking

MDG 7: Ensure environmental stability • Improved energy efficiency and use of sustainable energy protects natural resources and reduces emissions

MDG 8: Develop a global partnership for development • Energy development and supply require trade and international cooperation and foster institutional collaboration and cooperation


The Traditional Grid-Based Infrastructure is

Unsustainable

Traditional grid systems are vulnerable to numerousexternalities, including fuel supply disruptions, extremeweather and natural disasters, and acts of deliberatesabotage.18 Less drastic events can also cause massivedisruptions in mature grids. Consider, for example, therolling blackouts in California in 2000 and the totalblackout of the Northeast U.S. grid in 2003. In bothcases, physical challenges created simply by distanceand complex interconnections collapsed the grid,leaving millions without power and causing significanteconomic loss.19

These grid failures occurred in the world’s largesteconomy; in the developing world, maintaining gridsecurity is even more challenging. In these countries,inefficient systems, poorly maintained infrastructure,and high levels of electricity theft rob grids of a largepercentage of their total electricity load. In someregions of India, transmission and distribution (T&D)losses consume nearly 25% of electricity;20 Brazil losesover 18% of its load in transit.21 In much of thedeveloping world, blackouts and brownouts arecommon, expected occurrences. This fact serves tounderscore the difficulty of delivering energy services tothe world’s poor through centralized generation andgrid-based transmission.

In some regions of India,transmission and distribution(T&D) losses consume nearly 25% of electricity; Brazil loses over 18% of its load in transit.

The negative environmental impacts of centralizedgeneration also raise concerns about the continuedviability of the traditional energy generation model. Thereis a growing consensus on the contribution of fossil fuelbased power generation to local and global environmentalchallenges, and the need to dramatically increase the useof renewable energy sources in order to prevent the mostdrastic effects of global warming.

Currently, excluding large-scale hydropower, renewablesaccount for only 1.5% of global electricity generation.22

While there is potential for significant increases in theapplication of certain renewable energies (such as wind)to grid-based technologies, the grid itself can prove tobe a significant limiting factor. In the U.S., for example,while the Department of Energy estimates that wind

power can produce up to 20% of the nation’s energy by2030, objections over where to place and how to pay fortransmission lines present a significant challenge toachieving this increase.23 Other renewables, such assolar and biomass, are either not yet fully developed ornot sufficiently cost-effective when compared to othergrid-connected technologies. While these technologieswill eventually comprise a larger share of grid-basedpower generation, in the near to medium term, continuedreliance on the grid equates to an increased use of fossilfuels and, in turn, greater environmental risk.

Microenergy Offers an Alternative Paradigm

A relatively new approach to energy generation —“microenergy” — presents a compelling alternative.Microenergy is defined by three basic characteristics thatdifferentiate it from the traditional energy model: It isdevelopment motivated, employs a small-scale,decentralized model, and embraces a diversity of primarilyrenewable energy resources.

Microenergy is Development Oriented

The term “microenergy” deliberately invokesmicrofinance, which provides a guiding principle tomicroenergy: an orientation toward development.Whereas the traditional financial services industry isorganized around a purely economic objective —maximizing profit — microfinance is grounded in a socialobjective: extending financial services to the poor. Toextend services to this underserved population in afinancially sustainable way, microfinance institutions havedeveloped innovative tools and have rethought traditionalconcepts such as credit and collateral. In doing so,microfinanciers have taken a bottom-up approach,working with local clients to develop services that areappropriate, given their specific economic, social, andcultural environments.

Microenergy embraces an approach to developmentsimilar to that of microfinance. It acknowledges that poor,rural populations in developing countries have suffereddisproportionately from energy deprivation and recognizesthat access to modern energy is a key enabler of socialand economic development, as well as environmentalpreservation. As such, microenergy pursues a triplebottom line, valuing social and environmental objectivesas well as financial returns. It is important to note thisbalanced-outcome orientation does not precludemicroenergy from being a profitable enterprise.Maintaining financial solvency is critical to individualproject sustainability and continued expansion ofcoverage to new areas.


Microenergy furthers development in that it espouses abottom-up approach to electrification. The modelrecognizes that local natural and economic resources,along with social and cultural contexts, will determine themost appropriate energy resources, business models, andcost structures. Microenergy also stresses localcollaboration. As observed by the Global Network onEnergy for Sustainable Development, local integration iskey to promoting local development: “If communities arenot consulted as to their real needs and capacities, therewill be a mismatch between what is provided and what isactually required. Inappropriate technologies, which localskills are not adequate to operate nor maintain, do notgenerally drive development.”24 Collaboration with end-users, community leaders, and local suppliers enablesmicroenergy enterprises to build sustainable infrastructuresand business models that offer affordable, useful energyservices in response to local demand.

Microenergy Is Small and Decentralized

To understand microenergy’s decentralized approach topower generation, it is helpful to compare it to thetraditional, centralized model. The traditional model beginswith the construction of large, expensive power plants.Investment in transmission infrastructure then deliverspower from these plants to large power users, such asindustrial consumers, and additional transmission lines areconstructed to connect centers of high population density,typically large urban areas. When these areas aresaturated, and if there is a profitable level of demand inrural areas, the grid then extends to serve thosepopulations. In a final step, rural residents must installhousehold wiring in order to connect to the newlyextended grid. This process is costly and slow; the IEA’sprojection that 1.4 billion people will continue to lackelectricity in 2030 suggests that the rate of grid extensionis only barely keeping pace with population growth.

Microenergy reverses the traditional model. It is rootedin small, site-specific power sources that provide energydirectly to local communities. These generation facilitiesrange in size and cost. Small solar systems that are used toelectrify individual homes can cost individual families aslittle as $10 per month (with a $150 installation fee), for atotal of $500–$2,000.25 On a slightly larger scale, windturbines capable of producing 500 kWh per month typicallycost several thousand dollars; microhydropowerinstallations large enough to power entire villages can befinanced for $10,000–$50,000.26 Larger hydropower andbiomass facilities, which can generate up to 10MW andserve commercial as well as industrial purposes, requireinvestments of several million dollars.27 While costsexceeding a million dollars may not seem “small,” they palein comparison to the price tags of traditional gas, coal, and

nuclear generating facilities, which can range fromhundreds of millions to billions of dollars.28

Energy service providers build local, often home-basedsystems first and, if demand warrants, can expandcoverage and capacity via village-based mini-grids.Service providers can also construct larger power-generation facilities and more extensive grids to meetgrowing household and industrial demand. Theconditional, modular nature of each of these stepssignifies a departure from the traditional model that hasimportant development implications. Whereas ruralelectrification is the last step in the traditional model,contingent on the completion of every step before it,microenergy electrifies rural communities first. Anotherdevelopment benefit is that microenergy’s incrementalmodel leverages household energy expenditures in aconstructive way. Whereas rural households waiting tobe connected to the grid incur net-loss expenditures ontraditional energy sources such as kerosene, charcoal,and/or dry-cell batteries, microenergy enables ruralcommunities to invest in systems that meet currentenergy needs while also building the foundation of asustainable and expandable energy infrastructure.29

The microenergy model is not just applicable in ruralcommunities. In urban areas of the developing world, theinability of traditional utilities to meet growing demand forelectricity creates an opportunity for small-scale,independent energy systems to meet the need for reliablepower. Such systems can stand alone or can be connectedto the grid, feeding excess power back into the system toimprove overall capacity.30 To date, however, little work hasbeen done to examine the full potential of the urbanmicroenergy opportunity; it warrants further exploration.However, the primary development opportunity lies inbringing modern energy to rural communities. Thatopportunity remains the focus of this paper.

A PATH TO GREEN GROWTH

For the 39 million rural inhabitants in

LAC who currently lack electricity,

renewable-powered microenergy

often offers the most immediate,

cost-effective pathway to

electrification and represents a

potential catalyst for improvements

to education, small business, public

health, and communication.


The decentralized nature of the microenergy model offerssystemic improvements over the traditional centralizedsystem. For example, when built incrementally,decentralized generation improves system efficiency.31 Ina centralized generation model, accurately matchinggeneration capacity to demand is difficult. Once the needfor additional capacity is identified, long lead times for theconstruction of large, expensive power plants createperiods of insufficient supply. Conversely, the need tobuild significant extra capacity into large-scale generationfacilities (to account for future growth in demand) resultsin long periods of excess capacity.32 Microenergy largelyavoids this inefficient cycle of under- and over-production.Service providers can install small-scale capacitycomparatively quickly, reducing lag times as well as theneed to build for long-term demand growth.33 Acomparison of the cycles of centralized and decentralizedcapacity investment is illustrated in Chart 2.2b.

By virtue of being decentralized, microenergy alsopromotes the security of the energy system, improving thereliability and resiliency of energy resources. At the locallevel, small, on-site power-generation systems are lesssubject to the vulnerabilities and failures of longtransmission chains, such as T&D loss.34 From asystematic perspective, compared to an interconnectedand interdependent network of a limited number of large,centralized generation facilities, a collection of manyindependent generation sources offers greater securityagainst a single disruptive act, such as a natural disasteror a deliberate attack on the energy infrastructure.

Microenergy Promotes Diverse Energy Resources

In addition to a decentralized design, microenergy ischaracterized by a diversity of energy resources. Incontrast to the traditional energy model, which relies on afew, primarily fossil-based fuel sources, microenergy’s fuelsource profile is dominated by a wide range of renewableenergies, including solar, wind, hydro, and biomass.Renewables are well suited to microenergy because of theabundance of renewable resources in rural regions and thesmall load sizes required by their populations. Moreover, afocus on renewables offers microenergy adaptability,enabling each local system to leverage the most abundant,powerful energy resources that are available. As a result,renewable-powered microenergy often presents the least-cost option among modern energy choices, particularly inrural areas.35 Despite comparatively high up-front costs forrenewable power systems, renewable systems have no fuelcosts, which significantly reduces total system cost whencompared to those that rely on imported fossil fuelsdelivered at highly volatile prices. It must be noted,however, that traditional fuels such as diesel and liquefiedpetroleum will continue to serve an important niche in themicroenergy model, in the service of both village-basedmini-grids and improved cooking appliances.36

Microenergy promotes energy diversity beyond fueldiversity. Whereas the traditional energy model provides asingle energy output — grid-based electricity —microenergy offers a range of specialized energy services.For example, in addition to standard electrification, somemicroenergy systems are specifically designed to pump

Chart 2.2b Capacity Investment and Demand Growth

Source: WADE

Power shortage due to long

lead times for large,

centralized power plants

Power surplus due to blunt nature

of centralized generation development cycle

Centralized capacity investment

Decentralized capacity investment

Source: WADE

Year

Dem

and

(GW

/h)


water or dry produce. The diversity of inputs and outputsallows microenergy to meet the specific end-use demandsof local populations more effectively than might astandardized grid connection. This is particularly true inrural and developing regions, where insufficientinfrastructure would constrain communities’ ability to usegrid-based electricity productively. An overview of varioustechnology options, the primary regions where they arecurrently deployed, and their productive uses are detailedin Table 2.2c.

While the generalizations offered in Table 2.2c are helpful,in practice, microenergy project developers have adoptedmore nuanced approaches to aligning appropriatetechnologies to meet specific needs of individualcommunities. In Senegal, for example, the SenegaleseRural Electrification Agency (ASER) collaborated withprivate power providers and a team of local consultants toidentify the range of potential productive uses of electricityin villages targeted for electrification. Based on theseassessments, project designers were able to make better-informed decisions regarding the most appropriate form ofenergy to implement, given natural constraints. Forexample, in the fishing industry, drying and freezing fisheach require distinct equipment that can be serviced by

different energy sources; the former can be accomplishedwith solar driers, while the latter requires power levelsoffered by a mini-grid.37

In its report on the Senegal case, the Energy SectorManagement Assistance Program summarizes theflexibility provided by the microenergy approach: “Solar,wind, hydro, biomass, minigrids, and central grid electrify[sic] provide different levels of power, quality, and costeffectiveness that add up to different electricity servicesfor different tools and equipments. Thus, it is important toestablish the link between the expected gains identifiedand the behind-meter type of equipment or toolsnecessary, and then match them with the type ofelectricity source required.”38 While available microenergytechnologies, or renewable energies in general, may notalways prove to be the most appropriate or sufficientsource of power, microenergy introduces a much widerrange of options, and its end-use-oriented approachimproves the likelihood that power providers will meet acommunity’s productive needs.

Decentralization and Diversity Enable a Portfolio

Approach

Two of the defining characteristics of microenergy’s

Table 2.2c Microenergy Technologies

Technology Primary Countries Productive End-Uses

Improved Biomass Stoves China, India, Africa (esp. Kenya) • Cooking

Wind Pumps Argentina, South Africa • Water pumping

• Irrigation

• Agro-industrial uses

PV Pumps India • Water pumping

• Irrigation

• Agro-industrial uses

Solar Water Heaters South Africa, Lebanon, Argentina • Heating

• Cooking

Solar Home Systems Bangladesh, Brazil, China, India, Mexico, • Residential power (lighting, radio, television)

Mexico, Nepal, Sri Lanka, Thailand • Communal lighting

• Battery charging

Biomass Gasifiers India, China, Cambodia • Agro-industrial uses

• Heat

• Battery charging

Biogas Digesters China, India, Nepal • Residential lighting

• Cooking

Solar/Diesel Hybrid China, India • Village-scale mini-grids (residential and small industrial uses)

Wind/Diesel Hybrid India • Village-scale mini-grids (residential and small industrial uses)

Micro-Hydro China • Village-scale mini-grids (residential and small industrial uses)

Sources: Global Network on Energy for Sustainable Development, United Nations Environment Program, Energy Sector Management Assistance Program


infrastructure model — decentralized generation and energydiversity — imply a guiding principle for the development offuture infrastructure: portfolio management. This principle isnot new, nor is it unique to microenergy. Many large utilitiesare pursuing diversified generation portfolios, increasing theshare of natural gas, nuclear, and renewables to balancetraditional fossil fuels such as coal. However, the model ofcentralized generation is not particularly conducive todiversification, given the limited number of power plants andthe narrow selection of fuels that are widely available,scalable, and cost-effective in the centralized generationmodel. In contrast, the large number and small size ofmicroenergy generation facilities, and the adaptation ofeach to locally available resources, inherently encourageportfolio diversification.

Who Will Drive Microenergy Forward?

The microenergy model presents a number of challengesthat are distinct from those currently faced by thetraditional power industry. The lack of access to necessarysupplies and skilled labor in rural areas is one suchchallenge. The need to adapt each microenergy project tothe natural resources, intended end-uses, and social andcultural contexts of the local community, is anotherchallenge. Securing financing to cover the high up-frontcosts of microenergy facilities presents yet another. Thefollowing section briefly examines how potentialmicroenergy service providers, including utilities, SMEs,and local cooperatives, are positioned to tackle thechallenges specific to the microenergy opportunity.

Utilities

Utilities’ access to capital and technical expertise enablesthem to manage project finance and construction andmaintenance effectively. When fully engaged inmicroenergy projects — typically when there is anopportunity to eventually integrate rural communities intothe grid — utilities can provide stable and reliable serviceto end-users. In Brazil, for example, small, local utilities inthe Amazonian region are working in collaboration with theBrazilian and U.S. governments to deploy wind and solarresources to upgrade diesel-based mini-grids.39 In ElSalvador, Empresa Eléctrica del Norte, an electric utility,completed the construction of a 5 MW biomass-poweredthermoelectric plant, using bagasse (sugarcane waste) toprovide power to a sugar mill and feed excess electricityback into the grid.40 Reliance Industries, India’s largest oilfirm and an operator of gas-based captive power plants,launched pilot projects to implement solar power–basedmini-grids to 38 villages in Maharashtra, offering a notableinstance of a large, private company making a significantinvestment in off-grid microenergy.41

Reliance Industries, India’s largest oil firm and an operator of gas-based captive power plants, launched pilot projects to implement solar power–basedmini-grids to 38 villages inMaharashtra.

However, examples of utility-led investments in off-gridmicroenergy are few and far between. Utilities, andparticularly privately owned utilities, typically have littlefinancial incentive to pursue rural microenergy projects. Indeveloping countries in particular, utilities are generallyresource-constrained and governed by a culture of riskaversion.42 Diverging from the traditional model ofcentralized generation presents a significant risk,especially in low-income, low-demand areas where hightransaction costs are less likely to be recouped. Evenwhen offered incentives such as concessions (which granteffective monopolies to service providers for periodsranging from 10 to 20 years), experience in Argentina andAfrica illustrates that utilities typically allow smaller,specialized companies to pursue rural markets.43

In addition to the financial risk, urban-based utilities do notoften maintain established operations in rural areasbeyond the reach of the grid. Utilities’ disconnect from thecommunities in these regions makes continued upkeepand maintenance of operating systems difficult and costly,putting utilities and local end-users at a disadvantage.44 Asa result, except for the cases in which utilities aremandated by government to pursue rural electrificationprograms (such as in Brazil), few traditional powerproviders have pursued microenergy.

SMEs

SMEs include individual entrepreneurs, NGOs, and localprivate power producers. They range in size from severalto several hundred employees and can manage assetsranging from several thousand to several millions of dollarsin value. In contrast to utilities, SMEs typically possess adeep understanding of the local context; they are oftenfounded and operated by individuals from, or familiar with,the local communities in which they operate. As a result,SMEs can build strong relationships with existing ruralnetworks more easily, drawing support from localsuppliers, community leaders, and end-users to deliverservices that are cost-effective and tailored to local needs.Consider, for example, the case of Fabio Rosa, anindividual entrepreneur in Brazil who has built a businessproviding solar home systems to poor municipalities in Rio


Grande du Sul. Rosa’s success was predicated on hisability to tap into local human resources and adjust hisservices to the specific economic and social context of hisclient base, achieving a level of responsiveness far abovethat typically demonstrated by a large utility.45

While SMEs are typically better positioned to respond tolocal conditions than are large utilities, these enterprisesoften struggle due to lack of operational capacity.46

Though these SMEs operate small facilities, the range ofresponsibilities that these organizations must fulfill isbroad. SMEs must conduct demand analyses, securefinancing, establish and maintain supply networks,

construct generation systems, manage marketing anddistribution, navigate often ambiguous and unsupportiveregulatory systems, and provide maintenance andtroubleshooting assistance, in addition to identifyingfurther markets and opportunities for growth. Carryingout these responsibilities effectively is complicated bythe fact that many rural areas lack developed physical,communication, and institutional infrastructures.47 For alarge utility, these challenges present significant risk; foran SME, they can be overwhelming. It is no surprise,then, that the need for further capacity building is one ofthe most often repeated themes in the literature detailingthe experience of SME energy entrepreneurs.

Case Study: Adapting Solar Home Systems to Local Context in Rural Brazil

Fabio Rosa has built a business providing small solar home systems to residents in six rural, low-income munici-palities in Rio Grande do Sul The business began in 2003 with 77 families; it has since grown by nearly 200% andhas led to the development of a replication model that has been applied in other areas of the Brazilian Amazonianregion. The program is successful because Rosa built close ties with the community and took a bottom-up ap-proach to business development, which enabled him to provide access to energy in a way that is attractive, af-fordable, and manageable for the specific client base.

Responding to Local Demand

Before launching his program, Rosa and his team conducted a thorough demand analysis, tracking the typical en-ergy use of 77 homes for eight months. This up-front groundwork enabled Rosa to identify the specific end-usesthat could be served by electrification, as well as the costs residents would be willing to bear to receive such serv-ices. Finding that lighting was the primary end-use, and that residents typically spent $11 per month on non-re-newable energy resources, Rosa was able to conclude that solar home systems would both meet a demonstrateddemand and present an economically affordable option.

Tapping into Local Human Resources

A large contributor to Rosa’s success was his ability to partner with local stakeholders. As he launched his busi-ness, Rosa met with community leaders to educate them about the program and its potential benefits to the com-munity. These leaders—trusted voices in the community—then disseminated communications about Rosa’selectrification program, enabling his project to gain buy-in from a previously skeptical community. He also part-nered with well known local electricians to provide installation and maintenance services, using local integration toachieve the dual objectives of lower costs and local credibility.

Adjusting to the Social Context

In addition to partnering with local leaders to ensure the community trusted his team and his business, Rosaadapted the solar systems themselves to adjust to the local context. Realizing that the accompanying recharge-able batteries were at risk of misuse and failure, he provided the batteries with protective cases. In addition, rec-ognizing the strong Catholic faith of the community, Rosa attached miniature saints to each box in order toencourage clients’ responsibility for and maintenance of their systems.

Case Adapted from: Bornstein, David. “Making the Sun Shine for All.” 7 February 2006 Global Envision. 13 July 2008. http://www.globalenvision.org/library/10/954 and

Rosa, Fabio. E-mail interview. 11-12 August 2008.


An equally daunting challenge for SMEs is accessingcapital.48 Investments in microenergy infrastructure varywidely in size, from tens of thousands to millions ofdollars, but all share a common characteristic:disproportionately high up-front costs.49 As such, projectsnearly always require significant financing. Severalobstacles stand in the way. In the first instance, SMEcredit profiles are typically weak. Given the nascence ofthe microenergy industry, many lack proven track records.Except for the instances when installed equipment can beeasily repossessed and repurposed, most lack assets thatwould qualify as workable collateral. Related to thecapacity challenge, some SMEs do not possess thebusiness and financial accounting skills to buildsufficiently robust business plans and growth proposalsto attract investment.50

Cooperatives

Local cooperatives play an important role in one niche ofthe microenergy field: operating mini-grids. Communityorganizations’ vested interest in local ownership andintegration positions them well to operate these systems.This model first flourished in the United States and hasspread to several developing countries, where renewableresources have played an increasingly important role. InSri Lanka, for example, community-operated mini-hydroprojects have electrified over 5,000 households.Elsewhere, local cooperatives operate mini-grids poweredby diesel generators. These cooperatives are wellpositioned to incorporate renewable energy sources intoexisting grids.51

However, similar to SMEs, cooperatives often struggle dueto limited technical and business capacity. In addition, asindividual customer meters are often prohibitivelyexpensive in rural communities, and established regulatoryinstitutions are typically lacking in developing areas,cooperative systems are vulnerable to abuse.

The Critical Role of SMEs

One central question for microenergy is: Which of thesethree stakeholders has the greatest potential to drive theindustry forward? While cooperatives will certainly play arole, their part will most likely remain limited to certainregions and types of microenergy projects. Localcooperatives have been most successful in regions withstrong, effective community governance, such as China,Nepal, and Sri Lanka. However, many communities wheremicroenergy is appropriate lack such institutional stability.In addition, the cooperative model has proved to beeffective nearly exclusively in the case of managing mini-hydro mini-grids, due in part to the limited technicalcapacity needed to operate and maintain such operations.As such, scaling the cooperative model across regions

and energies would be challenging, requiring activetechnical, financial, and regulatory support. Thus, whilecooperatives will likely continue to play a role in a fewregions, they do not stand to be the central drivers of theglobal microenergy movement.

The question, then, is whether utilities or SMEs are betterpositioned to drive the microenergy industry forward.Looking back to the microfinance model, SMEs appear tohave greater potential. Small- and medium-sizedmicrofinance enterprises — NGOs and specializedmicrofinance institutions — spent decades experimentingwith new approaches to small-scale finance and developingmethods to make its practice sustainable before largefinancial institutions perceived the microfinance risk/returnratio to be favorable. Today, even with the introduction ofthese large institutions, commercial growth in themicrofinance sector has been primarily organic; large bankshave slowly become familiar with the microfinance sectorand only recently learned to how to profit from itsopportunity.52, 53 In essence, the microfinance experienceteaches that it is more difficult for large institutions to adjustto unfamiliar risks than it is for smaller organizations toovercome initial hurdles to new opportunities.

This lesson is applicable to microenergy. To adjust to themicroenergy model, large utilities would have to undergoan institutional and cultural change of great magnitude;microenergy represents not simply an additional productline, but an entirely distinct business model.Undoubtedly, a small number of innovative privatecompanies, such as Reliance, will prove capable ofexploiting the microenergy opportunity. In addition, aselect few public utilities, such as those in Brazil, will bemandated by governments to provide microenergy tomeet national rural electrification goals. Even in casessuch as these, however, utilities’ forays into microenergypromise to meet only a small fraction of the demand.While the Brazilian government has required utilities toprovide service to off-grid areas, it has also stated thatprivate companies will be eligible for governmentconcessions to provide electricity service to non-electrified regions beginning in 2015, explicitlyrecognizing utilities’ inability to meet stated ruralelectrification goals.54 This suggests that in the nearterm, SMEs could play a dominant role over utilities asthe engine of growth in the microenergy industry.

The Path Forward for Microenergy —Overcoming Two Key Challenges

The immediate path forward for microenergy relies on thestrengthening, growth, and replication of successfulSMEs. As described above, the two obstacles that most


consistently confound microenergy SMEs are limitedoperational capacity and lack of access to financing.Several key stakeholders must help aspiring energyentrepreneurs build, sustain, and grow microenergyenterprises. National governments, NGOs, multilaterals,existing utilities, and microfinance institutions, amongothers, all have a role to play. These two obstacles, andthe distinct roles of relevant stakeholders in overcomingthem, are discussed below.

Challenge 1: Capacity Building and Market Facilitation

As described above, SMEs’ lack of operational capacitylimits the viability, sustainability, and scale of microenergyprojects. SME project leaders must develop knowledge ofappropriate technologies and the ability to draft andexecute bankable business proposals. SMEs also needskilled management and operations staff. The importanceof the ability to provide ongoing maintenance formicroenergy projects has been overlooked historically;many projects launched in the early decades ofmicroenergy failed due to lack of continued upkeep andmaintenance.55 The scope of capacity building extendsbeyond the strengthening of SME management skill sets.More broadly, SMEs would benefit from market-facilitationservices. Few have the capacity to conduct non-core, butultimately essential, activities such as demand analysis,end-user education, fundraising, best practiceidentification and knowledge sharing, and policy andregulatory advocacy.

As a result, microenergy SMEs are in need of both trainingand hands-on advisory services. In the traditional energymodel, this support is offered by well-established industryassociations. While such associations exist for somerenewable energy industries, such as wind, solar, andgeothermal, their focus is typically on large-scaleoperations. The microenergy industry is not yet sufficientlymature to support dedicated trade associations. In theabsence of private support networks, microenergy mustrely on governments, NGOs, multilaterals, and,increasingly, other private enterprises for assistance.

National Governments

Several national governments have proved to be effectivefacilitators for fledgling microenergy markets. The Chinesegovernment offers an example of perhaps the most directand hands-on approach to facilitating the microenergyindustry. The government directly owns and operateslocally based power service providers, guiding themthrough early-stage development until they become self-sustaining.56 The Chinese Ministry of Agriculture plays asupporting role, providing information and technicalsupport to local providers in rural areas.57 Through thesegovernment-supported power providers, the Chinese

government launched the “Township ElectrificationProgram,” bringing modern, renewable power toapproximately 1.5 million rural people in 1,000townships.58

Other national governments offer less controlling modelsof facilitation that have also proven to be effective.Senegal offers a helpful example. Its rural electrificationagency, ASER (mentioned above), was established in1998 to promote rural electrification by providingtechnical and financial assistance to private ruralelectrification and renewable energy projects. The agencyoffers project-evaluation services, provides information ontechnological advancements relative to rural renewableenergy, designs the financial and regulatory tools (such asconcessions) used to promote rural renewable energyenterprises, assists in securing funding from third-partysources, and monitors and evaluates the safety andquality of project equipment and implementation, amongother tasks.59 These services have proven invaluable tothe nascent rural renewable energy industry in Senegaland have enabled independent service providers to beginto close the rural electrification gap not filled by Senegal’straditional utilities.

NGOs and Multilaterals

NGOs have served as effective agents of capacity buildingand market facilitation on a project-by-project basis. InIndia, for example, the All India Women’s Conference’scontribution as a market facilitator was central to thesuccess of rural biogas and woodstove programs.60 InLatin America, the non-profit Global Village EnergyPartnership (GVEP) has provided critical up-front servicesfor microenergy projects in Guatemala, Peru, andHonduras. In Guatemala, for example, GVEP partneredwith Fundación Solar to conduct a demand analysis, formalliances with local organizations, develop appropriatefinancing mechanisms, and formulate a plan of action toinstall solar home systems in rural villages.61 In mostcases, NGOs that offer financing to microenergy SMEsalso provide capacity building and market-facilitationsupport, as is discussed in the section below on the role ofintermediary enterprise-development financiers.

Multilateral and regional development banks offer similarproject support, as well as valuable advocacy, information-sharing, and support services for broader microenergymarkets.62 For example, the Energy Sector ManagementAssistance Program (ESMAP), established by the WorldBank and the United Nations Development Program,draws on the support of a number of nationaldevelopment agencies to provide strategic advice,feasibility studies, technical support, and best practicedissemination across some 100 countries. ESMAP


operates a program focused specifically on building thecapacity of SMEs, which has sponsored efforts tostrengthen SME business models and productionschemes, support pilot projects of new technologies, andfacilitate the collaboration of SMEs in countries such asHaiti and Cambodia.63 On a broader scale, theorganization has conducted strategic market and policystudies, providing information necessary to facilitatemarkets for renewable energy in Nicaragua andColombia.64 Such services are critical to accelerate thedevelopment of renewable energy markets, and SMEs inparticular, and must be expanded; development banks’far-reaching networks and financial flexibility place them ina unique position to provide this support.

Private Companies

Private companies also have the potential to supportmicroenergy SMEs profitably. For example, in India, the ICICIBank is building a business model in which it would build,own, and operate power-generation facilities in rural villages,with a plan to then transfer those operations to localpartners. In the partnership, the local partner would organizepower demand, manage the facility, and eventually installnew facilities on a replicable basis, while the bank wouldprovide training and financing to enable these activities.65

Market facilitation also presents an opportunity for utilities toplay a more active role in promoting microenergy. Utilitiescan leverage their technology know-how and economies ofscale to provide critical services to microenergy SMEs,including operations and management training and provisionof reliable equipment and spare parts.66

Successful Microenergy SMEs

Finally, successful SMEs can themselves transform intoeffective capacity building organizations. In certain cases,SMEs can even facilitate a reverse path of learning,helping established utilities build up the capacity to pursuemicroenergy initiatives. Brazil provides a useful model.When the Brazilian government decreed that only utilitiescould operate under its rural electrification program, FabioRosa (profiled above for his solar home system enterprisein Rio Grande do Sul) identified an opportunity to providecritical services to these companies that had never beforeoperated off-grid renewable projects. Drawing on thelessons he had learned operating his microenergyenterprise, Rosa founded the Center for Learning onRenewable Energy and Decentralized Generation. To date,the Center has brought together representatives from fiveBrazilian utilities and the Ministry of Mines and Energy toteach the business, management, financial, policy, andregulatory models of microenergy. These sessions havehelped to facilitate a culture shift within the participatingutilities, preparing each to pursue microenergy projects inboth rural and urban areas.67

Microenergy Entrepreneur FabioRosa founded the Center forLearning on Renewable Energyand Decentralized Generation inBrazil to bring togetherrepresentatives from five Brazilianutilities and the Ministry of Minesand Energy to teach the business,management, financial, policy, andregulatory models of microenergy.

Challenge 2: Microenergy Financing

The vast majority of microenergy SMEs are funded by acombination of national governments, multilateralorganizations, and donor programs. The RenewableEnergy Network for the 21st Century (REN21) notes in itsRenewables 2007 Global Status Report that multilateral,bilateral, and other public financing for renewables indeveloping countries reached $600–$700 million per yearfrom 2005 through 2007, with the largest investmentscoming from Germany’s KfW Entwicklumgsbank, theWorld Bank, and the Global Environment Facility (GEF).68

While these figures represent record levels of funding forrenewable energy in developing countries, the demand forfinancing outpaces available supply.

Tapping into the commercial finance market would providea practically unlimited source of investment capital, but todate, microenergy SMEs have struggled to accesscommercial financing. SMEs face difficulty securingcommercial financing due to lenders’ weak assessment ofSMEs’ creditworthiness and bankers’ perception thatthere are high risks inherent to microenergy projects.

In the first case, most SMEs do not meet traditionalcommercial standards of creditworthiness, given theirlimited capacity, unproven track records, and lack ofasset-based collateral.69 In the second, the financialcommunity’s unfamiliarity with the microenergy sectorcontributes to high-risk perceptions.70 In addition, due tothe small size of individual microenergy loans, transactioncosts for financiers are disproportionately high, andmicroenergy projects often require long periods beforegenerating returns. Investors also fear that thedemographic of microenergy end-users — typically poorand rural — reduces the likelihood that investments will befully recouped. As commercial investors do not share thedevelopment motivations that compel other microenergyfinanciers to accept lower returns and higher risk inexchange for greater social and environmental benefits,


SMEs will likely continue to struggle to access privatecommercial financing in the near term.

Recent experience suggests that the perceptions of thecommercial investment community do not necessarilyreflect the true potential of microenergy investments.Investors’ caution is at least partly borne out of theexperience of several decades in which donor-sponsoredmicroenergy projects failed to realize expected returns.Since that time, improvements in management andinvestment approaches have righted many of the wrongsthat drove those investments off course. Investors are alsohesitant to invest in microenergy due to their unfamiliaritywith the field; they tend to overrate project risks andoverestimate failure rates.71 In contrast to theseperceptions, a growing number of microenergy projectshave recently demonstrated an ability to deliversustainable financial returns. Consider the track record ofE+Co, a development-oriented investment organizationthat has financed 173 microenergy SMEs. In 2006, afterwrite-offs, its $152.6 million investment portfolio deliveredan annual return of 8.2%.72

E+Co has financed 173microenergy SMEs. In 2006, afterwrite-offs, its $152.6 millioninvestment portfolio delivered anannual return of 8.2%.

Investors like E+Co are few and far between, however, andthe corresponding lack of financing creates significantchallenges across the life cycle of SME businessdevelopment, from the business-planning and start-upphases through to the growth and expansion of successfulenterprises. The most critical gaps in this financingcontinuum, as captured by Virginia Sonntag-O’Brien andEric Usher, are illustrated in Diagram 2.2a.73

The viability of the microenergy industry depends on theability of a combination of key stakeholders to close thegaps identified above. National governments andmultilateral and regional development banks have played

Diagram 2.2a Gaps in Microenergy Financing

Based on work of Phil LaRocco, E+CO and Virginia Sonntag-O’Brien and Eric Usher, “Financing Options for Renewable Energy”

Upstream Downstream

Start-up capital Operating capital End-user finance

Oftensecured

Occasionallysecured

Gaps and barriers

Entrepreneur’sequity

Suppliercredit

Bank loansGrants

Lack ofbusiness development

support

Lack ofseed and early-stage

risk capital

Lack ofappropriately priced

growth capital

Lack ofintermediaries/brokers/

platforms to channelseed finance

Lack ofsupport from local banks

in local currency

Lack of consumer/micro/transaction finance

to pay for microenergyproducts and

services


the largest roles to date, establishing a benchmark ofsuccessful project finance practices. Intermediaryfinanciers and microfinance institutions have begun toengage in the microenergy field, and their continued andexpanded support is critical to this nascent sector.

National Governments

Governments play an important role in creating a policyand regulatory environment that encourages investment inmicroenergy SMEs. The tools at their disposal — taxstructures, subsidy programs, loan guarantees, lines ofcredit, and concessions, among others — are similar tothose that have been used to support the growth of thetraditional and large-scale renewable energy industries. Inthe case of microenergy, combinations of these policytools are typically bundled under the banner of ruralelectrification programs. In China and Brazil, for example,government-mandated rural electrification has led to thespread of off-grid technologies, strengthening microenergymarkets and infrastructure and laying the groundwork forfuture growth.

Multilateral and Regional Development Banks

Microenergy enterprises typically cannot access traditionalsources of private seed financing, such as venture capital,due to their comparatively low returns. Instead, they mustturn to donor-funded, development-oriented institutions,such as multilateral and regional development banks, toaccess start-up capital. To date, these organizations havebeen the primary financiers of early-stage microenergySME development. They have also played a central role inarranging public-private partnerships to provide operatingcapital and second-stage growth funding to established,expanding SMEs.

As the microenergy industry grows, however, the role ofthese apex institutions must evolve. Directly financingindividual microenergy SMEs is a resource-intensiveendeavor, requiring an active presence on the ground andan intimate understanding of the technical, political,economic, and social circumstances in each instance.Microenergy financing is also most effective when coupledwith capacity-building services, suggesting the need foradditional time and resource investment for each project.While apex financiers have developed a strong trackrecord managing demonstration projects in themicroenergy field, they are not designed to engage fully inthe business of SME financing and development. Instead,these institutions would be best leveraged as upstreamfinanciers, directing funding to intermediary financingorganizations that are better positioned — with on-the-ground resources, knowledge of local communities, andexpertise in the energy field — to manage investments inmicroenergy SMEs.

Intermediary Enterprise Development Financiers

Development banks have recognized the opportunity toachieve broader energy-development objectives throughpartnerships with specialized SME financiers. The Inter-American Development Bank (IDB), for example, managesinvestments in SMEs and small business projects throughthe Multilateral Investment Fund (MIF), an independentfund managed by the Bank. The IDB has also partneredwith NGOs and regional banks to establish revolvingfunds, which these intermediaries leverage to provideloans to local SMEs. For example, with the financialbacking of the IDB, the non-profit Soluciones Practicas(“Practical Action”) established a line of credit in rural Peruthat has provided 31 loans totaling $880,000 for 28microhydro projects and 50 single-family solar homesystem schemes.74

With the financial backing of theIDB, the non-profit SolucionesPracticas (“Practical Action”)established a line of credit in ruralPeru that has provided 31 loanstotaling $880,000 for 28microhydro projects and 50 single-family solar home system schemes.

Still, the scale of microenergy financing operations pales incomparison to the potential opportunity. One centralobstacle is the dearth of financial intermediaries. There area handful of organizations — E+Co, Root Capital, GroFin,and the Shell Foundation — that specialize in providingseed and growth financing to development-orientedSMEs, but E+Co is the only one that invests specifically inmicroenergy. These organizations offer a model forproviding socially responsible, economically sustainablefinancing to a growing asset class that is, as Root Capitaldefines it, “caught in the gap between microfinance andtraditional banking.”75 The development of more suchintermediaries, and financial support for theseorganizations from development banks and otherupstream development financiers, will be critical to thegrowth of the microenergy industry.

These intermediaries have drawn important lessons fromboth microfinance and commercial project finance todevise an investment model suited to the specific risksand opportunities associated with SME financing. Forexample, microfinance teaches that project-based loansto poor entrepreneurs can be administered effectivelywithout requiring the loan recipients to offer asset-based


collateral. E+Co borrowed this concept and applied it tomicroenergy: Since most microenergy SMEs are not ableto provide traditional levels of collateral (typically about 1.5times the size of the loan), E+Co accepts lesser ratios.76 Inaddition, many rural residents do not hold title to theirland, which otherwise would serve as an important sourceof collateral. In some cases, intermediary financiers haveworked with microenergy SMEs to help them obtain land-ownership rights, thereby establishing sufficient collateralto administer loans.77

As described above, at an aggregate level, themicroenergy model inherently leads to the development ofa diverse energy portfolio, encompassing projects acrossdifferent natural, economic, political, and sociallandscapes. Successful enterprise-development financiersembrace the concept of diversification: By investing in awell-balanced selection of projects across a diversifiedspectrum, microenergy investors minimize the risksassociated with individual SMEs.

While portfolio diversification across geographies andtechnologies is helpful (and likely inevitable), perhaps moreimportant is diversification across potential projectoutcomes: social, and environmental, and economic.Experience illustrates that not all microenergy projects areimmediately attractive from an economic standpoint andindicates that achieving all three objectives in a singleproject is extremely rare. By pursuing a portfolio balancedacross expected outcomes, financiers grant themselvesthe freedom to invest in enterprises that provide significanteconomic return with minimal development impact, as wellas those that are less financially lucrative but offersignificant development results. In other words, adiversified approach enables financiers to achieveeconomic, social, and environmental returns whilereducing the pressure on any single investment to meet allthree criteria.

One important feature of intermediary financiers is theirability to complement financial investments withcapacity-building and market-facilitation services. InLatin America and elsewhere, E+Co has partnered withthe United Nations Environmental Program (UNEP) theUnited Nations Foundation (UNF), and local NGOs topioneer an approach known as “rural energy enterprisedevelopment” (REED). This approach is characterized bya multiple-stage process of business development, ofwhich financing is but one step. First, the intermediaryfinancier, referred to as a “REED partner,” helps potentialSMEs gather the necessary information to test thefeasibility of their business proposals. REED partnersthen work with the most promising SMEs to refine theirbusiness plans, and provide seed capital at the stage of

initial implementation. As SMEs grow, REED partnersoffer management support and development, providefinancial structuring and advisory services, help conductmarket assessments and customer analyses, and,eventually, assist their SMEs in securing second-stagefinancing from outside investors.78 The integratedapproach to financing and capacity building is critical toensuring the sustainability, growth, and replication of theSME model.

If intermediary enterprise financiers find efforts to secureand consolidate funding from development banks andother upstream lenders to be daunting, the microfinanceindustry offers a useful paradigm for further institutionalstratification. Some microfinance financiers have found aniche between enterprise lenders and apex institutions,serving as fund aggregators. Through aggregation, theseorganizations are able to achieve greater size anddiversification than individual enterprise financiers,improving their creditworthiness and reducing portfoliorisk, and thus making them more attractive investments forupstream investors. For example, Blue Orchard, amicrofinance investment firm, has secured investmentsfrom large commercial banks: It co-manages the Saint-Honoré Microfinance Fund, a 12 million Euro fund thatinvests in an array of microfinance funds and is sponsoredby the Compagnie Financière Edmond de RothschildBanque. At this point, the small number of microenergyenterprise financiers would not support this type oforganization. But as the industry grows, this model mayprove to be a useful one.

Carbon Financiers

The development of carbon-market tools, such as theCDM, has opened the door for carbon financing to play arole in supporting microenergy investments.79 Specifically,microenergy projects reduce greenhouse gas emissionsand are thus eligible to generate carbon credits, whichcan be sold in international markets under programs suchas the Clean Development Mechanism. The sale of suchcredits offers a revenue stream that complements thereturns generated from end-user contracts, theoreticallyimproving microenergy projects’ attractiveness topotential financiers.

In practice, however, the opportunity to leverage carbon-market financing in support of microenergy is currentlylimited. Complicated application processes and highapplication costs create obstacles to carbon financing forSMEs, many of which lack the capacity to manage projectimplementation and carbon financing simultaneously.80

Moreover, the small size of microenergy projects limits thepotential returns from carbon financing. Unlike the captureof landfill or agricultural gases, which in and of themselves


qualify as profitable carbon finance investments, thecarbon finance benefits of microenergy projects aretypically small and secondary.lxxx Programmatic CDM,which enables the bundling of multiple, similar projects inthe application process, has the potential to aggregate thecarbon benefits of microenergy initiatives while reducingoverall transaction costs. However, this practice isrelatively new, and the current lack of standardizationacross microenergy projects limits the number that qualifyfor the programmatic process. At present, fewmicroenergy SMEs are able to leverage carbon financingto cover up-front costs, where the gap in financing iscurrently greatest.82

Microfinanciers and Consumer Lenders

The growth of the microfinance sector offers a uniqueopportunity to microenergy, particularly the sector ofmicroenergy enterprises engaged in the distribution ofhome-based energy systems. These systems, such ashome solar systems, are typically rented forapproximately $10–$20 per month or are sold for a fewhundred to a thousand dollars. The availability of creditto low-income clients significantly expands the potentialmarket for such systems. It also enables microenergySMEs to build a business model based on deep

penetration into a single market (based on credit), ratherthan superficial penetration of several markets (limited bythe number of residents who can afford cash sales), thusreducing the need to duplicate operations and loweringmarginal costs.

When leveraged in the service of small entrepreneurs,microenergy and microfinance can also support a self-reinforcing cycle of development. A study of the use ofrenewable energy for microenterprise, published by theNational Renewable Energy Laboratory, illustrates thesynergies among these three fields,83 as depicted inDiagram 2.2b.

Other than a few institutions that offer both microenergyand microfinance services, such as Grameen Bank and itsrelated energy-supply company, Grameen Shakti, mostmicrofinance institutions have little experience dealing inmicroenergy.84 As such, realizing the full potential of thesynergy between microfinance and microenergy willrequire an educational effort to improve microfinancelenders’ familiarity with microenergy’s products andfinancing needs. Local microenergy SMEs as well asmarket facilitators — including development banks,NGOs, and national governments — can all play a role in

Diagram 2.2b Mutually Supporting Relationships between Microenergy SMEs, Microfinance, and Microenterprise

Source: Allderdice, April and Rogers, John. “Renewable Energy for Microenterprise.” National Renewable Energy Laboratory. November 2000.

Microfinance:• Provides credit for power systems, tools, machines, and working capital• Provides technical and business development training

Microenterprise:• Leads to greater viability of microfinance institutions through economic development

Microfinance Institutions

Microenergy SMEs• Makes microenterprises more profitable• Provides a loan item with potentially low transaction costs

Microfinance:• Creates bridge between ME SMEs and market• Provides financing for ME SMEs• Brings a gender-conscious approach to ME marketing

Microenergy SMEs

Microenterprise:• Constitutes an enormous potential market for ME SMEs

Microenergy SMEs:• Provides electricity for business• Improves the local environment

Microenterprise


providing microfinance institutions with the informationand education necessary to encourage increasedcollaboration.

Conclusions and Recommendations

The traditional energy model will fail to alleviate energypoverty and exposes customers to energy security andenvironmental risks. The microenergy model, grounded ina development orientation, decentralized infrastructure,and diversity of energy resources, presents an alternativeenergy paradigm that has the potential to deliverenormous development and environmental benefits. In thenear term, the growth of microenergy will not likely bedriven by large, risk-averse utilities, but by small andmedium-scale enterprises able to adjust to the uniquechallenges posed by rural, off-grid electrification.

The success of many microenergy enterprises around theworld, and the ability of investors like E+Co to makeprofitable investments in microenergy portfolios, provethat the microenergy model is viable and scalable. Still, thenascent sector faces significant obstacles to itsexpansion. SMEs’ lack of operational capacity jeopardizestheir ability to sustain, expand, and replicate successfulprojects, and gaps in microenergy financing constrain theindustry’s rate of expansion. Accelerating the growth ofmicroenergy via SME development will require nationalgovernments, multilateral and regional developmentbanks, NGOs, utilities, and intermediary enterprise-development financiers to focus on several key objectives:

• Establish and expand channels to offer capacity-buildingand financing services side-by-side, particularly throughthe development and support of intermediary enterprise-development financiers.

• Embrace an approach to financing that recognizes theunique collateral and credit requirements of microenergySMEs and pursues the development of SME portfoliosthat produce environmental, social, and economicreturns.

• Maintain a strong focus on collaboration with localcommunities to achieve market responsiveness andoperational sustainability.

Development banks, in particular, must play a central rolein supporting the nascent microenergy industry and mustcontinue to offer it assistance as it develops. For one,multilaterals must continue to provide and expandcapacity-building and market-facilitation services, both forindividual projects and for the broader microenergyindustry. Such work is not new for multilaterals, whichhelped build capacity and drive growth in the microfinance

industry. To the extent that multilaterals leverage theirbroad reach and deep resources to provide capacity-strained SMEs with technical assistance, market analysis,policy advice and advocacy, business development andmanagement training, and knowledge and best practicesharing, they will lift many of the heavy burdens that themicroenergy industry cannot yet fully bear on its own.

Development banks must also help to close the gaps inthe microenergy financing continuum, recognizing thatthey are best positioned to do so, not as direct investors,but as funders of intermediary financiers. In contrast tomultilateral development banks, SME-focused affiliates,such as the MIF, and third-party organizations, such asSoluciones Practicas and E+Co, posses the on-the-ground resources, local understanding, and energy-sectorexpertise that are key to identifying viable microenergyprojects and building sustainable project investments.Today, the small number of intermediary financierspresents a significant challenge to microenergy SMEfinancing. Development banks can help to close this gapby actively spurring the growth and development ofadditional intermediaries; the creation of a fund designedspecifically to support microenergy-oriented intermediaryfinanciers would be a powerful way to stimulate much-needed expansion in this area.


2.3 Improving Energy Security:A Portfolio Approach to EnergyResource Management

The conventional wisdom that governs energy resourcemanagement needs rethinking. Traditionally, energyplanners have applied a “least-cost” approach to energyinvestments, comparing the expected costs of individualgenerating technologies and pursuing the optionsprojected to be least expensive over their lifecycle. For thebetter part of a century, this straightforward methodworked reasonably well. However, in today’s increasinglyrisky energy markets, strict adherence to the least-costmodel exposes national power infrastructures to significantthreats to price, supply, and environmental stability. Asenergy planners consider future energy investments, theywould serve their national energy markets well by adoptinga portfolio approach. Just as financial investors reduce riskthrough diversification, energy planners who diversifynational generating mixes can insulate their countries fromthreats to energy and national security.

In practice, diversifying a national energy portfolio is moredifficult than diversifying a stock portfolio. Generating assets,unlike stocks, are not easily tradable or exchangeable.Moreover, stock portfolios are typically managed by a singleinvestor, while in liberalized energy markets, energy portfoliosreflect the decisions of many independent investors, allconcerned with their own costs and risks rather than thoseof the national energy market. Despite these hurdles, theprinciples of portfolio theory offer a compelling and usefulalternative to the traditional energy-planning paradigm, andnational energy policymakers can employ a number of toolsto promote the aggregate benefits of diversification whileoffsetting its costs to individual energy producers.

This paper examines the application of portfolio theory toenergy resource planning. It highlights the key role thatrenewables play in achieving energy portfolio optimization,the challenges of applying portfolio theory to practice, andthe role of policy in capturing the benefits and mitigating thecosts of energy resource diversification. The analysisfocuses primarily on diversification of energy-generationtechnology in the power sector, though a brief examinationof portfolio theory’s application to the transportation fuelmarket is included.

A Brief Overview of Portfolio Theory

Portfolio theory was first introduced by Harry Markowitz in1952. It is based on the idea that every investment must

be characterized not only by its expected return, but alsoby its expected risk. Markowitz found that by combiningmultiple assets in a single investment portfolio, investorscan minimize risk for any given level of return (orconversely, maximize return for any given level of risk).1

The defining characteristic of portfolios that minimize riskwhile maximizing return is diversification. In a fruit market,if you invest only in apples, and the value of apples falls,your entire portfolio value falls. But if you invest in apples,oranges, bananas, and pomegranates — and if the pricesof those fruits do not rise and fall in perfect unison — adecline in the value of apples will not have as great animpact on the overall value of your portfolio; yourexposure to apple price risk is reduced. What’s more, thevalue you lose in falling apple prices could well be offsetby a run on pomegranates. While the mechanics ofportfolio theory are somewhat more complicated thanfruit-market economics suggests, the example illustratesthe central concept: Diversification insulates portfoliosfrom risk. The notion recalls the old adage: Don’t put allyour eggs in one basket.

Portfolio investors value each individual investmentaccording to its impact on the expected return and risk ofthe overall portfolio, not in direct, stand-alone comparisonto other potential investments. As a result, at any giventime, a portfolio will almost certainly include investmentsthat offer different expected rates of return and levels ofrisk. Notably, there is no “optimal” mix of investments;there is no ideal level of risk or return. Rather, investors willadjust their portfolio according to their individualpreferences, evaluating whether each individualinvestment enables the portfolio to achieve maximumreturn for a preferred level of risk.2

Traditional Energy Planning, UndiversifiedPortfolios, and Energy Security Risks

Energy planners have not traditionally applied a portfolioapproach to energy resource management. Instead, theyhave employed what is known as a “least-cost” model. Inessence, energy planners compare the expected life-cyclecosts for different energy-generation technologies andmake investments in the technologies that are projected toprovide energy at the lowest cost over the life of thefacility. Planners base estimations of life-cycle costs onassumptions about future fuel costs and operations andmanagement (O&M) expenses, among other factors.3

This approach proved to be reasonably effective for mostof the past century, when energy planners had only tochoose among coal, oil, or gas-powered plants, and whenthe costs associated with each were generally stable, and


therefore relatively predictable.4 In other words, the least-cost model worked well when all available technologiesfaced similar, low levels of risk, and energy planners couldthus make accurate assumptions about future costs.

From today into the foreseeable future, however, the definingcharacteristic of energy markets is risk. Fuel prices areincreasingly volatile, heavy import dependence heightens thethreat of supply shocks, and environmental instability boththreatens and is threatened by heavily reliance on fossil fuelsand, in some regions of Latin America, hydropower.Moreover, the wide range of generating options available toenergy planners, including fossil fuels, large-scalehydropower, and renewable technologies, have very differentlevels of exposure to these risks. In this situation — whenthere are many risks to which distinct energy options areunevenly exposed — the traditional energy-planning modelbreaks down. In short, the least-cost model fails to functionbecause there is no such thing as least-cost option, only aleast-cost option for a particular level of risk. Adherence tothe traditional planning model ignores the second half of thisequation, encouraging heavy investment in a small numberof fossil-based technologies that, while cheap, are highlyexposed to risk.

The traditional energy-planningmodel breaks down when distinctenergy options are exposed todissimilar risk.

This poses significant threats to energy and nationalsecurity. Each of the distinct risks to energy markets in theAmericas, and the threats to energy security posed byundiversified energy portfolios, are examined in thefollowing sections.

Economic Risk: Price Volatility and Carbon Pricing

Threaten Growth and Development

Price stability in energy markets has rapidly eroded. Ascan be seen in Chart 2.3a, since 2000, natural gas priceshave become increasingly volatile, sharply spiking in 2000and 2001, 2006, and again in 2008. In addition, since2003, oil prices have similarly broken with steady patterns,as seen in Chart 2.3b.

Traditional energy-planning methods have left electricity-generating markets in countries across the Americasdisproportionately exposed to this increase in fossil fuelprice volatility. Compared to the world, which, onaverage, produces 4% of its electricity from oil,5 CentralAmerica and the Caribbean are highly dependent on oilfor power: All but a handful of countries in the region relyon oil for at least 25% of their total generating capacity.6

A few, such as Cuba and Jamaica, rely almostexclusively on oil.7 In many cases, countries that are notheavily reliant on oil are highly dependent on gas.Mexico and Argentina, for example, each deriveapproximately half of their electricity from gas-firedgeneration.8

Chart 2.3a Natural Gas Futures 1994-2008 ($/Million BTU)

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While in some cases, price controls, government subsidies,and preferential trade agreements protect these fossil-dependant energy markets from immediate pricepressures,9 in the long term, these countries’ continuedreliance on fossil fuel–dominated portfolios will exert anirrecoverable drag on their economies. Unexpectedchanges in fossil fuel prices have a demonstrated negativeimpact on macroeconomic performance; this is known asthe “oil-GDP effect.”10 Oil-price increases retard economicgrowth by creating wealth transfers from oil importers toexporters, reducing production output and wages, inducinginflationary pressures, raising interest rates, and slowingdemand.11 Evidence suggests that a 10% rise in oil pricescontributes to GDP losses of 0.5% to 1.0%, likely forseveral quarters and possibly permanently.12 Increases innatural gas prices place a similar, if somewhat smaller, dragon the macroeconomy.13 While the declining energyintensity of the global economy has likely served to limit themagnitude of this energy-GDP effect, and will continue todo so, the threat to economic growth posed by suddenenergy-price increases remains present. Notably, evenabsent baseline price increases, the amplification ofvolatility in fossil fuel prices creates economic uncertaintythat reduces wealth and stifles investment.14

The likely prospect that nations will devise an internationalemissions-reduction agreement and a global carbon-emissions trading market creates another risk for nationswith fossil fuel–heavy generating portfolios: adiscontinuous and irreversible increase in the cost ofpower generation. This risk is dissimilar from traditional

price volatility, as it emanates not from unpredictable shiftsin market dynamics, but from deliberate changes in publicpolicy that can be anticipated and planned for. In thissense, the transition to a carbon-efficient global economymight be most accurately described not as a risk to energymarkets, but as a paradigm shift within them.

This shift holds dire economic consequences for the fossilfuel–dependent countries of the Americas. A globalcarbon market would, in effect, generate enormouswealth transfers from these fossil fuel–dependentcountries to those heavily invested in clean power. (Asimilar effect would hold within regions of the samecountry in the case of a national emissions-tradingscheme.) To this point, few in the Americas have studiedthe potential impact of this development on the cost ofelectricity generation or economic growth more broadly,generating little sense of urgency for a course changeamong the region’s energy planners. However, given thatgenerating assets’ average lifecycles typically range from30 to 50 years or more, countries that fail to makeforward-looking energy investments today will find itdifficult to mitigate the high cost of fossil fuels in acarbon-efficient economy.

Of course, the shift to a carbon-efficient economyrepresents as great an opportunity for the Americas as itdoes a risk. Countries heavily dependent on hydropower,such as Paraguay and Brazil, would stand on the receivingend of a carbon-based wealth transfer system. Shouldfossil fuel–dependent countries leverage their extensive

Chart 2.3b NYMEX Light Sweet Crude 1998-2008 ($/Barrel)

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natural, renewable resources to achieve low-carbon powerinfrastructures, they, too, would position themselves toprofit from this new energy paradigm.

Supply Risk: Import Dependence,

Market Concentration, and Instability

Price stability is just one aspect of energy security. KevinStringer, adjunct professor of security studies at the BalticDefense College, observes that in addition to affordability,“the availability of energy needed for stable economic andsocial development [and the] freedom from interruption ofthe energy supply” are critical pillars of a secure, stableenergy market.15 The International Energy Agency (IEA), inturn, confirms the centrality of energy dependence tosecurity of supply. Of the conventional variables the IEAuses to measure supply security, three relate directly to anation’s dependence on foreign energy sources: importdependence and substitutability, market concentration (thedominance of a small number of producing countries inthe trade of any one fuel), the and share of politicallyunstable regions in imports.16

By these measures, the traditional energy-planning modelhas left much of the Americas woefully insecure. TheCaribbean, lacking hydrocarbon resources, relies almostexclusively on imports to provide the oil it uses togenerate power.17 Central America faces a similarsituation, as rapidly rising demand and limited refiningcapacity have forced even Guatemala and Belize — thetwo Central American countries with accessible oilreserves — to turn to imports.18 Import dependence is notlimited to oil; many South American countries findthemselves dependent on imports of natural gas. Chileoffers a notable example: By 2006, the country relied onimports for 70% of its primary energy consumption, andmore than 30% of its electricity was generated by naturalgas supplied by Argentina.19

By 2006, Chile relied on imports for 70% of its primary energyconsumption, and more than 30%of its electricity was generated bynatural gas supplied by Argentina.

Though much of the energy trade in the Americas isconfined within regional borders, market concentration ishigh, as is the share of politically and economicallyunstable exporters, which serves to exacerbate energysecurity concerns. Consider Venezuela, the region’sprimary supplier of oil, which it offers to its Caribbean andCentral American neighbors under heavily subsidized

contracts. While Venezuela boasts the largest oil reservesin the hemisphere, its output declined fo 10 consecutivequarters, and industry analysts predict that significantinvestment in capacity is needed to maintain currentproduction levels.20 Should Venezuela find itself unable tomeet the full oil demands of its neighbors — or worse, fallvictim to social, economic, or political turmoil thatinterrupts either the flow of oil or financing — the region’senergy markets would suffer immensely. Bolivia hassuffered such supply-disrupting instability, to the detrimentof its natural gas importers. In 2006, President EvoMorales’s nationalization of the country’s natural gasreserves created a precarious investment environment thatslowed foreign investment, curtailing production andsignificantly raising energy costs for neighboring Argentinaand Brazil.21 Today, limited investment and capacitycontinue to prevent Bolivia from fulfilling its contractualgas agreements with these countries, and on September10, 2008, domestic political instability in Bolivia severedthe country’s gas exports to Argentina altogether.22

As demand for energy increases across the region,countries that continue to rely on imports originating froma select few, politically unstable markets open themselvesto significant threats to energy security.

Environmental Risk: Climate Change,

Severe Weather, and Hydropower

Least-cost planning gives little consideration to theenvironmental risks associated with energy investments.These risks, however, are real: Both climate change andsevere weather patterns threaten energy, economic, andnational security in the Americas.

Overwhelming scientific evidence indicates that climatechange is a direct result of human activity and that fossilfuel–fired power generation is a leading contributor toglobal warming.23 While Latin America has thus farcontributed comparatively little to global carbonemissions,24 the region’s continued — and, in many cases,increasing — reliance on oil and gas will only serve tocompound its environmental challenges.

The Americas in particular stand to suffer from an irreversiblerise in global temperatures.25 In a warming world, naturaldisasters will hit the region with increasing frequency andintensity, causing widespread hardship and doing long-termdamage to infrastructure, industry, and agriculture.26

Changing rainfall patterns and increased drought may welllead to massive demographic and land-use shifts, reducingcrop yields and hampering economic and socialdevelopment.27 Public health crises, in the form ofepidemics, are likely to accompany the severe weatherevents associated with a changing climate as well.28


Global warming, exacerbated by generating portfoliosskewed toward fossil fuels, threatens South Americancountries with energy mixes skewed toward a differentenergy source: hydroelectric power. Hydropower ispervasive across South America, accounting for 100% ofpower generation in Paraguay, 84% in Brazil, and 79% inboth Peru and Colombia; Chile, Uruguay, and Venezuelaall rely on hydropower to generate more than 50% of theirelectricity.29 Warming temperatures have accelerated themelting of the region’s tropical glaciers, placing thesecountries’ national power grids — and the people andbusinesses that depend on them — in an increasinglyprecarious situation.30

Hydropower-dependent countries in Central America, lessvulnerable to the threat of glacial melt, are neverthelessexposed to the environmental risks associated with severeweather patterns. In 1997 and 1998, extreme weather dueto El Niño caused widespread electricity shortages acrossCentral America, forcing both Costa Rica and Honduras todeclare states of emergency.31 Brazil suffered a similar fatein 2001, when a drought wrought the virtual breakdown ofthe nation’s power system, forcing the government toinstitute a six-month period of energy rationing thatcontributed to a 1.5% reduction in the country’s GDP.32

These cases illustrate that fossil fuel–heavy generatingportfolios are not the only ones to suffer heightenedexposure to energy market risks; any undiversified energyportfolio, regardless of the dominant energy, placesnational and economic security at risk.

In 2001, drought wrought thevirtual breakdown of Brazil’snational hydropower system,forcing the government to institutea six-month period of energyrationing and causing a 1.5%reduction in GDP.

Portfolio Approach: Strengthening EnergySecurity through Renewables

The risks to economic, national, and environmentalsecurity, as described above, will persist until energyplanners adopt an approach to resource planning thatsees beyond the narrow objective of minimizinggenerating costs. Portfolio theory offers an alternative,more holistic approach: Against cost, it weighs the price,supply, and environmental risks inherent to investments ineach distinct generating technology. This morecomprehensive valuation method encourages energyplanners to balance the objective to minimize costs withthe imperative to insulate national energy markets fromrisk. As Stringer writes, applying a portfolio approach to acountry’s energy resources “enables decisions to be madeconcerning adjustment of the energy mix to achieve theoptimal sourcing of energy while reducing risks in thefailure of any one source or supplier.” 33

Chart 2.3c Correlation Between Oil and Natural Gas Prices ($/Barrel)

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However, a portfolio approach offers limited benefits whenenergy planners are constrained to a choice amongconventional, fossil fuel–based generating technologies. Thereason is that these technologies are subject to the samefundamental risks: unpredictable fuel price fluctuations,import dependence, and exposure to the regulated cost ofemissions in a carbon-efficient economy. As such, whilecombining multiple fossil fuel technologies in a singlegenerating portfolio mitigates the specific risks associatedwith each in isolation, from a systemic perspective,diversified and undiversified fossil fuel portfolios are exposedto the same broad set of risks. Moreover, in some cases, thespecific risks associated with distinct fossil fuels are highlycorrelated. Price risk for oil and gas generation is a goodexample. As seen in Chart 2.3c, oil and gas prices havehistorically moved in close unison, thus largely negating thebenefit of diversifying across these two options, at least interms of mitigating price risk. In financial terms, diversifyingacross conventional fossil technologies is roughly analogousto building a portfolio comprised only of stocks, withoutbonds, gold, or currency. While the stock-based portfoliomay combine several assets to reduce risk, the overallportfolio is not truly diversified.

To be truly diversified, generating portfolios must includealternative energy sources. Passive generationtechnologies, such as wind, hydro, solar, and geothermal,offer the greatest opportunity to offset the systemic risksinherent to their conventional counterparts. For one, theydo not share the fuel-price risks associated with fossil fueltechnologies. In fact, they face no price risk at all: Oncetapped, wind, water, sunshine, and the Earth’s heat arefree. In addition, these renewable alternatives eliminate thesupply risks associated with import dependence, as theyare produced domestically. Finally, they create noenvironmental risks, and as such, they face no risks fromfuture efforts to regulate carbon emissions.

It is important to note that wind, solar, and geothermaloptions also mitigate the natural supply risks to whichlarge-scale hydropower is exposed (barring a catastrophicevent during which the sun goes dark, the wind ceases toblow, or the inner-Earth cools down for an extendedperiod of time). Moreover, many countries in the Americaswith access to large-scale hydro resources are alreadyheavily dependent on them for power; a situation that, asdemonstrated above, has exposed those countries toserious economic and security risks. Given thecomparatively improved risk-mitigating characteristics ofwind, solar, and geothermal technologies, as well as theregion’s arguable overexposure to the risks associatedwith large-scale hydropower, further diversification in theAmericas’ generating portfolios will require increasedinvestment in these alternatives.

Biomass power generation shares some of the risk-mitigating benefits of their passive renewablecounterparts. Like wind, solar, and geothermal, biomassprovides an opportunity to offset fossil fuels’ price risksand import dependence, as well to as reduce carbonemissions. However, depending on the feedstock,biomass power generators can face significant pricerisks, as well as other risks, such as uncertain availabilityof feedstock and arable land for feedstock cultivation.34

Nuclear power also offers a potential opportunity todiversify generating portfolios in the Americas. It does notshare the same fuel-price risks as do traditional fossilfuels, and though uranium must be imported, its sourcesare not overly concentrated in politically sensitive regions,as is the case with fossil fuels. However, nuclear powercarries its own set of risks, including very high up-frontconstruction costs, ongoing management challenges, andcomplicated fuel-waste-management issues.35

Nevertheless, as the Americas seeks to diversify itsenergy portfolio, both biomass and nuclear should beconsidered alongside passive renewable technologies aspotential options.

Why Diversifying via Investment in Passive

Renewables Does Not Raise Costs

The primary objection to pursuing greater diversificationvia investment in passive renewable technologies, such aswind, solar, and geothermal, is that their addition tonational generating portfolios increases the overall cost ofpower generation. Such assertions reflect the assumptionthat the addition of a generating asset with a higher stand-alone cost necessarily increases the cost of the overallgenerating portfolio. On the surface, this assumptionseems to be intuitive and reasonable. But portfolio theoryproves that it is wrong.

The assertion that renewablesincrease the cost of powergeneration is based on theassumption that, becauserenewables have higher stand-alone costs, they will increase thecost of the overall generatingportfolio. Portfolio theory provesthat assumption is wrong.

If you turn to the pages of any financial textbook, youwill find in the section on portfolio theory an interestingconclusion: All optimal portfolios must include a risklessasset. Without getting into the mathematics, the reason


is that adding a riskless asset to a portfolio ofdiversified, risky assets improves the efficiency of theportfolio.36 In other words, the addition of a risklessasset improves returns at any given level of risk.Importantly, and counterintuitively, this effect holds trueeven if the expected return of the riskless asset is lowerthan any of the assets already in the portfolio.37 Infinance, U.S. Treasury Bills (T-bills) function asessentially riskless assets, because their expectedreturn, guaranteed by the government, holds steadyregardless of fluctuations in the overall market. As such,despite the fact that T-bills offer lower returns than moststocks or bonds, investors must include T-bills in theirportfolios to achieve optimal results.38

Passive renewable energy technologies — wind, solar,and geothermal — serve essentially the same role inenergy portfolios as do T-bills in financial portfolios. Asdescribed above, their costs are essentially fixed.Because passive renewables do not have fuel expenses,their year-to-year costs remain flat, entirely independentof unexpected price fluctuations in the conventionalenergy market. In other words, passive renewablesfunction as riskless assets.

Of course, in practice, no energy technologies areentirely risk-free. New investments in passive renewablesface fluctuating construction costs and potentialsetbacks, and existing facilities can suffer fromunexpected system failures and changing operation andmanagement (O&M) costs.39 Moreover, there is always arisk — at least for short periods of time — that the windwill not blow or the sun will not shine, thus creatingcapacity risk for systems dependent on these potentiallyintermittent resources.

However, at an aggregate level (i.e., on a national scale),these risks are effectively mitigated: Thousands ofgeographically dispersed wind farms, solar panels, orgeothermal plants are not subject to the same risks as asingle turbine, panel, or heat pump. Thus, thoughindividual renewable systems are exposed to risks, in thecontext of national generating portfolios, renewable energytechnologies present, for all intents and purposes, ariskless investment opportunity.

Because renewables such as wind, solar, and geothermalare risk-free, though they appear to be more expensivethan conventional generating options compared on astand-alone basis, adding these technologies to agenerating portfolio actually serves to reduce the overallcost of power. By diversifying energy portfolios viainvestment in renewables, energy planners can thusimprove energy security at no extra cost.

Challenges to Portfolio Theory Application

Managing energy generating portfolios to capture thesecurity and cost benefits of diversification is complicatedby a number of practical constraints. For example, theprinciples of portfolio theory, designed to govern themanagement of financial assets, are based on severalassumptions about the market that do not smoothlytranslate when stocks and bonds are replaced with windfarms and coal plants. In addition, the cost- and risk-related benefits of energy diversification on a nationalscale are not uniformly realized by individual energyproducers or consumers, many of which would in factincur significant costs. This creates a misalignment inincentives at the individual and national levels, and as aresult, the gap between theoretically optimal andpractically feasible portfolios can be quite wide.Importantly, these constraints do not negate the fact thatnational policymakers can deliver material cost andsecurity benefits by optimizing national energy portfoliosthrough diversification. This section examines thesepractical constraints in greater detail and discusses thetools that national policymakers can use to promote thediversification of national energy resources.

Portfolio Theory Assumptions Do Not Fully Translate

to Energy Markets

As described, portfolio theory was originally devised as astrategy to guide investments in financial assets. Whilemany studies have since applied portfolio theory to themanagement of tangible assets, it is important torecognize that the assumptions underlying the mechanicsof portfolio optimization do not necessarily translate fromideal markets to energy markets.40

Portfolio theory rests on the assumption, for example,that assets are traded in a perfect market, characterizedby low transaction costs, perfect information, and anormal distribution of returns.41 The energy market,however, is far from perfect. Generation facilities cannotbe easily bought, sold, or exchanged. While a financialinvestor may be able to substitute two stocks for aminimal fee, a utility cannot decommission a nuclearfacility to replace it with a wind farm without incurringsignificant transaction costs.

Portfolio theory also hinges on the fact that financialsecurities are highly divisible: It is possible for financialportfolio consisting of two assets to contain 100% ofeither or virtually any combination in between.42

Generating assets, in contrast, are not perfectly divisible,which creates a “lumpiness” that can distort portfolioanalysis. While the impact of energy assets’ indivisibility isreduced as the portfolios in question grow to regional or


national levels (and thus more and more assets areincluded), the impact within small service areas can bequite large.

Another critical difference is that unlike financialsecurities, which are effectively fungible, energy assetsare not necessarily substitutable. Though energytechnologies can be compared in price and risk, theydiffer in many other ways. One thousand megawatts (MW)of wind power cannot necessarily replace 1,000 MW ofcoal power, because coal generation supports base-loaddemand while wind power does not. (Other alternativeoptions, such as nuclear, do not face this challenge.)Additional costs and risks related to siting and gridconnection also place limits on the substitutability ofdistinct generating sources. Turning again to the exampleof wind, replacing 1,000 MW of coal power with windpower would require the construction and siting not of asingle or several plants, but of thousands of windturbines. Moreover, these turbines, typically constructedin areas far from the reach of established power lines,would have to be serviced by sizable investments in newtransmission infrastructure. In the U.S., for example, theMidwest Independent Transmission System Operatorestimates that the addition of 5,000 miles of newtransmission lines, at a cost of $13 billion, is necessary toconnect potential new wind resources to centers of highenergy demand.43 Such additional variables gounaccounted for in portfolio theory, limiting theapplicability of its theoretical findings to practice.

Competing Interests Create Disincentives to

Diversification

Portfolio theory also fails to account for the fact that powermarkets operate according to a range of interests, many ofwhich compete with the imperative to diversify nationalgenerating portfolios. Both political interests and theinterests of individual power producers createdisincentives to the diversification of energy-generationresources.

Entrenched interests often shape energy planning. In theU.S., for example, the coal lobby’s strong politicalinfluence in the Southeast and Midwest makes anysignificant shift away from coal-fired generationexceedingly difficult, regardless of the potential benefitsof further diversification to the national energy portfolio.And in Mexico, state-run utilities are required to purchasethe lowest-cost electricity available irrespective of thepotential price risks, thus limiting the viability andcompetitiveness of renewables.44 In such cases,policymakers have compelling reasons to take suchpolicy stances, such as maintaining stable electricityprices for consumers or protecting jobs and the strength

of local economies. Portfolio theory, strictly applied,ignores any ancillary value of inefficient portfolios, thoughclearly such non-economic objectives must be assignedsome weight.

These challenges to the practical application of portfoliotheory to energy resource management apply across theboard, regardless of the individual portfolio in question.When considering the special role of renewables inportfolio theory, an additional practical challenge arises:the misalignment of incentives. In deregulatedenvironments, energy planning and investment decisionsare made by independent utilities and power producers,each of which weighs the specific opportunities, costs,and risks associated with potential investments. Whileportfolio theory demonstrates that investments in high-cost, low-risk renewables produce benefits for the broaderportfolio, individual utilities investing in renewables incurtheir higher costs without fully capturing their risk-mitigating benefits, which are distributed at an aggregatelevel. As a result, portfolio theory offers individual utilitieslittle incentive to invest in technologies such as wind, solar,and geothermal.

Utilities’ ability to pass higher costs through to consumersalso reduces their incentive to make investments indiversified portfolios, particularly in renewables. This is notsurprising. By passing on fuel-price increases toconsumers, utilities effectively reduce their exposure to theintrinsic price riskiness inherent to conventionaltechnologies. This reduces their perception of the value ofenergy technologies, such as renewables, that offer theprimary benefit of long-term price stability. It is importantto recognize that, in the aggregate, such practices do notactually reduce overall risk; they simply redistribute it,exposing customers, rather than utilities, to the negativeeconomic impacts of fuel price volatility.

While most individual consumers cannot actively hedgeagainst such price risks, as they have little control overtheir energy-consumption portfolios, a growing number oflarge industrial and commercial consumers (and someaffluent individuals) are pursuing renewable power as ameans to diversify their energy consumption and hedgeagainst volatile energy costs — as well as to achieve“green” objectives. For example, retailers such as Wal-Mart are installing solar panels to diversify the generationportfolios of individual stores, leveraging fixed-pricecontracts to insulate those stores from long-term andseasonal electricity price fluctuations.45 However, suchefforts, pursued by few and on a comparatively smallscale, do not stand to impact the composition of nationalenergy portfolios materially. A study by severalCambridge and MIT faculty members on the use of


nuclear power to hedge against uncertain gas and carbonprices finds that consumer-driven diversification is highlyunlikely, as “the bulk of electricity consumers (evenindustrial consumers) are not well-informed about theelectricity market, and … [attach] minor importance tohedging electricity price risks.”46

Retailers such as Wal-Mart areinstalling solar panels to diversifythe generation portfolios ofindividual stores, leveraging fixed-price contracts to insulate thosestores from long-term andseasonal electricity pricefluctuations.

Capturing the Benefits of Portfolio Theorythrough Policy

There exists a clear tension between the national benefitsof energy diversification and the very real obstacles thatprevent energy planners’ practical application of portfoliotheory. Countries that continue to allow energy resourcemanagement to continue on the path charted by business-as-usual will miss an opportunity to significantly improvethe overall cost-effectiveness and security of their nationalenergy resources. On the other hand, those that push forgreater diversification must find ways to manage thesignificant costs associated with a deliberate shift in thebalance of generation technologies.

Policymakers increasingly agree that the benefits ofbuilding a more diversified energy portfolio merit thecosts. The following quotation from an article written byU.S. Senator Peter Domenici illustrates the degree towhich the concept of energy-portfolio diversificationhas captured the attention of key energy policymakersin the U.S.: “Diversifying our energy portfolio is thecritical next step we must take to move us away fromexisting technologies toward cleaner, affordabletechnologies.”47 Domenici’s sentiments have beenechoed by national policymakers on both sides of theaisle, who have repeatedly called for an “all of theabove” solution to the U.S.’s energy challenges. InChina, President Hu Jintao has acknowledged thatenergy diversity is key to the country’s energy security;similar sentiments prevail among policymakers in theUK, Brazil, Mexico, and elsewhere.48 Independent,objective observers have also lauded the nationalbenefits of energy diversification. Regina Nunes,

Standard and Poor’s chairwoman in Brazil, observed,“Diversity of energy sources in Brazil and thedevelopment of new technologies in this area make thecountry’s sovereign rating stronger.”49

“Diversifying our energy portfolio isthe critical next step we must taketo move us away from existingtechnologies toward cleaner,affordable technologies.”—U.S. Senator Peter Domenici

There is no uniformly appropriate means to redirect energyportfolios from the trajectories charted by business-as-usual to the paths toward more efficient generation mixes.Policymakers have a range of tools at their disposal topromote diversification in energy markets. One tool thathas been applied in several countries is a renewableportfolio standard (RPS). An RPS requires utilities toprovide a certain portion of their power via renewablesources, which can be satisfied with the utility’s owninvestment in renewable generation technology or with thepurchase of renewable energy certificates fromindependent renewable generators. A range of financialand tax incentives directed at renewables also supportportfolio diversification. For example, feed-in-tariffs andfeed-in-premiums (FITs and FIPs) have becomeincreasingly popular, particularly in the EU and SouthKorea. FITs offer a fixed, preferential price for renewablegeneration, usually guaranteed over a long time horizon(typically 10–20 years), while FIPs offer a similar, premiumbonus on top of standard electricity proceeds.50 The fixed,higher prices offered by these mechanisms help to removethe disincentive for power producers to invest inrenewables; they effectively ensure that renewable powerproducers are able to secure compensation for the risk-mitigation benefits that their investments provide to theenergy market as a whole. Map 2.3a indicates whereportfolio-encouraging policies have been establishedworldwide in both a mandatory and a preliminary,voluntary manner, differentiating between RPS policiesand FIT/FIP incentive programs.

Importantly, different countries will inevitably diversify theirenergy-resource portfolios in different ways. Theavailability of distinct natural resources, composition andage of the current generation portfolio, and capacity of theexisting transmission infrastructure, among other factors,will determine the spectrum of possible energy choicesand composition of theoretically optimal portfolios. Basedon these factors, the starting point for a discussion of


portfolio diversification will be different, for example, in theU.S. as compared to Mexico, India, or China. In additionto the physical parameters that define the range ofpotential technical possibilities, market and politicalrealities — the structure of the energy market, strength ofentrenched energy interests, and the health of the overalleconomy, for example — will further define the practicallyand politically feasible range of options. Just as fewinvestors’ portfolios are identical, few nations’ energyportfolios will be similar.

Application of Portfolio Theory to theTransportation Fuel Market

Most studies of the application of portfolio theory toenergy markets focus exclusively on the power sector;51

to date, little has been written about the usefulness of aportfolio approach to the transportation fuel market.However, there is certainly a great need for diversificationin transport fuel portfolios; near-exclusive reliance on oilexposes both nations and individual consumers totremendous levels of price and supply risk.

When applying a portfolio approach to transport fuelmarkets, it is helpful to remember that to achieve the

benefits of diversification, investors must hold multipleassets simultaneously, not simply replace one withanother. Wholesale substitution — for example, replacingall of the oil-powered cars on the road with cars fueledwith natural gas — would simply exchange, rather thancounterbalance, the risks of oil and natural gas. Truediversification implies that the transport market must beable to support a balance of multiple fuels.

There are, at least in theory, a number of potential fuelsthat can complement oil, including biodiesel, ethanol,natural gas, electricity, and hydrogen. These fuels standat different stages of development. Biodiesel and ethanolare commercially available, achieving varying degrees ofpenetration across distinct markets; Brazil, in particular,has achieved high utilization of ethanol-based transportfuels. Natural gas has also been commercialized,primarily for use by small commercial fleets.52 Electriccars have occupied a very small niche in the automobilemarket for several decades, and the first commercializedplug-in hybrids are scheduled to reach showrooms in2010. Hydrogen fuel cell vehicles essentially remain inthe research, development, and piloting phases. Pushingone or several of these fuels to broad-scalecommercialization is critical to enable diversification in

Map 2.3a Portfolio-Enhancing Policies: Renewable Portfolio Standards and Feed-In Tariffs

Source: Garten Rothkopf


the transport markets. Two primary hurdles stand in theway: limited infrastructure and single-fuel engines.

Several distinct fuels require separate distributioninfrastructures; for example, oil, natural gas, and hydrogencannot be pumped through the same pipelines. Buildingparallel distribution infrastructures is a costly endeavor. Insome cases, prohibitively so: The Argonne NationalLaboratory at the University of Chicago estimated thatbuilding an infrastructure to fuel 100 million hydrogen fuelcell vehicles in the U.S. could cost over $600 billion.53

While the costs for other fuels are not likely to be as high,they are formidable nonetheless. For example, building anatural gas distribution infrastructure in the U.S. equal insize to the existing system of conventional gas stationswould require the construction of some 117,000 naturalgas service stations, each of which can cost over$300,000, totaling an investment of more than $35billion.54 Notably, this estimate does not include the costsassociated with other necessary development, such as theextension of natural gas pipelines and the purchase orlease of land for fueling stations. Though the potential toinstall home-based natural gas fueling stations mayreduce the need for a centralized, public fuelinginfrastructure, individual systems are also costly, typicallyranging from $4,500 to $5,000, and require additionalremanufacturing investments after approximately 6,000active hours (500 six-gallon fill-ups).

A second hurdle to the commercialization of alternativefuels is the predominance of single fuel–dependentengines. As long as the vast majority of cars and truckson the road run on engines compatible only withgasoline, the potential market for each individual fuel islimited to the number of consumers who purchase carsspecifically designed for that fuel. In many cases, suchcars cost a premium price. For example, the 2009 HondaGX, a natural gas–powered car, costs $6,830 more thanits gasoline-powered counterpart;55 GM’s anticipatedelectric car, the Volt, is expected to retail forapproximately $40,000.56 Though low fuel prices forthese alternative vehicles make them cost-competitiveover their lifecycles, their comparatively high stickerprices place them out of reach for most consumers.Accordingly, the market share for such vehicles — andfor their corresponding fuels — is currently small. Thisconstraint on market size obstructs investors’ ability torecoup the significant upfront costs associated withbuilding the infrastructure to distribute alternative fuels,making such investments unlikely.

The challenges to fuel-market diversification suggest twopaths of least resistance: fuels that leverage existinginfrastructure, and the commercialization of engines that

support multiple fuels. According to these parameters,biodiesel appears to present a promising option: It isdistributable through the existing gasoline infrastructureand is compatible with conventional diesel engines.57

However, limited production capacity and price inflationdue to competition over food-based feedstock presentchallenges to biodiesel’s widespread expansion.58 Ethanoloffers another compelling, if imperfect, opportunity. Unlikebiodiesel, ethanol cannot be transported through thesame pipelines as gasoline, but existing service stationequipment can be modified to handle ethanol at costs aslow as $3,300.59 Moreover, the advent of ethanol-compatible flex-fuel vehicles (FFV) enables the market forethanol to grow independent of the rate of expansion forits infrastructure. The FFV market in California offers astriking example: In 2007, there were an estimated257,000 FFVs in the state, despite the fact that there wasjust one publicly accessible E85 fueling station.60

In the future, plug-in electric hybrids may also overcomethe hurdles to diversification in the fuel market, giventheir ability to leverage both the existing power grid aswell as conventional gasoline (and, ideally, ethanol aswell). Their feasibility will depend on the costs associatedwith fortifying and adapting the current electricityinfrastructure to bear the burden of the addition ofvehicle-based demand. A study conducted by thePacific Northwest National Laboratory suggests that theU.S. power sector has sufficient available capacity to fuelup to 84% of the nation’s cars, pickup trucks, and SUVsfor an average daily drive of 33 miles.61 However, suchdemand would stretch the grid to its full capacity, and itis questionable whether the power sectors across therest of the Americas would be able to support a similarstrain on less-stable systems.

Policymakers have encouraged the development ofalternative fuels through much of the same means as areused to create incentives for diversification in powermarkets. Renewable fuel standards (RFSs), for example,function in a similar way as the RPS. The RFS in the U.S.mandates the production of a minimum amount ofbiofuels each year, ensuring that there is a market forthese fuels as they scale; the required production for2008 is 9 billion gallons.62 In complement to this policy,the federal government has offered a number ofproduction tax credits to biofuels producers.63 Lookingforward, however, policies to encourage themanufacturing of FFVs may be a more effective tool toencourage diversification in the fuel market. The additionof FFVs to the market will enable growing demand andthe forces of the free market and competition, asopposed to government mandates and incentives, todrive the expansion of the alternative fuel market.


Conclusion

Investors have long applied a portfolio approach tomitigate risk in uncertain financial markets. Today, as price,supply, and environmental risks make energy marketsincreasingly uncertain, it is increasingly important thatenergy planners take a portfolio approach to resourcemanagement. This is particularly true in the Americas,where highly undiversified portfolios expose much of theregion to serious threats to economic, environmental, andnational security.

The commercialization of renewable energy offers energyplanners an opportunity to mitigate these risks throughbroad diversification. Importantly, though traditional least-cost planning methods conclude that renewables are notcost-effective, portfolio theory illustrates that renewablessuch as wind, solar, and geothermal in fact decrease theoverall cost of power generation.

It must be acknowledged that, in practice, there aresignificant costs inherent to changing the energygeneration mix. It is also critical to recognize thatderegulated markets do not create incentives for individualpower producers to invest in renewable technologies.

As a result, to capture the benefits of diversification,policymakers must actively encourage greater investmentin alternative energies. To this end, they can employinvestment-spurring tools such as renewable portfoliostandards and feed-in-tariffs. In the transport market,where overwhelming reliance on a single fuel precludesdiversification, policymakers can apply similar incentivesto support the development of alternatives that mayeventually enable the true application of a portfolioapproach.


2.4 The Culture of Green

In an 1855 letter to U.S. president Franklin Pierce,1 ChiefSeattle, patriarch of the Squamish Indians of Washington,made the following plea: “Whatever befalls the Earthbefalls the sons of the Earth. Man didn’t weave the web oflife: he is merely a strand in it. Whatever he does to theweb, he does to himself.”2 These words, while insufficientto prevent environmental degradation in the 19th century,serve as a prescient reminder of the challenge mankindfaces today in global climate change. Many indigenouscultures see themselves as inextricably connected to thenatural world because they depend on it for survival; bycontrast, industrial society views nature as a “resource” forhuman use. This false dichotomy of man versus naturehas led humankind to a new state of crisis. However, wecan look to these values to inform our actions moving andbegin to rethink how we approach the threat of globalclimate change.

The language of indigenous ecology — metaphor,imagery, and spirituality — differs markedly from thescientific language we have come to embrace. Yet, theprinciples of mutual dependency and harmony with naturepromoted by many indigenous societies can now bearticulated in modern scientific terms. These implicitprinciples enabled indigenous societies to thrive forthousands of years — to live “sustainably.” While weunderstand these ideas in our own terms, the crucial tasklies in fully integrating them into development objectives.This requires large organizations charged with formulatingand executing climate change policies to re-imagine theirapproach.

Despite a wide disparity in geography and culturalpractices, many indigenous societies around the worldshare similar attitudes toward the environment. This paperexamines the environmental beliefs of several indigenouscultures in Latin America and globally. A set of four commonprinciples emerges: a belief in the interconnectedness of allliving and non-living things, the notion of ecologicalbalance, a long-term and cyclical view of time, and theneed for active stewardship of the land. These indigenousprinciples, reinforced by some modern ideas, form a usefulframework through which current climate change policiescan be assessed.

Indigenous ideas about environmental stewardshipunderscore that the concept of sustainability is not newat all. However, multilateral development banks (MDBs)have faced significant barriers to integratingenvironmental considerations into their developmentgoals. Many of these barriers arise from the way inwhich large organizations are structured and the way the

“culture” of these organizations dictates behavior.However, despite these differences, developmentorganizations may be able to integrate and“mainstream” climate change considerations byapplying the indigenous principles of the countries theyare dedicated to serve. Merging indigenous ideas ofenvironmental stewardship with modern organizationaltheory presents possible solutions to this problem andproduces a plan for integrating climate change andsustainability issues fully within the framework of adevelopment bank’s mission.

Four Common IndigenousEcological Principles

Interconnectedness

Indigenous cultures across the Americas and throughoutthe world share the belief that living and non-livingbeings are intimately connected. For people whodepend on the land for survival, the notion that humansare inextricably linked to the flora, fauna, mountains, andrivers reinforces cultural beliefs and sustains their way oflife. This is especially true for the Kuna people ofnortheastern Panama, for whom life and survival areintimately bound to the forests. According to Kunalegend, the Earth is the body of the Great Mother, whoengendered the plants, animals, and humans. The trees— brothers and sisters of the Kuna — renew the energygiven to them by the Earth by drawing water in throughtheir roots. The Great Mother then drinks the sapproduced by the trees, giving herself strength. The treesalso provide sustenance to animals and medicine tohumans, fusing all components of the forest ecosystemto one another. Thus, the Kuna may not harm the trees,lest they harm Mother Earth and themselves. This beliefinforms the Kuna’s restorative “slash-and-burn”horticultural practices, which return nutrients to the soiland prevent more rampant wildfires. They also surroundagricultural plots with planted trees, which demarcateplot ownership and protect crops from the wind andpredators.3

Trees also play a critical cultural role to the MapuchePewenche people of the Chilean Andes. The Auaucariaaraucana tree — often called the “Monkey Puzzle” tree inEnglish and the pewen tree to the Mapuche Pewenche —is considered a sacred creation of the deity ngünemapun4

and a symbol of the people themselves. The trees arethought to form linkages akin to human relationships: Maleand female trees marry one another, linking their roots andreproducing through their extensive root systems. Thus, apair of older pewen trees protects the younger pewenfamily.5 The tree is then a physical expression of thePewenche culture and way of life. This deference to the


trees informs the Pewenche’s care for them: Whencollecting seeds, they are careful to leave younger, green,seed-containing cones on the tree, allowing them toregenerate in the following years.

The principle that living and non-living beings areintimately bound to one another is shared by cultures farbeyond North America. The Gimi-speaking people ofEastern Highlands Province of Papua New Guineabelieve that “people and forests will be — and havealways been — in a constant transactive relationship,making and remaking each other over time.”6 The Gimiconcept of the environment extends beyond the floraand fauna to include the web of social relationships thatconnect generations past, present, and future. There isno distinction between man and environment, and thusthe Gimi do not “value” ecosystem functions as a meansto an end, but rather as an end unto itself. Like the Gimi,aboriginal Australians do not differentiate betweenelements of the natural world and the people whoinhabit it.7 This principle offers practical solutions toecosystem management. The Aboriginal practice offirestick farming, at first rejected by European settlers,has proven necessary to maintaining ecosystemfunction in Australia — even to this day. Firestickfarming involves burning vegetation surrounding forestsafter the wet season to prevent rampant wildfires. Whilesetting controlled fires is now a more commonplacepractice, Aboriginal Australians’ belief in theinterconnectedness of different living and non-livingecosystem components has allowed them to pursue thispractice for tens of thousands of years.

Balance

In scientific terms, “balance” means a stable conditionwithin an open or a closed system. Within an organism,this property is called “homeostasis”; within a largersystem, it is called “equilibrium.” It is this state ofequilibrium that many indigenous cultures refer to whenthey discuss the balance of humans and nature. Forexample, the Tukano people of the northwestern Amazonin Colombia and Brazil view the world as a limited systemwith finite resources. These resources are created by theSun-Father, who lends his energy to the system. Thisenergy must flow continuously from one being to another,forming a circuit. Because this energy is limited, it must beconserved and reincorporated into the circuit to maintainbalance.8 The Tukano thus established rules that governthe removal of energy from the system in accordance withwhat the system receives: One may not hunt or fish morethan he needs to sustain himself, lest the system’s balancebe disturbed, and punishment befall the people.9 The ideaof balance between man and nature is therefore notmerely a lofty ideal, but a principle of survival.

The idea of balance between manand nature is not a lofty ideal, but aprinciple of survival.

Like the Tukano, the Maasai of Sub-Saharan Africa envisiona distinct role for humans in maintaining ecosystem vitality.As nomadic herders, the Maasai assert that northern andsouthern grazing areas are held in a delicate balance — akinto a “spider’s web”10 held together by complimentarythreads. During the wet season, the Maasai raise their flocksin the plains, which are otherwise arid. During the dryseason, they shift grazing areas toward wetter climes thatcontain permanent and semi-permanent bodies of water.While this nomadic grazing system is forged from necessity,it also allows both regions to restore themselves so thatthey may be grazed again, maintaining the balance thatsupports the Maasai. The Maasai maintain that all humanityderives its spirit from Mother Earth, and therefore that allhumanity has a right to roam and a responsibility to protectthe land by maintaining its balance. This principle isinformed by an acknowledgment of resource scarcity: Aselders explain, “You can never increase the land, only Godcan do that.”11

For some cultures, maintaining this balance goes beyondenvironmental stewardship and becomes an issue of life-or-death. The U’wa, a group of 5,000 people, inhabit the cloudforests of the Colombian Andes. The U’wa believe it is theircollective responsibility to maintain the balance betweenman and nature: If this balance is disrupted, the universe willcome to an end.12 Thus, when Occidental Petroleum signedan agreement with the Colombian government to begindrilling in the region in 1992, the U’wa feared that theenvironmental degradation and social disruption wouldthrow the world out of balance. In response, the U’wathreatened to commit mass suicide if the project werecarried out, sparking debate and unrest for the Colombiangovernment and the oil company. For the U’wa, oil, or ruiria,is the blood of Mother Earth — to extract it would tear theworld apart. Berichá Kubar’uwa, president of the traditionalU’wa council, explained in 1998 that the U’wa “can’t givepermission to develop oil. You can’t sell Mother Moon. Wedon’t even sell our timber or cattle, so why would we wantto try to sell the blood of Mother Earth? … We believe thatthe sun and the moon only work with the Earth because shehas blood. If you take out the blood, then you damage theEarth and cause imbalance.”13 After 14 years of struggle,the U’wa succeeded: Occidental Petroleum announced itswithdrawal from the land in March of 2002.

Active Stewardship

The belief that all beings are connected to one anotherand thrive in a delicate balance confers a special


responsibility to humans to maintain and uphold the healthof the land. Many cultures delegate this burden to aparticular member of the community, while others seeenvironmental stewardship as a collective obligation. TheU’wa people believe it is their duty as a people to maintainand protect the earth, lest it fall into ruin. The Tukano, bycontrast, confer this responsibility on the local shaman, whohelps to maintain system equilibrium by delineating theactions that should be taken and when. ContemporaryNahua of Central America ask permission before cuttingtrees to plant corn. They say that “because the tree is thebrother of Cemanahuac [that which surrounds us], one mustask permission before using its wood. If this is not done, thesubstance that lives within the tree and in the forest can doharm to the peasant or his family by causing disease andeven death. If the gifts of the forest are overexploited, therewill come a time when the forest will cease to produce,because all living beings become tired.”14

The belief that all beings areconnected to one another confersa special responsibility to humansto maintain and uphold the healthof the land.

The Cree of James Bay, in Quebec, have practicedsustainable hunting and gathering for approximately fivemillennia.15 Their hunting practices rely on the direction oftheir leaders, or tallymen, who “walk the land” anddetermine the appropriate catch rate to sustain the naturalresources without overexploiting them.16 Under thetallymen’s guidance, Cree hunters simultaneously managebeaver populations on a four- to six-year scale, lake fishon a five- to ten-year scale, and hunt caribou on an80–100 year scale. Knowledge of the local environmentenables a long-term approach to ecosystemmanagement.17 [See Box 1]

The Maori, the indigenous population of New Zealand,advocate the principle of active stewardship in both localcommunities and as a means to inform national climatechange legislation.18 The Maori emphasize thatstewardship of the land is their duty, or kaitiakitanga(“obliged stewardship”). The term, which derives from tiaki,incorporates notions of guarding, keeping, conserving,fostering, sheltering, and watching over resources. Thekaitiaki — keepers or caretakers of knowledge relating tothose natural resources — are appointed by the TängataWhenua. The duty of kaitiakitanga arises from theprinciples that all beings are interconnected and thatgenealogy, or whakapapa, can be traced back to the

creation of the Earth. This lineage that connects the Maorito past generations obliges them to maintain the land foruse by future generations.19 Thus, kaitiakitanga is both aninherited privilege and obligation that cannot be separatedfrom the people.

Maori traditions have helped to shape modern ocean-management policy in New Zealand. In 1986, the countryintroduced the Quota Management System (QMS), whichcollects information to determine total quantities of fishthat may be caught each year (or Total Allowable Catch(TAC).20 In 1989, the Maori Fisheries Act included aprovision for taiäpure, or local costal fisheries that holdparticular significance to Maori groups, either as a foodsource or for cultural reasons. The Act allows the localMaori authority to nominate a management committee torecommend fishing practices and restrictions for the area.In 1992, these customary fishing rights were furtheredthrough the Treaty of Waitangi Settlement Act. The actrecognizes customary use and management practices fornon-commercial fishing and defines the roles andresponsibilities of the Tängata Whenua in non-commercialfisheries management.

Cyclicality of Time

Modern society tends to conceive of the progression oftime as linear: Time marches inexorably forward, informedby and contingent on the past, but not necessarilybeholden to it. By contrast, a number of Pre-Colombiancivilizations, including the Aztec of Mesoamerica and theMaya of the Yucatan Peninsula, held a cyclical conceptionof time. The Aztec calendar begins afresh every 52 years,repeating the same series of year names withoutdistinguishing among 52-year cycles. Thus,anthropologists note, “It has been assumed that the Aztecinterpretation of an event — for example, the landing ofHernan Cortes on the eastern shore of Mexico in 1519 —was determined by the historical associations of theevent’s year in previous 52-year cycles.”22

The Maya also believed that time is in a constant state ofrepetition, corresponding to the seasonal rhythms of thenatural word.23 The Mayan calendar, or katun round, is anendlessly recurring sequence of 13 20-year periods. Theircalendar and system of time were connected to thecosmos and informed their management of naturalresources. For example, the calendar reveals annualcycles of forest regeneration, which the Maya integratedinto a system of shifting agricultural cultivation, or milpa.Under this system, crops are managed on a one- to three-year scale, and forestry products on a 30-year scale.Transmission of the milpa script, still in existence today, ispassed down to children, sustained by cultural beliefs,myths, and yearly festivals.24


Contemporary philosophies of industrial design arebeginning to assume this long-term, cyclical view of timeas well. As articulated by U.S. designer WilliamMcDonough and German chemist Michael Braungart, the“cradle-to-cradle” concept (versus “cradle-to-grave”)denotes that material use and industrial methods ofproduction should not flow from beginning (generation) toend (waste) in a linear fashion, but rather products shouldre-enter production processes in a cyclical way. Thisapproach distinguishes between conventional recycling, inwhich materials are “downcycled” into lesser productsdue to material degradation inherent to the way currentproducts are made. Rather, sustainable product designrequires a fundamental shift in perception: “to eliminatethe concept of waste means to design things — products,packing and systems — from the very beginning on theunderstanding that waste does not exist.”25 Thisphilosophy of design is akin to “the way Native Americansused a buffalo carcass, optimizing every element, from

tongue to tail.” Yet, the perception that a product finds no“end” implies shifting our perception of time from one thatis linear to one that is cyclical.

“To eliminate the concept of wastemeans to design things — products,packing and systems — from thevery beginning on the understandingthat waste does not exist.”

–William McDonough & Michael Braungart,authors of Cradle-to-Cradle

Modern industries are beginning to operate with the ideathat “waste does not exist” in order to cut down onoperation costs. For example, Shaw Industries, Inc., amaker of carpet and wood flooring, uses much of its 25

Case Study: The Little Red River Cree Nation

and the Government of Alberta, Canada21

The Little Red River Cree Nation (LRRCN) is located south of the Caribou Mountains in the Lowe-Peace River regionof north-central Alberta, Canada. Three communities are home to approximately 2,500 members, roughly 75% ofwhom are under the age of 30. This demographic is expected to expand dramatically if the population doubles in thenext 25 years as projected. However, few wage-earning opportunities exist in these northern areas: In 2002, 85% ofeligible community workers aged 15–65 were unemployed, and 70 percent received some sort of social assistance.This lack of external economic opportunities requires community members to rely on their natural resources forsubsistence and survival. Thus, the ecological vitality of the land and its resources is critical to the economic, cultural,and social sustainability of the LRRCN.

The LRRCN is a signatory of the 1988 Treaty Eight, which ensures them the rights to hunt, trap, and fish in allseasons on all unoccupied crown lands. However, since the 1950s, the rights to much of this land have beenawarded to petroleum and forestry companies. This steady increase in industrial expansion, combined with Creedemographic trends, threatens to compromise the livelihood and vitality of the LRRCN. Recognizing this, the LRRCNleadership entered into negotiation with the provincial and federal government to determine how to balance thesecompeting claims. While many of the younger members of the LRRCN see the potential economic opportunitiesavailable for them if industrial expansion is allowed to continue, older LRRCN members believe that activities likecommercial timber harvesting conflict with the values and long-term interests of the Cree.

In light of these concerns, the coalition of government, industry, NGO, and community representatives developed aset of local criteria and indicators of forest sustainability specific to the region. The coalition eliminated superfluousnational indicators and augmented insufficient ones, creating a set of principles that extended beyond provisions ofsustainable timber yield. Unlike many attempts to “engage the community,” the principles that govern communityengagement arose from extensive community consultation, research, and interviews. They therefore provide anadaptive approach to community-based management that responds to the values, expectations, and shifting needsof community members. The criteria that emerged are as follows:


million annual pounds of waste to produce power, insteadof filling a landfill. At its new power plant in the U.S. stateof Georgia, Shaw gasifies extra pieces of carpet andsawdust to generate roughly 50,000 pounds of steam perhour, which is essential for drying carpet. This processalso sequesters the otherwise harmful emissions into theash that results from the gasification process. This processhas saved Shaw around $1 million per year.26

Companies in Latin America are working together toleverage these synergies as well. In March 2008, energyservices company Energy Quest, Inc. (EQI) formed a jointventure with a corn farmers’ association in southern Chile,Etanol del Pacifico Sur S.A. (EPSSA). Under the jointventure, the two groups will construct an 82,000-liter-per-day waste biomass gasification synthetic diesel plant inLas Cabras, Chile.27 Under the terms of the agreement,EQI is to provide the proprietary technologies andequipment for the plant, and EPSSA will provide the

feedstock of waste biomass from their existing corn-growing operations. This means that the “waste” thatresults from corn farming and ethanol production will notbe treated as waste at all and instead will be used toprovide power.

The American agribusiness giant Cargill has undertakenseveral methane-to-energy projects, both in Latin Americaand at its own plants. In 2006, Cargill, worked withMexico’s largest commercial pig producer, Granjas Carrollde Mexico (GCM), and UK-based project developerEcoSecurities to complete a recovery and electricitygeneration project under the Kyoto Protocol’s CleanDevelopment Mechanism (CDM). According to the UN-approved methodology, the project called for theconstruction of a covered, in-ground, anaerobic reactor toconvert animal waste into biogas. This energy source canthen be used to generate clean electricity on the sites topower the plant operations.28 Cargill has duplicated this

(1) Modify forestry-management operations to reduce negative impacts on wildlife species; (2) Modify forestryoperations to ensure community access to lands and resources; (3) Provide protection to all areas identified bycommunity members as having biological, cultural, and historical significance; (4) Recognize and protect aboriginaland treaty rights to hunting, fishing, trapping, and gathering activities; (5) Increase forest-based economicopportunities for community members; and (6) Increase the involvement of community members in decision-making.

Because the process was designed to respond to the changing needs and priorities of community members, theevaluating framework is somewhat more complex. Each criterion is associated with a “sustainability matrix,” whichserves as a feedback loop through which to provide management recommendations. It also serves to translatethese goals from indigenous beliefs into practical management actions. Each of the six criteria is divided into fivecomponents:

1. A critical element, or the principle that needs to be promoted or maintained in modern scientific or managerialterms. For example, spices diversity and availability.

2. A local value, or the area of importance for the community. For example, healthy populations of bison in theCaribou Mountain lowlands and drainages.

3. A goal, representing what needs to happen in order for local values to be preserved. For example, limiting clear-cutactivity along the Caribou Mountain slope to ensure turbidity of drainage is not adversely affected by erosion andsedimentation.

4. An indicator, or something to be measured to determine whether progress toward the goal is being made. Forexample, the percentage of timber that has been harvested along the Caribou Mountain slope.

5. An action, or the executable directive that needs to be undertaken to achieve the goal. The action will be based onthe indicator. For example, reducing harvesting along the Caribou Mountain slope and increasing streamsidebuffers to no less than 300 meters to offset increased runoff caused by clear-cuts.

This framework has proven effective in linking ecological, social, and cultural components of the environment, and itallows for ongoing participation, consultation, evaluation, and improvement to the management process. Becausethe needs of indigenous groups are highly localized, applying a singular set of principles from the top down can bechallenging. However, applying those principles within this kind of adaptive framework can remove some of thebarriers to implementing effective policy.


process in its own Illinois facilities: Waste water from itspork processing flows into a 19-million-gallon lagoon,where bacteria feed on the waste and produce methane.That methane then generates steam and hot water usedfor sterilizing instruments; the company saved $10 millionin natural gas costs last year.

How Do These Principles Relate to Climate Change?

The first paper in this series, “The Green Urgency,” makesa compelling case for how climate change has begun toaffect Latin America and the Caribbean. Climate changethreatens the region and the planet as a whole withexacerbating floods in wet regions and drought in dryones, increasing the intensity of natural disasters, reducingbiodiversity, altering precipitation necessary for agriculture,melting equatorial glaciers that support entire regions andecosystems, and spreading the range of infectiousdisease. At the same time, population and urbanizationcontinue to grow exponentially, deforestation and land-usechange affect the agricultural sector, and oil prices are onthe rise. Unless development agencies can realign theirgoals to recognize that climate change is as much ahuman-development problem as it is an environmentalone, the effects of these changes will prove catastrophic.

Unless development agencies canrealign their goals to recognizethat climate change is as much ahuman development problem as itis an environmental one, theeffects of these changes willprove catastrophic.

Interconnectedness: Climate Change Affects

Everything

The indigenous principle that all living and non-living beingsare intricately connected to one another is firmly rooted inscience. Scientists can now assert with confidence that thegradual heating of the earth’s climate will produce myriadeffects — all of which have a profound impact ondevelopment policies, especially in Latin America. Forexample, changes in precipitation and river flow that resultfrom global warming produce significant developmentchallenges. Globally, the number of people living in water-stressed regions (i.e., having supplies less than 1,000m3/capita/yr) will increase from an estimated 22.2 million in1995 to between 12 million and 81 million in the 2020s, andto between 79 million and 178 million in the 2050s.29 Overthe past 30 years, Latin America has been subjected to

numerous to climate-related impacts on precipitation andriver flow. According to the IPCC, increased precipitationhas been observed in southern Brazil, Paraguay, Uruguay,north-eastern Argentina (Pampas), parts of Bolivia, north-west Peru, Ecuador, and north-western Mexico. This higherprecipitation heightened the frequency of floods by 10% inthe Amazon River at Obidos; increased stream flow by 50%in the rivers of Uruguay, Panama, and Paraguay; andprompted more floods in the Mamore Basin in BolivianAmazonia. At the same time, precipitation has beendeclining in Chile, south-western Argentina, north-easternBrazil, southern Peru, and western Central America (e.g.,Nicaragua). This current vulnerability to water issues will beexacerbated by growing demand for water supply andirrigation that results from an increasing population.30

Changes in precipitation have profound consequences foragriculture production, and therefore development policiesmust account for these changes when implementingpolicies. Globally, more than 80% of agricultural land israin-fed. In arid and semi-arid regions, agriculturalproduction is very vulnerable to climate change.Furthermore, while only 18% of global agricultural land isirrigated, irrigated crops yield on average 2–3 times that ofrain-fed crops. Irrigated land accounts for one billion tonsof grain annually — about half the world’s total supply.Therefore changes in precipitation and available watersupply are critical for both types of crop production. Onthe one hand, too little water can lead to vulnerability ofproduction and decreased yields; on the other hand, toomuch water can affect soil properties and cause flooding.In Latin America, models predict that moderate warming(1–3°C) in high-latitude regions would benefit crop andpasture yields; however, even modest warming in low-latitude areas (areas that are seasonally dry), would reduceyields of major cereal. Any warming beyond that wouldhave a detrimental effect at all latitudes.31

These same effects that will alter agricultural yields will alsohave deleterious effects on electricity production. Manycountries in South America, such as Brazil, Bolivia,Ecuador, and Colombia, are heavily dependent onhydroelectric power as their primary energy source. Brazil,for example, received 84% of its electricity fromhydropower.32 However, glacial retreat has restricted riverflow, compromising generating power. Some tropicalglaciers have already disappeared; others are likely to doso within the next few decades. Further retreat is projectedto affect power generation in countries like Colombia andPeru and has already affected generation in the cities of LaPaz and Lima. Changes in rainfall can also alter generatingcapacity, as observed during El Niño and La Niña eventsobserved in Argentina, Colombia, Brazil, Chile, Peru,Uruguay, and Venezuela. The combination of increased


electricity demand, retreating glaciers, and changes inprecipitation will all have compounding impacts onelectricity generation, which in turn will affect GDP andpoverty-alleviation goals. For example, the convergence ofincreased demand and droughts in Brazil caused “a virtualbreakdown” of most of the country’s hydroelectricity in2001, contributing to a reduction in GDP.33 In planningfuture hydroelectric projects, development agencies mustaccount for these anticipated changes in the hydrologiccycle, which will affect generating capacity.

The combination of increasedelectricity demand, retreatingglaciers, and changes inprecipitation will all havecompounding impacts on electricitygeneration, which in turn will affectGDP and poverty alleviation goals.

While development agencies tend to sideline climatechange goals, changes in precipitation and river flow areintimately connected to development goals of increasedfood production and electricity generation. These goals,integral to development agencies’ missions of economicgrowth and poverty alleviation, cannot be separated fromthe goal of mitigating climate change. Indigenous culturesuse a different set of terms and ideas to express thisconcept of interconnectedness, but modern science andrecent experience reveals that this principle is a simpletruth with which we must deal. Promoting development isan aim inseparable from reducing global warming.

Balance: Greenhouse Gas Emissions

Must Be Controlled

The Tukano believe that the energy removed from asystem must be commensurate with the energy put into it,in order for balance to be maintained. If this balance isupset, punishment will befall the transgressor. Thismetaphor is, in many ways, an apt description of climatechange: Both principles are governed by the law ofconservation of energy. The earth’s temperature ismaintained by a property called “radiation balance.”Shortwave solar radiation — the energy input — enters theearth’s atmosphere and is reflected back as long-waveradiation (heat). Without any greenhouse gassessurrounding the earth’s atmosphere, the surfacetemperature would be an unlivable -18°C. However,greenhouse gasses trap some of this radiation and warmthe earth’s surface. This warming is the earth’s way ofmaintaining balance with incoming solar energy. Whileglobal warming is a natural and necessary effect in and of

itself, the current climate crisis — a state of enhancedglobal warming — has occurred due to human activity.The amount of energy entering the earth from the sun hasnot increased; however, by emitting more heat-trappinggasses, we are effectively altering the equation.

Like the Tukano and so many other indigenous culturesavow, humankind must act to restore the balance it hasupset. The Stern Review on the Economics of ClimateChange maintains that action to restore this balance mustbe swift and substantial: If we do not act, “the overallcosts and risks of climate change will be equivalent tolosing at least 5% of global GDP each year, now andforever.” The cost of inaction in the long term, according toStern, would be roughly five times that of immediateaction. Maintaining “balance” and avoiding the worstimpacts of climate change can be achieved if we stabilizeatmospheric GHG levels to between 450 ppm and 550ppm CO2 equivalent (CO2e). The current level is 430 ppmCO2e and is rising more than 2ppm annually. In order tomeet these stabilization requirements and achievebalance, emissions must be reduced to at least 25%below current levels by 2050. However, because theeffects of GHG buildup in the atmosphere increase overtime, long-term stabilization will require emissions to bereduced more than 80% below current levels.34

“The overall costs and risks ofclimate change will be equivalentto losing at least 5% of global GDPeach year, now and forever.”

—The Stern Report on theEconomics of Climate Change

Active Stewardship: Latin America Has a Role to Play

The effects of climate change might be seen by theTukano as punishment for upsetting the natural balance.However, the punishment does not befall only thetransgressor: Climate change affects everyone, includingthose who have done least to further it. Therefore, allactors that play some role in governance — including alllevels of government, the private sector, non-governmental actors, and civil society — have a distinctrole to play in addressing climate change. Specifically,Latin America and the Caribbean can lead the world incombating a critical area of climate change: deforestation.Tropical deforestation worldwide released approximately1.5 billion metric tons of carbon throughout the 1990s,accounting for 20%–25% of anthropogenic GHGemissions.35 Without effective policies to slowdeforestation, that amount is expected to increase


dramatically: Scientists project that clearing of tropicalforests will likely release an additional 87 to 150 billion ofcarbon by 2100.36 The majority of forest loss has comefrom the Americas: According to the FAO, from 1990 to2005, the Americas accounted for over 60% of globalprimary forest loss.37

National governments have helped and hindered efforts toreduce deforestation. Take, for example, Brazil — acountry that is home to 14% of all the forests in theworld.38 The Brazilian government has formulated anumber of policies to reduce deforestation. The countryadopted a Plan to Combat Deforestation, which specifiesmeasures to be taken by various ministries. TheEnvironment Ministry has expanded the National Systemof Protected Areas and has intensified enforcementoperations in critical areas, and has dismantled corruptionschemes within the federal environment agency (IBAMA)with the help of the Federal Police.39 The National Instituteof Space Research (INPE) has developed a satellitemonitoring system. The Ministry of Agrarian Developmenthas begun to halt the progress of illegal occupation ofpublic land (grilagem) and has tightened requirements forland titles and documentation.

Latin America and the Caribbeancan lead the world in combating acritical area of climate change:deforestation.

Brazil has also pursued contradictory policies. TheMinistry of Agriculture has increased resources forproviding incentives to expand agriculture into forestareas. The expansion of paved roads into previouslyinaccessible areas of the Amazon has accelerated the rateof deforestation. Tax credits, transport subsidies, and pricesupports for selected crops have pushed agriculture ontofrontier lands. These cleared areas are typically pooragricultural lands, incapable of sustaining yields in the longterm.40 Furthermore, government incentives, creditsubsidies, and overvalued exchange rates have tended tofavor large-scale, mechanized agriculture over manuallabor.41 Precisely these types of contradictory policiesarise when governments cordon off “environmental”policies from larger “development” ones.

Cyclicality of Time: Projects Require Longer Lifespans

The impacts of climate change occur over the long term;our actions today will have a far greater impact on futuregenerations than they will for the present ones. The notionthat time is cyclical and recurring invokes the idea thatmany of the problems we face today will persist. It is

therefore equally critical that projects are evaluated overlonger time horizons. Under the IDB project cycle, “aproject is considered ‘completed’ in operational termsafter disbursement is complete and its activities have beenfully carried out.”42 However, the notion that a project isever “completed” needs to be challenged in order toadopt a long-term approach to development.

The IDB project “cycle” is more like a pipeline, because itmoves from conception to completion without continualre-evaluation and adjustment. The project pipeline belowlists the documents required at each phase of the project’sdevelopment.

Projects begin with collaboration between the IDB and thehost-country government to determine how the IDB’sdevelopment strategies can help promote countrypriorities. Proposed projects undergo cost-benefitanalyses and feasibility studies before they are approved.Once approval of the loan and its implementation plan is

Diagram 2.4a IDB Project Cycle

Preparation

• Country Stragegy• Project Profile• Project Abstract• Environmental Assessments

Approval

• Proposal for Loan Approval• Environmental & Social Management Report• Procurement Plan• Loan Contract or TC Agreement

Implementation

• Procurement Plan (Updates)• General Procurement Notice• Specific Procurement Notices

Completion & Evaluation

• Project Completion Reports


granted, the project moves to the implementation phase.The host country is responsible for implementation, butthe IDB retains a supervisory role. Once a project iscomplete, the IDB country offices and borrowerscollaborate to produce a completion report, which may beaccompanied by additional evaluations by the IDB. Whilelessons learned from these evaluations inform theplanning of future projects, they do not improve theexisting project. The IDB asserts that “evaluation activitiesare incorporated into every phase of the project cycle,”which provides a necessary tool for implementing effectiveprograms. However, projects still progress linearly frombeginning to end — the lessons learned from their finalevaluations do not produce a plan of action forimprovement of the project.

An alternative model begins with the idea that projects arenever “complete.” As long as they are providing usefulservices, they will need to be maintained and can beimproved. Furthermore, projects that rely on naturalsystems, such as agriculture, forestry, and powergeneration, are particularly beholden to natural cycles.Therefore, like many indigenous concepts of time, projecttimelines would be cyclical rather than linear. One suchtimeline might look like the diagram below. In thisscenario, a final “assessment” of the project’s strengthsand weaknesses informs the preparation of an “actionplan,” much like that which begins the project’s life.

Why Can’t Organizations Mainstream Climate Change Goals?

Multilateral development banks have demonstrated thecapacity to undergo significant institutional change.However, much of this change was either fomented by

drastic external shocks, such as the U.S. decision to gooff the gold standard, or achieved through massive, top-down reorganization, such as the World Bank’srestructuring under President Robert S. McNamara in the1970s.43 In recent years, MDBs have enhanced theirefforts to integrate and “mainstream” climate changeconsiderations into their lending policies. Yet, theseprograms tend to be tacked onto existing goals, leading tocompeting mandates and mixed records of performance.If mainstreaming climate change considerations requires amore fundamental re-conceptualization of developmentpriorities, then the policy question at hand is as follows:Does this kind of paradigm shift require organizationalchanges of a grand magnitude, or can it be achievedthrough smaller, coordinated, and incremental changes?

Business-as-Usual: Environmental Lending at MDBs

MDBs today exist to promote international developmentand alleviate poverty — goals distantly related to thoseoriginally promoted at Bretton Woods in 1944, bearingtestament to the organizations’ capacity to undergoprofound institutional change. Since then, the World Bankhas become the largest multilateral source of funding forenvironmental projects (including the Global EnvironmentalFacility, or GEF).44 World Bank support was largely limiteduntil the mid-1980s, when external pressures expandedthe scope of projects.45 These efforts expanded furtherafter the 1992 UN Earth Summit in Rio de Janeiro, inwhich the World Bank adopted a fourfold agenda formainstreaming environmental concerns. The World BankGroup’s first environmental strategy wasn’t approved until2001, since which activities have expanded, including “arange of financial and nonfinancial services, private sectorinvestments and guarantees and regional and globalprograms and partnerships.”46 From 1990 to 2007, WorldBank commitments totaled $401.5 billion in 6,792projects, 2,401 of which were identified as “environmentand natural resource management” projects and includedcommitments on the order of $59 billion.47

A 2008 report by the World Bank’s internal watchdog theIndependent Evaluation Group (IEG) reveals significantgaps between mandate and performance.48 Despitesubstantial financial commitments toward environmentalinitiatives, the report finds that the World Bank Group“has been far less able to integrate these effortscentrally into country programs, incorporate them asrequirements for sustainable growth and povertyreduction, and provide lending to help countries addressenvironmental priorities — often because of lukewarminterest in such support from the countriesthemselves.”49 The World Bank report recommends thatthe bank “increase the attention to environmentalsustainability by ensuring environmental issues enter

Diagram 2.4b Cyclical Project Assessment

Action Plan

Implementation

Approval

Monitoring

Assessment


fully in the discussion.” The principal mechanism bywhich to achieve this, the report suggests, is byreforming the 2001 Environment Strategy. Yet, if thestrategy had been largely sidelined and tacked onto theBank’s development goals seven years ago, there is littleevidence to suggest that it would be more fullyincorporated now without a more fundamental culturalre-orientation toward pursuing a “greener” mission.

Tepid reviews of “mainstreaming” environmental andclimate change policies are not restricted to the WorldBank: Regional development banks have also promotedenvironmental sustainability with mixed results. A 2008report by the World Resources Institute (WRI) comparesclimate change consideration in energy pipelines at theWorld Bank, IFC, ADB, and IDB. The report categorizesconsiderations as “ignored, mentioned, and integrated,”based on a set of four criteria: Greenhouse gas (GHG)emissions accounting, identification of lower-emissionalternatives, climate-specific indicators or targets, andconsideration of marginal cost and financing.50 In 2007,the World Bank and IFC devoted a combined $518.2million to projects that fully integrate climate changeconsiderations, constituting 17.3% of World Bank fundsand 5.4% of IFC funds.51

Multilateral development bankshave demonstrated the capacity toundergo significant institutionalchange; however, much of thischange was either fomented bydrastic external shocks or achievedthrough massive top-downreorganization.

Environmental lending at regional development banksproduced more varied results, but initial analysis indicatesthat the creation of new programs geared towardsustainability has increased funding for projects thatintegrate climate change considerations. However, moreprogress is needed. The Asian Development Bank led thegroup in overall funding with $982 million dedicated toprojects that integrated climate change, representing61.9% of the bank’s total funding activities. This may bedue to a recent surge in environmental initiatives at thebank: In 2005, the ADB established a $1 billion energy-efficiency initiative that involves screening projects forenergy-saving measures. In 2008, the ADB announced anew fund for climate change measures with an initialcapitalization of $40 million.52 Yet, the ADB is also

expanding its funding for conventional coal-fired powerplants, which may offset other environmental policies.

In 1979, the Inter-American Development Bank (IDB)became the first multinational bank to adopt anenvironment policy. However, of the development bankssurveyed, the IDB devoted the least funding to projectsthat fully integrate climate change at $40 million,constituting 11.7% of total funds. The bank only begandevoting funds toward sustainability initiatives in 2006,with the introduction of Sustainable Energy and ClimateChange Initiative (SECCI). Prior to the initiation of SECCI,no funds were dedicated to projects that integratedclimate change considerations, with the exception of aspike in projects that mentioned climate change in 2001.While SECCI’s record of success has yet to be proven, ithas the potential to facilitate the integration of climatechange considerations.

The European Bank for Reconstruction and Development(EBRD) has had a stronger record than other developmentbanks on integrating climate change considerations intolending practices. Outgoing bank president Jean Lemierreopened the EBRD’s 2008 sustainability report with asimple statement: “The EBRD is a sustainability bank.”53

To its credit, the bank has attempted to imbue projectswith “all aspects of sustainability,” which the EBRD statesconsists of concern for the environment, health and safety,labor, and social issues. Furthermore, it conducts GHGemissions accounting for all aspects of a project, not justthose portions funded by the EBRD.54 In 2007, itcommitted $2.1 billion (€1.35 billion) to environmentalprojects ($1 billion toward projects with a specific focus onthe environment, and $329 million on environmentalimprovements to other projects). Of this, $1.4 billion (€934million) came from the Sustainable Energy Initiative (SEI), aprogram launched in 2006 that focuses primarily onimprovements in energy efficiency. Between 2006 and theend of the first quarter of 2008, the program hadcommitted close to $3 billion (€2 billion).

While the data indicate an increasing volume of fundingdedicated toward sustainability and climate changeissues, these programs tend to be compartmentalized:They constitute one aspect of a development bank’soverall mission but are not fully integrated into all projects.While this is a positive first step, there remain significantbarriers to integrating and mainstreaming climate changeconsiderations. For indigenous cultures, stewardship ofthe planet forms an inherent part of one’s worldview andthus informs everyday action toward the environment. Inorder for development organizations to adopt a similarstance, they must first confront the obstacles inherent tothe way large organizations are structured.


Problem 1: Institutions Are Resistant to Change

Bureaucracies are typified by a specialization of tasksand a clearly delineated chain of command. The strengthof bureaucracy lies in its prevention of arbitrary rule andinstitutional stability; yet, this stability prevents barriers toorganizational change. The roles of individual offices anddepartments within a large organization are highlyspecialized, which increases efficiency in some respects,but poses a tremendous obstacle toward integratinglarger goals and policies. Further, the nature ofinstitutions and the design of organizations results inbureaucratic inertia, which stymies organizationalchange. While changing the formal structures and rulesof an organization pose an immensely complicated task,changing the latent culture of an institution — theunspoken rules that govern behavior — can be evenmore challenging.

The reorganization of the World Bank under PresidentRobert S. McNamara offers an illuminating example.Enacting sweeping reforms, McNamara not only changedthe World Bank’s formal strategy, he sent signals to hisemployees about how the bank should operate. WhenMcNamara entered the bank, he reoriented its missiontoward poverty alleviation and initiated large-scalestructural reorganizations. He altered the Bank’s formalstrategy, which had an impact on the organization’sobservable output over time55 — for example, vastlyincreasing bank funds. But McNamara also inculcated aculture of pushing through high-volume loans focused onpoverty alleviation and economic development.56 Thisinformally articulated strategy produced a moregeneralized set of ideas about the organization and how itworked, and how it ought to work.57

McNamara created the Office of Environmental andScientific Affairs (OESA) to review projects when theBank’s lending practices became the subject of attackfrom environmental groups. Yet, because this office wastacked onto the new bank policies as a reactionaryafterthought, the office’s enthusiasm for environmentalissues never permeated the rest of the World Bank’sinstitutional culture.58 The new environmental provisionsincluded in all loan agreements were viewed asformalities: Implementation was inconsistent, and follow-up evaluations — when they occurred at all — werehurried and incomplete.59 The new requirements were notbuttressed by any additional incentives for employees toexceed the minimum compliance standards, as there isno evidence to indicate that the bank rewarded staffmembers who pursued environmentally friendlyprojects.60

Because the OESA was tackedonto new bank policies as areactionary afterthought, theoffice’s enthusiasm forenvironmental issues neverpermeated the rest of the WorldBank’s institutional culture.

Indigenous cultures might not have much to offer large,multilateral organizations in the way of combating inertia:For indigenous societies, that “inertia” forms the basis ofcultural preservation. However, what indigenous societiescan offer is an ideology in which all members value theenvironment that supports them. These values aretransmitted both through older generations and throughtheir peers; that is, the principle of sustainability governseveryday life. So, too, must sustainability be a way of lifefor development banks. It must be inseparable from thebank’s formal mission and reinforced through informalchannels so that all bank employees share a commonvision and sense of purpose.

Problem 2: Development Organizations Reflect

Western Values

The largest development organizations came intoexistence under the pretext of Western Liberalism. Facinga decimated post-war Europe, the Bretton Woodsinstitutions set out to craft a new world order. In so doing,the values they espoused have permeated into thecultures of many multinational development organizations,even those that do not operate in the Western world. Thisis partly because Western powers, such as the UnitedStates, control a significant portion of the funding ofdevelopment organizations. But is also because, asorganizations evolve, they grow more and more similar.Classical economic theory dictates that this would not bethe case: As the number of organizations increases, theyshould become more distinct in order to be competitivewith one another. But heavily bureaucratic organizationsare constantly bombarded with new information and havea particularly complex way of processing it.61

Even as organizations move closer toward addressingclimate change concerns, these founding Western idealsprevail. The recent announcement of the World Bank’sClean Technology Fund (CTF) elucidates this idea. InFebruary 2008, the governments of the U.S., the UK, andJapan announced that they would pool resources in theCTF to “ensure the widespread adoption of cleantechnologies in the developing world.”62 The World Bank’sexecutive board approved the CTF, to which the U.S. has


pledged $2 billion, pending congressional approval. Whilefew have lauded this as a much-needed commitment fromthe U.S. (the only country that has yet to ratify the KyotoProtocol), the fund’s timing and design representdistinctively Western values. These values include thefollowing:

• Reliance on technology: The CTF rests on the notionthat technology can save the planet from climatechange, and that GHGs can be reduced “by globallydeploying the most advanced clean-energytechnologies.”63 While the fund focuses on large-scalereductions, it does not delineate any clear principles fordetermining which technologies are appropriate indifferent instances, and it risks applying more costlytechnologies for the sake of innovation in places wheregreater efficiency would suffice. While there may begreat gains in mitigating global climate change throughtechnology, the fund’s exclusive focus on this aspectneglects potentially more cost-effective emissions-reduction opportunities.

• Expansion of markets: U.S. Treasury Secretary HenryPaulson and Senator Richard Lugar (R–IN) appealed tothe American public by stating, “The program will offerU.S. companies a new market for their technologies incountries that will be searching for cleaneralternatives.”64 In other terms, the Treasury Secretaryand Senator seek to reassure the American people thatthis fund will not exclusively benefit foreign nations butwill promote and expand enterprise. Certainly, using amarket-based approach to climate change presents oneof the best mechanisms for engaging the developedworld in climate change-mitigation activities.Economists, scientists, and policy-makers alike have allargued for the use of emissions trading and offsetprojects as a market-friendly approach toward emissionsreduction. However, focusing exclusively on cleantechnology may generate more profits than it doesemissions reduction and may not be the most effectivemarket mechanism available.

• Finance over regulation: Classical economics rests onthe notion that markets are most efficient whenregulations are limited. From that standpoint, atechnology fund is preferable to a regulatory regime likethe Kyoto Protocol as a mechanism to reduce emissions.Skeptics fear that the CTF could “undermine orpredetermine the outcomes of global negotiation ontechnology transfer and financing taking place as part ofthe UNFCCC.”65 While the finance ministers of the threecountries have stated this will not be the case,66 the fundwas not designed with explicit mechanisms for oversightand coordination.

But what might the fund look like if it were modeled onindigenous environmental values?

Promoting technological innovation may seem inimical toindigenous beliefs, yet there are some points ofcongruence between indigenous principles ofsustainability and the projects the CTF might support. TheWorld Bank detailed several “illustrative investmentprograms” at a meeting about the funds in Potsdam,Germany, in May 2008, including demand-sidemanagement programs for energy efficiency,improvements to the transport sector, concentrating solarpower, integrated gasification of combined-cycle powerplants, large-scale wind power, and residential lightinginitiatives. These types of programs have the potential tospur large-scale emissions reduction in developingnations. In order to integrate these activities into largerdevelopment operations, we can begin by examining theCTF in light of the four indigenous principles:

• Interconnectedness: The premise of the CTF is thatlarge-scale technological innovations can have thegreatest impact on reducing global warming. But just asthe Kuna, Mapuche, and U’wa believe that all beingsare dependent on one another, clean technologies maybe mutually reinforcing. Funding might then prioritizeprojects that achieve emissions reductions across anumber of sectors, including those not explicitlycovered by the CTF. For example, a company inCalifornia (with independent venture capital backing) isdeveloping a technology that uses flue gas from powerplants and seawater to make cement. This allowsemissions from power generation to be sequestered in amaterial that normally requires significant emissions toproduce. These two industries might usually beconsidered separately, but technology has the potentialto leverage synergies and realize these connections.Policy in other areas of development might gain fromdoing so as well.

• Balance: In a balanced system, outputs find equilibriumwith inputs; that is, you do not reap more than what issown, use more energy than can be produced, or createmore waste than can be disposed of properly. TheTukano believe that all energy derives from the sun, andthat whatever energy is withdrawn from a system musteventually return to it. Industrial waste accumulation,then, is an indication of a system out of balance.Development funding should thus seek to “close thecircuit” through promoting technologies that utilize wastein environmentally productive ways, such as wastegasification. This kind of closed-loop production can beapplied to any number of industries and also cut downon electricity demand.


• Active Stewardship: Local communities should feelsome sense of ownership over projects they host; thus,the CTF might include measures to teach members ofthe community not only how to operate and maintainprojects, but why the technology is helpful and how theycan best use it for their own ends. The principle of“active stewardship” thus has two components: Thebank funds must guide local communities as tomaintaining and using technologies effectively, but in sodoing, the communities become guardians of theprojects themselves.

• Cyclicality of Time: At the heart of this principle lies theidea that future generations will reap the benefits or bearthe brunt of our actions today. The success of cleantechnology investments must therefore be measured ona larger timescale: Will the technology still be “clean”and useful in 100 years? If not, will it provide thespringboard for future technologies to develop? If theanswer to both of these questions is “No,” then thetechnology is not truly sustainable.

While the CTF may reflect Western values, its overall aim— to promote green technology — is in line with the goalof reducing climate change. The larger point is not that theCTF must change to reflect indigenous values, but thatthere are potential efficiencies to be gained if allprogrammatic aspects of development reflect thesevalues, recognize connections, and leverage synergies.

Problem 3: Fear of Mission Creep Impedes

Addressing Climate Change

One of the commonly cited explanations for the gapbetween mandate and performance in multilateralorganizations is “mission creep,” or when multipleorganizational goals can hamper the success of aparticular mission. In the case of MDBs, the dual missionsof development and poverty alleviation confront theinescapable fact that a bank is a financial institution, thegoal of which is to generate returns. When the vague ideaof “sustainability” comes into play, organizationalresponsibilities are complicated further still. Theorganizational mission needs to be rearticulated toincorporate environmental sustainability. In other words,sustainable development — development that considersthe impacts of climate change — is the mission itself, nota mandate that competes with it.

Sustainable development is themission itself, not a mandate thatcompetes with it.

Conclusions and Recommendations: Integrating Indigenous Principlesin Bank Operations

Multinational development banks have largely tacked onclimate change policies as an afterthought becauseclimate change was not the problem they were created tofight. However, as evidence of the threat of global warmingbecomes more widely accepted and understood, it is clearthat the poorest of the world’s communities will be thehardest hit, effectively making climate change one of thegreatest development problems we face today. As such, itis critical that development banks begin to pursue climatechange considerations not just as additional programs thataugment business-as-usual, but as a wholly integratedaspect of all lending policies. To solve the problems oftoday, MDBs can look to indigenous values. Throughoutthe world, and especially in Latin America, indigenouscultures have promoted an all-encompassing worldview inwhich humans thrive in harmony with the environment thatsupports and sustains them. The four indigenousprinciples of sustainability offer insights that yield practicalsolutions for integrating climate change considerationsinto development policies.

It is clear that the poorest of theworld’s communities will be thehardest hit, effectively makingclimate change one of thegreatest development problemswe face today.

Interconnectedness

Examine the Connections

Applying the principle of “interconnectedness” begins withthe acknowledgment that every development project hasmyriad consequences for the natural environment, thepeople, and the economy. The IDB already requires someprojects to submit an environmental impact assessment(EIA) before receiving approval. However, theseassessments are only required for a limited number ofprojects, i.e., “those that may pose substantialenvironmental risks and challenges.”67 Projects thatcurrently fall under this subhead include “largeinfrastructure projects, projects based on extraction ofnatural resources, projects with transboundaryimplications, projects that may affect protected areas,critical cultural sites, or internationally recognized fragile orunique ecosystems, and projects that may pose health andphysical vulnerability risks to people.” To apply the principle


of interconnectedness is to recognize that all projects —not just those listed above — will have an effect on theenvironment, be affected by the environment, or both.

1. Where will the energy used to power this project comefrom?

2. How will the project alter local ecosystems andbiodiversity?

3. Are materials procured from local sources?4. How much waste will the project create, and where will

it go?5. What other sectors is this projected connected to?

The goal of addressing these questions is to recognizethat all projects have some sort of impact and areconnected to other sectors. The next step that follows inthis process is to leverage these connections in order tomake projects more efficient. This has the potential toreduce the stress on the environment as well as projectcosts. For example, can the waste generated by theproject be used for energy? Can using products from localsources employ more people? Will the project require thedisruption of natural systems that provide services to U.S.,like flood and fire control? For indigenous people, the factthat life and livelihood are bound to the environment is animplicit truth; for a large organization, this can become thecase by thinking systematically about how projects affectthe world around them.

What You See Depends on Where You Sit

Integrating this idea of interconnectedness is notnecessarily a line of thought with which large developmentorganizations are immediately familiar. One way to addressthis issue is simply to hire people from a broad range ofbackgrounds who have been trained to think about theworld and development in different ways. People fromdifferent backgrounds can contribute innovative solutionsto familiar problems by challenging embedded ways ofthinking about development projects. Banks employ anarsenal of specialists in finance, economics, andengineering, but they could also employ moreprofessionals in fields such as ecology, hydrology, design,business entrepreneurship, and information technology.The EBRD’s sustainable energy initiative (SEI), forexample, “has 16 specialists who work with bankers tomake sustainable energy part of mainstream bankingactivities. The team includes experienced professionals inbanking, engineering, climate policy and carbonfinance.”68 However, this is still just part of an isolatedprogram within the EBRD; this kind of collaboration needsto be part and parcel of every project. Namely, thisincludes ensuring that individuals with an eye towardenergy and environmental issues are examining projectsthat are not strictly related to energy and the environment.

People from different backgroundscan contribute innovative solutionsto familiar problems by challengingembedded ways of thinking aboutdevelopment projects.

Take an example from the private sector. When Bill Fordinvited McDonough and Braungart to overhaul the designof Ford Motor Company’s plant in River Rouge, MI, theirfirst step was to create a forum — a physical room inwhich different sector representatives could meet anddiscuss ideas. The team aimed to spur dialogue amongtraditionally isolated sectors of the plant, includingmanufacturing, supply-chain management, purchasing,finance, design, environmental quality, and regulatorycompliance. McDonough and Braungart also brought inoutsiders like chemists, biologists, engineers, anddesigners to redesign the plant from the ground up. Theauthors note that “their primary agenda was to create aset of goals and ways of measuring progress, but theyalso just needed a setting that rendered visible theirthinking process and encouraged them to raise the difficultquestions.”69 The authors note that there was an initialdegree of resistance, but that the tension gave way to trulyinnovative thinking about how to “green” the plant. This isthe kind of collaboration that can produce truly innovativesolutions to the pressing environmental problems.

Balance

Account for Greenhouse Gas Emissions

The concept of balance refers back to the state ofequilibrium of a natural system, of how system inputs relateto outputs. Climate change results from a significantchange in system inputs — emissions — caused by humanactivity. Thus, to restore balance, policies must seek toreduce GHG emissions. To pursue environmentally sounddevelopment policies, the IDB must first integrate lifecycleGHG accounting into all of its projects, not just thoseaimed at reducing emissions. Measuring and documentingemissions presents the first step in beginning to reducethem. To ensure that accounting is done with analyticalrigor and according to industry standards, the IDB mayestablish a set of procedures and oversights. Further,independent, third-party verification will ensuretransparency to allow opened and informed decisions.These decisions must then inform project choice in a realand substantive way; for example, by allowing managers tocompare projects based on the total life-cycle emissionsreleased. Naturally, this should not provide the onlycriterion for judging a project’s viability: The IDB remains adevelopment bank, and human development comes first.However, economic development over the long-term


depends on the well-being of the global climate system;thus, total emissions represent a critical condition in theproject-approval process.

Active Stewardship

Improve Environmental Governance

in Member Countries

The Maori of New Zealand view themselves as guardiansof the land, based on the principle of kaitiakitanga, orobliged stewardship. The U’wa believe the universe willunravel if they do not protect the earth. While MDBpolicies may not be able to impart this philosophy ofcollective responsibility to member countries, they canhelp governments become better stewards. Previousanalyses have identified lack of member-country interest inclimate change activities as one of the principle barriers tomainstreaming.70 Development banks can help membercountries see the urgency by examining the economicimpacts of climate change and identifying key sectors thatwill require the most immediate action. For example, theIDB might press the urgency of climate change adaptationmeasures for nations that rely heavily on hydroelectricpower, whose capacity is severely threatened by themelting equatorial glaciers of the Andes. Developmentagencies can both offer preferential financing terms forthese kinds of projects and work closely with memberstates to improve the capacity of environmental agencies.Member countries, too, must re-imagine governance tointegrate climate change considerations in all facets of thegovernment, not just the environment ministry or someother external agency. Development agencies can helpenable this transformation.

Engage with Citizen Stakeholders

The global and far-reaching nature of climate change raisesthe imperative to engage citizen-stakeholders in devisingand implementing solutions. Given the often localizednature of formulating sustainable-development problems,local communities (indigenous or otherwise) should play aprominent role in informing and shaping the way policy isimplemented. In the example of the Little Red River CreeNation, different levels of government, industry, NGOs, andcommunity representatives developed a set of local criteriaand indicators of forest sustainability specific to the region.This could not have been achieved without soliciting theinput of the local inhabitants, and then incorporating thoseconcerns into program goals.

Cyclicality of Time

Practice Adaptive Management

Development is a linear goal: Countries move from beingunderdeveloped, go through a one-way process(industrialization), and become developed. However,development organizations can assume a longer

trajectory; if development is not achieved in a sustainablemanner, then it is not truly development in the long term.As discussed above, pursuing a project cycle that is truly“cyclical” would help development organizations assumethis trajectory. One way to achieve this is throughpracticing adaptive management, which acknowledgesthat natural systems and the needs of individuals andcommunities change over time, and allows for changes inthe management of projects to occur accordingly.

International organizations have already begun to assumethis kind of management philosophy, specifically regardingthe management of ecosystems. The internationalConvention on Biological Diversity (CBD) takes an“ecosystem approach” toward managing biodiversity,where an ecosystem is “a dynamic complex of plant,animal and micro-organism communities and their non-living environment interacting as a functional unit.”Processes and functions within ecosystems are complexand variable, giving way to a level of uncertainty thatcomplicates the task of management. Further, as globalclimate change persists and its effects become morepronounced and severe, these natural systems willbecome even harder to predict, and thus projects willbecome harder to manage. Therefore, managing projectsthat rely on the natural environment and the services itprovides — nearly all development projects — must bedesigned to be flexible and adjust to the unexpected.

Managing projects that rely on thenatural environment and theservices it provides — nearly alldevelopment projects — must bedesigned to be flexible and adjustto the unexpected.

The CBD acknowledges that ecosystem management“should be envisaged as a long-term experiment thatbuilds on its results as it progresses.”71 In order for thiskind of management to be tenable, the monitoringactivities of development agencies must be strengthened.As the IDB project cycle is currently structured, projectsare monitored continually, but the final project evaluation isuseful only in learning and improving for future projects.Under a more cyclical, adaptive project cycle, theseevaluations will be incorporated into a plan of action for aparticular project so that it can continue to deliver itsintended services for the intended community in the long-term. This is particularly critical given the impacts ofclimate change, both those that are already discernableand those that are yet to come.


2.5 Energizing Qualities of Green T[echnology]

We are in the midst of a green revolution. With a perfectstorm of threats to our energy security, economic security,and environmental security, deployment of greentechnologies and investment in sustainable energyincreased to record levels in 2007. Worldwide, $148.4billion of new investment was made in sustainable energy,an increase of 60% since 2006 and more than a fourfoldincrease since investment first began to take off in 2004.1

Of that, $117.7 billion of investment was made intechnology.2 This is undoubtedly just the beginning.Energy policy is likely to change more in the next five yearsthan in the last 50, and these policy changes willsignificantly impact public and private investment in greentechnology, research and development pathways, and thepace at which demand and commercialization of newtechnology grows. Of this, we can be fairly certain, butwhat of the larger implications of these changes? Beyondthe soaring rhetoric, work is just beginning onunderstanding the energizing qualities of greentechnologies.

There is a strong temptation to believe that a greenrevolution launched by new technology would createtens of millions of jobs globally and pull just as manypeople out of poverty. The Apollo Alliance, a U.S. labor-environmental partnership, estimates that U.S.investment of $30 billion per year for the next 10 yearsin renewable energy will create myriad economic,employment, environmental, national security, andsocial justice benefits, including the generation of 3.3million jobs and an increase in national GDP of $1.4trillion.3 In 2006, the Stern Review on the Economics ofClimate Change predicted that by 2050, 25 millionpeople would be working in the green sectorworldwide.4 There are many individuals andorganizations echoing these beliefs and championingthe new green revolution as the silver bullet to solveeconomic, environmental, and energy security issues allat once. Many recent studies have even compared thelikelihood for disruptive technological innovation in thegreen revolution to that which occurred during theinformation technology revolution. Additionally, thesestudies have pointed to the potential for greentechnology to fundamentally change the energyindustry and have far-reaching consequences for thebroader socio-economic system.5

These ambitious projections set high expectations thatmay not be possible to achieve — we simply do not havethe data or foresight on policy to determine this

definitively. In setting such expectations, greentechnology could inadvertently be set up for a loss ofpublic and investor confidence, which would cast doubton the viability of green technology to make a strongcontribution to energy needs and would translate into aloss of support among policymakers for the facilitation ofwidespread commercialization of green technology.

Despite skepticism, technological breakthroughs are areal possibility, and the benefits that accompany themwould have significant and far-reaching consequences forgreen growth — both in establishing its reputation anddetermining its future. A recent report for the WorldEconomic Forum stated that innovative and emergingtechnologies have the potential to shift the energyparadigm in numerous ways: by empowering alternativeenergy (solar, PV, fuel cell capabilities), spurringefficiencies and conservation (less energy-intensivesemiconductors), developing new biofuels and biofuelfeedstocks (cellulosic biomass conversion), andexpanding energy storage (battery technologies,hydrogen fuel cells). Smart grids, e-commerce, and theuse of digital products such as videoconferencing andelectronic databases all increase energy efficiency andconservation.6 But green technologies have the power todo more than that, and planning adequately for the futurenecessitates taking stock of the benefits of greentechnology as a central piece of the green revolution.

What does this mean for the Americas? Countries in theregion have witnessed many of the benefits of greentechnology applications in the biofuel and renewableenergy industries, but much more can be gained. Thereare many good reasons to invigorate the pursuit of greentechnologies in the Americas. Off-grid regions in theAmericas provide vast opportunity for the installation ofnew infrastructure. The region offers a plethora ofopportunities for the development of microenergytechnologies and has the potential for technologicalleapfrog effects to occur. The pervasive sense thataddressing energy efficiency and mitigating climatechange is the responsibility of only a handful ofcountries conceals the opportunities present andimpedes motivation to pursue green technology. Ifcountries in the Americas do not take the initiative in thepursuit of new green technologies, they will likely be in aless powerful negotiating position when it comes todistribution and licensing of such products.Furthermore, many experts argue that in developingmarkets, green technologies have the most potential toimpact society and the most room for disruptiveinnovation. These markets are not constrained byexisting energy infrastructure, and opportunities fortechnological leapfrog effects abound.7


Energizing the Economy

The effects of technology and technological innovation onan economy have long been acknowledged to contributeto economic well-being. There is a significant academicliterature focused on determining an exact equation withwhich nations can calculate the contribution of technologyto GDP. A recent U.S. Congressional Research Servicereport identified technological knowledge andimprovement as the “engine” that drives long-term growthand sustains improvement in the U.S. economy.8 Greentechnology is not an exception to this rule. Its economicbenefits are numerous and can be categorized in severalareas: investment, job growth, international trade andcooperation growth, consumerism, cost savings, andindustry improvement.

Investment

The pursuit of research and development (R&D) anddeployment of green technology requires and attractsboth domestic and foreign investment, which stimulateseconomic growth opportunities. Investments in venturecapital and private equity and the creation of investmentfunds targeting green technology have increased in thelast few years. Companies in both developed anddeveloping markets are seeking opportunities to invest ingreen technology in other economies. The growth ininvestment has not occurred across the board. It iscentered on specific countries and companies that haveemerged as leaders, including in developing markets likeBrazil and India. However, there are myriad uncertaintiesassociated with such investments, and certain industriesare more amenable to taking the risks associated withsuch investments.

Green technology has been a magnet for investmentsfrom global billionaires and venture capitalists likeVinod Khosla and Bill Gates who want to tackle socialand environmental problems with technology.9 U.S.venture capital investment in green technology hasdoubled in the past year, generating exciting, newalternative and renewable energy technologies andsolutions. Advances in solar, wind, biofuels, energyefficiency, and fuel cell design create the potential fortechnology-driven energy and cost efficiencies that canrevolutionize industries.10

Green investment has also entered the mainstream forfund-management groups like Deutsche AssetManagement’s DWS Invest fund, whose investments inclean technology account for 55% of the fund.11 Itprovides an opportunity for increased foreign directinvestment for developing countries. In 2006, $70.9 billionwas invested globally in clean energy (including renewable

energy and energy efficiency), and in 2007 that numberclimbed to $110 billion. The U.S. and Europe still accountfor most of the investment (averaging 70% of totalinvestment between 2004 and 2006), but investmentgrowth rates have been very high in developing countries,particularly China, India, and Brazil.12

In 2006, $70.9 billion was investedglobally in clean energy (includingrenewable energy and energyefficiency), and in 2007 thatnumber climbed to $110 billion.

Many foreign companies are investing in green technologyin the Americas or looking at opportunities to do so. InJune 2008, Germany’s solar cell maker, Q-Cells,announced that it would invest $3.5 billion over themedium to long term in a new production plant in Mexico.In addition to the investment, the new plant is expected tocreate 4,500 new jobs for qualified workers in Mexico.13

Major players in the wind industry are exploringopportunities for investment in Mexico — Gamesa,Iberdrola, GE Wind, and Endesa.14 Enel SpA, Italy’s largestutility company, bought the rights from German SoWiTecGroup to develop up to 1,000 MW of Brazilian windprojects.15 In addition, French utility company Suez islooking at adding to its existing investment inthermoelectric projects in Chile by $800 million to $1billion.16 The presence of these foreign companies andtheir investments will stimulate local development in greentechnology, but it may also supplant viable localentrepreneurial players.

Brazil has long been a leader in green energy, both inthe Americas and around the globe. Its technologicalsuccesses in the ethanol and hydropower industrieshave attracted the substantial green energy investmentsin the region. In 2007, Brazilian investment accountedfor $8 billion (roughly 5% of the global total) of totalglobal investment in sustainable energy. Of that, venturecapital and private equity investment accounted for$658 million of investment in sustainable energy inBrazil, almost all of which was geared toward ethanolproduction expansion.17 However Brazil is not the onlycountry in the region garnering these resources. Fromthe third quarter of 2007 to the third quarter of 2008,investment in project acquisitions in Central and SouthAmerica totaled $1.82 billion.18 Of that total, $1.26 billionwas invested in biofuels, $0.53 billion in mini-hydro, and$.03 billion in wind.19


In 2007, Brazilian investmentaccounted for $8 billion (roughly 5% of the global total) of total globalinvestment in sustainable energy.

Some countries in the region have proven to be valuablelaunching points for new technologies. U.S.-based Algenolhas a licensing agreement with Mexico’s BioFields and an$850 million project with S.A.P.I de C.V. (a wholly ownedsubsidiary of BioFields). The deal includes a productionfacility in Mexico to create an anticipated 10,000 gallons ofethanol per acre per year for sale to the Mexicangovernment.20 However many investments in the regionare primarily geared toward expanding production andmanufacturing plants and are less likely to createbreakthrough contributions to research. Latin America andthe Caribbean need more indigenous investment topursue innovative green technology.

A key reason for countries in the Americas to pursuegreater investment in green technology is that emergingmarkets are able not only to launch a successful industrycentered on the growth of one company or type oftechnology, but also to enhance economic performance ina variety of sectors. India is an example of an emergingmarket that has done just that. The wind industry in Indiabegan to develop in the 1990s, and the rise of Suzlon, aglobal leader in wind technology, has generated evenmore domestic and international investment. Tulsi Tanti,the founder of Suzlon, originally owned a textile businessthat was challenged by the lack of availability of power. Hepurchased wind turbines to power the textile business andrealized their potential while expanding his business. Hegradually exited textiles to become the chairman andmanaging director of Suzlon Energy. Suzlon is generallyregarded as having made India the developing countryleader in advanced wind turbine technology.21 Suzlon’sreputation spread, rapidly opening the door to othersustainable energy companies in India. In 2007,fundraising by Indian sustainable energy companies onIndian stock exchanges reached $628 million, comparedto no activity in 2006.22 Additionally, these companiesraised $1.4 billion of new capital overseas in 2007.23 Thecase of Suzlon shows how one successful company cancreate opportunities that launch one domestic industry,and power the growth of others.

It is also important to consider the uncertainties ofinvestment in green technology. Some argue that the desireto invest in tomorrow’s promising technologies is detractingattention from investments in options that are currentlyeconomically and environmentally viable.24 Others argue

that the risks and amounts associated with suchinvestments are a strong deterrent. R. Andrew de Pass,Managing Director and Head of Sustainable Developmentfor Citi Alternative Investments, cautions that:

Commercialization requires the construction of pilotplants followed by the demonstration plants and thenultimately large-scale facilities. Green-tech companiesalso face long adoption cycles due to customer inertiaand risk-aversion, particularly when trying to market toutilities or municipalities. This means that new green-tech ventures have massive capital needs far beyondwhat is typical in areas such as software orpharmaceuticals, and this is changing not just howentrepreneurs in the sector function but also how theprivate equity community works with them.25

Some industries lend themselves more easily to makinginvestments in green technology and reaping the rewardsof these investments. For example, the IT industry hasmade great strides in investing in and implementing greentechnology initiatives. (For more information, see GreenTechnologies: Energizing Scientific and TechnologicalInnovation, below.) However, the electricity industry facesmore hurdles. Given the risks, costs, and lack of incentivesassociated with adopting green technologies in theelectricity industry, it is not surprising that the industry isreticent to embark on these changes.26

Green Jobs

There is a great deal of hype today about a new wave ofgreen jobs taking the economy by storm. The exuberantestimates are primarily provided by sources with interestsin the industry, and they polarize industry insiders andoutsiders by making insiders more hopeful and outsidersmore skeptical of the numbers. The lack of clarity stems,in large part, from varied definitions of “green jobs.” Thisdefinitional issue (combined with uncertain public policyand investment development, a dearth of governmentrecords in many countries detailing green job growth, anduncertainty regarding the absolute number of new jobscreated by green technology — factoring in positions thatwere eliminated from other sectors as a result of the shiftto green technology), leads to questionable estimates ofjob growth potential. In the U.S. and Europe, there isconcern about whether job growth would actually benefitdomestic economies, which it does, but in a variety ofindustries and through direct and indirect means. Evenbeyond these challenges, the growth of the industry maywell be hampered by the employment sector’s inability totrain and supply adequate numbers of skilled employees.However, with adequate preparation and planning,economies can take advantage of new jobs that greentechnology has to offer.


The definition of a “green job” allows for flexibility.Alternative Energy News defines a green job as one thatinvolves products and services that are environmentallyfriendly. This includes any jobs that involve design,manufacture, installation, operation, and/or maintenanceof renewable energy and energy-efficient technologies.27 Acase study for the city of Berkeley’s Office of Energy andSustainable Development takes a decidedly broaderdefinition, categorizing 22 sectors of “green jobs,”including bicycle repair and delivery services and printingwith non-toxic inks and recycled papers.28 If green jobgrowth is to be credible, it must not reclassify existing jobsin other industries as “green” simply to generate interestand pad the numbers.

Various and conflicting estimates regarding existing andpotential growth in green jobs inject confusion anduncertainty into the equation and create doubt regardingthe rigorous pursuit of accurate data. Brazilian PresidentLula da Silva recently underscored the ethanol industry’spositive effect on generating jobs, as compared to the oilindustry. He stated that in Brazil, the ethanol industry hascreated one million direct jobs and six million indirectjobs.29 However, another estimate differed greatly in theratio of direct to indirect jobs created, asserting that forevery one million tons of sugarcane planted (of whichapproximately 54% goes to ethanol production), onaverage 1,000 direct jobs and 3,000 indirect jobs arecreated.30 The lack of clarity extends to estimates of jobgrowth and creates a global problem in terms of what toexpect. One article lists the following varying estimates forEurope alone:31

• European Commission, Impact Assessment for 10 Jan.2007 Action Plan on Climate and Energy, 2007: 300,000biomass jobs by 2020

• European Commission, EU Renewables EnergyRoadmap 2006: 650,000 renewables jobs by 2020

• European Commission, Monitoring and ModelingInitiative on the Targets for Renewable Energy, 2003: 2.5million jobs in renewables in 2020

• Ecotec/European Commission, Renewable EnergySector in the EU: Its Employment and Export Potential:900,000 renewables jobs by 2020

Of course, projections often incorporate estimatesregarding policy and investment decisions that may fallthrough in the interim, so it is also informative to look atcurrent estimates. What do we know about green jobs?A study produced by the Worldwatch Institute estimatesthat 2.3 million people worldwide work either directly inrenewables or indirectly at supplier industries.Furthermore, the study breaks down the total numberinto estimates by industry: Wind power accounts for

300,000 jobs, solar photovoltaics accounts for 170,000jobs, and the solar thermal industry accounts for 624,000jobs. Other major contributors are the biomass andbiofuels sectors, which account for more than one millionjobs combined.32

A study produced by theWorldwatch Institute estimatesthat 2.3 million people worldwidework either directly in renewablesor indirectly at supplier industries.

Many people interpret the words “green revolution” and“green jobs” as being synonymous with corn- orsugarcane-based ethanol and increased agriculturaldevelopment and employment. Brazil is the classicexample, and recent increases in the price of ethanol andfood have created global skepticism about the industry.There is concern in the U.S. and Europe, particularly, thatemployment growth would be limited to agriculture andwould mostly mean more jobs for emerging markets. Infact, in many places new jobs do not hinge onagricultural positions but on other types of employment(for example, electricians, carpenters, constructionworkers, wind analysts, turbine technicians, and heat-pump installers). These positions must be filled at thedomestic level, and the involvement of domestic laborgroups (like the United Steelworkers in the U.S.) in greentechnology advocacy is a testament to this potential.Furthermore, growth is spurred on by the fact thatinvesting in renewable energy technology creates morejobs than fossil fuels industries. Recent research showsthat four times as many jobs are created per megawatt ofinstalled capacity for clean energy as natural gas, andthat 40% more jobs are created per dollar invested thanin coal.33

Finding and creating the skilled pool of employees withthe experience necessary to make these pursuits asuccess is a challenge because green jobs are justbeginning to enter the radar screen for many students oryoung professionals. Industries like eco-tourism, greeneducation and training, green IT, and green law are notoften thought of in terms of their contributions to greenjobs, but require a new set of skilled workers. These newopportunities will be challenged by a dearth of older,experienced management in the industries.

In spite of these challenges, green job opportunities areexpanding in a variety of industries and there is a rangeof talents and skill levels required for these positions.


There are opportunities for construction workers, truckdrivers, accountants, IT specialists, and engineers. Thereare new jobs and new investment in existing jobs toexpand skill sets. The range of skills needed for greenjobs makes employment in green growth a reality forworkers with many levels of experience.

Investment in any industry is a strong indicator of jobgrowth. Similarly, the record levels of investment in cleantechnology are a good indicator that the number of greenjobs will continue to grow. However, despite theseindications, green job growth will continue to bechallenged by the hurdles enumerated above.

International Trade and Cooperation

Green technology has also been a stimulant forinternational cooperation and trade. The promise ofgreen technology has increased global awareness ofenvironmental and climate change issues. Greentechnology has encouraged better dialogue on theseissues and their urgency in the form of conferences andforums. Green technology has stimulated coordinatedresearch efforts on the part of governments and otherinstitutions, and it has provided new opportunities forinternational trade and mutual economic benefit.

International forums on climate change and greentechnology, like the recent Climate Change Science &Technology Innovation held in Beijing in April 2008, areoccurring more and more frequently. Forums like theseaim to leverage global knowledge and expertise in thefight against climate change by exploring the role ofgreen technologies.34 They also increase visibility of theissues and can be a jumping off point for collaborativeendeavors.

Such dialogues and forums have opened the door toincreased cooperation among governments,corporations, and universities in pursuit of R&D. The IEAlaunched the Energy Technology Collaboration network,where participating G8 countries allow more than 60non-IEA countries access to their databases of scientificinformation.35 One example of green technologycooperation that was a platform for internationalcooperation is the FutureGen Alliance. FutureGen is aU.S.-led public-private partnership that aims to developa coal-fired CCS plant. The project is being restructuredafter the January 2008 announcement that the U.S.Department of Energy would withdraw the funding, but itstill serves as an example of the desire and momentumto work together internationally.

The IEA launched the EnergyTechnology Collaboration network,where participating G8 countriesallow more than 60 non-IEAcountries access to their databasesof scientific information.

Green technology already has provided more pathways forinternational trade and investment and will continue to doso. Manuelita, a Colombian agribusiness corporation, hasbeen an early mover in integrating ethanol production intoits sugarcane operations and is expanding its presence inLatin America. Limited by available land in Colombia, thecompany is looking to strengthen its operations abroad,which will mean more investment and development in theindustry in Peru and Brazil.36

China and India, relative newcomers to green technology,have advanced green technologies, which they marketaround the globe. (India’s Suzlon Energy, a leader in windtechnology, is discussed in Green Technologies:Energizing the Economy, Investment section above.)China’s Suntech Power is a worldwide pioneer in solar celldevelopment. These companies already compete withestablished Western companies, even though they aresomewhat new to green technology. Over a period of10–15 years, they have developed advanced capabilitiesin solar and wind technologies, which they market aroundthe globe. They are proof that countries that pursue thedevelopment of green technology may have similaropportunities to capture a share of the market, and patentand sell their products across the globe.

Technology sharing offers the opportunity for mutualbenefit. This is due in part to the multiple applications ofsome technologies and largely due to a need to marketthe technology to potential buyers. For example, in 2006,American company Westinghouse Electric won a bid tobuild nuclear reactors in China. The multi-billion dollarcontract is expected to generate 5,000 jobs in the U.S.The Chinese purportedly chose Westinghouse overcompetitors due to its technology, its agreement ontransferring expertise, the style of cooperation, and theprospects for developing locally based technology.37

Thus, technology sharing among nations can increasebenefits to both participants. It gives the seller immediateprofits and the opportunity to market itself more widely,and it gives the buyer efficient access to moderntechnology without R&D investment, allowing the buyerto jump-start its technology learning in the industry.


Consumerism

New green technology sparks consumer interest, andconsumers are increasingly promoting its development. Asmany technologies become accessible and affordable forresidential, commercial, and industrial consumers, thesecustomers are becoming more active in accessing theirown energy rather than passively relying on the existinggrid.38 Due to the scale and nature of the energy industry,consumer involvement in developed countries is limited inits potential impact in the short-run. In emerging marketsby contrast, where there is less established infrastructure,this limiting factor is removed, and technology may beapplied in new and different ways that contribute to thecycle of innovation.

Consumer involvement is driving both large and smallpurchases of green technology. One example of this is thecommercialization and popularization of hybrid vehiclesand alternative fuels. Sharp increases in the sales ofToyota’s hybrid vehicles from 2005 to 2007 allowed it tosurpass one million cumulative hybrid vehicle sales in May2007.39 Reports of celebrities owning hybrids and of longwaiting lists to purchase the vehicles heighten consumerinterest by making these technologies symbols of status.Consumers have also embraced small-scale energy-efficient technologies like compact fluorescent bulbs.Sales of the ENERGY STAR bulbs in 2007 totaled 290million units, which was not only double 2006’s sales butaccounted for 20% of the U.S. light bulb market.40 Thedramatic increase in sales and market penetration of thistechnology illustrates consumer thirst for more greentechnology.

2007 sales of the ENERGY STARbulbs totaled 290 million units,which was not only double 2006sales, but accounted for 20% ofthe American light bulb market.

Not only do these green technologies create and expandnew markets, but they can also generate more consumerconsciousness. One report gives the following example ofthis trend: “The dashboard of the Prius allows drivers tomonitor their fuel efficiency in real time, sensitizing them tothe specifics of energy demand and encouraging them todrive in ways that reduce fuel use.”41 Green technology’sability to appeal to consumers will keep them coming backfor more and demanding better technology, which willcontinue the cycle of investment and innovation. Majorcorporations are modeling investment and developmenton these trends. Swedish home furnishing company IKEA

recently announced plans to invest $77 million into clean-technology start-ups over the next five years with the hopethat resulting products (for example, solar panels,efficiency meters, and lighting) could be sold in its stores.42

These plans demonstrate a realization that developing andselling these technologies to residential consumers is alucrative business.

Interestingly, many executives identify the promise ofconsumers in emerging markets as a key to greentechnology development. In less-developed markets,consumerism and marketing green technologies to currentnon-consumers holds great promise in generating newideas. In appealing to these non-consumers and emergingmarkets, local innovators will be forced to improvise ontechnology, improve upon it, and apply it in new ways.These consumers are likely to play a vital role in driving thecycle of technological innovation and development.43 Thisis yet another example of the reciprocal relationshipbetween consumers and green technology.

Cost Savings

The benefits of cost savings from green technology arehighly dependent on a number of factors. Much can begained from small-scale technologies that help to increaseenergy efficiency. For a residence, energy-efficientdishwashers, refrigerators, freezers, washers, dryers,water heaters, timers, windows, and doors are allaffordable ways to use green technology that will add upto substantial savings in the long run. In the life of a greenbuilding, cost savings are an important factor in thebenefits associated with building green or retrofitting anexisting building with efficient technologies. Over the life ofa green building, the total financial benefits are over tentimes the average initial investment in design andconstruction.44

On a larger scale, cost savings is more complicated. Thebigger the investment, the more R&D that goes into it,the longer the testing and deployment cycles must be,and the greater the allocation for maintenance andtransition costs must be. Many larger-scale technologieshave yet to prove cost savings, and therefore investorsare hesitant. But that does not mean that they do nothold promise.

The International Trade Administration of the U.S.Department of Commerce recently released a study titledEnergy in 2020: Assessing the Economic Effects ofCommercialization of Cellulosic Ethanol. While the study isnot entirely accurate or comprehensive (for example, itstates that ethanol is currently the only substitute for crudeoil in transportation fuel, omitting mention of biodiesel andbio-butanol, and it creates the impression that ethanol is


only available from corn), it does provide a useful,quantified breakdown of the benefits that could be reapedif cellulosic ethanol technologies become commerciallyviable, and if total ethanol production in the U.S. reaches30 billion gallons by 2020. The study asserts that, giventhese conditions, in 2020:

• Crude oil imports would be 4.1% lower than projections • U.S. fuel prices would be 2% lower than projected• Annual benefits to U.S. consumers would be $12.6 billion• There would be an increase of $5.9 billion in investment• There would be a decrease of $16.8 billion in exports• There would be a decrease of $3.0 billion in imports• There would be an increase of $4.7 billion in GDP• There would be an increase of 20,350 agricultural jobs• The average overall change in output for industries

affected both positively and negatively by the changewould be 0.04%

• The value of reductions in GHG emissions would beabout $2.5 billion per year45

Less-quantifiable effects include that replacing U.S. oilimports with domestic ethanol production would reduceU.S. expenditures on imports, resulting in a strongerdollar and increased prices for U.S. exports as well aslower world oil prices. Furthermore, if the technology formaking ethanol from cellulose is developed in the U.S.,it could be licensed and exported to other countries,generating significant revenue as well as furtherdiminishing global oil demand and prices.46 However,this study does not factor in the one-time “transitionalcosts” such as infrastructural changes to shipping,service stations, and costs of R&D. It states only that by2020, the benefits will exceed the transitional costs andthat the impact on food prices would be minimal, but itdoes not calculate that impact or factor it into thesesavings. Despite these weaknesses, the study is helpfulin providing a breakdown of different factors that can bemeasured in terms of the benefit derived from greentechnology, and in providing a picture of what the costsavings would be and where they would occur.

Industry Improvement and Breaking Barriers

Green technology is challenging the energy industry inways that major global players did not anticipate. It hasprovided the opportunity for start-ups to fill gaps, mergewith other players in the industry, and emerge assubstantial market players. This has created an incentivefor traditional energy companies to pursue their ownresearch into green technology. It has also created anincentive for researchers in energy technology to reachacross traditional boundaries and coordinate R&Dactivities within and among institutions. This collaborationbetween leading multi-billion dollar energy enterprises, the

current “energy incumbents,” and green tech newcomers,“market transformers,” entering the industry will be criticalfor the future of energy innovation.47

Market transformers are essential for bringing forward newclean technologies that will be economically competitive,but they will quite likely depend upon the distributionsystems and customer base of the incumbents.48 Thisscenario is creating a dynamic of both competition andcooperation — both of which are energizers for growth anddevelopment. Oil and gas majors like Royal Dutch Shelland BP are adapting to the interest in green technology byinvesting in their own R&D in green technology. Companieslike Cisco Systems have grown by acquiring smallercompanies that develop new and strategic technology intheir field.49 Marquiss Wind Power, a small, U.S.-basedcompany, recently acquired Cirrus Technologies and islooking to grow abroad with license marketing anddistribution in Chile and Malaysia particularly.50 In this way,green technology is driving mergers and acquisitions, theemergence of bigger companies in the field, and thespread of technologies globally.

Energy technology and the pursuitof green technology have brokendown barriers by shifting thelocus of innovation, providingnew venues for cooperation(for example, the Internet), andcreating a common motivatingfactor for pursuing R&D.

Energy technology and the pursuit of green technologyhave broken down barriers by shifting the locus ofinnovation, providing new venues for cooperation (forexample, the Internet), and creating a common motivatingfactor for pursuing R&D. In the energy industry, the locusof innovation of new technologies is beginning to shiftfrom inside the organization to within the “community” thatsurrounds it.51 The new engagement and partnershipsformed from these efforts are contributing to theinnovation cycle. An example of this is the hybrid engine.According to Michael Warren, National Manager AmericasStrategic Research & Planning Group for Toyota NorthAmerica:

“The hybrid engine, of course, didn’t develop in avacuum. Innovation outside the automotive industry —especially in semiconductor technology — allowedToyota to leverage these technological changes in the


development of an electrical and fossil-fueled poweredengine. . . . We expect the shift to electric power toquicken as the electronics and electrical systemsreplace mechanical processes in automobiles.Moreover, innovation in power-chip technology, whichallows for more precise and reliable control ofelectricity, is enabling this transformation.”52

These new applications of technological breakthroughsare substantial energizing factors in and of themselves —for both the industries within which they are developedand those to which they can be applied. The willingness towork across private and public organizational boundariesgenerates more creative ideas and opens new doors forgreen technology.

The recent agreement between an association of mediumscale Chilean farmers, Etanol del Pacifico Sur S.A.(EPSSA), and Energy Quest, Inc., an emerging alternativeenergy company, is another example of cross-industrialcooperation. In March 2008, Energy Quest and EPSSA,agreed to pursue technological innovation in a jointbiomass gasification project to produce synthetic diesel.The effort will spur the development of ecological fuels,allow an important reduction in global warming emissions,and ease dependence on imported oil.”53

Some industries will be significantly challenged in theirability to commercialize and make green technologiesaccessible to the public. Green technology may even forcean industry to alter its structure. The electricity industry isan example of one where drastic changes will be neededto alter the grid and incorporate the energy created fromsustainable green sources into supplies. Moreover, thedownstream gas industry will need to accommodate thegrowing demand for supplies of E85 or hydrogen fuel. Theindustries’ reticence to embark on these changes reflectsambivalence about how widespread adoption will actuallybe. However, it creates a gap for competitors andmicrotech companies to fill, usurping a portion of marketshare of existing industries.

Energizing Scientific and Technological Innovation

Developments in green technology have contributed toscientific and technological innovation as a whole. Thesedevelopments are occurring more rapidly, and withadditional investment that has been made in recent yearswill likely continue to do so. However, uncertainties anddisagreements regarding what is feasible in terms of thetimeframes and cost of technological development, createcontentious debates within and across industries.

Green technologies are already contributing to the cycleof innovation, making further R&D possible, inspiringpolicy changes and attracting investment. As such, thedepth and breadth of such technologies is expandinginto new territory. These innovations include products ortechnology-enabled engineering, design, andmanufacturing approaches that drive changes inproducts, business processes, and systems to achieveenergy efficiency and preserve the environment.54 Theseinnovations can be either “sustaining innovations” inproduct technology (those that occur in response toconsumer needs) or “disruptive technologies,” whichhave the potential to be game-changers, moving outsidethe current value chain.55 As discussed in the IndustryImprovement section above, innovations that occur arenot limited in application to green energy. Innovation isoccurring in new energy alternatives and in traditionalenergy services, and this competition amongtechnologies will provide the fastest trajectory to arobust marketplace and reasonable prices for theconsumer.56

Disagreements regarding any new technology — forexample, about its development timeframe, its potential toperform, and its potential to be accepted by consumers —are to be expected. Scientists and industry experts aredivided, frequently along industrial lines, regarding theirexpectations for green technology. The followingparagraphs offer expert perspectives along this spectrum.

On one side, representatives from traditional energyindustries offer a sobering perspective rooted in therealities that will delay implementation of green technologyeven after it has been developed. Jeroen van der Veer,chief executive of Royal Dutch Shell, argues that thechanges that energy technology causes will be the resultof evolution, not revolution. He counters those whocompare advances in green technology to the ITrevolution, arguing that energy technology isfundamentally different from consumer electronicstechnology for three reasons: the scale of the industry, thelength of the adoption curve (investments last fordecades), and the similarity of the product (which isessentially the same, just delivered differently).57

In the middle are other experts, like James E. Rogers,president and CEO of Duke Energy, who offer limitedoptimism regarding innovation in green technology.Rogers identifies smaller-scale technologies, such as“smart” meters, solar photovoltaics, and micro controlsystems, as the most fertile ground for rapid innovation.”58

These sustaining innovations and small improvementshave the potential to make a difference and even enablemajor breakthroughs.59


On the other side of this debate are many experts who areoutwardly optimistic about the opportunities that greentechnology holds. R. Andrew de Pass, Managing Directorand Head of Sustainable Development Investment at CitiAlternative Investments, thinks that scientists andengineers are just scratching the surface of research onalternative energy and the deployment of mature cleantechnologies such as wind, utility-scale solar thermalplants, or hybrid electric drivetrains.60

There is also disagreement regarding the direction fromwhich technological innovation is likely to emerge. Manyexperts think that developed markets, with extensive R&Dspending and advanced laboratories, will always be at theforefront of green innovation. Others eye the developingworld as more likely to spur the unexpected changes thatinnovation requires. However, the Global Network onEnergy for Sustainable Development learned the followinglessons in importing technologies to emerging markets:

In almost every case, attempts have been made toimport sophisticated electricity-producing technologiesin an ad hoc manner, with heavily subsidized or donorsponsored projects working well while support lasts butfailing once it is withdrawn. Two lessons can be drawnhere: first, the initial costs of the sophisticated RETs onaverage have been far beyond the ability of poorindividuals and communities to purchase and maintainthem; second, if communities are not consulted as totheir real needs and capacities, there will be a mismatchbetween what is provided and what is actually required.Inappropriate technologies which local skills are notadequate to operate or maintain do not, generally, drive

development. . . . RETs projects have typically been onlyfragmented R&D efforts, most often carried out inisolation from other development challenges such ashealth, poverty, education and regional development,and, above all, without the guidance of integratedprograms and policies. . . . Furthermore, a concentrationon RETs for residential supply to low incomehouseholds, rather than for productive uses, has madefinancial institutions shy of RETs, considering them asrisky and of low profitability.61

While on the surface, the debate regarding whereinnovation will emerge from may seem meaningless, inreality it frames investment patterns and the foci of R&Dprograms.

The gap in perspectives can be perplexing. It is importantto factor in the realities that van der Veer delineatesregarding the long-term nature of energy infrastructure. Inthe short term, Rogers’s suggestions take this intoaccount, making green technology possible in the existinginfrastructure. In the long term, however, as societiesbegin to replace and upgrade infrastructure, de Pass’sambitions may be a commercializable reality. But theexistence and vigorousness of the debate surroundinggreen technology’s potential and lack of certainty on whichmarkets will breed the innovation necessary to address thescale of the energy technology dilemma foster acompetitive industry. The debates also illustrate that greentechnology is on the radar screen to stay. Furthermore, thedialogue involves leaders in a variety of sectors, illustratingthe prominent position that green technology occupies inthe academic, government, and corporate arenas.

Example Case: Green Technology and the IT Industry

Green technology in the IT industry has companies clamoring for more, not just because it is economical, but alsobecause it has also helped improve performance. According to a Tech News World report, leading IT companiesare crafting ambitious green technology programs and enacting them throughout their own transnational organiza-tions and along their supply chains, as well as promoting them to customers. Ravi Shekhar Pandey of Spring-board Research states, “A leading global telecommunications provider used virtualization to reduce the number ofits servers from around 1,350 to 100, even as it deployed more than 1,700 new applications.”62 Pandey says theprovider was able to save around one million dollars annually from reduced power consumption (a decrease of880 kilowatts), two million dollars from reduced floor space consumption of fewer servers, and spent about 70%less on server management. High-performance virtualization tools have also made significant contributions to per-formance speed. WebSphere DataPower SOA has performed XML and Web services security processing as muchas 72 times faster than standalone server-based systems, while IBM Cell Broadband Engine (which is used in theMayo Clinic) speeds processing of 3-D images for use by radiologists up to 50 times faster than traditionalprocessor configurations.63


Energizing National Security

Green technologies offer the opportunity to energizenational security in several ways. They will facilitate thediversification of energy supplies, reduce funding beingtransferred to unsteady states and terroristorganizations, enhance military capabilities, meetenergy demand without exacerbating resourcecompetition, and support existing social and politicalstructures by generating employment and economicopportunities for the population. The combination ofthese factors will contribute to the decoupling ofeconomic performance (which is critical to all nations’security) from its dependence on traditional energyresources.

Green technologies present new alternatives to diversifyenergy supply. Diversification will diminish the risk of aninterruption in supplies and increase energyindependence. Energy is critical to a nation’s economy,and a strong economy is critical to a nation’s security.Diversification means less reliance on foreign energyimports and more energy independence, which will alsomean lower prices globally. Most Latin American andCaribbean countries are energy importers, making themvulnerable to both fluctuations in price and interruptionsin supply. To the extent that green technology cancontribute to energy production and diminish the needfor energy imports, it can empower these countries andoffset the effects of price volatility.

Green energy technology could reduce the amount offunding being channeled into terrorist organizations andunstable states. It is widely accepted that revenuesfrom Saudi Arabian oil exports fund jihadism.64 Byincreasing diversification of supplies, green technologywill reduce indebtedness to nations that might nototherwise be desirable to support and will enable morevocal opposition to their policies.65

Green technology can fundamentally change militarycapabilities — both in terms of war-fighting capabilitiesand the ability to conduct disaster-recovery and -reliefoperations. Vulnerable supply lines requiring protectionwould be diminished, and logistical security would beincreased. In addition, the liberation of individualsoldiers from electric supplies to support electronicdevices, such as GPS, would increase their mobilityand thereby their advantage on a battlefield and in adisaster area. Technologies such as portable powergenerators are critical in supporting disaster-afflictedareas, as well as helping with reconstruction in Iraq andAfghanistan. For these and many other reasons, theU.S. military is at the forefront of investing in and

deploying mobile green technologies, particularly high-efficiency solar cells, advanced batteries, portable fuelcells, and water filtration.66

Global energy demand is increasing, and newtechnologies offer innovative and non-traditional waysto meet demand without compromising internationalrelations or economic performance over resourcecompetition. Many emerging markets in the Americasand across the globe can meet electricity needs ofremote communities by means of green technology.Realistically, most countries will continue to competeover energy resources. However, some markets candiminish increases in traditional energy needs and avoidadditional competition over energy resources.

Finally, green technologies can generate bothemployment and economic opportunities that increasesocial satisfaction and thereby contribute to nationalsecurity. By engaging a portion of the unemployedpopulation and expanding economic opportunities,green technologies may stabilize social and politicalstructures and help national crime rates to decrease. InChina, officials encouraged the adoption of greenindustries and technologies because these helped tomobilize farmers, engaging them in common prosperityand strengthening the stability of local social, cultural,and political structures.67

Energizing Social Development

Another key benefit of green energy technologies is thatthey are making access to energy and electricityfeasible for rural and poor communities that could notafford it, are remote and difficult to access, or are inprotected environmental areas. To these populations,green technology is the primary means of accessingelectricity. It is a path to health improvements (gainedfrom hot water and better hygiene practices), educationimprovements (enabling lighting in schools and theopportunity to conduct night classes and do homeworkin the evenings), infrastructure improvements,communication improvements, and quality-of-lifeimprovements.

According to a recent study by the Global Network onEnergy for Sustainable Development, titled “PovertyReduction: Can Renewable Energy Make a RealContribution?” new technologies foster the developmentof expertise in growing appropriate crops and in masteringthe processes that allow an industry to develop. Inaddition, jobs are created in rural areas, and biodieselplants become growth centers for economic


empowerment of the poor, leading to rural development.68

For example, in Vila Soledade (in Para state, Brazil), theuse of vegetable oil in diesel engines resulted in thedevelopment of night training classes that were attendedby the whole community and became a forum for learningand socializing. In addition, the replacement of thecommunity’s generator has eliminated technical failuresand increased the overall energy supply.69

To [remote and rural populations],green technology is the primarymeans of accessing electricity. It isa path to health improvements(gained from hot water and betterhygiene practices), educationimprovements (enabling lighting inschools and the opportunity toconduct night classes and dohomework in the evenings),infrastructure improvements,communication improvements andquality-of-life improvements.

Many Latin American countries adopted photovoltaic (PV)technologies in rural areas in the 1980s as a means ofremote communications systems. The systems began tobe used for domestic electricity needs, such as ice makingand refrigeration, for community electricity needs inschools, and for water pumping.70 Along the way,organizations implementing the new technologies learnedthat in order to derive maximum benefit from newtechnologies, they needed to focus on technological andinstitutional issues, promoting partnerships, local capacitybuilding, quality technical design, and monitoring andevaluation.71 In Brazil, solar PV technology had been underdevelopment for almost two decades by the military andtelecommunications sectors. Recently, the potential forusing it to generate electricity in off-grid areas is rapidlyincreasing dissemination of the technology, allowinglighting, water pumping, refrigeration, and other services inremote areas.72

Energizing Policy

The roles of government policy, incentives, and fundingcannot be overstated in their effects on green technology’sdevelopment at every stage of the pipeline — frominvestment in basic R&D, to mass commercialization anddeployment. Green technologies also afford policymakersnew opportunities to boost investment and employment intheir districts. Across the globe, green technology hasinspired policymakers to articulate ambitious policies inorder to benefit from its growth potential. Some examplesof these policies are:

• In March 2008, Chile signed a new energy law thatrequires electric utility companies to invest in and supplynonconventional energy sources (NCES). It mandatesthat NCES account for at least 10% of Chilean electricutility supplies by 2024.73

• The U.S. Green Jobs Act of 2007, which is pendingCongressional funding appropriation, is an initial pilotprogram to identify needed skills, develop trainingprograms, and train workers for a variety of green jobs ina range of industries. Another initiative in the U.S., theGreen Jobs Campaign, aims to create 820,000 new jobsin 12 states.74

• The Canadian Labour Council ConstitutionalConvention’s Document No. 9, “Climate Change andGreen Jobs: Labour Challenges and Opportunities.” Thedocument argues that major public investments areneeded to stimulate the growth of green jobs andsuggests that if the federal government invests $29.6billion over ten years in climate change adjustments, theeconomic benefits would include creation of 330,000jobs and an additional $138.45 billion in GDP75

• British Prime Minister Gordon Brown recently launched a$199 billion green revolution plan in need of privateinvestment. The plan calls for thousands of windturbines, and it is expected to create 160,000 green jobsand stimulate domestic economic growth in cleantechnology.76

• In Scotland, the green revolution has already created80,000 jobs and is expected to create another 50,000over the next decade.77 The Scottish government hasambitious targets of generating 50% of its electricityfrom renewables by 2020, meaning that demand forengineers, plumbers, wind-turbine technicians, boiler-maintenance technicians, electricians, welders, windanalysts, and solar panel and heat pump installers willincrease.

Technology has also paved the way for policies onincentives, feed-in tariffs, and alternative energy subsidies.Government incentives have helped drive the adoption oftechnologies like hybrid cars. Many buyers of the Toyota


Prius have received tax breaks, and in California, Priusdrivers have been allowed to drive in the carpool lanes,minimizing their commutes. In countries including Spain,Germany, and Greece, feed-in tariffs and alternativeenergy subsidies have led to a growth in technology bycreating incentives for companies to develop alternativeenergies at a lower price.

Technologically motivated policy can also carry risks,especially when data are thin or erroneous. Policies basedon incomplete data on technology can create negativebacklash. Experts also caution that technologically-inspired policy development will likely result in a selectionof technological winners and losers. Such selections runthe risk of over-funding certain kinds of research andunder-funding promising alternatives.

Energizing the Environment

Lastly (but certainly not least), green technologiesenergize the environment. People expect that greentechnologies have the ability to mitigate pollution andcontribute to a better quality of life for people, plants,and animals in the many communities that aredramatically affected by pollution. But not everyoneexpects green technologies to create energy resourcesout of waste. And not everyone expects greentechnologies to reduce the need for combustion ofwaste material and to leave more room in landfills. Thecombined benefits of green technologies on theenvironment have the potential to achieve significantgains in improving long-term environmentalsustainability.

The derivation of energy resources out of waste is aboon to the environment. Cellulosic fuels are primarilycreated out of waste matter (for example, from cropsand timber) that already exists in many economies andis having a negative impact on the environment. Usingwaste matter as a source of energy addresses bothwaste and energy problems and would be a significantfactor in energizing sustainable living conditions. Forexample, Dynamotive Energy Systems Corporation, asecond-generation biofuels company, is jointly pursuinga project with TECNA, an Argentine engineering firm,that will invest $105 million to fund the construction oftwo biofuel-to-electricity complexes in rural Argentina.Dynamotive has said that the focus of the project is to“tackle environmental issues arising from vast stockpilesof decomposing wood waste and substantially increaseelectricity generation capacity in [Corrientes, a] forestedregion of Argentina.”78

In addition to the conversion of regular waste matter into

energy, hazardous waste is being reduced by using greentechnology. For example, IBM recently succeeded increating a silicon wafer–reclamation process that turnsscrap semiconductor wafers into a form used in themanufacture of silicon-based solar panels.79 Thistechnology not only reuses silicon and protects theenvironment, but when the wafers are resold to solar cellmanufacturers, the manufacturers can save between 30%and 90% of the energy they would have needed if theyhad used new silicon.

The IEA estimates that usingtechnologies that already exist, or are in an advanced state ofdevelopment, global CO2 levelscould be brought back to currentlevels (after projected increases in the short term) by 2050 ifinvestments of approximately$17 trillion are made globally.

Green technology makes possible significantachievements with regard to emissions and pollutionreduction. By reducing GHGs and improving theenvironment, some catastrophes attributable to globalwarming can be eliminated. The IEA estimates that byusing technologies that already exist, or are in anadvanced state of development, global CO2 levels couldbe brought back to current levels (after projectedincreases in the short term) by 2050 if investments ofapproximately $17 trillion are made globally.80 Theenergizing effects that these changes would have on theenvironment are simply incalculable.

Snapshot of Promising Technologies

There is uncertainty about the particular technologiesthat will evolve most rapidly, and those that will have thegreatest consequences for global energy use. Whilethere is not a silver-bullet technology, this sectionfeatures three particular technologies that have thepotential to be game-changers in different ways —carbon capture and sequestration (CCS), fuel cells andbatteries, and solar.

Carbon Capture and Storage

Carbon capture and storage (CCS) technology iscontentious as it is the object of both praise and scorn interms of its potential. The technology would be applied


mostly to certain industries, like electricity andmanufacturing (for example, cement), which use largeamounts of coal and natural gas in their production andgeneration processes.

CCS technologies are uniquely poised to benefit theenvironment and mitigate climate change because theyoffer current energy producers the ability to incorporatetheir function without completely altering existingenergy infrastructure. According to the IEA reportEnergy Technology Analysis: Prospects for CarbonCapture and Storage, CCS technologies offer theopportunity not only to continue using fossil fuelswithout significant emissions, but also to enhanceoutput — captured CO2 may be used to enhance theoutput of oil and gas in the respective fields (which maypartially offset the costs of additional energy use).81 Inaddition, if combined with hydrogen production fromfossil fuels, they would result in a fuel that couldachieve substantial emissions reduction in thetransportation sector. The report identifies capturetechnologies, such as membrane separation,oxyfuelling in combination with new oxygen-productiontechnologies, chemical looping, and fuel cells aspromising opportunities where energy use and costcould be halved, which would address a major concernassociated with adoption of the technology.

There are various estimates of CCS technologies’economic potential. At a recent conference on energysupply and demand in the 21st century, Masahiro Nishio,an expert from Japan’s National Institute of AdvancedIndustrial Science and Technology, said that mostscenarios indicate that the economic potential of CCStechnologies would amount to 220–2,200 GtCO2cumulatively, meaning that CCS technologies wouldcontribute 15%–55% to the cumulative mitigation effortworldwide until 2100.82 Another recent study, usingeconomic-modeling results by MIT researchers, comes tothe conclusions that coal technology with carbon captureoffers a cost-effective, long-term source of low-carbon-emitting electricity, and that CCS technologies wouldresult in increased electricity production and lowerelectricity prices.83 Using CCS technologies to constraincarbon would affect the prices of production inputs likefuel and electricity. Benefits of using CCS technologiesinclude increased welfare for the Earth and population, areduced carbon price, and an expansion of output inother sectors of the economy.84 Another potentialimprovement could be a combination of coal gasificationpower generation and CCS technologies to realize zero-emissions coal-fired power generation. This would helpaddress the roughly 30% of global emissions produced inthe industry.85

Fuel Cells and Electric Batteries

Fuel cells use hydrogen or hydrogen-rich fuels andoxygen to produce electricity and heat.86 They can beused in stationary power and heat generation and areoften cited as one of two promising technologies (alongwith electric batteries) that could help significantly reducevehicle emissions (which account for 20% of globalemissions) and potentially realize a zero-emissionautomobile sector.87

In addition to significantly reduced emissions, fuel cellsoffer many benefits. To start with, they can save fuel.According to the U.S. DOE, fuel cell APUs in Class 8trucks can save 670 million gallons of diesel fuel peryear.88 And that is in only one type of vehicle. They arealso effective for power generation. Fuel cell cogenerationsystems can reduce facility energy service costs by20%–40%.89 Fuels cells offer a reliable way to back uppower grids and can achieve up to 99.99% reliability.90

They are very efficient. Distributed power generation withdirect fuel cells is 47% efficient in the generation ofelectrical power and 80% efficient overall in combinedheat and power applications, compared to fossil fuelplants, which typically operate at 35% electrical powergeneration efficiency.91 Fuel cells are also versatile (theycan use a variety of fuels), responsive to electrical loads,scalable, durable, and long-lasting. These benefits,combined with an anticipated decrease in the price of fuelcells, are expected to enable savings across theeconomy, in healthcare, homeland security, andsustainable development.92

In terms of fuel cell potential in transportation, IEA’sEnergy Technology Perspectives 2008 report asserts thatelectric batteries and hydrogen fuel cells are the mainalternatives for cars, but it is difficult to judge at this stagewhich of these technologies — or which combination ofthem — will be most competitive. Based on fairlyoptimistic assumptions about technology progress andcost reductions, electric and fuel cell vehicles areexpected to cost around $6,500 more in 2050 thanconventional vehicles.93

Recently, Stanford researchersfound a way to use siliconnanowire lithium-ion batteries toproduce ten times the amount ofelectricity of existing lithium ionbatteries.


Electric batteries are cells that store electric energy in theform of chemical energy and deliver electric energy whenneeded. These cells come in a variety of forms, includingmercury cells, silver oxide primary cells, lead-acid cells,cadmium cells, nickel-iron cells, and lithium-ion cells.94

Recently, Stanford researchers found a way to use siliconnanowire lithium-ion batteries to produce ten times theamount of electricity of existing lithium-ion batteries.95

These technologies currently offer energizing options forelectronics — a laptop could run for nearly two days, andan electric car could drive from New York to Chicago ona single charge.96 The new technology is safer as well,giving the batteries a better reputation that the regularlithium-ion batteries that have exploded in laptops inrecent years.

Smaller electric and battery-operated transportationtechnologies are gaining popularity, especially incrowded urban areas. Electric bicycles — which can costover $4,600, get as many as 62 miles without rechargingand weigh as little as 44 pounds — are experiencingincreased sales. Other technologies that are changingthe face of urban transportation include Segways, whichcan carry one person and go up to 12.5 miles per hour.They, too, have seen huge sales increases in recentyears, with many airports and police departments(including those in Chicago and New York) adoptingthem as part of routine patrols in efforts to cover abroader area, provide better emergency response, andreduce carbon emissions.97 Both of these battery-operated vehicles are energizing transportation andsecurity in unexpected ways.

Little research exists regarding what the overall impact ofthese new technologies could be; however, breakthroughslike the silicon nanowire lithium-ion batteries could meansignificant changes in small and large consumer products.

Solar Technology

Solar technology, particularly solar photovoltaic (PV)technology, has witnessed great advances in the last fewyears, and few believe that this surge of innovation will endsoon. (For more information, please see Section 4.5.Global Trends: Solar and Section 5.3.4. EmergingRenewable Power Technologies – Concentrating SolarPower.) According to the IEA’s report Energy Technologiesat the Cutting Edge 2007, the annual growth rate ofcumulative installed photovoltaic capabilities has been by40% since 2000.98 Since 2002, PV production has grownby an average of 48%, doubling every two years andmaking it the fastest-growing energy source.99 The markethas welcomed major new players onto the stage recently,and there will continue to be incredible opportunities tomeet demand.

Many of the energizing qualities of solar technology derivefrom its ability to supply power to rural populations (asdiscussed in Energizing Social Development and in moredetail Section 5.2.6. Social and Economic Impacts ofRenewable Power: Rural Electrification and Green Jobs).But it also offers many opportunities in developed marketsand urban areas to provide power and substantial jobgrowth. Many jobs are created in the manufacturing,installation, and servicing of PV systems.100 For example,according to the German government, the German solarindustry employed 40,200 people in the solar industry in2006 and expected 49% growth between 2006 and2010.101 In some places in the U.S., if residents have solartechnology installed, they can sell excess capacity back toelectricity companies to reduce costs. While PV systemsare very expensive, the Appraisal Institute estimates that aPV system increases a home’s value by $20,000 for each$1,000 in annual reduced operating costs.102

According to the Germangovernment, the German solarindustry employed 40,200 peoplein the solar industry in 2006 andexpected 49% growth between2006 and 2010.

There are many promising areas of technological researchwith regard to PV. One area of interest is PV-based hybridelectricity generation and distribution systems that wouldinclude energy generators, storage systems, anddistribution networks. A recent press release announced ajoint effort by RoseStreet Labs Energy and Los AlamosNational Laboratory (a U.S. government laboratory) toproduce cutting-edge technology called ENABLE, whichcomprises “the use of an energetic neutral atom beam tosynthesize high quality thin films critical to thedevelopment of full spectrum photovoltaics.”103 Accordingto RoseStreet Labs, the technology offers the opportunityfor improved performance and lower costs, which wouldenable successful commercialization. However, for now,PV technology is expensive to purchase and install, ishigh-maintenance, and lacks the storage capacitynecessary to be a reliable power source, making itimpractical for many communities. Other solartechnologies, such as solar thermal technology andconcentrating solar power systems, are promising optionsthat have encountered barriers because of cost-competitiveness and market development. However, withnew investments to meet demand growth, rapid progressin solar technology is very possible.


Conclusion

There is a great deal of room for optimism when it comesto green technology and its effects on society. However, itis clear that these benefits are complex, understudied,and still emerging. While many of green technology’senergizing qualities will be shared globally, the companiesand nations most involved in fostering the development ofthe industry will benefit the most. The U.S., the EU,Japan, China, India, and Brazil are ahead of the packwhen it comes to pursuing these technologies. However,even within these countries and regions, benefits arelocalized with specific states (for example, Wisconsin,Nevada, and Pennsylvania) and specific countries (forexample, Germany and Spain). These locales will benefitdomestically and internationally by developingtechnologies that are suitable to their own climates andweather patterns and can be marketed to other regions.

The uptick in investment in green technology is justbeginning. Government actors and consumers have to bepatient for the benefits of developing technologies tocome to fruition. However, in the interim, there are benefitsto be reaped with existing technologies. As greentechnology develops, modeling efforts to quantify andmeasure these effects will be increasingly sophisticated.Quantifying the effects of green technology is difficultbecause of a lack of certainty regarding numerous factors,including policymaking and investment, which will becrucial in determining exactly how much society benefitsfrom this new technology. Counting dollars invested andjobs lost or gained will be the easy part. Evaluating theshort- and long-term benefits to social and nationalsecurity will be more of an obstacle. Some tools104 arealready being used to quantitatively measure the impact ofenergy policies on energy security, economicsustainability, environment protection, and climatemitigation.105 Countries in the Americas can use thelessons learned by the current leaders in green technologyto identify gaps and help them navigate the road tosuccessful innovation.


Endnotes Section 2.1

1 Tuckman, Jo. “Latin America Hit by Record Number of Disasters, UN Says.”Guardian, 28 Dec. 2007.

2 “Thousands Flee Flooding in Mexico.” CNN, 2 Nov. 2007. 3 “Mexico Flooding Affects 700,000.” BBC News, 1 Nov. 2007. 4 “Bolivia Suffers Worst Floods for 25 Years.” Reuters, 6 Mar. 2007. 5 Ribeiro, Cristiane. “Brazil’s Drought Made Corn and Soy Harvest Fall.” Brazzilmag,

30 June 2005.6 “Amazon Drought Emergency Widens.” BBC News, 15 Oct. 2005. 7 Rohter, Larry. “Record Drought Cripples Life Along the Amazon.” New York Times,

11 Dec. 2005.8 “Amazon’s Worst-Ever Drought in 2005 Caused by Global Warming.” 9 IPCC, 2007: Summary for Policymakers. In: Climate Change 2007: The Physical

Science Basis. Contribution of Working Group 1 to the Fourth Assessment Report ofthe Intergovernmental Panel on Climate Change [Solomon, S., D. Win, M. Manning,Z. Chen, M. Marquis, K.B. Averyt, M. Tignor, and H.L. Miller (eds.)]. CambridgeUniversity Press, Cambridge, United Kingdom and New York, NY, USA, p. 7.

10 Candel, Filomeno Mira. “Climate Change and the Global Insurance Industry: Impactsand Problems in Latin America.” The International Association for the Study ofInsurance Economics, The Geneva Papers, Vol. 32, 2007, p. 29.

11 “Global Environmental Outlook: State of the Environment in Latin America and theCaribbean, 1972-2002.” p. 78.

12 “IPCC Latin America: The Regional Impacts of Climate Change.” p. 2. and “GlobalEnvironmental Outlook: State of the Environment in Latin America and theCaribbean, 1972-2002.” p. 40.

13 “Up in Smoke?” p. 2. 14 “Climate Change Hits Hard on Latin America and the Caribbean.” p. 2. 15 Caspary, Georg. “China Eyes Latin American Commodities.” Yale Global, 18 Jan.

2008. 16 Rio Declaration on Environment and Development17 Stevens, William K. “Lessons of Rio: A New Prominence and an Effective

Blandness.” New York Times, 14 June 1992. 18 “Estadísticas del Medio Ambiente en América Latina y el Caribe: Avances y

Perspectivas.” CEPAL, Aug. 2005, p. 14. 19 Germanwatch Climate Change Performance Index. 20 Madrigal, Alexis. “Bali Meeting Ends; Mexico Emerges as a Leader on Climate

Change.” Wired, 14 Dec. 2007. 21 Nicoll, Fergus. “Seeking an Amazon Solution.” BBC News, 15 May 2008. 22 “Brazil Launches Rainforest Fund.” BBC News, 1 Aug. 2008. 23 McPhaul, John. “Costa Rica Pledges to be ‘Carbon Neutral’ by 2021.” Reuters, 08

June 2007. 24 Dickerson, Marla. “Oil Prices Threaten Latin America’s Economic Gains.” Los

Angeles Times, 18 July 2008.25 Lapper, Richard. “Latin America Pays the Price for Fuel Subsidy.” Financial Times,

16 June 2008. 26 Gould, Jens Erik. “Mexico Government Will Set Oil Price in Budget Plan.”

Bloomberg, 8 Sept. 2008. 27 “Climate Change Hits Hard on Latin America and the Caribbean.” UN Environmental

Program Press Release, 6 Apr 2007. 28 Honty, Gerardo. “América Latina Ante el Cambio Climático.” El Observatorio de la

Globalización, Mar. 2007, p. 4. 29 UNEP Global Environmental Outlook 2007, p. 147. 30 “The Unexpected Catarina Hurricane.” Friends of the Earth, Nov. 2005, p. 1. 31 Simms, Andrew and Reid, Hannah. Up in Smoke? Latin America and the Caribbean:

The Threat from Climate Change to the Environment and Human Development. TheWorking Group on Climate Change and Development, August 2006.

32 “Climate Change and the Global Insurance Industry: Impact and Problems in LatinAmerica.”

33 See “US Helicopters Play Vital Role in Venezuela’s Flood Recovery.” CNN, 28 Dec1999; Nexry, Edmond et al. “The Devastation of Venezuela by Heavy Rains inDecember 1999: Assessment of the Situation using ERS InSAR Tandem Data andSPOT Images.” PRIVATEERS N.V.; and Moreno, Ana Rosa. “Climate Change andHuman Health in Latin America: Drivers, Effects and Policies.” RegionalEnvironmental Change, Vol. 6, 2006, pp. 157–164.

34 “Global Environmental Outlook: State of the Environment in Latin America and theCaribbean, 1972-2002.” UNEP, p. 146.

35 “Worst Flooding in 50 Years Hits Uruguay.” Reuters, 11 May 2007. 36 “América Latina Ante el Cambio Climático.” 37 Josephs, Leslie. “Peru’s Mountain Glaciers Are Melting Away.” Associated Press, 16

Feb. 2007.38 “Up in Smoke?” p. 17. 39 “Climate Change 2007: Synthesis Report.” IPCC, 17 Nov. 2007, p. 50. 40 Candel, Filomeno Mira. “Climate Change and the Global Insurance Industry: Impacts

and Problems in Latin America.” The International Association for the Study ofInsurance Economics, The Geneva Papers, Vol. 32, 2007, pp. 29–34.

41 “Up in Smoke?” p. 8. 42 “Countries Hit by Hurricane Mitch on Long Road to Recovery.” Food and Agriculture

Organization News, 22 Jan 1999. 43 “Hurricane Mitch Damages Agriculture in Honduras.” USDA Assessment of

Hurricane Mitch on Honduran Agriculture, 26 Apr. 1999, p.1.

44 “Cambio Climático Ahonda la Desigualdad en América Latina y el Caribe.” InformeSobre Desarrollo Humano 2007/2008, Programa de las Naciones Unidas para elDesarrollo, 27 Nov. 2007.

45 “Countries Hit by Hurricane Mitch on Long Road to Recovery.” Food and AgricultureOrganization News, 22 Jan. 1999.

46 “Health Agenda for the Americas: Presented by the Ministers of Health of theAmericas in Panama City.” June 2007.

47 CIA World Fact Book48 Charvériat, Céline. Natural Disasters in Latin America and the Caribbean: An

Overview of Risk, Inter-American Development Bank, Oct. 2000, p. 52. 49 “Flood-Ravaged Venezuela Focuses on Avoiding Epidemics.” 50 See Anderson, Mason. “American Red Cross Aids Venezuela Flood Victims.”

American Red Cross, 5 Aug. 2002 and “Thousands Flee Venezuela Floods.” BBCNews, 24 July 2002.

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1 Markowitz, Harry. “Portfolio Selection.” Journal of Finance 7, 1 1952, 77–912 Herbst, Anthony. The Handbook of Capital Investing. Harper-Business, 1990.3 Awerbuch, Shimon. “The Surprising Role of Risk and Discount Rates in Utility

Integrated-Resource Planning.” The Electricity Journal. Vol. 6, No. 3. 1993.4 Awerbuch, Shimon. “Market-Based IRP: It’s Easy!” Electricity Journal. Vol. 8, No. 3.

1995, 50-67.5 International Energy Agency. Energy Balances of Non-OECD Countries. 20086 International Energy Agency. Energy Balances of Non-OECD Countries. 2008.7 International Energy Agency. Energy Balances of Non-OECD Countries. 2008.8 International Energy Agency. Energy Balances of Non-OECD Countries. 2008.9 Wagner, Sarah. “Summit of Caribbean Nations Launch Petrocaribe in Venezuela.” 29

June 2005. VenezuelaAnalysis. 14 Sept. 2008.<http://www.venezuelanalysis.com/news/1221>.

10 Awerbuch, Shimon and Sauter, Raphael. “Exploiting the Oil-GDP Effect to SupportRenewables Deployment.” SPRU Electronic Working Paper Series. Paper No. 129.Jan. 2005.

11 Bruno, M and Sachs, J. “Input Price Socks and the Slowdown in Economic Growth.The Case of UK Manufacturing.” Review of Economic Studies. 25. 1982.; Darby,M.R. “The Price of Oil and World Inflation and Recession.” The American EconomicReview. 72, 4. 1982. Cited in Awerbuch, Shimon and Sauter, Raphael. “Exploitingthe Oil-GDP Effect to Support Renewables Deployment.”

12 Awerbuch, Shimon and Sauter, Raphael. “Exploiting the Oil-GDP Effect to SupportRenewables Deployment.” SPRU Electronic Working Paper Series. Paper No. 129.Jan. 2005.

13 Brown, S.P.A. “U.S. Natural Gas Markets in Turmoil.” Testimony Prepared for aHaring on the Scientific Inventory of Oil and Gas Resources on Federal Lands.

14 Federer, J.P. “Oil Price Volatility and the Macroeconomy.” Journal ofMacroeconomics. 18, 1. 1996.

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Administration. 14 Sept. 2008.<http://www.eia.doe.gov/emeu/cabs/Central_America/pdf.pdf >.

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21 Energy Information Administration. “Bolivia - Natural Gas.” U.S. Department ofEnergy. Dec 2007. 12 Sept 2008<http://www.eia.doe.gov/cabs/Bolivia/NaturalGas.html>.

22 “Opposition Demonstrators Cut Natural Gas Supply Line in Bolivia.” AFP. 11 Sept.2008. 14 Sept. 2008<http://afp.google.com/article/ALeqM5hgA55GvtXRnaDu3Xf1vDFFyADjwg>.

23 Stern, Nicholas. Stern Review: The Economics of Climate Change. HM Treasury.Oct. 2006.

24 Energy Information Administration. “World Energy Use and Carbon DioxideEmissions, 1980–2001.” May 2004. U.S. Department of Energy. 14 Sept. 2008.<http://www.eia.doe.gov/emeu/cabs/carbonemiss/energycarbon2004.pdf>.

25 For a full examination of the impact of climate change on the natural, social, andeconomic landscape of the Americas, see “Green Urgency,” also published in ABlueprint for Green Energy in the Americas.

26 United Nations Environment Program. Global Environment Outlook 2007, p. 147. 27 Simms, Andrew and Reid, Hannah. “Up in Smoke? Latin America and the

Caribbean: The Threat from Climate Change to the Environment and HumanDevelopment.” The Working Group on Climate Change and Development. Aug.2006.

28 Simms, Andrew and Reid, Hannah. “Up in Smoke? Latin America and theCaribbean: The Threat from Climate Change to the Environment and HumanDevelopment.” The Working Group on Climate Change and Development. Aug.2006.

29 International Energy Agency. Energy Balance of Non-OECD Countries. 2008.30 Simms, Andrew and Reid, Hannah. “Up in Smoke? Latin America and the

Caribbean: The Threat from Climate Change to the Environment and HumanDevelopment.” The Working Group on Climate Change and Development. Aug.2006.

31 Larmer, Brook et al. “More from the Menace,” Newsweek. 6 Oct. 1997.


32 “Climate Change Hits Hard on Latin America and the Caribbean.” p. 2. and Rohter,Larry “Energy Crisis in Brazil Brings Dimmer Lights and Altered Lives.” New YorkTimes. 6 June 2001.

33 Stringer, Kevin. “Energy Security: Applying a Portfolio Approach.”34 International Energy Association. “IEA Energy Technology Essentials: Biomass for

Power Generation and CHP.” Jan. 2007. 14 Sept. 2008.<http://www.iea.org/Textbase/techno/essentials3.pdf>.

35 Fernández-Vázquez, Eugenio and Pardo-Guerra, Juan Pablo. “Latin AmericaRethinks Nuclear Energy.” 12 Sept. 2005. Center for International Policy. 13 Sept.2008. <http://americas.irc-online.org/am/558>.

36 For a full discussion of the role of riskless assets in the context of portfolio theory,see: Awerbuch, Shimon and Berger, Martin. “Applying Portfolio Theory to EUElectricity Planning and Policy-Making.” IEA/EET Working Paper. Feb. 2003.

37 Awerbuch, Shimon. “Getting It Right: The Real Cost Impacts of a RenewablesPortfolio Standard.” Public Utility Fortnightly. 5 Feb. 2000.

38 Awerbuch, Shimon and Berger, Martin. “Applying Portfolio Theory to EU ElectricityPlanning and Policy-Making.” IEA/EET Working Paper. Feb. 2003.


40 Studies of the application of portfolio theory to tangible, non-financial assets include:Seitz Neil, Capital Budgeting and Long-Term Financing Decisions. Dryden Press,1990; Springer Urs, Laurikka Harri, Quantifying Risks and Risk Correlations ofInvestment in Climate Change Mitigation, IWOe Discussion Paper No. 101, ISBN No.3-906502-98-8, University of St. Gallen, October 2002; Helfat Constance E.,Investment Choices in Industry. Massachusetts Institute of Technology (MIT), 1988;and Herbst Anthony, The Handbook of Capital Investing. Harper-Business, 1990


42 Herbst, Anthony. The Handbook of Capital Investing. Harper-Business. 1990. Citedin Awerbuch, Shimon and Berger, Martin. “Applying Portfolio Theory to EU ElectricityPlanning and Policy-Making.” IEA/EET Working Paper. Feb. 2003.

43 “Investment in Transmission Key to Clean and Reliable U.S. Electricity Supply.”American Wind Energy Association. 17 Jun. 2008. 1 Sept. 2008.<http://www.awea.org/newsroom/releases/Investment_in_Transmission_061708.html>.

44 Farchy, Daniel. “Hedging Mexico’s Electricity Bets: The Case for Renewable Energy.”ESMAP Knowledge Exchange Series. No. 9. June 2007.

45 Gunther, Mark. “Wal-Mart: Here Comes the Sun.” CNN Money. 9 May 2007.<http://money.cnn.com/2007/05/07/news/companies/pluggedin_gunther_wmtsolar.fortune/index.htm>.4 Sept. 2008.

46 Roques, Fabian et al. “Nuclear Power: A Hedge Against Uncertain Gas and CarbonPrices.” Working Paper. Nov. 2005.

47 Domenici, Peter. “Energy Diversification: Finding the Right Balance.” EconomicPerspectives. May 2004.<http://usinfo.state.gov/journals/ites/0504/ijee/domenici.htm>. 25 Aug. 2008.

48 FM: Chinese President’s Fruitful Japanese Tour a ‘Major Diplomatic Move.’” Xinhua.10 July 2008. <http://lr.china-embassy.org/eng/gyzg/a123/t455562.htm 5September 2008>.; Murray, James. “Lib Dems Outline Plan for EnergyIndependence by 2050.” BusinessGreen. 21 Aug. 2008.<http://www.businessgreen.com/business-green/news/2224497/lib-dems-outline-plan-energy 5 September 2008>.; Farchy, Daniel. “Hedging Mexico’s Electricity Bets:The Case for Renewable Energy”; “Lula Resumes Nuclear Program to Make BrazilWorld Power.” Agence France-Presse. 11 July 2007.<http://www.spacedaily.com/reports/Lula_Resumes_Nuclear_Program_To_Make_Brazil_World_Power_999.html>. 5 Sept. 2008.

49 Daniel, Isaura. “Energy Diversity Makes Brazil’s Sovereign Rating Stronger.” BrazzilMagazine. 13 Mar. 2008. <http://www.brazzilmag.com/content/view/9176/>. 5 Sept.2008.

50 Center for European Policy Studies. “Market Stimulation of Renewable Electricity inthe EU.” CEPS Task Force Report No. 56. Oct. 2005.

51 See, for example, Awerbuch, Shimon and Berger, Martin. “Applying Portfolio Theoryto EU Electricity Planning and Policy-Making”; Awerbuch, Shimon, Jansen, Jaap,and Beurskens, Luuk. “Building Capacity for Portfolio-Based Energy Planning inDeveloping Countries.” Submitted to REEEP, UNEP, BASE. 7 Aug. 2004; Awerbuch,Shimon. “The Cost of Geothermal Energy in the Western US Region: A Portfolio-Based Approach.” Sandia National Laboratories. Sept. 2005.

52 Pirraglia, Mario. “It’s All About the Infrastructure.” Proceedings of the Clean CitiesConference, May 2-4, 2004. 22 Sept. 2008.<http://www.naftc.wvu.edu/NAFTC/data/other/PDFs/pirraglia_fuelmaker.pdf>.

53 Mintz, Marianne, et al. “Cost of Some Hydrogen Fuel Infrastructure Options.” 16 Jan.2002. Argonne National Laboratory Transportation Research Board. 13 Sept.2008.<http://www.transportation.anl.gov/pdfs/AF/224.pdf>.

54 U.S. Census Bureau. “Statistical Abstract of the United States.” 2008; Natural GasVehicles for America. 2006. “About Natural Gas Vehicles.”

55 Honda GX Frequently Asked Questions. <http://automobiles.honda.com/civic-gx/faq.aspx>.

56 Abuelsamid, Sam. “Lutz Pegs First Generation Chevy Volt Price Tag at $40,000.” 19June 2008. Autoblog Green. <http://www.autobloggreen.com/2008/06/19/lutz-pegs-first-generation-chevy-volt-price-tag-at-40-000/>. 14 Sept. 2008.

57 Energy Information Administration. “Biofuels in the U.S. Transportation Sector.” 15Oct. 2007. U.S. Department of Energy. 14 Sept. 2008.<http://www.eia.doe.gov/oiaf/analysispaper/biomass.html>.

58 U.S. Government Accountability Office. “Biofuels: DOE Lacks a Strategic Approachto Coordinate Increasing Production with Infrastructure Development and VehicleNeeds.” June 2007. <http://www.gao.gov/new.items/d07713.pdf>.

59 U.S. Government Accountability Office. “Biofuels: DOE Lacks a Strategic Approachto Coordinate Increasing Production with Infrastructure Development and VehicleNeeds.” June 2007.

60 U.S. Government Accountability Office. “Biofuels: DOE Lacks a Strategic Approachto Coordinate Increasing Production with Infrastructure Development and VehicleNeeds.” June 2007.

61 Kintner-Meyer, Michael, et al. “Impacts of Assessment of Plug-In Hybrid Vehicles onElectric Utilities and Regional U.S. Power Grids.” Nov. 2007. Pacific NorthwestNational Laboratory. 14 Sept. 2008.<http://www.pnl.gov/energy/eed/etd/pdfs/phev_feasibility_analysis_combined.pdf>.

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30 IPCC 98–99.31 IPCC 61.32 Energy Information Administration. United States Department of Energy.

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treasury.gov.uk/media/3/2/Summary_of_Conclusions.pdf35 Gullison et al. Says 20%; Houghton says 25% Gullison, Raymond E., Peter C.

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1 United Nations Environmental Program and New Energy Finance. “Global Trends inSustainable Energy Investment 2008.” London: 2008. 6 Aug. 2008<http://sefi.unep.org/fileadmin/media/sefi/docs/publications/Global_Trends_2008.pdf>.


3 Apollo Alliance. “New Energy for America, The Apollo Jobs Report: Good Jobs &Energy Independence.” Jan. 2004. The Institute for America’s Future & The Centeron Wisconsin Strategy. 05 Aug. 2008 <http://www.apolloalliance.org/downloads/resources_ApolloReport_022404_122748.pdf>.

4 United Kingdom. “Stern Review Report on the Economics of Climate Change.”2006. Cambridge. 04 Aug. 2008 <http://www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/stern_review_Report.cfm>.

5 See the following studies: TechNet. Recommendations by the Green TechnologiesTask Force. “Green Technologies: An Innovation Agenda for America.”<http://www.technet.org/resources/GreenTechReport.pdf>, Pernick, Ron and ClintWilder. The Clean Tech Revolution: Discover the Top Trends, Technologies andCompanies to Watch. Collins Business: New York. 2008, and Friedman, Thomas.Hot, Flat and Crowded. Farrar Straus and Giroux: New York, 2008.

6 TechNet. Recommendations by the Green Technologies Task Force. “GreenTechnologies: An Innovation Agenda for America.”<http://www.technet.org/resources/GreenTechReport.pdf>,

7 World Economic Forum, Cambridge Energy Research Associates. “Energy VisionUpdate 2008: Solving the Energy Puzzle through Innovation.” 2008.

8 Elwell, Craig K. “Long-Term Growth of the U.S. Economy: Significance,Determinants and Policy.” Congressional Research Service, The Library ofCongress. Washington: 25 May 2006. 05 Aug. 2008.<http://italy.usembassy.gov/pdf/other/RL32987.pdf>.

9 The Economist. “A Healthier Addiction.” 23 May 2006. Economist Business. 1 Aug.2008 <http://www.economist.com/business/displaystory.cfm?story_id=5655161>.

10 International Energy Agency. “Energy Technology Perspectives 2008: In Support ofthe G8 Plan of Action, Scenarios and Strategies, Executive Summary.” OECD/IEA,Paris: 2008.<http://www.iea.org/Textbase/techno/etp/ETP_2008_Exec_Sum_English.pdf>.


12 World Economic Forum, Cambridge Energy Research Associates. “Energy VisionUpdate 2008: Solving the Energy Puzzle through Innovation.” 2008.

13 Randewich, Noel. “Update 2: Germany’s Q-Cells to invest $3.5 bln in Mexico.” 5June 08. Ed. Gary Hill. UK Reuters. 2 Sept. 08<http://uk.reuters.com/article/oilRpt/idUKN0529333920080605>.


15 DiPaola, Anthony. “Enel, Sowitec to Develop Up to 1,000 MW Brazil Wind Projects.”6 Aug. 08. Bloomberg. 2 Sept. 08<http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a03LxWAdTzY0>.

16 Vargas, Monica. “Suez studying Chile thermal/hydro/wind projects.” Ed. SimonGardner and Marguerita Choy. 25 Mar. 08 Reuters. 2 Sept. 08 <http://www.reuters.com/article/environmentNews/idUSN2540351520080325?sp=true>.


18 Data from New Energy Finance subscriptions services. 12 Sept. 2008.19 Data from New Energy Finance Data subscription services. 12 Sept. 2008.20 Ghelfi, Carli. “Turning algae into ethanol, and gold.” 11 June 2008. CleanTech Group.

2 Sept. 08 <http://media.cleantech.com/2961/algal-biofuels-algenol-ethanol-solazyme-sonora-mexico>.


21 Lewis, Joanna I. “A Comparison of Wind Power Industry Development Strategies inSpain, India and China.” 19 July 2007. Center for Resource Solutions, EnergyFoundation, China Sustainable Energy Program. 18 Aug. 2008<http://www.resource-solutions.org/lib/librarypdfs/Lewis.Wind.Industry.Development.India.Spain.China.July.2007.pdf>.



24 Gardner, Sam. “Green Gadgets: will they save the world?” The Somnambulist. 29July 2008. <http://www.thesomnambulist.org/doku.php/all/10032008_gg>.

25 De Pass, R. Andrew. “The Dynamics of Green-tech Investment.” World EconomicForum, Cambridge Energy Research Associates. “Energy Vision Update 2008:Solving the Energy Puzzle through Innovation.” Geneva: 2008.<http://www.weforum.org/pdf/energy_industry/EnergyVision.pdf>.


27 Alternative Energy News. “White collar, Blue Collar, Green Collar?” 17 Oct. 2007. AENews Info. 22 July 2008. <http://www.alternative-energy-news.info/white-blue-green-collar/>.

28 Pinderhughes, Raquel. “Green Collar Jobs: An Analysis of the Capacity of GreenBusiness to Provide High Quality Jobs for Men and Women with Barriers toEmployment.” The City of Berkeley Office of Energy and Sustainable Development.Berkeley: 2007.

29 Powder, Ashley. “A Declaration of Energy Independence: One Year Later” 14 Mar.2008. Council on Hemispheric Affairs. 22 July 2008. <http://www.coha.org/2008/03/a-declaration-of-energy-independence-one-year-later/>.

30 De Campinas, Renato Anselmi. “Consolidacao do crescimento e a marca de 2007.”O Jornal Cana. December: 2007. 8 Aug. 2008.<http://www.jornalcana.com.br/pdf/168/%5Cretro.pdf>.

31 Mayer Armin. “Low-carbon economy – green jobs pipe dreams.” 2 May 2008.Ethical Corporation Europe. 23 July 2008.<http://www.ethicalcorporation.com/content.asp?ContentID=5875&ContTypeID=36>.

32 Renner, Michael. “Jobs in Renewable Energy Expanding.” Worldwatch Institute. 22July 2008. <http://www.worldwatch.org/node/5821>.

33 Apollo Alliance. “New Energy for America, The Apollo Jobs Report: Good Jobs &Energy Independence.” Jan. 2004. The Institute for America’s Future & The Centeron Wisconsin Strategy. 05 Aug. 2008 <http://www.apolloalliance.org/downloads/resources_ApolloReport_022404_122748.pdf>.

34 United Nations in China. “High-Level Forum Held to Discuss Future Actions toCombat Climate Change through Technology Innovation.” 25 Apr. 2008. UnitedNations. <http://www.un.org.cn/cms/p/news/27/526/content.html>.

35 International Energy Agency. ”Energy Technologies at the Cutting Edge.“International Energy Technology Collaboration and IEA Implementing Agreements.OECD/IEA: Paris, 2007. IEA Website 21 Aug. 2008<http://www.iea.org/textbase/nppdf/free/2007/Cutting_Edge_2007_WEB.pdf>.

36 Cespedes, Teresa. ”Colombian sugar miller sweet on biofuels.“ 16 May 2008.Reuters. 22 July 2008. <http://www.reuters.com/article/GCA-Agflation/idUSN1644984820080517>.

37 Massey, Steve. ”China picks Westinghouse for 4 Nuclear Plants.“ 17 Dec. 2006. ThePittsburgh Post-Gazette. 18 Aug. 2008 <http://www.post-gazette.com/pg/06351/746789-28.stm>.

38 Steenstrup, Kristian. ”The Consumerization of Energy Changes the Balance ofPower – IT’s Role in Managing Domestic Power Consumption.” World EconomicForum, Cambridge Energy Research Associates. ”Energy Vision Update 2008:Solving the Energy Puzzle through Innovation.“ Geneva: 2008.<http://www.weforum.org/pdf/energy_industry/EnergyVision.pdf>.

39 Green Car Congress. ”Global Cumulative Toyota Hybrid Sales Pass 1 Million Mark.“7 June 2007. Green Car Congress Online. 7 Aug. 2008.<http://www.greencarcongress.com/2007/06/global_cumulati.html>.

40 United States. Department of Energy, Energy Efficiency and Renewable Energy.”Sales of Compact Fluorescent Lights Jump to 20% of the Market.“ 15 Jan. 2008.EERE News. 18 Aug. 2008<http://www.eere.energy.gov/news/news_detail.cfm/news_id=11520>.

41 World Economic Forum, Cambridge Energy Research Associates. ”Energy VisionUpdate 2008: Solving the Energy Puzzle through Innovation.“ Geneva: 2008.<http://www.weforum.org/pdf/energy_industry/EnergyVision.pdf>.

42 Wenzel, Elsa. ”IKEA to Sell Solar Panels?“ 7 Aug. 2008. CNET Tech News, CBSNews. 18 Aug. 2008<http://www.cbsnews.com/stories/2008/08/07/tech/cnettechnews/main4327038.shtml?source=RSSattr=SciTech_4327038>.

43 Brown, Tim. ”The Role of Consumers in Energy Industry Innovation.“ WorldEconomic Forum, Cambridge Energy Research Associates. ‘Energy Vision Update2008: Solving the Energy Puzzle through Innovation.’ Geneva: 2008.<http://www.weforum.org/pdf/energy_industry/EnergyVision.pdf>.


45 Osborne, Stefan. “Energy in 2020: Assessing the Economic Effects ofCommercialization of Cellulosic Ethanol.” U.S. Department of Commerce,International Trade Administration. Manufacturing and Services CompetitivenessReport. November 2007. <http://www.ita.doc.gov/media/Publications/pdf/cellulosic2007.pdf>.

46 Osborne, Stefan. “Energy in 2020: Assessing the Economic Effects ofCommercialization of Cellulosic Ethanol.” U.S. Department of Commerce,International Trade Administration. Manufacturing and Services CompetitivenessReport. November 2007.<http://www.ita.doc.gov/media/Publications/pdf/cellulosic2007.pdf>.

47 Hockfield, Susan. ”Roles of Energy Incumbents and Market Transformers.“ WorldEconomic Forum, Cambridge Energy Research Associates. ‘Energy Vision Update2008: Solving the Energy Puzzle through Innovation.’ Geneva: 2008.<http://www.weforum.org/pdf/energy_industry/EnergyVision.pdf>.

48 Hockfield, Susan. ”Roles of Energy Incumbents and Market Transformers.“ WorldEconomic Forum, Cambridge Energy Research Associates. ‘Energy Vision Update2008: Solving the Energy Puzzle through Innovation.’ Geneva: 2008.<http://www.weforum.org/pdf/energy_industry/EnergyVision.pdf>.

49 Brown, Tim. ”The Role of Consumers in Energy Industry Innovation.“ WorldEconomic Forum, Cambridge Energy Research Associates. ‘Energy Vision Update2008: Solving the Energy Puzzle through Innovation.’ Geneva: 2008.<http://www.weforum.org/pdf/energy_industry/EnergyVision.pdf>.

50 Rubens, Craig. ”Small-scale Wind Maker Marquiss Acquires Cirrus, GoesFundraising.“ 23 July 08. Earth2Tech.com 2 Sept. 08<http://earth2tech.com/2008/07/23/small-scale-wind-maker-marquiss-acquires-cirrus-goes-fundraising/>.

51 Bross, Matt. ”Innovation at the Speed of Life.“ World Economic Forum, CambridgeEnergy Research Associates. ‘Energy Vision Update 2008: Solving the Energy Puzzlethrough Innovation.’ Geneva: 2008.<http://www.weforum.org/pdf/energy_industry/EnergyVision.pdf>.

52 Warren, Michael. ”Innovation in the Automotive Industry.“ World Economic Forum,Cambridge Energy Research Associates. ‘Energy Vision Update 2008: Solving theEnergy Puzzle through Innovation.’ Geneva: 2008.<http://www.weforum.org/pdf/energy_industry/EnergyVision.pdf>.

53 Biopact. “Energy Quest and Chilean farmers in join biomass gasification project toproduce synthetic diesel.“ 4 Mar. 08. Biopact.com 2 Sept. 08.<http://biopact.com/2008/03/energy-quest-and-chilean-farmers-in.html>.




57 Van der Veer, Jeroen. ”Energy Innovation: A Matter of Evolution – Not Revolution.“World Economic Forum, Cambridge Energy Research Associates. ”Energy VisionUpdate 2008: Solving the Energy Puzzle through Innovation.“ Geneva: 2008.<http://www.weforum.org/pdf/energy_industry/EnergyVision.pdf>.

58 Rogers, James E. ”Catalysts for Innovation.“ World Economic Forum, CambridgeEnergy Research Associates. ”Energy Vision Update 2008: Solving the EnergyPuzzle through Innovation.“ Geneva: 2008.<http://www.weforum.org/pdf/energy_industry/EnergyVision.pdf>.


60 De Pass, R. Andrew. ”The Dynamics of Green-tech Investment.“ World EconomicForum, Cambridge Energy Research Associates. ”Energy Vision Update 2008:Solving the Energy Puzzle through Innovation.“ Geneva: 2008.<http://www.weforum.org/pdf/energy_industry/EnergyVision.pdf>.

61 Global Network on Energy for Sustainable Development. ”Poverty Reduction: CanRenewable Energy make a real contribution?“ May 2006.<http://www.gnesd.org/Downloadables/PovertyReductionSPM.pdf>.

62 Burger, Andrew K. “The Green Technology Revolution, Part 2: Easing the Burdenwith Virtualization.“ 13 Dec. 2007. TechNewsWorld. 8 Aug. 2008<http://www.technewsworld.com/story/60747.html>.

63 Burger, Andrew K. “The Green Technology Revolution, Part 2: Easing the Burdenwith Virtualization.“ 13 Dec. 2007. TechNewsWorld. 8 Aug. 2008<http://www.technewsworld.com/story/60747.html>.

64 For example, see United States. Department of Treasury. “Testimony of Stuart Levey,Under Secretary Office of Terrorism and Financial Intelligence Before the SenateCommittee on Banking, Housing, and Urban Affairs.” 13 July 2005. Press Room U.S.Department of the Treasury. 8 Aug. 2008.<http://www.ustreas.gov/press/releases/js2629.htm>.

65 The Economist. ”A Healthier Addiction.“ 23 May 2006. Economist Business. 1 Aug.2008. <http://www.economist.com/business/displaystory.cfm?story_id=5655161>.

66 Pernick, Ron and Clint Wilder. The Clean Tech Revolution: Discover the Top Trends,Technologies and Companies to Watch. Collins Business: New York. 2008.


67 Airnews. ”Green technology to alleviate poverty in western China.“ 22 Nov. 2006.HKTDC. 8 Aug. 2008<http://technology.hktdc.com/content.aspx?data=Technology_content_en&contentid=735061&SRC=IN_News_HK&w_sid=194&w_pid=1414&w_nid=2&w_cid=735061&w_idt=1900-01-01&w_oid=&w_jid=>.



70 Foster, Robert E. and Alma D. Cota Espericueta. ”Two Decades of PV LessonsLearned in Latin America.“ Solar World Congress, International Solar Energy Society.Orlando: 11 Aug. 2005. <http://solar.nmsu.edu/publications/LAISES2005.pdf>.

71 Foster, Robert E. and Alma D. Cota Espericueta. ”Two Decades of PV LessonsLearned in Latin America.“ Solar World Congress, International Solar Energy Society.11 Aug. 2005. <http://solar.nmsu.edu/publications/LAISES2005.pdf>.


73 Vargas, Monica. ”Renewable energy law signed into effect in Chile.“ Ed. MargueritaChoy. 20 Mar. 08. UK Reuters. 2 Sept. 08<http://uk.reuters.com/article/oilRpt/idUKN2040461920080320>.

74 Environmental News Service. ”Green Jobs Campaign Aims to Create 820,000 NewJobs.“ 8 Apr. 2008. 22 July 2008. <http://www.ens-newswire.com/ens/apr2008/2008-04-08-092.asp >.

75 Canada. 25th Canadian Labour Council Constitutional Convention. 26-30 May 2008.Document No. 9. Climate Change and Green Jobs: Labour’s Challenges andOpportunities. 23 July 2008. <http://labourcouncil.ca/CLCgreen.pdf>.

76 Rubens, Craig. ‘UK Launches £100B Green Revolution.’ 27 June 2008. Earth2Tech.22 July 2008. <http://earth2tech.com/2008/06/27/uk-launches-100b-green-revolution/>.

77 The Scotsman. ”Green Revolution to Create 50,000 Jobs.“ 13 May 2008. GlobalEnergy Network Institute. 22 July 2008.<http://www.geni.org/globalenergy/library/technical-articles/generation/general-renewable-energy/energy-central/green-revolution-to-create-50,000-jobs/index.shtml>.

78 Biopact. ”Dynamotive to invest $105 million to develop second-generation biofueland electricity complexes for rural Argentina.“ 2 Oct. 07. Biopact.com 2 Sept. 08<http://biopact.com/2007/10/dynamotive-to-invest-105-million-to.html>.

79 Burger, Andrew K. ”The Green Technology Revolution, Part 3: Cleaner Energy, LessWaste.“ 14 Dec. 2007. TechNewsWorld. 8 Aug. 2008<http://www.technewsworld.com/story/60765.html>.

80 International Energy Agency. ”Energy Technology Perspectives 2008: In Support ofthe G8 Plan of Action, Scenarios and Strategies, Executive Summary.“ OECD/IEA,Paris: 2008.<http://www.iea.org/Textbase/techno/etp/ETP_2008_Exec_Sum_English.pdf>.

81 International Energy Administration. ”Energy Technology Analysis: Prospects forCarbon Capture and Storage.“ OECD/IEA: Paris, 2004. 20 Aug. 2008<http://www.iea.org/textbase/nppdf/free/2004/prospects.pdf>.

82 Nishio, Masahiro. ”Future Prospects on Technology of Carbon Capture andStorage.“ Energy supply and demand in the 21st Century, 6-7 Mar 2008. NationalInstitute of Advanced Industrial Science and Technology. 20 Aug. 2008<http://www.csnsm.in2p3.fr/JSPS-CNRS/presentation/080306_Presentation04_M_Nishio.pdf>.

83 McFarland, J.R., H. J. Herzog, and J. Reilly. ”Economic Modeling of The GlobalAdoption of Carbon Capture and Sequestration Technologies.“ MassachusettsInstitute of Technology: Cambridge. 20 Aug. 2008<http://sequestration.mit.edu/pdf/ghgt6_paper_136.pdf>.

84 Biggs, Sean, Howard Herzog, John Reilly and Henry Jacoby. ”Economic Modeling ofCO2 Capture and Sequestration.“ Massachusetts Institute of Technology:Cambridge. 20 Aug. 2008 <http://sequestration.mit.edu/pdf/Biggs_et_al.pdf>.


86 IEA. “Energy Technology Essentials: Fuel Cells.” April 2007. 18 Sept. 08<http://www.iea.org/Textbase/techno/essentials6.pdf>.


88 Fuel Cells 2000. “Fuel Cell Basics: Benefits.” Fuel Cell.org. 18 Sept. 08<http://www.fuelcells.org/basics/benefits.html>.



91 Fuel Cell Energy. “Benefits of Fuel Cell Technology.” 18 Sept. 08<http://www.fuelcellenergy.com/benefits-fuel-cell-technology.php>.

92 Fuel Cell Markets. “Advantages and Benefits of Fuel Cell & Hydrogen Technologies.”18 Sept. 08 <http://www.fuelcellmarkets.com/fuel_cell_markets/5,1,1,663.html>.

93 International Energy Agency. “Energy Technology Perspectives 2008: In Support ofthe G8 Plan of Action, Scenarios and Strategies, Executive Summary.” OECD/IEA,Paris: 2008.<http://www.iea.org/Textbase/techno/etp/ETP_2008_Exec_Sum_English.pdf>.

94 Coal and Fuel Blogspot. “Electric cell or battery and their recent breakthroughs.” 31Mar. 08. Posted by Environmental Engineering Solution. 18 Sept. 08<http://coalandfuel.blogspot.com/search/label/Lithium-ion%20batteries>.

95 Stober, Dan. “Nanowire battery can hold 10 times the charge of existing lithium-ionbattery.” 18 Dec. 07 Stanford News Service. 18 Sept 08 <http://news-service.stanford.edu/news/2008/january9/nanowire-010908.html>.

96 Ward, Logan. “New Nanowire Battery Life Reaches from iPods to Electric Cars.” 20Dec. 07 Popular Mechanics.<http://www.popularmechanics.com/science/research/4237756.html>.

97 Segway Company Website. ”Segway Announces NYPD Purchase of SegwayPersonal Transporters.“ Press Releases. 16 May 2007. Bedford, New Hampshire. 22Aug. 2008 <http://www.segway.com/about-segway/media-center/press_releases/pr_051607.php>.


99 Dorn, Jonathan G. “Solar Cell Production Jumps 50% in 2007.” 27 Dec. 07. EarthPolicy Institute. 3 Sept. 08 <http://www.earth-policy.org/Indicators/Solar/2007.htm>.

100 Renner, Michael, Sean Sweeney and Jill Kubit. “Green Jobs – Preliminary Report.”21. Dec. 07. The Worldwatch Institute, UNEP, ILO, ITUC. 18 Sept. 08<http://www.unep.org/labour_environment/pdfs/green-jobs-preliminary-report-18-01-08.pdf>.

101 Renner, Michael, Sean Sweeney and Jill Kubit. “Green Jobs – Preliminary Report.”21. Dec. 07. The Worldwatch Institute, UNEP, ILO, ITUC. 18 Sept. 08<http://www.unep.org/labour_environment/pdfs/green-jobs-preliminary-report-18-01-08.pdf>.

102 Solar Power Inc. “Economic Benefits of Solar.” 18 Sept. 08<http://www.solarpowerinc.net/Page.aspx?PageID=37>.

103 PR Newswire. “RoseStreet Labs Energy Announces Join Photovoltaic ResearchProgram With Los Alamos National Laboratory.” 29 July 08. PR Newswire.com 3Sept. 08 <http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/07-29-2008/0004857667&EDATE=

104 Such as the Energy Technology Systems Analysis Programme’s (ETSAP) MARKALand TIMES models. For more information on these models see the ETSAPwebsite: <http://www.etsap.org/index.asp>.


SCENARIOSSECTION THREE

Scenarios | Section 3 111155


3.1 Scenarios for Green Energyin the Americas

In the first quarter of 2008, Garten Rothkopf and the Inter-American Development Bank (IDB) convened threeday-long, invitation-only scenarios devoted to technology,investment, and policy trends in green energy. Thesesessions brought together 150 leading experts fromthroughout the Western Hemisphere to game out the likelyimpact of three possible scenarios for our energy future: abaseline “Pale Green” scenario, an “Out of the Blue”shock scenario, and a “Bright Green” scenario forunprecedented international cooperation on climatechange. During the sessions, participants took part inanonymous polling to frame our discussion and gauge thesentiment in the room. The discussions and polling resultstogether produced new insights into the key challengesfaced by this hemisphere in the coming years, the areas ofgreatest opportunity, and how the Inter-AmericanDevelopment Bank can best support countries in theregion to adapt to the changing energy and climate future.

The Scenarios

The Scenarios for Green Energy in the Americas Serieswas conceived of as a joint effort between GartenRothkopf and the IDB to convene high-level meetings ofacademic, business, and policy leaders from throughoutthe hemisphere to determine the future of green energy. Inaddition to energy and environment ministers and otherhigh-level government representatives from throughout theregion, participants were chosen for their expertise andleadership in a given field of green energy, whether inresearch, business development, or the policy arena. Inthe end, experts from more than 20 countries in theAmericas and Europe gathered to discuss these scenariosat the IDB headquarters in Washington, D.C. GartenRothkopf designed the scenarios after exhaustive researchinto the potential for green energy development in LatinAmerica and the Caribbean.

Pale Green

In the first scenario, participants were asked to explore afuture in which the next 10 years look very much like thelast five. This "steady state" energy future is categorizedby increasing energy demand in industrialized countries,growing greenhouse gas emissions, a lack of globalpolitical will to address climate change, annual 10%increases in renewable energy capacity, and growth in thenumber and diversity of countries investing in renewables.But industrialized and developing countries fail to agree onglobal climate change policy and emissions targets. As

energy demand growth outpaces growth in supply ofrenewables, the extent to which the world continues to bereliant upon fossil fuels to meet increasing energy demandbecomes more apparent. The concentration of energydemand growth in developing countries is due to theenergy intensity of the process of industrialization and theintroduction of new populations to conventional energysupplies due to urbanization. As such, oil remains themost utilized energy source, and coal is the fastest-growing energy source worldwide, ensuring that fossilfuels continue to drive increases in greenhouse gasemissions and that emissions continue to increase into thecoming decades.

Garten Rothkopf found that the key obstacles to greenenergy that must be overcome under such circumstancesare government regulation (35%), lack of investment(25%), and a lack of political will (24%). A strong majority,69%, said that the perceptions regarding the cost-benefitcalculations of such projects are the most important toovercome.

The continued dominance of coal as the world’s fastest-growing source of energy in this scenario, expertsbelieved, would strain the ability of policymakers todevelop effective and wide-reaching emissions-reductionprograms. This was reflected in the belief by almost 80%of participants that carbon-sequestration technologywould not be commercially viable until 2020 or later,placing significant limitations on the extent to whichpolicymakers would be able to reduce emissions while stillutilizing vast coal resources.

Promising technologies might also be able to meetincreasing energy demand. According to 32% ofparticipants, biofuels could, in some cases, make animportant contribution to alternative developmentstrategies throughout Latin America and the Caribbean,while 30% said that wind might also play an integralrole. There was greater agreement that there is strongpotential for small-scale renewables to meet the urgentdemands of rural and underdeveloped communities. Inthis context, 45% of participants said that biofuels holdthe greatest promise for enhancing rural development inthe region.

There was no consensus as to the institutions that wouldbe best positioned to facilitate this technology roll-out.According to 39%, government was best suited to playsuch a roll, while 24% said that the private sector wasequally suited and 22% said that NGOs and microfinanceinstitutions would play the greatest role. The experts weremuch more decisive about the most influential policy forenhancing the potential for green energy in Latin America


and the Caribbean: Half said that an increase in taxincentives would do the trick.

Out of the Blue

The second scenario, envisioning a shock to the system in2009, was designed to explore the effects of a major andsustained increase in the price of traditional energysources. The scenario begins with the outbreak of warbetween the U.S. and Iran, prompting initial jumps in theprice of oil, followed by more consistent price increases asthe confrontation becomes protracted. As the warcontinues, Western relations with Russia grow tense, as thecountry continues to sell military equipment to Iran. Theuncertainty created by this relationship pushes up the priceof natural gas, prompting nations to begin to stockpilepetroleum. With the ongoing war and the hike in oil and gasprices, a terrorist group enters a nuclear facility in theWestern Hemisphere and successfully steals radioactivematerial. A public backlash against nuclear powergeneration ensues as security becomes a paramountconcern, highlighting the important drivers of nationalsecurity, energy security, the economic impact of such anenergy price spike, and nuclear risk in this scenario.

Participants were optimistic about the green energysector’s prospects during this scenario. According to 85%,countries in the Western Hemisphere would dramaticallyincrease green energy programs in the face of such acrisis. Most of those polled said that biofuels andconservation and efficiency efforts in the region are thetwo sectors that would benefit the most from such ascenario, garnering 38% and 28%, respectively. The

development of such sectors, however, would notnecessarily be without risk. According to 72%, thisscenario could allow biofuels producers to collude to raiseprices, just as OPEC has done with oil. Perhaps taking thisinto account, and also recognizing the time it would taketo develop a strong renewables market, 63% believed thattraditional fossil fuel sources, like coal, would play agreater role than renewables in helping countries toweather the crisis.

In a similar context, the extent to which this scenariowould lead to international cooperation was uncertain. Thegroup was almost evenly divided on this front: Accordingto 52%, a crisis would lead to greater internationalcooperation and technology transfer, whereas 48%claimed that more nationalization and exclusive accesswould come about. Even so, over 62% believed that sucha crisis would accelerate cooperation to develop greenenergy technology within the Western Hemisphere. Thefinding implies that the region might be particularly wellsuited to cooperation regarding the promotion anddevelopment of green energy as compared to otherregions of the world.

Bright Green

In this scenario, political will, energy-demand growth, therate of increase of the Earth’s average temperature, andthe pace of technological innovation drive enhanced andcoordinated efforts to directly tackle global climate changein order to produce a new energy paradigm of innovationand leadership. President Barack Obama vows toaccelerate the Bali process, join other countries in setting

Chart 3.1. World Primary Energy Demand (Mtoe), 2000–2030

0

2000

4000

6000

8000

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14000

16000

18000

20000

2000 2005 2015 2030

Other renewables

Biomass/waste

Hydro

Nuclear

Gas

Oil

Coal

MTo

e

Source: World Energy Outlook 2007


aggressive carbon emissions-reduction targets, andincrease investment in green energy technologies. Withthe U.S. firmly committed, international cooperation tofight global warming reaches new heights. Developingand developed countries agree on ways to shareresponsibility for emissions reductions and work togetherto establish a functional and internationally administeredgreenhouse gas emissions regulatory authority andtrading system. In the Western Hemisphere, a Summit ofthe Americas is convened to produce a hemisphere-widecommitment to achieving global leadership in greenenergy. Mechanisms are established to promotetechnology transfer, to finance innovation, and to createincentives for efforts in energy efficiency and renewables.Special focus is placed on infrastructure projects thatensure that renewable technologies are utilized asefficiently and effectively as possible.

This movement would lead to more than just politicalchange. Experts agreed that because the world hasentered a period of dramatic policy change in thisscenario, there is also a unique opportunity for theproactive harmonization of standards and energycooperation. A clear majority, 77%, said that a newcommitment to environmental goals would lead to theliberalization and meaningful expansion of global marketsfor renewable energy and carbon credits within the nextfive years. Most, 72%, felt that this process would beirreversible once begun. Still, the extent to which thistransformation is driven by policy remained questionable:A very skeptical 52% of participants said that acatastrophic event directly linked to global warming wouldneed to happen in order for this scenario to play out.

Both the creation of carbon markets and the deploymentof renewables would benefit from this scenario.Regarding carbon markets, 77% said that a global cap-and-trade or carbon tax regime would come about by2015 or sooner. Additionally, 80% of participantsanticipated binding GHG emissions-reductionrequirements for developing countries in a post-Kyotointernational climate change treaty.

Renewables would also benefit in this context, though itwas less certain how. Experts were split as to the mosteffective policies for the promotion of renewables: While32% said that guaranteed loans and preferential financingwould be the most effective policy, a significant 28%believed that tax incentives would do the trick, and 21%said subsidies. At the same time, however, many notedthe expected value chain lag that could continue undersuch a scenario. According to 49%, the region’s energy-distribution network would play the greatest role in thislag, while 35% said production. Perhaps reflecting uponthis expected lag, 70% of participants believed thatadvanced grid technologies would play a meaningful rolein developing regions in the decade ahead.

Key Findings

The purpose of a scenario exercise is not to predict thefuture, but rather to allow a group of leaders to considercollectively how they might be affected by differentoutcomes, what their vulnerabilities and risks are, whattheir comparative strengths are, and what approachesmake the most sense. Across scenarios and sessions, thevast majority of participants identified three critical gaps asthe most significant barriers to green energy developmentin the hemisphere — policy, infrastructure, and technology— as well as proposals for how the IDB might helpaddress them.

Participants consistently and overwhelmingly identified thepolicy gap as the greatest barrier to green energy in theAmericas, followed by technology and innovation issues.Policy, according to 42%, is the greatest gap, and another24% cited R&D, while 51% cited political will as thegreatest challenge to green energy. Lack of technologywas the response from 19%. It was nearly unanimous(94% and 88%) that countries in the region lack sufficientenergy and climate change planning and have insufficientresources dedicated to these issues. The issue extendsbeyond a mere lack of will or interest; 68% of participantssaid policymakers in the region lack the understandingand knowledge necessary to develop sound policies inthis area. Multilateral financial institutions, however, wereseen as having an important role to play in addressingthese gaps, with 86% of participants agreeing thatinstitutions like the IDB should work with countries todevelop new models for green energy in developingcountries. A number of very specific proposals wereoffered:

• The IDB should sponsor a study of the economicimpact of climate change on the hemisphere, at aregional, sub-regional, or national level to increase


69% of respondents believed that

biofuels and energy efficiency

technologies have the greatest

potential to contribute to economic

growth in the region.


knowledge on the costs of climate change and supportsound decision-making and allocation of resources bygovernments.

• The IDB should focus special attention on the islandsand shorelines uniquely exposed to the impact ofclimate change.

• The IDB should consider enhancing the environmentaland energy economic analysis capacity at the Bankand establish a clearinghouse for regional data.

• The IDB should continue activities like the scenarioseries, with a more specific regional or even nationalfocus.

As stated above, local innovation and access totechnologies were seen as the next most important barrierto the development and deployment of renewable energyin the Americas. Only 9% of participants did not perceivethe region as dependent on technology imports, withexperts time and again citing multi-year waiting lists forcapital-equipment imports such as wind turbines and thelack of tailored solutions for local conditions. Again,specific ideas were given for how the IDB could helpaddress these issues, including the facilitation of south-south technology transfer and investment throughcoordination with other regional development banks. Withregard to catalyzing local R&D, participants pointed first toproviding financial and technical support for thedevelopment of appropriate policy frameworks (42%),followed by the direct funding of centers of excellencededicated to green energy in the region (23%).

Finally, participants predicted the need for massiveinvestments in new energy infrastructure over the next fiveyears, with 75% of those polled expecting the bill to be inthe range of $50 billion to $100 billion. The focus here wason the power-generation sector, particularly connectingthe 40 million people living in the Americas today withoutaccess to electricity. In this context, 45% said thattransmission lines to rural areas should be the priorityinfrastructure gap addressed in the region, with anadditional 30% citing upgrading existing grids. What wasnot captured in these raw numbers, but pointed toconsistently throughout the sessions, was the potential forrenewables to play a role in leapfrogging existing systemsand providing off-grid power to rural communities.


3.2. Scenarios

3.2.1 PALE GREEN

The first scenario, Pale Green, assumed a steady state inwhich investment continues to increase at roughly thesame pace as today, international climate change policyremains superficial or non-existent, the internationalenergy matrix remains roughly similar, and technologicalinnovation continues at current rates. Envisioning thissteady state, Garten Rothkopf asked experts at threedifferent events what the future of renewable energy wouldlook like, including a view to potential hurdles thatrenewable energy could face and the areas in whichrenewables would likely make the most progress. Thediscussions highlighted areas of significant consensus aswell as areas of considerable variance in opinion.

Discussions in the Pale Green scenario of all threesessions — technology, investment, and policy — focusedon four broad categories: policy issues, infrastructuralconcerns, problems of scale, and methods ofdevelopment of particular concern to Latin America.

Key Obstacles

Participants highlighted the central role thatgovernments will play in the development of renewableenergy policy and the subsequent commercialization of

green energy. In this context, they discussed the lack ofgovernment preparedness in developing appropriateand effective policies, the education gap betweendeveloped and emerging economies with regard torenewables, and the implications of theseconsiderations on energy security.

While experts agreed that governments will play thegreatest role in the development of renewable energies,they also conceded that today they are woefullyunprepared to do so. A staggering 94% of those who tookpart said that governments in the Western Hemisphere donot have sufficiently well developed energy or climatechange plans.

Given these shortcomings, 35% of experts determinedthat the key obstacle to green energy is governmentregulation, while about one-quarter said that political willand lack of investment, respectively, are the greatesthurdles to be overcome. According to 68%, policymakersdo not have a strong enough understanding of thecomplex issues associated with sound energy and climatechange policy. This lack of understanding could lead tolegislation that is at best superficial and at worstmisguided, the latter a reflection of concerns that policycould potentially steer investment toward ineffective orinappropriate technologies. Several noted that policies todate have left too much uncertainty to garner publicsupport or investor confidence, and as such have notbeen worthwhile.

Chart 3.2a World Primary Energy Demand, 1980–2030

0%

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10%

15%

20%

25%

30%

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40%

45%

50%

1980 1986 1992 1998 2004 2010 2016 2022 2028

Coal Oil Gas Nuclear Hydro Biomass/waste Other renewables

Source: World Energy Outlook 2008


Perceptions of Green Energy

Education of both policymakers and the public will play acentral role in altering the damaging perceptions thatsome now have of green energy. In order for effective anduseful legislation to be passed, legislators need to have abetter understanding of the full extent of climate change,the effects of greenhouse gas emissions, energy costs andenergy security, and the interplay of all of theseconsiderations.

Education will also play a key role in the public’sperception of renewables and climate change policy. Manydo not understand the macro effects that climate changeand energy policies have; instead, they base theirperceptions on how they are affected, usually monetarily.Because expanding the understanding of climate changeand energy-related issues is likely to deepen support forgreen endeavors, the direct effects of energy policy —including, but not limited to, monetary effects — must befully understood given that future green energy laws willprobably require a monetary cost to the consumer.

“Education is a fundamentalconcept for the legitimacy of thismovement.”

– Pedro Gamio Aita, Vice Minister of Energy, Peru

Before such projects can be implemented, the public needsto be made fully aware of the reasoning behind additionalexpenditures. Cost-benefit calculation, cited by 69% ofexperts, is by far the greatest perception that needs to beovercome in order to move beyond obstacles to greenenergy in the Americas. Doing so will be difficult, however,given that the costs associated with renewable energylegislation tend to be more tangible to the public than thelonger-term benefits of dealing with climate change.

One potential method for overcoming these perceptions isthrough technologies that aid in economic development.Half believed that an increase in tax incentives forrenewables would alter these cost-benefit calculationsenough to make the public feel that investing inrenewables is worthwhile. But determining who or what isbest positioned to facilitate the technology roll-out ofrenewables was not as easy. Though 39% said thatgovernments are best suited to facilitate this roll-out, asignificant 24% felt that the private sector would be better,and another 22% cited NGOs and microfinanceinstitutions as the best equipped for such an undertaking.Regardless of who implements them, participants saidthey hope that such technology transfer issues will beincorporated into any post-Kyoto international agreement.

Still, they were skeptical about the international context.With the Kyoto Protocol set to expire in 2012, and the Baliprocess producing very little substantive change, there isconcern that international indecision with regard to climatechange issues in this scenario will lead to waning interest

Chart 3.2b Obstacles to Green Energy

Government Regulation 35%

Political Will 24%

Investment 25%

Technological Development 15%

Other 1%



in renewable technologies. The belief that only superficialinternational agreements, without binding stipulations, willbe reached seems to highlight the uncertainty amongexperts regarding even well-intentioned policy changes.

Promising Technologies and Development

Throughout the scenario, participants continually linkedinvestment and development. Most countries in the regionhave little capital with which to invest in renewable energy.Because they cannot afford to subsidize renewables to thedegree that the U.S. or other governments can, it isunlikely in the steady-state scenario that many countries inthe region will be able to provide the incentives needed todevelop widespread use of renewables.

Participants were convinced, however, that pursuingdevelopment goals and the usage of renewables are notmutually exclusive undertakings. They noted that thebiofuels sector, for example, has great potential for jobcreation. And while the extent to which such “green collar”jobs can boost the economies of emerging marketsremains to be seen, experts agreed that room must becreated to pursue both ideas so that policies can beeffective in Latin America.

“Efforts to improve global warminghave to be in line with othergeneral policy issues within eachcountry.”

– Arturo Infante-Villareal, National Coordinator, Sustainable

Development for Biofuels, Colombia

Of particular interest was the possibility for increasedrural development in Latin America. Major investments ininfrastructure expansion will be necessary in order tobring rural areas on par with urban ones. Investment inroad infrastructure will be particularly important for thedevelopment of renewable energy, in terms of movingcomponent parts, while investment in distributionnetworks for liquid fuels will be a key infrastructuralcomponent for biofuels distribution. This could be a verysignificant consideration, given that 45% of participantsfelt that biofuels would be the best technology fordevelopment, and 24% felt that solar would bestenhance development. Participants also agreed thatthere is great potential for small-scale renewables, suchas small hydro, to meet the urgent demands of rural andunderdeveloped communities.

Continued Dominance of Coal

The capacity to bring renewable energy up to scale willplay a significant role in the ability of renewables tosupplant fossil fuels. Because the amount of energyderived from fossil fuels that renewables would have toreplace in order to have a significant impact is sosubstantial, renewables have not yet reached the scalenecessary to be price-competitive.

Time is an issue in developing renewable energyinfrastructure. With the need to meet growing energydemand in real time, many countries lean toward optionsthat can be developed fastest to provide the most energyin the shortest term. That means relying on tried andproven methods of energy generation, mainly from fossilfuels. Incidentally, the options that can be developedfastest — such as coal and natural gas, for example —are also less expensive than renewables. Largely becauseit is scalable for power generation, comparatively cheap,and abundant, 73% of participants felt that coal willremain the fastest-growing source of energy in thecoming decades.

This finding did not seem to drive participant thinkingregarding how coal’s negative atmospheric effects wouldbe handled. According to 40% of participants, carbonsequestration will be not be an option until after 2020,limiting the scope that policymakers will have in which tomeet energy demand quickly and in an environmentallyfriendly way. With coal usage continuing to grow, andcarbon sequestration not yet commercially viable, globalgreenhouse gas emissions will continue to grow apace.

Summary of Findings

Such a steady-state scenario will be characterized by theregion’s ability or inability to find policy consensus. It willalso be marked by individual countries’ policy choices,how these choices aid or harm development in theregion, the extent of infrastructure development, and theregion’s ability to scale up the use of renewables toreplace fossil fuels. Participants felt that this scenariowould mean continued progress to some degree, butwith renewables continuing to make only a minor impactworldwide.

While this scenario is disappointing on the climate changefront, it may be the easiest for Latin American countries tohandle in terms of what it would mean for the continueduse of fossil fuels. As most countries in the region alreadyrely on fossils for such a large portion of their energymatrix, continuing in this way would likely be the most


cost-effective for them. Change, on the other hand, wouldbe costly, and with the region’s focus on development,continuing the status quo may be the path of leastresistance.

3.2.2 OUT OF THE BLUE

In Out of the Blue, participants examined what could resultin the aftermath of some dramatic event that would reduceaccess to traditional fossil fuels and nuclear technology,and that would also shift the course of energy policy,investment, and technology. While this could be causedby a wide range of events, the discussion focused on whatwould happen in the wake of an armed conflict with Iranthat involved a small- to medium-scale nuclear event in itswake. In this scenario, traditional fossil energy sources arenot as readily available, and nuclear energy suffers frompublic perceptions of its danger. To that extent, alternativefuels could become viable options for meeting futureenergy demand. Thus, participants discussed whichenergy sources would best replace conventionals and howthis might be achieved.

This type of scenario has occurred in the past: Severalparticipants remarked that the 1973 OPEC oil embargoproduced a similar shock, altering the course of Westernenergy policy toward exploration and conservation. Themagnitude of the shock was so pronounced that researchand development in energy technologies by the U.S.Department of Energy peaked in 1978, followed by twodecades of decline.1 Participants noted that the oil shocksoffer useful insights into what might occur in future shockscenarios. In the scenario of war with Iran, those takingpart discussed the likely effects on the world’sdependence on liquid fuels, climate change policy andgreenhouse gas emissions mitigation, and developmentgoals in Latin America.

Impact on Green Energy

The first part of the discussion revolved around the effectthis scenario would have on green energy. Even thoughsome 63% of participants believed that traditional fossilresources, like coal, would play a greater role thanrenewables in such a crisis, 85% said that countries inthe Western Hemisphere would dramatically increasetheir green energy programs as the result of the crisis. Infact, many felt that this scenario would lead to such asituation whereby the market shift would be permanent. Participants expressed concern that existing policyframeworks are wildly inefficient, and investmentsmisdirected: 94% of them felt that countries in theWestern Hemisphere do not have sufficiently developed

energy or climate change plans. If confronted with an Outof the Blue crisis, politicians might enact policies thatunintentionally backfire with negative effects, such asinsisting on unrealistic mandates of inefficient fuels ordevoting funding to scaling up the most well-developedenergy of the moment rather than promoting researchand development of better energy alternatives for thelonger term.

“This scenario leads to gamechanging technologies that willmake it difficult to go back to amarket that resembles what wehave now.”

– Edward Hoyt, Senior Vice President,Econergy International Corporation

Of these programs, 38% of participants maintained thatbiofuels would benefit the most from such a negativeevent, followed by 28% who said that technology toincrease energy efficiency would garner the mostinvestment. As biofuels begin to replace oil fortransportation, the world will see an enhancedinternational biofuels trade. Most participants (72%)believed that as this occurs, there will be scope forbiofuels producers to collude and hence control globalprices, creating a group similar to OPEC in form andfunction.

Several key points arose surrounding the world’sdependence on liquid fuels, namely for transportation.These liquid fuels are a key driver of economies, as theyare utilized for moving products over land and by sea. Asoil prices rise, so does the cost of getting goods tomarket; however, despite high oil prices today, producersand consumers are willing to pay because there iscurrently no scalable alternative to oil.

Given the price inelasticity of oil, participants agreedthat scarcity, not price, would incite the shift from oil torenewables. Though some would argue that the worldhas already reached peak oil, optimistic assessmentsproject that oil will peak oil sometime in the 2020s andfall steadily thereafter. This timeline will depend on thequantity of available oil in sources like oil sands anddeep-water wells, as well as the development oftechnology that will provide access to them. A majorityof participants (62%) believed that scarcity would notcome into play in the near future, and thus thatconventional energy sources would dominate use. Thiswas because, in part, biofuels have not yet reached a


high enough stage of development to replaceconventional fuel at full scale. Every participant believedit will take more than 10 years for renewables tosupplant nuclear power, and 74% felt it would take morethan 20 years. These participants said that scaling upbiofuels would require a major overhaul of infrastructureand vehicle design, rendering it a nearly impossiblealternative in the short term under an Out of the Bluescenario. It was an interesting finding that seemed to beat odds with the feeling that biofuels would benefit mostfrom such a shock.

One worry is that fuel scarcity could drive politicalinstability and subsequently produce a public uprising orsecurity threat. There is already discontent as pricescontinue to rise, but a permanent shortage would havemore serious political implications. Scarcity would have animpact on military and security forces and their ability tofunction to their full extent.

International Cooperation

Many participants felt that security concerns would drivepolicymakers toward nationalism, especially given thepotential problems for military forces. Participantsdisagreed, however, about whether a supply shock wouldlead to increased international cooperation on energypolicy. While 52% of participants felt that a supply shockwould enhance international cooperation and technologytransfer in the Western Hemisphere, they disagreed as towhether this would mean more South-South cooperation

or more North-South cooperation. Participants who feltthat there would be increased North-South cooperationcited lack of capital for development of renewabletechnologies in the emerging economies, which wouldfurther the emerging economies’ dependence on thedeveloped world for technology imports.

Magnifying the uncertainty that such a scenario wouldbring about greater cooperation, an almost equal portionof participants felt that the scenario would not only leadto less cooperation, but also to even more nationalization.Some 48% remained skeptical of internationalcooperation and said that such an event would even leadto more nationalization and exclusive access amongcountries. Taking it one step further, to the logicalconclusion that countries are likely to consolidate andprotect resources, almost three-quarters (72%) said thatthis scenario would allow for biofuels producers tocollude to raise prices. Again, it was a stark reminder ofthe pitfalls of relying on any one technology, especiallyconsidering that the participants felt that biofuels wouldbe best placed to benefit in such a context.

Emissions Reduction Policy

Another key discussion in this scenario was the outcomefor climate change policy: Would carbon-reduction effortscontinue, cease entirely, or fall somewhere in between?Participants maintained that in a time of crisis,environmental considerations, like global warming, will notdrive energy policy.

Chart 3.2c Which Technology Would Benefit Most?

Biofuels 38%

Conservation and Efficiency 28%

Clean Coal 15%

Nuclear 10%

Wind 6%

Solar 3%



A total of 62% of participants felt that, under a supplyshock, countries will return to relatively inexpensive coal.The developing world, in particular, will turn to coal, giventhe relative ease of building coal plants. A total of 77% ofparticipants felt that this scenario would lead to arelaxation of federal environmental regulations, and severalcited instances in which the U.S. Environmental ProtectionAgency (EPA) may ease regulation in the event of such aneed, like drilling in protected areas.

“Coal will remain emperor.”– Kelly Fletcher, Advanced Technology

Leader, Sustainable Energy Program, GE

Expense was a key factor with regard to carbon in thisscenario as well. As non-polluting technologies areexpensive, they would need to be rolled out with suchspeed in this scenario that it would be cost-prohibitive. Assuch, participants felt that there would be little room for anemissions-reduction policy.

Development Policy

Participants also discussed development policy as acritical issue in an Out of the Blue scenario. Mirroring thefinding from the Pale Green scenario, countries’ energymatrices will need to include a variety of technologies inorder to meet demand, including several options forelectricity generation and transport fuels. Because eachenergy source has its own associated infrastructurerequirements, this will mean significant energyinfrastructure investments and construction. Diversificationon such a small scale will be incredibly difficult andexpensive.

“This situation would lead toinnovation in all countries, whichneeds to be seen as an opportunityfor development.”

– Alvaro Amaya, President, Cenicaña, Colombia

Participants felt that such diversification may be beyondthe means of some of the smaller Latin American nationsand suggested that they may need to combine gridsinternationally to create greater total demand; yet, thisrepresents a host of technical problems in and of itself.Island nations will most likely be hit the hardest in thisinstance because they have very small economies and

are unable to link grids with larger ones. Participantsdisagreed on the feasibility of integrating internationalgrids: Some felt that it would be necessary to diversifyproduction and provide reliable sources of energy; others,however, maintained the earlier argument that securityreasons would prevent such integration.

Some experts felt that in spite of the challenges thattoday’s grids represent, an Out of the Blue scenario couldbe beneficial to small, distributed production —particularly if there were a threat to centralized generation.For example, if such a scenario included a hostile strike ona nuclear plant or some other sort of aggressive disruptionof energy generation, decentralized generation from small-scale producers could be favored for security reasons. Aspreviously discussed, many participants felt that emergingeconomies would look to developed nations for moreNorth-South cooperation rather than to their neighbors forSouth-South cooperation.

Summary of Findings

This scenario is particularly dire for Latin America becauseof its implications for development and smaller-scaleeconomies. Indeed, 85% of the participants felt that thisscenario would lead to a rapid increase in the rate ofdevelopment of biofuels, but only 11% felt that this was asituation with which their organization was best preparedto deal. This context is also the most likely to bring abouta rapid retreat from policies to reduce greenhouse gasemissions — a stark reminder of the extent to whichnegative events can have even greater long-term negativeconsequences.

3.2.3 MYTHS, MISCONCEPTIONS,AND X-FACTORS

The renewable energy sector is growing strongly, fueled by41% growth in investment in 2007 and record energyprices.2 In spite of more widespread public discussionabout renewable energies, misconceptions remainconcerning the necessity for further development, theextent of existing capabilities, and the potential forrenewable energy development. Participants identifiedseveral areas where public knowledge is incorrect, lacking,or obscured by contradictory information. The mostnotable of these are: misinformation about the existenceof climate change, a lack of understanding regarding thescope and scale of renewables needed to supplant fossilfuels, and the environmental impacts associated withrenewable energies.


#1 Myth Concerning Climate Change

The number-one misconception with regard to climatechange is that it is a myth. Scientists have debated bothsides of this argument for many years, but it is now widelyaccepted that climate change is a reality that we mustconfront. According to the United Nations, temperatures atthe top of the permafrost layer have increased by up to3°C since the 1980s, and the area of Arctic sea ice hasshrunk by 2.7% per decade.3 The Intergovernmental Panelon Climate Change now concludes with very highconfidence that human activities since 1970 have had awarming effect on the planet.4

Despite this evidence, much of the public, for a host ofreasons, refuses to believe that global warming is not partof a naturally occurring Earth cycle. They do not, therefore,see immediate focus and significant investment in thedevelopment of renewable and alternative energy sourcesas a necessity. Participants pinpointed this as the number-one myth concerning renewable energies. They expressedfear that the ubiquitous and deep-rooted nature of thismisunderstanding was significant enough that if it werenot clarified and addressed properly, it would inhibit thepotential for renewable energy. Such obstacles wouldmake it virtually impossible for renewable energy tosupplant a sufficient amount of fossil fuel energy and slowor reverse the effects of climate change.

The climate change “myth” is of particular concern to thesmall island nations of the Caribbean. According to theUN, “temperatures in excess of 1.9 to 4.6°C warmer thanpre-industrial [temperatures, if] sustained for millennia willlead to [the] eventual melt[ing] of the Greenland icesheet.”5 This would raise sea levels by roughly sevenmeters, which, for island nations, would mean aconsiderable loss of territory. While such a gigantic eventis still a long way away, the island nations of Latin Americasee themselves as being on the front lines of climatechange and are increasingly concerned with theperception that climate change is separate from humanlivelihoods and activity.

One Size Fits All

Another significant concern that participants highlighted isthe myth that there will be one renewable energy solutionfor all countries, or one replacement for all fossil fuels.Given the environmental diversity among and withincountries, and varied technological and financialcapacities, it is unrealistic to expect that this will be thecase. Garten Rothkopf and the Inter-American Develop-ment Bank have long recognized that the future of energy

will be in building a diverse energy matrix rather thanreliance on one energy source. Certain geographic regionsare more conducive than others to generation of electricityfrom specific kinds of renewable energies. Mexico, forexample, has begun to develop areas suitable for windpower generation, while Chile has focused on developinghydroelectric power. There is great potential for thegeneration of power from varying sources depending oncountries’ own unique resources. Additional capacitycould be created in the expansion of nuclear or coalresources, or the pursuit of other alternatives (based onthe compatibility of power-generation technologies withelectricity needs and availability of resources).

Participants noted that many people have only a limitedunderstanding of the scale of energy usage, andmistakenly believe that one renewable technology will bethe silver bullet for the globe’s energy problems. Thismisconception leads to the belief that technology alonewill be able to solve the energy crisis. It encouragescomplacency on the part of consumers, who expect thatnew technologies will address current and futureproblems, and therefore see no need to adjust currentconsumption patterns. In reality, there is not a one-size-fits-all solution, and any comprehensive solution mustincorporate changing consumer energy use to address theproblem. The culture of energy consumption, as it is today,leads people to the unrealistic beliefs that renewables willreplace fossil fuels, and that humans will continue theircurrent energy-usage habits.

“The world needs technology,investment and education to tacklerenewables on a local scale.”

– Robert Thresher, Director, National Wind Technology Center,

NREL, USA

Even among countries that realize that energy-expenditurehabits will need to be changed, there is no agreement asto who should change, to what degree, or how it will beregulated. This is a critical sticking point for manyemerging economies, as they feel that developedcountries are primarily responsible for today’s climatechallenge patterns. These emerging nations argue thatthey should not be subject to energy and emissionsrestrictions that may hamper their economic growth, whendeveloped nations have been able to grow without suchrestrictions. Furthermore, they posit that as the maincontributors to energy consumption and emissions,developed countries should fund initiatives to addressclimate change.


At the same time, developed nations charge that theyshould not bear an unfair portion of the expense inaddressing the effects of climate change while developingnations continue to pollute. Developed countries point tomajor polluting economies like China and India and arguethat any adequate attempt to address climate changemust include involvement from these countries. They alsodispute the notion that it is their sole responsibility to fundfurther research and development when countries likeChina have massive amounts of foreign exchangereserves. These fundamentally different viewpoints haveled to a standstill on emissions regulation and renewablesagreements. These significant hurdles will need to beovercome in order for a meaningful internationalagreement to come to fruition.

The Environment

Another pervasive myth is that renewables have little or noimpact on the environment. Participants were concernedthat the public does not understand the full implications ofrenewable energies and their possible impacts. In the zealto diversify energy sources and mitigate the effects ofclimate change, this important fact has been overlooked.Comparatively speaking, once green technologies aredeployed and functional, they emit fewer pollutants thantraditional energy sources. Little thought is typically given,however, to the emissions associated with themanufacturing, production, shipping, and initialimplementation of renewable energy machinery. Thesefactors must be considered when assessing how “green”a technology actually is.

Aside from emissions, there are other environmentaleffects associated with production of renewable energies.For example, in China, solar panel factories have beenknown to dump silicon tetrachloride, a byproduct ofpolysilicon production, into fields near towns,endangering health and making the land infertile. Windenergy, though it produces no carbon emissions in theproduction of energy, has other impacts, including beinga hazard for local wildlife. Large-scale hydroelectricinstallations have downstream implications, includingwarming water that could harm fish populations andchanging the natural flow of water downstream. Changedwater flows would affect both wildlife relying on thenatural rise and fall of river water and humans relying onarable land surrounding the water.

The participants were particularly concerned about thepervasive misconception that ethanol and biodiesel haveno negative impacts on the environment. They singled outcorn ethanol, voicing doubts that the carbon intensity of

farming corn is fully understood. As farming emissions areoften overlooked, the public may have misconceptionsabout the net effects of ethanol on carbon reduction.Another poorly understood impact of biofuels is the extentto which strain feedstock production can affect watersupplies and farmland. This could have grave implications,given that the amount of land for feedstock productionmay continue to rise.

Technology

Significant technological developments will need to takeplace in order for renewables to supplant a significantportion of fossil fuels. There was disagreement among theparticipants as to whether technological advancementswould take place exclusively in the developed world or inthe emerging world as well.

Several participants cited the example of Brazil’sdevelopment of biofuels, saying that the need forelectricity for development would drive expansion andevolution of these technologies in emerging economies.These participants felt that not all technologicaladvancements would necessarily be in the developedworld, and that this assumption could potentially hinderresearch in the rest of the world. Green technology growthin India and China support this claim. One study, forexample, has found that emerging economies that “do nothave the legacy energy infrastructure that locks in currentenergy forms, are fertile ground for the development ofdisruptive innovation in energy. . . . Solar electricity andwind are examples of new technologies with the potentialto create such a ‘technology leapfrog effect’ in manydeveloping countries that lack electricity infrastructure.”6

Furthermore, some analysts argue that greentechnological innovation, and the opportunity for newvalue networks, is most ripe in the emerging world wherecurrent non-consumers can be targeted with developingtechnologies, and a process for improvement can beestablished based on feedback.7

Other participants dissented, citing the dearth ofinvestment in technology research in the developing worldas the main inhibitor of technological breakthroughs inthese areas. In the developed world, funding is less of aproblem, making more riskier research possible. The factthat the U.S. and Europe accounted for 70% ofinvestment in clean technology between 2004 and 2006supports this claim.8

Technology-transfer issues were also a critical part of thediscussion. Private-sector participants spoke of thebarriers precluding massive technology transfer. They


stated that if technological breakthroughs are made in thedeveloped world, they are likely to come from the privatesector rather than the public sector. Issues likecopyrighting and other intellectual property concerns willbe more central to the private sector if technology is to begiven to the developing world. Private sector participantscited the fact that companies with patents on certaintechnologies will want compensation for their massiveinvestments in R&D, meaning that such technology couldnot merely be given to developing countries.

Many public sector participants disagreed, however, citingthe increase in collaborative research efforts and greentechnology’s ability to break boundaries betweenindustries. They argued that green technology mayincreasingly occupy a unique position vis-à-vis technologytransfer, since in the end, all participants will benefit from ashared effort to address climate change and to minimizeconsumption of traditional fossil fuels. They gaveexamples of organizations, such as NREL in the U.S.,which have begun to develop programs to maketechnology transfer appealing to private sector companiesby providing government-funded incentives.

Summary of Findings

With such varied opinions among experts, it is no wonderthat the general public is confused about the realities ofclimate change, the effects of renewable energy, and thepossibilities for technological development. There isreason to believe that public consciousness of theseissues has increased in recent years, as media coverageand investment in R&D have dramatically increased. It willtake a more unified and consistent effort, though, toconvince the dubious public (and their lawmakers) of thenecessity to address climate change and also toincorporate renewable energy technologies into the energymix sooner rather than later.

3.2.4 BRIGHT GREEN

The Bright Green scenario assumed a fundamental shift inpolicy toward the aggressive adoption of renewableenergy worldwide. The scenario also posited an incomingU.S. president who accelerates the post-Kyoto Protocolnegotiations and the adoption of aggressive internationalmeasures to combat climate change. In essence, theworld goes “green.”

Participants identified several measures that could occurin this scenario, as well as several hurdles that wouldhave to be overcome. Much of the discussion focusedon modes of production, challenges in infrastructure, and

costs associated with a transition to renewable energy.This scenario resulted in the greatest variation ofopinions among participants with regard to the future ofBright Green.

Beyond Political Change

One of the principal disagreements among participantswas the catalyst that would move the world toward BrightGreen. The three main proposals to this effect all variedgreatly, from a massive natural disaster, to a substantialtechnological breakthrough, to a consumer-driven BrightGreen revolution.

Some 52% of the participants said that the “bright green”nature of this scenario is more likely to come about as areaction to a shock to the system — more specifically, amassive natural disaster with evidentiary support linkingthe disaster to climate change, such as a hurricane or amonsoon. Several participants felt that even this would notbe an adequate driver, however, given that the world hasexperienced destructive hurricanes and monsoons thatdid not result in the development of an aggressive climatechange policy.

Other participants felt that a technological breakthroughwould be the most likely driver of this scenario. Theseexperts speculated that the invention of anenvironmentally friendly, cost-effective, national-security-enhancing technology would satisfy the three mostimportant criteria to launch the globe into the BrightGreen era.

Several participants felt that mere political will, embodiedby a U.S. president actively engaged in climate changepolicy, would not suffice to move the world toward a BrightGreen future. Still, 77% felt that a new commitment toenvironmental goals would lead to the liberalization andmeaningful expansion of global markets for renewableenergy and carbon credits within the next five years.

Some felt that the policy change taking place in thisscenario would not be driven from the top down bypoliticians, but rather from the bottom up by voters whoare the consumers of these products. Several expertsstated that the Bright Green scenario would most likelyoccur as the result of a consumer lifestyle choice. Thispotentially would make renewable energies more of aluxury, however, and hence less likely to be widespread inemerging markets.

These differing factors illustrate the widely varying views ofwhat Bright Green will entail, and they serve to indicate the


difficulty with which policymakers will have to seek aconsensus on the issue. Even so, there were variousfactors that the participants agreed would need to beconsidered in such a scenario.

Deploying Renewables

Regardless of the primary driver, participants felt that therewould be certain changes and advancements associatedwith regard to the production, cost, and overalldeployment of renewable energy products.

In the case of renewables that are heavily reliant upontechnology, like solar and wind power, there wasconsensus that future streamlining of production wouldreduce the time and cost associated with manufacturing.The specific example highlighted was the expansion ofthin-cell photovoltaics and its application to small-scalepower generation in rural areas of Latin America forelectricity and heating water. Participants speculated thatincreased demand by this sector would ultimately result ina decrease in costs and the ability of technologies to bemore readily available.

Several people, however, cautioned that suchadvancement would not be possible, even in Bright Green,without an international body to certify the sustainability ofsuch undertakings. Regarding biofuels, for example, thebody would prevent countries from using inefficient andunsustainable methods for biofuels production. This ideais particularly relevant to Latin America, as countries in the

region continue to seek profitable sustainable fuels inorder to compete with Asian producers in the globalmarket. In order to do so, many countries already aremaking drastic land-use changes that will affect their localenvironment for decades to come.

Another important aspect of production in the BrightGreen scenario will be the reduction of costs associatedwith more advanced production methods. The price tagfor converting to renewables will play a role in howbright this scenario actually becomes. This is trueespecially in Latin America, where smaller countries mayhave a hard time incurring the higher associated costs.The group was fairly evenly split among three optionsregarding the most effective policies for promotingrenewables.

Some suggested that larger entities, such as oilcompanies, would have an advantage in this respectbecause of their capital resources to further such largeventures. As few of these companies exist in LatinAmerica, the group suggested one of two options: thatcompanies in developed nations would supply developingcountries, or that developing nations would have to turn totheir governments and state-owned enterprises in order toattain the necessary capital for the expansion ofrenewables. In either case, the transition to renewables,even in the Bright Green scenario, will have a high costassociated with it. There was agreement that this would bethe case, even with spectacular advancements intechnology and production.

Chart 3.2d What Else Would Need to Happen to Achieve Bright Green?

Catastrophic Event 52%

Linked to Global Warming

Technological Breakthrough 29%

Influx of Investment 17%

Other 3%



Infrastructure

Necessary improvements to infrastructure would be a highcost associated with the Bright Green scenario. Based onthe sheer scope of infrastructure necessary for such amassive transition, some participants suggested thattechnologies would need to function within existinginfrastructure in order to enable electricity transmissionthrough existing grids or pipeline distribution for liquidfuels. To this end, 70% of participants believed thatadvanced grid technologies will play a meaningful role inemerging economies in the coming decade.

Other concerns regarding the difficulty of dealing withinfrastructure in this scenario were the transmission gridand pricing differentiation for potential renewable energysources. If there were to be a differentiation between theprice paid per kilowatt of electricity produced, participantsfigured that drastic changes would need to be enacted inorder to compensate for the paradigm shift created byrenewable energy incorporation. It was also suggestedthat the Bright Green scenario would encompass a shift toelectric vehicles. In such a case, grids would have toabsorb a much higher load capacity as the result of thisparadigm shift.

Carbon

With climate change seen as a primary driver of suchincreased usage of renewable energies, participants wereinterested in the effects of carbon pricing. There were

widely differing views on this, particularly with regard to itseffect on coal. Many participants entirely discounted coalin this scenario as a thing of the past, feeling thataggressive carbon pricing would constrain its use.

Several other participants, though, reiterated earlierinfrastructure discussions concerning the use of fuels thatthe technology sustains. Given that carbon regulationwould be in place, these participants felt that, rather thanconstrain coal technologies, the scenario would lead tosignificant investments in clean coal and carbon-sequestration technology. Such investments would enablecountries that already heavily rely on coal to meet theirfuture energy needs by modifying today’s infrastructurerather than reconfiguring it completely.

Regulating carbon emissions was also thought to becentral to the efforts of the Bright Green scenario, and notonly for the richest nations. Four-fifths of participantsanticipated binding greenhouse gas emissions-reductionrequirements for emerging economies in a post-Kyotointernational climate change treaty. Participants wereclose to evenly divided on the timeframe for the roll-out ofsuch an agreement, with 36% saying that a global cap-and-trade scheme or a carbon tax would come about by2012, and 33% saying the same would happen by 2015.

Finally, the question of whether nuclear would supplantcoal also arose. Some participants felt that given a pricefor carbon, coal would remain a vital part of the energymatrix, should advancements made in clean coaltechnology be made. Others countered that nuclear

Chart 3.2e Most Effective Policies for Promoting Renewables

Guaranteed Loans/ 32%

Preferential Financing

Tax Incentives 28%

Subsidies 21%

Grants 10%

Special Economic Zones 4%

Other 4%


power’s zero carbon technology would certainly be anappealing option to supplant coal-fired generation,regardless of advancements in technology. The everdifficult issue of extremely high up-front costs and longtime spans to implement nuclear power, however, ledsome to caution that nuclear would be a great option in acarbon-constrained world but that it might not actuallyplay a large role for decades.

Summary of Findings

The Bright Green scenario was clearly one thatparticipants felt had the potential to dramatically alter thepath that the world is currently on. Still, many wereskeptical that even concerted action by a wide array ofinterest groups would have such a bright effect. Inherent inthe arguments was an uncertainty regarding how effectiveand forward-looking policy actually could be in theabsence of a disaster to prompt it. As such, one of themost important, and also most dispiriting, findings of thisscenario was that policy actions to deal with climatechange will necessarily be weak without the urgency thatis needed to address the issue properly. In fact, even withthe needed urgency, policymakers will still have a difficulttime reconciling national interests and capabilities withinternational goals and necessities.


1 US Department of Energy, Energy Information Administration (EIA), InternationalEnergy Outlook 2008 (Washington: EIA, 2008).

2 US Department of Energy, Energy Efficiency and Renewable Energy (EERE), “CleanEnergy Investment Exceeds $117 Billion in 2007.” 06 Feb 2008.

3 “Useful Climate Change Statistics.” United Nations, 2008.<http://www.un.org/climatechange/background/usefulstats.shtml>.

4 “Useful Climate Change Statistics.” United Nations, 2008. 5 “Useful Climate Change Statistics.” United Nations, 2008. 6 World Economic Outlook and Cambridge Energy Research Associates, Energy

Vision Update 2008: Solving the Energy Puzzle Through Innovation. Geneva: 2008.<http://www.weforum.org/pdf/energy_industry/EnergyVision.pdf>.

7 Christensen, Clayton. “The Need for New Value Networks.” 14 July 2008.<http://www.egovmonitor.com/node/19762>. See also World Economic Outlook andCambridge Energy Research Associates, Energy Vision Update 2008: Solving theEnergy Puzzle Through Innovation.

8 World Economic Outlook and Cambridge Energy Research Associates, EnergyVision Update 2008: Solving the Energy Puzzle Through Innovation.


GLOBALTRENDS

SECTION FOUR

Global Trends | Section 4 113333


4.1 Drivers of Global EnergyMarkets

Introduction

A review of the world’s leading energy informationsources points to a period of substantial transition andturbulence in the global energy sector. With demand,supply, and environmental considerations currentlyundergoing transformational change, and the worldeconomy in a recession, the future composition of theenergy system remains highly uncertain. Economicgrowth in the developing world is causing anunprecedented increase in energy demand, with greaterindustrialization, urbanization, and population levelsdriving much of the exponential growth. However, giventhe global economic crisis, emerging markets havebegun to falter, and leading economic indicators in theU.S., the EU, and China all point downward. Further, theavailability of future supply is even more uncertain;several leading energy information sources predictinsufficient supply levels. However, as the worldscrambles for solutions to the current energy dilemma,and environmental concerns rise higher on nationalagendas, many countries are likely to maintain recent

policy proposals not only to reduce greenhouse gasemissions and their environmental impacts, but also todiminish dependence on fossil fuels through thediversification of energy supplies.

The global financial crisis is likely to exacerbate stresson energy systems in the near future. Central bankshave flooded capital markets with liquidity, andcoordinated fiscal stimuli are in the works, butprojections of economic distress from the IMF, theOECD, and the Conference Board are increasingly dire.The current economic panic has caused, and continuesto cause, fundamental shifts in the energy andenvironment landscape for all stakeholders, includinggovernments, businesses, and investors. The seizing upof credit markets, the breakdown of the global financialsystem, and the economic turmoil that followed haveimpelled national policymakers to pursueunprecedented levels of intervention in the markets.Slowing global growth, tight credit markets, and fallingcommodity prices have forced energy businesses topostpone planned investments, in some casesindefinitely. Heightened risk has steered privateinvestors, previously infatuated with technology-drivenclean-tech opportunities, toward value-orientedinvestments. As such, energy policy may focus more onefficiency and job creation than it has in the past.

Chart 4.1a Marketed Energy Consumption 1990–2030 (Mtoe)

Source: U.S. Department of Energy

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Energy Demand

Leading energy information sources estimate that globalenergy demand will increase significantly in the next 20years. Projections for total growth in energy demandthrough 2030 range from 40% to 57%; annual averageincreases are expected to measure from 1.3% to 1.8%.1

Most of the increase in global energy demand will bedriven by developing countries, which will account forbetween 60% and 74% of the projected global energydemand increase (see Chart 4.1a).2

Non-OECD countries are projected to experience fastergrowth rates in energy demand relative to the developedworld, though these projections may be tempered by thefinancial turmoil. While demand in OECD countries isprojected to increase between 0.6%3 and 0.7%4 onaverage per year, the projected average growth in demandfor non-OECD countries ranges from 2.5%5 to 3%6

annually. The International Energy Agency (IEA) and theU.S. Department of Energy estimate that most of thegrowth in demand will occur in Asia,7 which will accountfor more than 65% of the total increase in energyconsumption in the developing world.8 China and Indiaalone are projected to contribute up to 45% of theincrease in global energy demand through 2030.9 Theglobal financial crisis is likely to exert downward pressure

on near-term growth in energy demand, potentiallyresulting in slower long-term growth trends as well.

In the context of this rising energy demand, leading energysources estimate that fossil fuels will drive most of thegrowth in energy use, with oil and other petroleumproducts continuing to comprise the largest share of theglobal energy matrix. In light of the financial crisis, however,the IEA has revised its 2008 projections from those of theprevious year, noting that higher energy prices and slowereconomic growth will suppress demand, as seen in Chart4.1b.10 While fossil fuels today supply 86% of the energyused in the world,11 some foresee a decrease in their shareof overall energy demand in the medium term. Even so,fossil fuels are likely to continue to account for the largestportion of primary energy requirements through the nextfour decades.12 Through 2030, they will continue to supplybetween 80% and 90% of total commercial energyneeds,13 and they are expected to account for about 80%of total primary energy demand.14

Oil is expected to remain the single most demanded fuel inthe world in the forecast to 2030, though its share ofglobal demand will fall from 34% to 30%.15 Estimates forgrowth in demand for oil vary from 1.1% to 1.3% annuallyduring the forecast period. Total demand is expected torise from 84 mb/d in 2006 to 113 mb/d in 2030, an

Chart 4.1b Projected World Energy Demand 1980-2030 (Mtoe)

Source: IEA

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increase of 34%.16 This projection is down more than 4mb/d, compared to OPEC’s 2007 projection, a decreasethe organization credits to increases in efficiency andhigher oil prices.17 Transportation will be the principaldriver of oil demand growth in most regions, with its shareof total primary oil use projected to rise from 47% in 2005to 52% in 2030.18 This, in turn, will likely drive global oildemand growth by 1% annually to 2030.19

Demand for gas is projected to grow between 1.7% and2.1% annually through 2030, with imports in Europeaccounting for the biggest increase, at 122%. By the endof the forecast period, North America and Europe willaccount for 30% of all consumption worldwide, ascountries in these regions look to diversify their energymatrices and decrease their dependence on carbon-intensive resources.20 The divide between the developedand developing worlds will remain stark, however, asnatural gas consumption in non-OECD countries will growmore than twice as fast as in OECD countries. On theproduction side, the difference is even more pronounced,with non-OECD countries accounting for over 90% ofgrowth in world production of gas through 2030.21

Despite slower growth in energy demand due to theeconomic downturn, growth in demand for coal is expectedto remain high at 4.9% per year through 2030. As theworld’s second-most important source of energy next to oil,coal accounts for 26% of global energy demand.22 Whilefive countries—the U.S., India, Japan, China, and Russia—account for 72% of global coal demand, growth in Chinaand India accounted for 85% of the global increase in coalfrom 2000 to 2006.23 Coal will remain the largest source ofpower through 2030 and will see the biggest increase indemand of all fossils fuels, jumping 74%. By that year, coalis expected to account for about 40% of global powergeneration, and its share of total global energy demand isexpected to increase to 29%, from 26% in 2005.24 Coal willbe the fastest-growing energy source worldwide in the nearterm, growing 3.1% annually through 2015 on the back ofincreasing energy demand from developing countries.However, as more climate mitigation policies are enacted,the IEA projects that growth will slow to 1.3% annually to2030.25 A prime reason for the global demand growth incoal is China, whose share of global coal consumption willrise from 39% today to 46% by the end of the forecastperiod. In India, it will remain the country’s most importantfuel, with usage nearly tripling from 2005 through 2030.Together, the two countries will account for 84% of theincrease in coal demand through 2030.26

Population Growth

The United Nations estimates that the world populationwill increase by approximately 40% from 2005 to 2050,

from 6.5 billion individuals to approximately 9.1 billion.27

Most of the increase will occur in the developing world,where the population is projected to rise by 50%, leadingthose regions to account for over 86% of the world’spopulation by 2050.28 Much of the population growth inthe developing world will occur in the 50 least-developedcountries, where population is projected to more thandouble to 1.7 billion.29 In contrast, the population ofindustrialized countries is projected to remain largelyunchanged. Lower fertility rates and increased lifespan,reflected in a rapidly ageing population, will lead to apopulation of about 1.2 billion by 2050.30 However, thisageing population will not be limited to the developedworld. While the populations in the least-developedcountries will grow considerably, those of the less-developed countries are projected to experience rapidpopulation ageing as economic growth leads to improvedstandards of living.31 The United Nations notes that half ofthe increase in population growth between 2005 and2050 will be accounted for by those aged 60 years orolder. Despite the increase in world population, globalpopulation growth rate is projected to decrease due toincreasing availability of contraceptives and a rising ageof marriage.32

China and India, which together make up 40% of theworld’s population, will experience diverging populationgrowth paths. China’s population growth rate is likely toslow during this period. While the country’s populationhas expanded by 136% in the past 50 years, it isprojected to increase by just 7.3 by the year 2050.33

Conversely, India’s population is projected to grow byapproximately 46%, enabling it to become the world’smost populous country by 2050.34

Economic Growth

Economic growth is perhaps the most crucial factor inprojecting energy demand. The International EnergyAgency estimates that from 1991 to 2001 each percentageincrease in world GDP was accompanied by a 0.4%increase in energy demand.35 Looking ahead, in the nearterm, the IMF has revised its global economic growthprojections to reflect a more protracted global financialcrisis, predicting that growth will moderate from 5.0% in2007 to 3.8% in 2008 to 3.0% in 2009, as seen in Chart4.1c. Longer-term projections, however, remain moreoptimistic: Annual global economic growth through 2030is projected to average 3.3% annually, compared to 3.2%from 1990 through 2006.

The world’s financial anchor, the United States, hasexperienced significant economic challenges in the pastyear. Long-term economic growth is expected to continuebut at a slower pace, averaging 2.5% annually from 2005


Chart 4.1c Revised World Economic Growth Projections 1991-2013 (%)

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Chart 4.1d Economic Growth in Developed and Developing Economies 1980-2012 (%)

Source: IMF World Economic Outlook, October 2008

Source: IMF World Economic Outlook, October 2008


through 2030, compared to 3.1% from 1980 through2005.36 The U.S. Department of Energy’s EnergyInformation Administration still projects that the country’seconomy will recover by 2009, though it appears to be alone voice of optimism among a chorus of morepessimistic projections.

Both the International Monetary Fund and the UnitedNations report that long-term economic growth indeveloping economies will be largely sustained despitethe global financial turmoil, due to improvedmacroeconomic fundamentals, the growinginterdependence of developing countries with China andIndia, and increased domestic demand.37 The IEAprojects that India will overtake China as the world’sfastest-growing economy around 2020; as a result, India’saverage growth from 2006 through 2030 of 6.4% exceedsChina’s 6.1%.38 As robust economic growth in developingcountries has been a primary driver of the increase inenergy demand over the past decade, the sustainedeconomic development of developing countries over theforecast period should support long-term growth inenergy demand, in spite of slower short and medium-term economic growth projections.

Industrialization

Energy-intensive industrialization has driven much ofthe economic growth in developing countries. Attracted

by lower costs and fewer environmental constraints,several companies have moved their operations todeveloping countries, causing a major shift inproduction trends. At the same time, an increase ininternational trade has caused a shift among developedcountries toward a less energy-intensive mix ofeconomic activities, as demand for energy-intensivematerials is increasingly met by imports.39 Whiledeveloped economies have moved toward lightmanufacturing and services, developing countries haveexperienced an increase in the heavy manufacturingsector.40 This shift has led to a faster growth rate inindustrial-sector energy use in the developing worldrelative to that in the developed world.

Industrial sector energy demand for OECD countries isexpected to remain relatively flat in the projectedperiod, with an increase of 0.6% per year through 2030.Meanwhile, non-OECD countries are projected toexperience an annual growth rate of between 1.9% and2.5%.41 Globally, industrial sector energy demand isprojected to grow on average between 1.2% and 1.8%per year.42 Industrialization in the developing world willdrive much of the increase in global liquids use through2030, with the industrial sector accounting for 27% ofthe increase, behind only the transportation sector,which will account for 68% of the total projectedincrease.43

Chart 4.1e Industrial-Sector Delivered Energy Consumption, 2004–2030 (Mtoe)44


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Urbanization

The year 2007 marked the first in history that morepeople in the world lived in cities than in rural areas.Global urbanization is expected to continue: by 2030,some five billion people (of a global population of 8.1billion people) may be living in cities.45 Developingcountries will host the vast majority of urbanitesglobally, accounting for perhaps as much as 80% of theworld’s urban population by 2030.46 In order to achievethis level of urbanization, it is projected that developingcountries will account for 93% of the total urban growthin the world through 2030.47 Much of the urbanpopulation growth is projected to occur in Asia andAfrica; together, the combined urban population of thetwo continents is expected to double, from 1.65 billionto 3.38 billion.48

The global jump in urban population globally will haveserious implications for energy and environmentalsustainability. The IEA projects that by 2030, 75% of totalglobal energy use will come from urban areas.49 Urbanpopulation growth is a key driver of environmentaldegradation, and increasingly crowded cities are likely tocontribute to air and water pollution and add to solidwaste production.50 The negative environmental effectsof urbanization are likely to continue as countriesdevelop. Researchers have found that urbanized nationsproduce more greenhouse gases for a number ofreasons, including higher standards of living and greater

demand for transportation energy and other resources.51

With studies estimating that a threshold of about $20,000per capita must be reached in any given country forenvironmental quality to improve seriously, the fact thatmost countries have not yet reached this thresholdindicates that greenhouse gas emissions are likely tocontinue their intense growth in the developing world.52

Additionally, increased rates of consumption in urbanareas will lead to added pressure on energy resources,as demand for motor fuel and electricity generationcontinues to grow.53

Transportation Sector

While energy demand from all sectors will increasesignificantly due to economic growth and rising incomes,the transportation sector will fuel the fastest-growingsector demand. Most sources agree that transportationwill have the most dramatic impact on energy trendsthrough 2030, as it will be the principal driver of oildemand in most regions.54 The U.S. Energy InformationAdministration estimates that the sector will account fornearly all the growth in demand for liquids in OECDcountries from 2004 to 2030.55 The same organizationestimates that the United States will account for 54% ofthe OECD’s total transportation energy demand in2030.56 ExxonMobil, however, predicts a much moremodest growth in the country’s fuel demand, due toprojected gains in fuel economy and modest growth inthe country’s total light-duty vehicle fleet.57

Chart 4.1f Urban and Rural Populations of the World, 1950–2050

Source: United Nations

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With greater urbanization and higher per capita incomes,global demand for vehicles is projected to increase.Estimates as to the number of vehicles on the road in2030 vary considerably. Low estimates expect the globalbase of 700 million vehicles today to grow to as many as1.2 billion in 2030. Higher estimates put the figures at 900million today and an expectation of 2.1 billion in 2030.58

Differences in nominal projections aside, experts agreethat two-thirds of the increase in car ownership by 2030will pertain to developing countries.59 This proliferation ofpersonal transportation in developing countries—non-OECD demand will grow about 3% per year, or five timesfaster than OECD countries—will drive globaltransportation energy use from 2.5% to 2.9% annuallyduring the forecast period.60

Transportation growth in the developing world will be sorapid that by 2025, there will be 30% more automobiles onthe roads of developing nations than on those ofindustrialized ones.61 China alone is projected to havebetween 100 million62 and 140 million private cars by2020. Current estimates are that more than 1,000 newcars are added to the country’s vehicle fleet every day.63

Average growth in non-OECD transportation-sectorenergy use will be approximately three to five times higherthan the growth rate in OECD countries: about 3% annualgrowth rate over the projected period, compared to 0.6%

in OECD countries.64 Again, China and India are expectedto lead the way and to experience the fastest expansion intransportation energy in the world, with annual averagegrowth of 4.9% and 3.3%, respectively.65

Energy Intensity

Energy intensity is defined as the amount of energyneeded to produce one unit of GDP. Projected efficiencygains are slated to lower average global energy intensitybetween 1.6% and 2.3% annually from 2004 to 2030.66

ExxonMobil estimates that while 2.5 barrels of oilequivalent were necessary to generate $1,000 ofeconomic output in 1980, gains in efficiency have reducedenergy intensity by 1% per year; in 2030, energy intensityis projected to be almost 50% below the 1980 level,increasing a projected average of 1.6% annually.67 The IEAattributes this decline to structural economic changes inOECD countries, which are expected to continue to moveaway from heavy industry and into light manufacturing andservice activities, as well as economic growth in non-OECD countries. A noticeable decline in energy intensityhas been especially evident in transition economies, whichhave incorporated energy-efficient technologies andenergy waste reduction strategies to contribute to lessenergy-intensive economies.68 The U.S. Department ofState notes that, for the first time in history, economicgrowth in developing countries has begun to outpace the

Chart 4.1g OECD and non-OECD Transportation-Sector Delivered Energy Consumption, 2005–2030 (Mtoe)


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growth in energy use, suggesting that less energy is beingused to support more economic and social activity.69 Asfaster growth in income generally leads to a faster rate ofdecline in energy intensity, economic growth in developingcountries will likely contribute to the future decline inglobal energy intensity.70 Despite decreasing energyintensity, however, projections about higher energydemand still hold, as economic growth is likely to offsetthe decline in energy intensity.

Energy Efficiency

As countries face restricted access to capital, weakercurrencies, larger bailout packages, and decliningemployment rates, the concept of “getting more for less”has never been so attractive. As a climate changemitigation policy, efficiency has tended to fall by thewayside in favor of renewable technologies and market-based reduction mechanism. However, in the currenteconomic climate, efficiency may feature more prominently;as countries face restricted access to capital, weakercurrencies, and declining employment rates, the concept of“getting more for less” is likely to be very attractive. As aneconomic policy, efficiency presents a clear way to reducefuel costs, which the IEA projects will rise, as restrictedaccess to capital could stymie efforts to increase supply.

Several countries have already enacted energy-efficiencypolicies in an effort to reduce energy demand, and assuggested above, a protracted economic crisis increasesthe likelihood that more will follow. The United States hasrecently enacted the Energy Independence and SecurityAct, aimed at reducing U.S. dependence on oil byincreasing fuel-economy standards by 40% (35 miles pergallon) by the year 2020. China, which has set a target ofreducing energy consumption by 20% from 2006 through2010, recently announced an increase in spending of 78%on energy-efficiency schemes, which would includeinvestments in ten energy-saving programs.71 The EuropeanUnion has already adopted a series of measures to increaseenergy efficiency, including directives on energyperformance of buildings (2002), promotion of combinedgeneration of heat and electricity (2004), eco-design ofdomestic appliances (2005), and energy end-use efficiencyof electricity, gas, heating, and fuels (2006).72 Energyefficiency became an EU priority in 2007, and severalmember states subsequently submitted national energy-efficiency action plans to a commission responsible formaking new proposals on energy savings scheme in 2008.73

Although big consumer countries have enacted policiesaimed at increasing energy efficiency, in practice there areseveral obstacles that limit adoption and implementation.The World Bank reports that the main obstaclesprecluding most countries from investing in energy-

efficiency technologies are inadequate organizational andinstitutional systems and lack of access to funding—trends likely to be exacerbated by the global creditcrunch.74 A recent IEA report also named several marketbarriers to energy efficiency technologies in buildings,which currently are responsible for 40% of the world’stotal primary energy use.75 These included: difficulties inaccessing capital, low priority of energy issues,information asymmetries, and diverging interests betweeninvestors and energy end-users.76 In other words,investments in efficiency, though cost-effective, areinvestments nonetheless. As such, while the economicdownturn makes improvements to efficiency attractive, itmay slow investments in that area, just as it has in otherenergy sectors.

Supply Side Overview

As energy projections point to a continued reliance onfossil fuels through 2030, a central question remainsregarding the ability of future proven oil reserves to meetsuch growing demand adequately. Debate exists over thesize of remaining reserves and future production capacity.Some analysts argue that investments in new technologywill allow greater accessibility to unknown reserves, asevidenced by the deepwater technology that led to thediscovery of the offshore Tupi and Jupiter fields in Brazil.Others point to the decline in output and excess capacity,the industry’s potential to access promising areas fordevelopment, the inadequate rate and timing ofinvestment, and technology and infrastructuredevelopment. The IEA argues that although greenfieldinvestments are expected to increase over the next fiveyears, it is uncertain whether such expansion will besufficient to keep pace with the projected increase indemand, noting that a supply crunch by 2015 cannot beruled out.77 Royal Dutch Shell argues that growth in theproduction of easily accessible oil and gas will not matchthe projected growth rate in demand by 2015, which willlead companies to search for fields in more remote andless easily accessible locations.78

OPEC Supply

Looking ahead, OPEC member states will hold anincreasingly large share of the world’s proven fossil fuelreserves. This is especially true of countries in the MiddleEast, which currently hold about 62% of the world’sproven oil reserves.79 As shown in Map 4.1.a, the MiddleEast is projected to account for the greatest source of oilexports from 2005 to 2030.80 Simply put, the Middle Eastholds the most sustainable production in the world. TheEIA expects OPEC producers to account for 65% of theincrease in production during the projected period,81 and


more than two-thirds of production in 2030.82 Meanwhile,OPEC’s share of total global supply for oil will grow from42% today to 52% in 2030.83 OPEC production isprojected to increase by an annual average growth rate ofbetween 2.0% and 2.2%.84

OPEC’s share of total global supplyfor oil will grow from 42% today to52% in 2030.

Such growing dependence on OPEC and Middle Easternfossil fuels raises the question of security of supply. OPECcountries have experienced increased political instability,ranging from attacks on energy facilities in Saudi Arabiaand Nigeria, Iran’s nuclear ambitions, political instability inIraq, and resource nationalism in Hugo Chavez’sVenezuela. Apart from political instability, OPEC countrieshave also undertaken a policy of supply restraint, whichsome analysts claim partly contributed to higher oil pricesin the past, and may do so again in the future.85

Non-OPEC Supply

Today, non-OPEC countries account for about 56% oftotal world oil production.86 Seven of the world’s 15 largest

oil producers are non-OPEC countries: Russia, the UnitedStates, China, Mexico, Canada, Norway, and Brazil.87

While non-OPEC production is projected to rise slowly, itis expected that output growth from Russia, Central Asia,Latin America, and Africa will be unable to compensate forthe consistent decline in conventional OECD output.88

According to the EIA, production in the North Sea andMexico peaked in 2001 and 2004, respectively, havingexperienced consistent declines in production eversince.89 Russia has become one of the world’s biggest oilproducers and exporters, ranking second behind SaudiArabia in 2006.90 However, the country’s growth in oiloutput has declined considerably, falling from a peak rateof annual growth rate of 10.9% in 2003 to 2.27% in2006.91 A Brookings Institution report attributes thisdecline to Russia’s overexploitation of Soviet-era oil fieldsin Western Siberia and insufficient development of newfields in Eastern Siberia and Arctic areas.92

The Environment

Countries must begin to regulate emissions aggressively inorder to mitigate the dire effects of global warming—andmust do so quickly. In November of 2008, United NationsIntergovernmental Panel on Climate Change (IPCC) Chair

Map 4.1a Change in Oil Import and Export by Region, 2005–203 (million barrels/day)

Source: National Petroleum Council


Rajendra Pachauri stated, “If there’s no action before 2012,that’s too late. What we do in the next two to three yearswill determine our future. This is the defining moment.”93 Intheir 2007 report, the IPCC concluded that climate changeis an “unequivocal” phenomenon caused by human-induced greenhouse gas emissions.94 If policymakers donot act quickly, the consequences of global warming willbe myriad and profound. Some of these effects includerising sea levels, which threaten to engulf coastlines andlow-lying areas; altered agricultural yields and threats tofood security; more severe weather events; the spread ofvector-borne disease; and diminished biodiversity.95 Theseconsequences are projected to have equally wide-rangingeconomic and political effects as well. The Stern Reviewestimates that a failure to act will cost the world theequivalent of between 5-20% of GDP annually in climatechange-induced costs and risks.96 A separate report byseveral retired U.S. admirals and generals maintain thatglobal warming will exacerbate living conditions inpolitically volatile countries, posing a threat to nationalsecurity.97 The combination of environmental, economic,and security risks associated with global warming hascompelled many nations to begin to address theiremissions.

“If there’s no action before 2012,that’s too late. What we do in thenext two to three years willdetermine our future. This is thedefining moment.” — Rajendra Pachauri, IPCC Chairman

Progress, however, has been slow. Recent data releasedby the UN’s climate secretariat reveal that the governinginternational climate agreement—the Kyoto Protocol—has had mixed results in mitigating climate change, andthat emissions globally are rising. The Kyoto Protocol,an amendment to the United Nations FrameworkConvention on Climate Change (UNFCCC), requiresparticipating industrialized countries to reduceemissions from 1990 levels by an average of 5% from2008 to 2012. However, the emissions of 40industrialized countries that have greenhouse gasreporting obligations under the Convention remainedbelow the 1990 level by about 5% in 2006, but rose by2.3% from 2000 to 2006.98 For the smaller group ofindustrialized countries that have ratified the KyotoProtocol (Annex I countries), emissions were about 17%below the 1990 baseline in 2006, but still growing afterthe year 2000. This initial decrease and recent increasecan be credited to former Soviet nations, which were far

below 1990 baseline emissions levels after economiccollapse, but have been rising steadily and total a 7.4%rise between 2000 and 2006.99

New Regional Policy Developments

While progress to date has been variable, the next fewyears are likely to bring about a sea of change in climatechange policy, heralded by a new administration in theUnited States. President Barack Obama has remained firmin his campaign commitment to reduce greenhouse gasemissions by 80% by 2050—an aggressive target even byinternational standards. There remains uncertainty as towhether a U.S. domestic cap-and-trade regime will beenacted through a new law or through the existing 1990Clean Air Act. There is evidence to suggest that either—orboth—is a politically viable option. A 2007 U.S. SupremeCourt ruling (EPA vs. Massachusetts) allows the U.S.Environmental Protection Agency (EPA) to regulate carbondioxide as a pollutant under the Clean Air act, which couldpotentially avoid the possible obstacles in getting a newclimate bill passed through Congress. Even so, with aDemocratic majority in the House and the Senate, a newclimate bill may be enacted through an act of Congress.Barbara Boxer (D-CA), Chair of the Senate’s Environmentand Public Works committee, has said she will introducenew legislation to further the President’s goal, and newly-appointed House Energy and Commerce Chair HenryWaxman (D-CA) is speculated to be more sympathetic tothe President’s agenda than his predecessor, John Dingell(D-MI), who has been sympathetic to Detroit automakers.Any climate change bill would need to pass through thesetwo committees before it can become law.

While the U.S. may represent the largest global shift inpolicy aimed at mitigating climate change, the EU stillleads the world in climate change and emissions reductionpolicy. Having pioneered carbon dioxide trading under theEU’s Emissions Trading Scheme (ETS), the bloc is now intalks about a successor regime. In March 2007, the EUendorsed an integrated energy and climate change policywhich set ambitious targets for 2020. Further, the EU hasexplicitly stated its aims to increase its security of energysupply as well as strengthening its global competitiveness.Key targets of the EU energy policy include cuttinggreenhouse gases by 20%, saving 20% of energyconsumption through increased energy efficiency, meeting20% of energy needs from renewable sources, andincreasing tenfold (to at least 10%) the share of biofuels inoverall petrol and diesel consumption.100 Facing economicrecession, several countries (notably Italy and Poland)have objected to the emissions caps. However, despiteglobal economic downturn, the EU has stated it willcontinue with its new climate policy as planned.

International Climate Talks Lagging


While regional schemes in the U.S. and EU are movingforward, international climate talks have stalled. The KyotoProtocol—the existing international climate accord—mustbe renewed by 2012, when its mandate expires. InDecember 2007, UN-sponsored talks in Bali, Indonesia,launched a two-year negotiation process on a successortreaty to Kyoto, which would bind both industrialized anddeveloping countries to reduce greenhouse gas emissionsfrom 2013 onward.101 Current negotiations have revealedpronounced differences of opinion between developedand developing countries over the size and base year ofbinding targets, as well as funding for clean energytechnology to poor nations.102 The U.S. remains unlikely tojoin an international agreement without China and India,countries which have some of the highest total emissions(highest and fifth highest, respectively), but some of thelowest per-capita emissions (99th and 140th,respectively).103 China has suggested that developednations allocate 1% of their GDP toward green technology,to be transferred to the developing world. However, givenintellectual property laws in the U.S. and elsewhere, andgiven widespread political opposition to this plan, a directtransfer of technology remains unlikely. As a result, outlookfor the 2009 talks in Copenhagen, Denmark are gloomy.

Climate change policy will have substantial effects onenergy markets. If total atmospheric carbon dioxide levelsare kept below 550 parts per million (ppm), the IEAprojects that world primary energy demand will expand byroughly 32% between 2006 and 2030, an average annualincrease of 1.2% compared to 1.6% in the referencescenario.104 This will induce changes in primary energydemand, lowering demand for fossil fuels and increasingdemand for renewables. Chart 4.1h shows the change indemand in Mtoe from the reference scenario in the year2030. Notably, demand for coal is projected to fall 27%,whereas demand for nuclear and other renewables will rise20% and 34%, respectively. Under a more aggressiveglobal climate regime, targets aim to keep carbon dioxidefrom exceeding 450ppm. Under this 450 scenario, worldprimary energy demand grows at an average of 0.8% peryear to 2030—half the growth rate in the referencescenario. Accordingly, changes in demand for differentenergy sources are more dramatic, with coal demandfalling 51%, nuclear rising 51%, and renewables rising95%.105 Thus, global climate change policy will be asignificant driver of energy policy in the near and long-term, but the extent to which the world primary energy mixwill change depends largely on the aggressiveness ofpolicies that are enacted worldwide

Chart 4.1h Change in World Primary Energy Demand in 2030 in 550ppm and 450ppm Scenarios (Mtoe)

Source: IEA, World Energy Outlook 2008

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4.2 Small Hydropower (SHP)

Introduction

Humans have harnessed the power of moving water toperform work since the Greeks used it for flour millingmore than two thousand years ago, and its ability togenerate electricity helped industrialize and modernizecountries around the world in the late 19th and 20thcenturies.1 Today, hydropower remains the largestsource of renewable power in the world, with 843 GWinstalled globally, roughly 770 GW of which comes fromlarge-scale hydropower installations ranging from tensor hundreds of megawatts to more than 10 GW. Theremaining 73 GW consists of small hydro installations,usually classified as facilities with a capacity of 30 MWor less.2

While large hydropower makes a valuable contribution toglobal energy supplies, the large dams and reservoirsthat normally accompany these plants can havesignificant social and environmental impacts, includingdisplacement of affected populations, greenhouse gasemissions resulting from the buildup of decomposingplant matter in reservoirs, degradation of aquatichabitats, and danger to plant and animal life in affectedregions.3 Concern about these effects has caused largehydropower to be viewed as a less “green” renewableenergy source than smaller-scale renewables like solar,wind, and the other technologies discussed in this report.Although this energy source remains of considerableimportance, this report will focus only on smallhydropower (SHP).

SHP Utilization: SHP installations account forapproximately 73 GW of installed capacity worldwide,although comprehensive data on this segment is quitelimited due to varying definitions over the definition of“small,” a lack of any distinction between large andsmall hydro in many official statistics resources, andgenerally inconsistent availability of data for verysmall-scale and off-grid applications.7 China is theworld leader in SHP, accounting for roughly two thirdsof all of these installations with 47 GW installed. Chinahas been developing SHP since the 1970s, and since2000 it has added an average of more than 2 GWannually.8 The EU accounted for 12 GW combined,followed by 3.5 GW in Japan, 3 GW in the US, and 1.9GW in India.9

In the Latin America and the Caribbean region, we haveidentified 2664 MW of projects using data from the WorldEnergy Council, New Energy Finance, and informationgathered in case studies.10, 11 Over 70% of this waslocated in Brazil, with 1.9 GW, and over 90%, or 2.4 GW,was located in South America, reflecting its greater sizeand greater utilization of hydropower in general.

Technology

Description of Technology

Components

As with large hydropower plants, SHP converts the kineticenergy of moving water into mechanical energy at theturbine, which is then converted to electricity with agenerator. The turbine and generator are normally locatedin a powerhouse.

Defining SHP

The definition of SHP varies from country to country. The European Small Hydropower Association defines it asinstallations of 10 MW or less, the US and Brazil include systems of up to 30 MW, and China extends the term toinstallations of 50 MW or less.4 In general, SHP plants are distinguished by their lack of large reservoirs. Mostrequire little or no storage capacity and integrate easily into existing ecosystems. The large majority of SHPprojects are “run of river”, meaning that the turbine only produces power when there is sufficient flow from theriver, with no effect on the natural flow of the river.5

Within the broad category of small hydropower are further distinctions for even smaller installations, generallyreferred to as mini-, micro-, and pico- power. Mini-hydro generally refers to systems below 1 MW; micro-hydro tosystems below 100 kW; and pico-hydro to systems less than 5 kW. In general, micro- and pico-scale systems areused in developing countries to provide power for isolated communities where no grid connections are available,while mini- and larger-scale SHP systems are usually grid-connected.6


Water Conveyance: Water is usually first funneledthrough a series of channels and pipelines that focus theflow and remove debris.14 These components can beconstructed from plastic piping, cement, steel, and evenwood. As discussed below, the type of conveyance useddepends on the characteristics of the water resource.Dams and other diversion structures are rarely used forSHP projects, and in some cases a river or stream may beable to support a SHP installation, particularly a smallerone, with no significant added equipment forconveyance.15

Turbine: The water flows to a hydraulic turbine, similar tothose used in large hydropower installations, thatconverts the water’s kinetic energy into mechanicalenergy. Turbines used in SHP projects are normally eitherimpulse or reaction turbines. The appropriate turbine for agiven site is determined by the characteristics of thewater resource.

• Impulse: Impulse turbines employ the simplest design.16

They are not submerged and use the velocity of a waterjet spraying through the air to turn their rotors. Water isfunneled into a pressurized pipeline with a narrownozzle at one end, spraying out of the end and hittingcurved buckets on the runner (the rotating wheel). Wateris thus at atmospheric pressure before hitting theturbine and discharges back into the open air. There areseveral available models, including the Pelton and theTurgo, and they are simple, low-cost, and easilymaintained.17

• Reaction: In contrast to an impulse turbine, the rotor of areaction turbine is completely submerged and enclosedin a pressure casing, with profiled blades to create ‘lift’from water pressure in the same way that aircraft wingsgenerate lift from air flow.18 The reaction turbine is drivenby water pressure instead of velocity, and the blades ofthe turbine remain in constant contact with the water.Reaction turbines are more complex, expensive, andharder to maintain than impulse models, but they arealso highly efficient and are the only type of turbinesuitable for certain applications.

Generator: Generators convert the mechanical energy ofthe turbine into electrical energy. The movement of theturbine drives a spinning rotor, which generates amagnetic field that creates an electrical current throughthe conducting wiring of the stationary elementsurrounding it. As discussed below, generators may beeither synchronous or asynchronous, depending onwhether the system will be grid-connected and the qualityof power required.

While these components are common to all facilities, SHPsystems are highly site-specific and vary in design muchmore than large hydro facilities.19 The ResourceRequirements section, below, discusses how differentwater resource characteristics can affect conveyancesystem design, and the Infrastructure Integration sectiondiscusses ways in which grid connectivity and powerrequirements can influence generator choice. Generally,micro- and pico-scale plants can be designed on a per-

Chart 4.2a Small Hydro Capacity, LAC Region

(Source: New Energy Finance, World Energy Council, case studies) 12, 13

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household basis or at the village level and can usually beinstalled with manual labor. Mini- and larger-scale SHPinstallations often use traditional engineering processesand require access roads for construction equipment andmaterials.20

Performance Characteristics

Capacity: The power produced by a hydropower station isdetermined by flow of water (measured in m3/s), and head,defined as the difference in altitude between the waterintake and the lower water level (in meters). The powercapacity of a given installation is calculated as P = Q(m3/s) x H (m) x Eff x 9.81, where P is equal to power inkW, Q is equal to discharge, H is equal to head, Eff isequal to the generating efficiency of the system, and 9.81represents the force of gravity.21

While installations as large as 20-30 MW may beconsidered small hydropower, the great majority ofprojects are between 50 and 500 kW.22

Efficiency: The efficiency with which turbines convert thekinetic energy of the water to mechanical energy varies byturbine design, with reaction turbines generally yieldingslightly higher efficiencies. In almost all cases, the turbinesused in SHP applications demonstrate efficiencies between80% and 90%.23 Generally high conversion efficiencies forelectrical generators result in overall generation efficienciesthat can be approximated at 80%.24

Resource Requirements

Plant output is determined therefore by head and flow. Agiven water resource can produce a given amount ofpower with either a substantial head and little flow,commonly referred to as a high-head plant, or with a low

head and a high rate of flow, referred to as a low-headplant. Definitions of “high” and “low” vary, with the cutoffpoint for “high” systems placed anywhere between 50meters and 100 meters.25, 26 High-head systems aregenerally found in mountainous regions with smallerstreams, and low-head systems tend to be located onlarger rivers in lowland regions.27

Systems typically include equipment to concentrate thewater flow towards the turbine. High-head plants mayrequire an intake structure leading to elevated channelsthat guide the water to either a pressure pipe or apenstock similar to large hydropower installations,although the latter is generally uneconomic given the scaleof SHP plants.28 As an alternative, high-head plants mayconvey water via a low-slope canal running alongside theriver, depending on the topology and morphology of theterrain. Low head plants often rely on weirs and openwater channels to guide the water towards thepowerhouse, although a pressurized pipeline or penstockmay also be necessary. The diagrams below illustratepossible configurations for high- and low-head systems.29

The type of turbine is also determined by the head andflow of the site. Impulse turbines are best suited for high-head, low-flow sites, as they can take advantage of thefalling water’s high velocity. Reaction turbines are generallyused for low-head, high-flow sites to take advantage ofthe water pressure provided by steadier flows.32

SHP projects can also be integrated into the operations ofexisting water systems, including dams and reservoirsbuilt for other purposes, irrigation canals, and watertreatment and supply facilities.33 Although economic andtechnical viability varies widely by site, these applicationscan add a power-generation component with little or noimpact on operations or local environments. Diagram 4.2a High-Head Scheme

Source: Original graphic based on ESHA 30

Diagram 4.2b Low-Head Scheme with Penstock

Source: Original graphic based on ESHA31


Infrastructure Integration

SHP projects are frequently connected to the grid whenavailable, but can also be used to supply users and smallcommunities in isolated areas with no grid connection.Because there is no grid to control the frequency andvoltage of electricity supplies, off-grid installations requirea local load controller.34 A battery bank may also be addedto enhance the reliability of off-grid systems.35

A grid connection offers power even when there isinsufficient water flow, easier control of electrical systemfrequency, and the potential to sell electricity to the grid.However, the grid connection can result in power beingtripped off due to grid blackouts.36

Grid connectivity determines the type of generatorappropriate for a project.37 Synchronous generators aremore expensive and complex, as they can regulate theirown frequency and voltage and can thus provide high-quality, stable power without a grid connection or work inconjunction with the grid as required. Asynchronousgenerators are simpler and cheaper but require a gridconnection to provide voltage and frequency control,although they may be used without a grid connection ifhigh-quality power is not required.

Beyond connecting to the grid, small hydropower plantsalso offer the unique potential for integration with existingwater infrastructure, including existing hydropower dams,reservoirs, irrigation canals, water treatment and supplyfacilities.38 By taking advantage of existing waterways,SHPs can reduce costs as well as minimize environmentalimpacts, making these types of projects a key early targetfor the sector’s development. Mexico’s Comexhidro hasalready developed 52 MW of capacity across three of thesetypes of projects, and in October 2007 Chile’s RiversCommission identified potential for more than the 772 MWof potential for SHP projects integrated with existingirrigation channels and dams.39, 40

Environmental Impacts

SHP systems provide a renewable, emission-free sourceof electricity that can offer significant emission reductions,particularly when the power is replacing fossil fuel-basedelectricity from the grid. For rural electrification projects,electricity from SHP systems is far cleaner than powerderived from diesel generators or traditional biomass.41

Because they rarely use dams, SHP plants have few of thelocal land and water issues associated with largehydropower, including negative impacts on wildlifehabitats, fish migration, water flow, and water quality.42

However, even small impacts on local environments shouldbe considered and addressed during the design phase.

In particular, certain SHP systems may pose a risk to localfish populations, depending on the location andconfiguration of the system.43 Water conveyanceequipment may divert a stream of as many as severalkilometers to produce gains in head, reducing flowbetween the diversion point and the powerhouse andaffecting the spawning, incubation, rearing, and passageof fish. This issue can usually be addressed by ensuring anadequate reserved flow that remains in the streambed, orthrough the construction of a fish pass based on a widerange of designs, including weir-and-pool designs, fishladders and elevators, pumps, and natural bypasses.Systems located in mountainous regions that require highheads generally have more negative impacts than low-head schemes, which can be more easily integrated intothe natural flow of rivers.

It should be noted that SHP systems can also benefitlocal water resources through the removal of wastematerials in the water.44 Grills and filters in the waterconveyance apparatus, called the trashrack, removeplastic bags, cans, bottles, and other human debris aswell as carcasses, dead plants, and other naturaldetritus. Moreover, developers can be enlisted to helpsupport important environmental initiatives that canimprove project performance and benefit localcommunities. As discussed in the Guatemala casestudy, Latin American subsidiaries of Italy’s Enel as wellas the Guatemalan firm Hidrosecacao have participatedin reforestation efforts in the areas surrounding theirSHP projects, in an effort to stem erosion that threatensreliable water flows for the project as well as nearbycommunities.45, 46, 47

The integration of well-planned and constructed SHP withexisting hydropower dams, reservoirs, irrigation canals,water treatment and supply facilities as noted above,generally offers an opportunity to minimize environmentalimpacts.48

Applicability

Resource Evaluation

SHP projects require a careful evaluation of the waterresource being drawn upon, as this will determine theamount of electricity generated – and hence the economicviability – of a project. As discussed above, the two criticalcharacteristics to evaluate are the head and flow of apotential water resource. A layperson using relativelysimple methods in SHP project guides can normallyassess these factors.49, 50 It should be noted that whilewater flows are constant when compared to solar or wind,they do vary. Flow measurements should be plotted to


show how frequently the flow equals or exceeds valuesnecessary for the operation of the turbine, permitting anestimate of the system’s availability over the course of ayear.51 Information on the overall flow of the river and anevaluation of area catchments can also enhance planningand influence system design.

Professional surveying techniques can yield more precisemeasurements of the head, and local water authorities orengineers may have data on water flow. Public resourcessuch as the U.S. Geological Survey, when available, canprovide accessible and accurate information. Anotherpotentially useful resource is the RETScreen Small HydroProject Model, developed by Natural Resources Canada incollaboration with NASA, UNEP, and GEF. The model is aninnovative software application that can be used free-of-charge to evaluate the energy production, life-cycle costs,and emissions reduction for both on- and off-grid small,mini, and micro-scale hydro.52 The software includes SHPproduct as well as hydrology databases that cover a widerange of manufacturers and regions.

Other Energy Uses

Electricity generation is not the only use for small-scalehydropower. Small hydropower plants may be built withoutan electricity generator to provide mechanical energy formills, pumps or other applications. Moreover, localcommunities that depend on a river for fishing, washing,and other water needs will need to be assured that a SHPsystem will not interfere with these uses.

Technological Evolutions

The basic turbine technologies for SHP systems are wellestablished and unlikely to evolve substantially. Theirsimplicity allows them to be easily understood andoperated in a wide range of contexts. However, advocatesemphasize that there is room for efficiency improvementsthrough the testing and design of new models, particularlyfor the more complex low-head reaction turbine designs.53

The development of specialized turbine designs forintegration with existing irrigation channels, water supplysystems, and sewage networks is also an area of specialfocus.54 In both cases, these new turbine designs aregeared towards micro- and pico-scale generation inapplications with little or no environmental impact.

System efficiencies can also be improved through theinsertion of electronic speed increasers and control systemsbetween the turbine and the generator. These systems cansynchronize the work of the different system components toachieve optimal performance without active oversight of thesystem.55 State of the art systems can allow operators tocheck on the performance of the plant and monitor itremotely, via computers, PDAs, and even telephones.

Economics

Overall Generation Costs:

Taking into account all costs over the life of a small hydroproject as well as the expected amount of powergenerated, grid-connected small hydro projects of 1-10MW produce electricity at an average estimated cost of 4-7 U.S. cents per kilowatt-hour. Generating costs increaseas the scale of plants decrease, with off-grid pico-scale(0.1-1 kW) systems costing an estimated 20-40 cents.

Capital Costs: Because they offer fewer economies ofscale, SHP plants are more expensive per unit of generatingcapacity than large hydropower projects.57 However, on aper kilowatt basis, these systems are usually less expensivethan other renewables. A survey of data on new small hydroproject financings from New Energy Finance reveals a costof $1,000-$4,100 per kilowatt of installed capacity acrossdisclosed financing deals completed between 2005 and2008, with an average of $2,110 per kilowatt.58

Operating Costs: As with other renewable energytechnologies, most expenses for SHP systems are up-front investment costs, since the system runs on a freeand renewable resource. Moreover, due to the simplicity ofthe technology involved, maintenance costs are expectedto be negligible.59

Socio-Economic Impacts

Rural Electrification: An estimated 50 million householdsand 60,000 small enterprises in developing countries areserved by SHP projects at the village level and through localgrids.60 Many of these are micro- and pico-scale systemsthat account for a small portion of total SHP capacity butprovide essential electricity services to remote regions thatwould have no access to grid electricity otherwise. Ruralelectrification with SHP has a number of advantages.Beyond the environmental benefits from replacing traditionalfuels or diesel generators, the use of electricity foreconomically productive applications can provide directeconomic benefits through increased quality of power aswell as greater efficiency and reliability of supplies. In terms

Table 4.2a SHP Generation Costs

SIZE COST

(U.S. cents/kWh)

Grid-Connected

1-10 MW 4-7

Off-Grid

0.1-1 MW 5-10

1-100 kW 7-20

0.1-1 kW 20-40

Source: REN2156


of both cost and reliability, SHP can be a superior option forthese applications compared to other renewables such assolar and wind. It should be noted, however, thathydropower generation is vulnerable to periodic reductionsfrom droughts, such as those associated with El Niñoevents in many areas of Latin America.

This ability of SHP to support a fuller spectrum of ruraleconomic development than smaller, single-householdsystems is powerfully illustrated by the 165-kW Chel micro-hydro station in Guatemala, a project organized by the NGOFundación Solar and supported by a number of Guatemalanand international stakeholders. The reliable power providedby the project for this rural, indigenous community in thecountry’s war-torn north has helped to increase its number ofsmall businesses from 10 to 40, including a butcher shop, ahardware store, an automobile repair shop, andbookstores.61 As of June 2008, there were also plans to opena bank, a hotel, and a coffee processing plant. FundaciónSolar has characterized the changes in Chel as thetransformation of “an 18th century Mayan Indian village to a21st century micro-metropolis,” and reports that a growingnumber of communities are studying the potential for similarprojects, including some community groups that hadpreviously been opposed to hydropower development.62

Local Industrial Development: In addition to the well-known development benefits of access to electricity, thegrowth of SHP has spawned small-scale equipmentmanufacturing and installation industries in manydeveloping countries, including China, India, and Nepal inAsia and Brazil and Peru in the Americas.63 Thesecompanies are often located in rural regions, an importantfocus for development efforts in these countries.

Rural communities also have a greater opportunity toparticipate in the construction and maintenance of smallhydro projects than with other technologies, given theirrelatively straightforward and well-established technology.In addition to creating jobs, the use of local labor in theseprojects offers the chance to reduce construction andmaintenance costs and ensure ongoing buy-in for theproject from the community.

Outlook

Given its relatively low costs and the region’s long experiencewith hydropower, small hydropower has unsurprisingly seenmore development in Latin America than any of thealternative renewable resources studied in this section.Although much of this development has come frompreferential prices granted under Brazil’s fully-subscribedPROINFA feed-in tariff program, small hydro is increasingly

competitive with grid power without subsidies in many areasdue to rising fossil fuel costs. Brazil and Chile in particular areexpected to see strong growth due to regional gas shortagesas well as renewable policies that encourage thedevelopment of low-cost sources – a new renewable powerauction system in Brazil, and a renewable portfolio standardin Chile. Costs can be further lowered through integration ofSHP projects with existing waterways for larger hydrofacilities, irrigation canals, or water treatment plants, anapproach which has been successful in Brazil, Mexico, Chile,Colombia, and other countries. Indeed, Chile alone hasidentified 772 MW of untapped potential small hydro projectsof this type, indicating great potential for similar “low hangingfruit” throughout the region’s hydraulic infrastructure.

In the context of rural electrification, micro-scale hydrosystems are increasingly proving their worth despite initialskepticism in some areas owing to the problematic past oflarger-scale hydro facilities. While these smaller scaleinstallations are more expensive than grid-connectedsmall hydro units of 1 MW or more in size, they producepower significantly more cheaply and at a larger scale thaneither small-scale solar or wind for off-grid communities inLatin America. Moreover, projects can often be combinedwith local environmental initiatives, which can serve toimprove generation performance as well as create jobsand enhance relations with local communities. Greatersupport for the use of small- and micro-hydro in ruralelectrification programs could help to expand theireconomic development benefits while simultaneouslyincreasing the use of this widespread renewable resource.

However, despite the benefits associated with the low costrenewable power provided by SHP systems, they are alsodistinctly limited in their ability to address Latin America’senergy security concerns. Because of their lack ofsignificant reservoir storage, SHP projects are even morevulnerable to drought-induced shortages than large hydrofacilities, which have historically been a major concern forthe many hydropower-dependent countries in LatinAmerica. While increasing the hydropower base is helpfulin some ways because it increases the amount ofelectricity generated even during dry seasons, it alsoreinforces these systems’ tendency towards severe,periodic volatility during cyclical El Niño events and otherdrought-inducing weather patterns. Given the substantialregional economic impacts of these periods in the pastand the potential for even greater impacts in the future dueto global climate change, the development of SHP willlikely play only a supporting role in the region’s drive forlong-term energy security.


4.3 Geothermal Power

Introduction

Heat emanating from the interior of the Earth is the sourceof geothermal energy, and it is essentially limitless.1

Geothermal is a particularly attractive renewable energybecause it is one of the few that can provide baseloadelectricity production, and it has a longer track recordthan any renewable power technology aside fromhydropower. Unlike most renewable sources, geothermalgeneration can operate every hour of the day, regardlessof changing weather.2

However, despite the unique characteristics of thistechnology, geothermal power presently provides just 10GW of generating capacity worldwide, most of which isconcentrated in Italy, Indonesia, Japan, Mexico, NewZealand, the Philippines, and the United States.3 Whilegeothermal has been established as the most reliablesource of baseload renewable power in these and othercountries for decades, limited opportunities fordeployment and high risks and up-front costs have alsomade it the slowest growing renewable source, growing atan average of just 2-3% per year.

In Latin America and the Caribbean, geothermal power isnot only the most established but it remains the largestsource of non-hydro renewable power, with 1402 MW ofinstalled capacity. However, all of this capacity is located in

Mexico and Central America, with no geothermal used forpower generation in South America despite periodicexploration of promising sites since the 1960s. More thantwo thirds of this existing capacity is located in Mexico,with 960 MW of installed capacity that ranks as the thirdlargest geothermal generation base in the world. In line withglobal trends, geothermal generation is growing muchmore slowly than wind – while wind has seen 334 MW, ortwo thirds of its total, built since 2005, only 26.5 MW ofgeothermal capacity has been built over the same period.

Technology


Components

Upon locating a geothermal heat source reservoir andassuring its viability, a “hot well” 1-4 kilometers (km) deepis drilled into the ground near the epicenter of the reservoir.A “cool well” is drilled some distance from the initial well,and piping is inserted into both, although the piping doesnot connect the wells. Each well is then used to transfergeothermal fluid, which is generally water in various phasesto and from the thermally active subterranean region below.

If the temperature and pressure of the hot well are highenough (over 235ºC), the fluid can spin a turbine-generatorsystem and produce electricity. This is referred to as avapor-dominated system. If the temperature in the hot wellis somewhat lower (150-300ºC), a “flash-steam” systemcan convert the warm water to steam by reducing the

Chart 4.3a Geothermal Capacity, LAC Region

Source: International Geothermal Association,4 Geothermal Resources Council,5 Polaris Geothermal,6 Business News Americas7

0

200

400

600

800

1,000

1,200

Costa Rica El Salvador GuatemalaMexico Nicaragua

MW


pressure in the hot well before the fluid is used to spin aturbine generator. If the hot well temperature is between100-150ºC, this fluid can be passed through a heatexchanger with another fluid (such as isopentane) that hasa low boiling temperature. As these two fluids pass eachother in the heat exchanger, the water boils theneighboring fluid, which in turn spins the turbine-generator. This process is referred to as a binary-cycle.Flash-steam and binary-cycle plants are often combinedin series to extract the maximum energy from thegeothermal fluid. These geothermal-electrical systems arehighly modular and can be assembled quickly on an as-needed basis.8 Systems that generate 0.5–10 MW requireas little as six months to become operational, and plantsof 250 MW and greater need only one to two years.9

Lower-temperature geothermal fluids can also be used fordirect heating, as noted below under Other Energy Uses.


Unlike hydro, wind and solar plants that depend onrenewable resource that vary in availability by season andby time of day, geothermal plants operate steadily aroundthe clock as baseload power. This is measured by its loadfactor or capacity factor, a measure of the percentage timea power source operates at maximum output.

Geothermal capacity factors are generally 89-97%,depending on the type of geothermal system utilized.10

These high values indicate that geothermal plants oftenoperate at near-maximum electricity output, a favorablequality for any renewable energy source. Moreover, thepotential for manufacturers to manipulate capacity factors(as seen in wind energy production) is greatly reducedbecause geothermal resources are more consistent thanwind. A manufacturer has no incentive to place a largegeothermal turbine on a small electric generator to raisethe capacity factor value because those same values canbe achieved with appropriately sized turbine-generatorcombinations that produce far more electricity.

Finally, one can compare energy sources by the availabilityfactor, which indicates the robustness of the physicalmachinery.

Geothermal plants generally have availabilities of 95%11 orgreater, meaning that the electrical and mechanical

components within these devices are durable enough togo without repair for more than 95% of the operationalperiod analyzed. This value is quite impressive for arenewable energy technology and well within the range ofconventional power generation technologies.


Geothermal energy requires relatively few resources asidefrom a reservoir of sufficiently high temperature – which, asdiscussed below under Resource Evaluation, can bedifficult to precisely locate. External water requirements areminimal because the water required is extracted from anunderground reservoir and then returned to the reservoir tomaintain pressure and source longevity.12 As a result,geothermal plants can operate in areas that have littlewater available for cooling a conventional power plant.

In addition, geothermal plants require little land relative tothe power produced and the land usage of otherrenewable energy sources. This quality is due to the smallfootprint of wells and turbines, the modular quality ofgeothermal components, and the absence of feeder fuels.The U.S. Department of Energy found that geothermaltechnology used less land than any other energy source–fossil fuel or renewable.13 Geothermal plants areestimated to use approximately 4.04x10-7 km2/MWh, anorder of magnitude less than a coal facility.14


The infrastructure required for the installation andoperation of geothermal power generators exists in mostregions that can support the oil and gas industry. Vehiclesand other technologies designed for the oil and gasindustry have proven useful in the geothermal sector andcan sometimes be rapidly deployed to explore geothermalreserves. Still, there are significant differences between oiland gas exploration techniques and those employed bygeothermal energy, and these differences constitute animportant obstacle.

Road infrastructure requirements are similar to those of oiland gas, and upgrades to local transit routes may benecessary in some locations. Geothermal turbines areheavy and generally need robust transport networks. Thehealth of onshore power grids is also critical, asgeothermal plants are generally used to provide base-load, utility-scale power. Remote or distributed generationoptions may be possible in some cases.

Environmental Impact

Carbon dioxide is a natural by-product of geothermalenergy and would be released into the atmospherewhether or not harnessed by a power plant, althoughthe rate of release would be slower under natural

Capacity

Factor =

Actual amount of power produced over time

Power that would have been produced if turbine

operated at maximum output for 100% of above

time period

Availability

Factor =

Amount of time unit is able to produce electricity

Amount of time in above period


diffusion.15 Because geothermal processes do not addto the carbon cycle in the way that burning fossil fuelsdoes, geothermal energy (including binary-cycle andflash-steam plants) is considered “net zero” in totalemissions.16

Due to the closed-cycle nature ofgeothermal power production,external water sources are normallynot required.

External water sources are normally not required due tothe closed-cycle nature of geothermal power production.Well pipes are made of steel or titanium and augmentedwith cement enclosures to prevent contamination ofsuperficial ground water and soil layers, and waterpollution from geothermal plants is highly unlikely.17

It is possible for geothermal resources to be over-produced. The Geysers field in California, the largestgeothermal development in the world, was shut down in1989 due to low well pressure. The site was later reopenedwhen technological advances allowed waste water to bepumped into the well to increase pressure. Many of thelong-running geothermal power plants in Central Americaand Mexico, including Cerro Prieto in Mexico,Momotombo in Nicaragua, and Ahuachapán and Berlin inEl Salvador, have also needed rehabilitation due to fallingwell pressure in recent decades.

Environmentally Sensitive Areas: While theconstruction and operation of geothermal plants has arelatively minimal environmental impact, particularlyrelative to the amount of electricity produced from thisfootprint, projects may face opposition from localstakeholders because of the unique environments inwhich they are often built. The largest and most easilyexploited geothermal reserves are commonly located inareas with extreme geologic and/or volcanic activities,which are home to unique ecosystems and can bevalued as major tourist attractions as well.

For example, Mexico’s state-owned power companyCFE has been interested in developing a geothermalpower plant in the Bosque de la Primavera ecologicalreserve for decades, but has yet to gain approval fromthe country’s environmental regulator despite reducingthe size of its proposal from 75 MW to 25 MW andcarrying out reforestation projects in the area in recentyears.18, 19 As noted below under Outlook, however,rising energy costs may increasingly overcome theseconcerns.

Applicability

Resource Evaluation

Few technologies exist for the specific task of locatinggeothermal reserves. Equipment and techniques transferredfrom the oil and gas industry have not been effective in sitinggeothermal plants. Initial siting decisions are normally madebased on known geologic activity or observation of ventsthat signal possible geothermal energy beneath the surface.Many of these locations exist along the boundary of thePacific Plate underlying the Pacific Ocean, an area of heavyvolcanic activity known as the “Ring of Fire.” This “ring”includes most of the world’s largest geothermal powerproducers, including Japan, Indonesia, and the Philippineson the western plate boundary and California, Mexico, andCentral America on the east. This area also includes manyAndean countries in South America that have yet to exploittheir geothermal resources for power generation, suggestinga significant area of expansion for the industry.20

Two considerations are critical once a potential site hasbeen located. The area should have a copious supply ofwater in a network of permeable, interconnected fractures.This determines whether the geothermal reserve has asufficient supply of fluid in an environment that allows boththe pressure build-up and the transport of fluid within it.Second, the site should have a caprock, or seal, thatprevents thermal-fluid from escaping and coolinggroundwater from entering.21 A caprock mitigates theinevitable decrease in fluid pressure and minimizes fluidleaking into or out of the reservoir.

If these criteria are met, an analysis of the reservoir’stemperature can help determine the site’s potential. Theresource attributes of the reservoir will define the type oftechnology to be employed (steam versus binary) and theoverall efficiency of the system.22 As discussed undercosts, the drilling and exploration activities required tomeasure these characteristics are expensive and a majorsource of the up-front project risks that have slowed thedevelopment of the industry. Once these analyses havebeen conducted, the appropriate technology can beselected based on the criteria noted at the beginning ofthis section, and production drilling can commence.

Other Energy Uses

In addition to generating electricity from high temperaturegeothermal resources, lower temperature geothermalenergy can also be utilized for various purposes. If the hot-well temperature is between 35-150ºC, it can be passedthrough pipes to various locations that use the water as adirect source of heat or to heat air in an enclosed area.Geothermal fluids are often used to heat water for fishfarming, resorts and spas or to heat air for greenhouses,


buildings, and the drying of crops.23 Although there are nolarge-scale geothermal power generating facilities in SouthAmerica, direct use of geothermal applications are well-established in Argentina, Brazil, and other countries.


The high cost of technology has limited projects to thehighest-grade geothermal resources.24 Advances inexploration, drilling, and power plant design could openup other resources and eventually reduce costs toconsumers. Existing devices and methods have beenconverted from oil and gas exploration, and advances inthe sector will require customized technologies that can,for example, help avoid costly “dry wells.”25 Theseadvances must come from either production profits orexternal sources such as government credits, both ofwhich are currently lacking.

Advanced geothermal technology may eventually permitthe capture of magma heat, something infeasible at themoment.26 Absent that, developers are seeking ever-increasing temperatures to boost plant efficiency. OneIcelandic project is harnessing the energy found in waterat approximately 450ºC, the highest temperature everattempted.27 Water at this temperature exists in a super-critical, liquid-gas phase but also poses risks to plantcomponents.

EGS: Another advance in geothermal energy production iscalled an Enhanced (or Engineered) Geothermal System(EGS) or Hot Dry Rock (HDR). This technology injects afinite quantity of water from an external source to asubterranean zone that has existing hot (dry) subterraneanstructures, essentially creating artificial hydrothermalreservoir. Feedwater poured into the rocks creates steamthat can spin a turbine-generator. By eliminating thereliance on naturally-occurring hydrothermal reservoirs,EGS promises to dramatically expand the universe ofsuitable geothermal resource sites.

A recent study by MIT, later confirmed by the U.S.Department of Energy, estimated that the U.S. alone coulddevelop 100 GW of EGS projects by 2050, and that thereare no fundamental technological obstacles to this type ofapplication. However, the development of commerciallycompetitive EGS plants will require years of testing as wellas substantial reductions in drilling costs. While the MITstudy estimated $1.1-$1.4 billion in combined public andprivate sector R&D funding over the next 15 years couldbring EGS costs to competitive levels, DOE found thisfinding overly optimistic, although it did not venture anestimation of its own.28 Moreover, there is concern that

some EGS plants could also affect neighboring tectonicstructures. A test EGS plant in Switzerland, for example,was shut down because of concerns that it had inducedearthquakes, though many believe ill-advised drilling andsiting rather than the EGS concept itself was to blame.29

While Brazil is considered to have negligible potential forgeothermal power generation using current technologies,recent research indicates that the rift basins on the easternborder of Brazil, primarily around Potiguar, Barreirinhas,Tacutu, and Taubaté, have high potential for geothermalproduction with EGS technologies due to their location asflow systems on a regional scale, which are linked to thedeep faults found at the flanks of continental rift systems.They base their extrapolations on the “Soultz Concept,” atechnique that has been used to explore HDR geothermalresources in Soultz, France. They believe that easternBrazil has similar geological characteristics, and thus thepotential for EGS geothermal power.30

Economics

Hopes for the geothermal sector in the 1970s provedoverly optimistic due to the high costs of exploration,plant installation and operation. Yet the cost ofgeothermal power generation has decreased by 25%over the last two decades, due to increased plantefficiencies and lower equipment and constructioncosts.31 It is believed that these cost declines will helprevitalize the sector as countries seek to improve energysecurity and decrease carbon emissions.

Overall Generation Costs: Taking into account all costsover the life of a geothermal project as well as theexpected amount of power generated, geothermal powerplants produce electricity at an estimated average of 4-7cents per kilowatt-hour.32 This is roughly on par with thecost of small hydro facilities, and less than the cost ofwind or solar power, making it competitive withconventional grid electricity in many cases.

Exploration Costs: Site exploration and preparationcosts far outstrip the costs associated with actuallyproducing electricity. Exploration technology that is onlymarginally effective means that time and money may bespent on sites with no production value. With moreaccurate technology, these costs could be greatlymitigated, as discussed in the section on AdvancedGeothermal Resource Location technology.

Geothermal drilling environments are far more causticthan is the case with conventional petroleum drilling.Geothermal fluids are often located in hard rock zones


and can be quite corrosive. Each geothermal well cancost $1-4 million and geothermal fields normally have 10-100 wells.33 “Dry wells” with no production potential arean extreme risk for developers and investors. Well drillingcan comprise 30-50% of the overall geothermal projectcost, and the fact that these costs cannot be amortizeduntil the well is operational is a further disincentive forinvestors.34

Capital Costs: In addition to exploration costs, capitalcosts can vary widely and depend on resource depth,temperature, and chemistry as well as site location,accessibility, and weather conditions.35 Even ifsubterranean conditions are optimal, surfacemeteorological conditions, a lack of road infrastructure,and elevation of the potential site can all increase capitalcosts. The expansion of an existing field will cost less dueto preexisting infrastructure, proven reserves, andknowledge of the appropriate technology, yetdevelopment of an untapped field may provide asubstantial relative gain.

The size of the project will determine the economies ofscale, particularly as regards labor costs.36 If anestablished labor force exists, expanding a plant orcreating a new one may strain the labor supply andincrease labor costs. For these reasons, a detailed cost-benefit analysis must be performed to determine the mosteconomically viable approach.

While there have been relatively few new geothermalprojects developed in Latin America in recent years,disclosed investment figures for the San Jacinto-Tizateproject in Nicaragua and the Amatitlan project inGuatemala (both financed in 2006) reveal an averageinvestment of $2,300 per kilowatt – slightly more than theaverage for small hydro plants.37

Operating Costs: As with other renewable energytechnologies, most expenses for SHP systems are up-front investment costs, since the system runs on a freeand renewable resource. Over the long term, however,plants may need additional wells drilled or plantsrehabilitated to compensate for the gradual loss of steamfrom geothermal reservoirs.

Outlook

Globally, the geothermal power sector is expected toexpand considerably in the coming years due to its uniqueability to provide baseload renewable electricity atrelatively low costs. High energy prices may also help toreduce hurdles to geothermal development in

environmentally and/or aesthetically-sensitive areas, as inCosta Rica where the Congress is considering a bill thatwould open up areas of its national park system forgeothermal development.38 Moreover, there are manyundeveloped geothermal sites surveyed in previousdecades that have become viable only recently due torising power prices as well as incremental technologicalimprovements that allow newer plants to take advantageof lower-temperature sources.39

At the same time, the universe of suitable geothermal sitesremains relatively limited compared to wind or small hydroresources, and this factor along with higher up-frontexploration risks make it likely that the use of this resourcewill grow at a slower pace than other renewable powertechnologies. While the emergence of EGS power plantscould dramatically expand the map of potential sites andincrease the pace of geothermal development, these typesof applications are estimated to be at least 15 years awayfrom being commercially competitive.40

Geothermal power in CentralAmerica and Mexico is continuingto expand slowly but steadily, with planned expansions togeothermal capacity in countriesincluding Mexico, Guatemala, and Nicaragua.

In line with these global trends, geothermal power inCentral America and Mexico is continuing to expandslowly but steadily, with planned expansions togeothermal capacity in countries including Mexico,Guatemala, and Nicaragua. Growth in Nicaragua isexpected to increase significantly due to its recently-passed minimum tariff for geothermal projects, whichhas already encouraged one private sector developerto go ahead with major planned expansions of anexisting field.

Perhaps more significantly, there has been a reneweddrive towards developing South America’s geothermalpotential, particularly in Chile, where rich geothermalresources in the country’s north coincide with thecountry’s huge and energy-thirsty mining industry. Underthe country’s recently-developed system forconcessioning geothermal resources, a consortiumincluding Italy’s Enel, Chile’s state oil company ENAP, andthe Chilean copper-producing giant CODELCO weregranted the first geothermal exploration license to drill at asite near the El Tatio geysers.


If built, the El Tatio project would be the first majorgeothermal power generation project in South America,potentially inaugurating a wave of new interest indeveloping this resource. Given South America’svulnerability to drought-induced regional power shortagesdue to its dependence on hydropower, geothermal’s abilityto produce extremely reliable baseload renewable powerwould have particular value to enhancing the region’senergy security. However, much of the exploration as wellas the development of this resource throughout LatinAmerica to date has been supported by financing andtechnical assistance from multilateral and internationalsources such as the UN, the World Bank, IADB, and theU.S., Italian, and Japanese governments. Due to thepersistence of high up-front costs and exploration riskswith current technologies, similar support will likely benecessary to spur the development of a sizeablegeothermal power base in South America. The World BankGeofund program, initiated in November 2006, is aninternational program that offers a range of instruments toreduce information barriers and geological risks, but it ispresently only offering support to Europe and CentralAsia.41


4.4 Wind

Introduction

After approximately three decades of commercialexperience, the wind turbine industry is now growing at anunprecedented rate due to the maturity of the technologyand strong interest from international customers, investors,and advocates. Wind power has become the largest sourceof non-hydro renewable power generation worldwide interms of capacity, with an estimated 95 GW installed at thestart of 2008. This total includes 21 GW added in 2007alone, more than any other technology. More than 50 GWof this is installed in Europe, led by Germany, Spain, andDenmark, and most of the rest is located in the U.S., China,and India. Globally, wind capacity grew at an averageannual rate of 25% between 2002 and 2006, more than anyother renewable power technology other than solar, andcapacity is expected to continue with double-digit growththrough 2012, adding annual quantities that will steadilyincrease to 36 GW in 2012.1

Wind power has been deployed in at least 10 countries inLatin America and the Caribbean, although it is at a veryearly stage of development in most. 506 MW of windpower capacity was identified in the region using datafrom OLADE, the Global Wind Energy Council (GWEC),New Energy Finance, and the Latin American Wind EnergyAssociation. Of this 506 MW, Brazil accounts for nearlyhalf, with 249 MW, followed by 85 MW in Mexico, 74 MW

in Costa Rica, and less than 30 MW each in Argentina,Chile, Colombia, Cuba, Ecuador, Jamaica, and Peru.

This section begins with an explanation of thetechnology components involved in wind energyproduction and how electricity is produced utilizingwind. A follow-on investigation of wind energyperformance characteristics explains how and whenwind energy technologies can be compared to oneanother and other technologies. There follows a briefdiscussion of land use issues related to wind powerincluding land usage requirements, road and electricalinfrastructure integration, and the environmental impactsof wind power generation. Finally, this section coversthe critical and complicated issue of wind energyeconomics. Advances in wind technology are reducingcosts, yet the technology still requires incentives inmost cases in order to compete with conventionalpower sources.

Technology


Components

The most common and effective method of generatingelectrical power from wind energy is via a turbine-basedgenerator. The device has three principal components: abladed rotor, an electric generator, and a housing platform.In its simplest form, wind energy is produced when windpasses the blades of the rotor, creating lift. As these blades

Chart 4.4a Global Wind Power Capacity 1996-2007

Source: Global Wind Energy Council2

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Annual Cumulative

MW


experience lift, they rotate around the hub of the rotor that isconnected to a drive shaft. This drive shaft rotates withinthe electric generator, causing electromagnetic variationsand producing electricity. The electricity is modified byvarious devices to match the characteristics of the localpower grid, after which this corrected electricity is sent tothe grid for consumption. It is important to note that windenergy can only be considered a supplemental electricitysource, largely due to wind intermittency. Additionally, thereare technical and seasonal limitations discussed later in thisreport that preclude wind energy from providing base-loadpower to consumers. For these reasons, wind energyshould only be considered as one part of a comprehensivenational energy portfolio.

The above power-generation process can be performed bywind turbines assembled in either a vertical or horizontalmanner, and each configuration has certain advantages anddisadvantages. The horizontal axis wind turbine (HAWTs)aligns the axis of the rotor parallel to the flow of wind.Advantages of this design include increased efficiency, aswell as flexibility in placing the turbine various distancesabove the ground. Yet the turbine must be rotated constantlyinto an optimal wind orientation, and maintenance must beperformed at the top of the turbine tower, generally 50meters above the ground. Virtually all utility-scale wind farmsuse these horizontal-axis turbines.

Within the HAWT class are “upwind” turbines that havethe rotor in front of the tower in the wind stream, and

“downwind” turbines that have the rotor behind the tower.With the rotor facing into the wind stream, upwind turbinesdo not encounter the “wind shadow” of the tower thataffects downwind turbines. Additionally, the upwindconfiguration reduces blade fatigue that can be caused bythe tower in a downwind configuration. For these reasons,the upwind configuration is commercially preferred.

The upwind, HAWT configuration is perhaps mostappropriate in locations where wind direction is consistentand wind speeds are greater at distances farther aboveground level. These environments also provide the mostlikely locations for profitable wind power generation.Thus, the remainder of this section will focus on theutilization of upwind, horizontal axis wind turbines. Thissection will also focus on onshore installations as opposedto offshore due to the maturity of the onshore sectorversus the still-emerging nature of the offshore sector.Significant differences in the two installation types will benoted where necessary.

In contrast to HAWTs, vertical axis wind turbine (VAWTs)can capture wind from any direction without the need torotate into an optimal, wind-harnessing position.Additionally, this design allows all power productionequipment (generators and inverters, for example) to belocated at the base of the tower for ease of maintenance.Disadvantages to this design include lower efficienciesrelative to horizontal axis wind turbines. In addition, rotorreplacement generally requires the entire machine to be

Chart 4.4b Wind Capacity, LAC Region

Source: GWEC, OLADE, LAWEA, NEF 3, 4, 5, 6

0

50

100

150

200

250

300

ArgentinaBrazil Chile ColombiaCosta Rica Cuba EcuadorJamaicaMexico Peru

MW


laid on its side. This configuration is recommended forlocations that have highly variable wind direction, such aswithin cities, and it is being used in a growing number ofsmall-scale turbine designs.


Relative to many energy sources in use, wind turbines arequite efficient. A theoretical principle known as the BetzLimit states that any wind turbine can achieve a maximumof 60% efficiency. With this goal in mind, turbinemanufacturers utilize advanced materials and designtechniques to mitigate efficiency losses caused by frictionand turbulence. Each turbine is optimized to operatewithin a range of site-specific wind speeds. Thisoptimization requires customizing the tower, rotor sizes,and generator components to most effectively capturewind energy at that location. For this reason, it is difficultto discuss the efficiency of the technology as a whole, andone should question the “listed” efficiency ratingssometimes provided by manufacturers. The measure ofefficiency in the wind turbine industry is the powercoefficient which is the electrical power output of theturbine divided by the wind energy input.

The power coefficient is generally in the range of 20-45%though this heavily depends on turbine design as well asindividual wind speeds.7 For this reason, it is difficult todiscuss the efficiency of the technology as a whole andone should question the “listed” efficiency ratings orpower coefficients sometimes provided by manufacturers.

Capacity factors are an alternative measurement ofrelative energy production. These factors divide the actualquantity of energy produced by the theoretical amount ofenergy the device could produce if working at maximumoutput for a given time frame.

The percentage of time the device is operating atmaximum power output is an alternative way tounderstand the capacity factor. A well designed windturbine generally achieves a capacity factor of 25-40%,although higher values are possible during windy periods.8

Two caveats are important in employing capacity factors.First, a poorly designed turbine with an overly large rotorand small generator would yield a significantly higher

capacity factor because the generator would be operatingat its maximum output for greater percentages of time,even though the quantity of electricity produced may bequite small. A turbine optimized for maximum electricityproduction, as opposed to maximum capacity factor, willutilize the appropriate rotor and generator sizes to meet anelectricity production goal, even if this produces a lowcapacity factor. Optimizing a turbine for maximumelectricity production also minimizes cost per kWh. Anotably high capacity factor may suggest a non-optimalturbine design and therefore inflated costs.

Second, capacity factor measures the average powerproduced over time compared to a theoretical baseline.A lower capacity factor is due to the wind turbineproducing energy for long periods of time, but at less thanfull capacity. For example, wind turbines in theMidwestern region of the United States are known toproduce electricity for 60-90% of a given time period, yetin that period they are not producing electricity atmaximum output.

A third form of power plant evaluation is “availability,” ameasure of mechanical reliability. The greater theavailability, the greater percentage of time the power plantis ready to produce electricity. After years of fieldexperience and advances in materials science, wind energyis considered to have an availability of 98%—significantlyhigher than most other forms of power production.9


Though the footprint of a single wind turbine tower isrelatively small, community power consumptionrequirements can require a large wind farm. A tower baseis generally less than 4.3 meters in diameter, largelyconstrained by road-access limitations.10 However,utility-scale wind farms in flat, open terrain requireapproximately 0.24 square kilometers per megawatt(km2/MW), and in ridgeline locations, less than 0.04km2/MW.11 Thus, a reasonably sized wind farm of 20 MWin an open area will require roughly 4.85 km2 of land.Offshore installations have an area requirement on theorder of 0.12 km2/MW.12)

Wind farms can accommodate other land uses, one oftheir principal advantages. Generally, only 5% (or less) ofthe wind farm land area contains wind turbines, accessroads, or other required equipment,13 allowing theremaining area to be used for raising livestock, agriculturalfarming, and other uses.


Perhaps the two greatest infrastructure concerns areequipment transport and electrical grid integration. Roads

Power

Coefficient =

Electrical Power Output

Wind Energy Input

Capacity

Factor =



operated at maximum output for 100% of above

time period


must be wide, durable, and obstacle-free to conveycomponents as long as 150 meters with a combinedweight of approximately 200 metric tons. Consideredtogether with the addition of unwieldy installationequipment, these prerequisites can present a formidablechallenge to the transport infrastructure of a location.Helicopter transfer and installation is an alternative toground transport, although this is generally quiteexpensive and adds schedule and physical risks. Roadinfrastructure will need to meet transportation andinstallation equipment load and dimension requirements orthe road will need improvement.

Much of the transport infrastructure already exists foroffshore turbine installation in the form of deep sea drillingand service vessels. As with onshore helicopter transport,extra care must be taken when developing constructionschedules for offshore installations to accommodateseasonal weather disruptions.

Unlike geothermal power’sconstant generation, wind power isintermittent and cannot be used asa baseload power source.

Integrating a wind turbine into the existing power grid is relatively straight-forward in a technical sense. Due toadvances in modular electrical devices, most turbinemanufacturers have situated all necessary grid-interfaceequipment within the turbine super-structure, either in thenacelle or within the base of the tower. The nacelle is alarge room located on top of the wind turbine tower thathouses the majority of the wind turbine equipment. Thisequipment can be configured to allow integration of windturbines into existing grids almost anywhere in the world.Thus, many turbines are grid-ready upon completion ofconstruction and testing.

A benefit of wind-based energy is its ability to operateeither on or off the grid. On the grid, wind turbine unitscan provide electricity that would otherwise begenerated by fossil fuels. This added capacity canreduce the need to run conventional power generationfacilities, reducing dependence on costly fossil fuels aswell as hydropower reservoir levels and improving pricestability and energy security in the process. However,unlike geothermal power’s constant generation, windpower is intermittent and cannot be used as baseloadpower source. Thus, wind generation will need to bebacked up by gas turbines or other fossil fuelgenerators capable of ramping up and down to matchpeaks and valleys in wind generation. The uses of

various forms of wind power storage to ameliorate thisdependence on fossil fuel backup, including batteries,flywheels, and pumped hydro storage, are beingexplored, but these are not currently consideredeconomically viable.

Off-grid or distributed generation can also satisfy asignificant amount of the electricity required by smalloff-grid communities, though wind generation wouldmost likely require additional power storageinfrastructure here as well (e.g., batteries and backupgenerators). It is estimated that in the United States,one megawatt can satisfy the electricity requirements of230 to 300 homes.14 Though most off-grid wind turbinesgenerally operate in the 1-10 kW range, a series of windturbines at this rating could be appropriate for rural,utility-isolated communities. As discussed below, a lackof scale increases the generating costs of these small-scale turbines compared to multi-megawatt units, buttheir costs are generally lower than solar photovoltaics,and unlike solar wind energy can generate electricityduring nighttime hours.


The environmental impact of wind-based powergeneration is benign relative to other available options.It produces no emissions during generation andrelatively low emissions during manufacture andconstruction.15 The climate change mitigation effects arealso significant. By the end of 2006, installed windenergy in Europe reduced CO2 emissions by 80 millionmetric tons per year.16 Many observers consider windenergy to be one of the “cleanest” forms of electricitygeneration.

As with all generation technologies, however, there areenvironmentally negative impacts to be considered. TheEuropean Commission ExternE project found that windpower had some environmental and social impactsincluding noise pollution, the visual intrusion of turbinesand associated equipment, accidents to workers andthe general public during manufacturing, operation, andconstruction, and emission release during materialprocessing and component manufacturing.17 Lesserimpacts include the danger posed to birds, constructioneffects on terrestrial ecosystems, and radiointerference.18 Mitigation policies and equipmentcurrently exist and are employed to help ensure thatwind power is made as environmentally and sociallybenign as possible. One example of such efforts is the2006 British Wind Energy Association recommendationthat no offshore wind turbine be built within fivekilometers of the shore, significantly reducing noise andvisual intrusion.19


Applicability

Resource Evaluation

There are a number of aspects to consider beforeinstalling wind-based electricity production, with perhapsthe two greatest being resource supply and productdemand. Detailed analyses and measurements must beconducted to determine if wind energy is viable in theselected area. Continental wind maps, such as thoseproduced by the United Nations Solar and Wind EnergyResource Assessment (SWERA), can provide first-orderevaluations of potential wind-power generation locations.These maps present data collected from various sourcesand integrate the data graphically.

Of particular interest to wind developers is wind-powerdensity, measured in Watts per square meter (W/m2).This measurement indicates the amount of wind energyavailable for turbine capture and conversion. In general,wind-turbine installation is considered viable when thedensity is at least 400 W/m2 at 30 meters aboveground.20 This threshold correlates to a wind speedgreater than 7 m/s at 50 meters above ground.21

Once these basic appraisals are conducted, additionalsite-specific wind flow calculations and terrain analyseswill be required to more accurately estimate the potential.There are a number of crucial variables in wind generationthat must be considered during this phase. In particular,the site-specific analyses should investigate the seasonaland yearly wind variation, as well as the height andsurface roughness of the location.22 A thoroughunderstanding of historical wind fluctuations andprevailing wind flow patterns can help determine whethera site is capable of generating enough power over thelong term to achieve economic viability.

Offshore wind-power generation is also increasingly beingconsidered in many areas. Ten kilometers from shore, windspeeds are roughly one meter per second higher.23 Thisdifference is particularly significant because wind power isbased on the cube of the wind speed. Additionally, much ofthe wind turbulence caused by onshore terrain does not existover water, reducing stress on the turbine and permittinglonger life cycles. However, this potential must be balancedagainst the stresses caused by wind/wave interaction andmore severe weather exposure, and the much higherconstruction costs that accompany these challenges.

Other Energy Uses

Wind turbines can harness energy for uses besideselectrical generation. For example, wind turbines can be

coupled with hydraulic pumps to propel water back into areservoir for later irrigation use by local farmers or greaterelectricity production by a hydropower facility. Turbinescan also be used to draw water from wells for domesticand industrial water resources.


There are a number of developments in wind-based powergeneration that are expected to make the technology moreeffective and economically competitive with other powersources. One area under investigation is turbinemodification. Turbine developers are constantly seeking toimprove rotor blade performance by drawing uponaerospace industry research. Aerodynamic devices such asvortex generators and the use of lighter yet strongermaterials allow manufacturers to increase the overall scaleand power output of wind turbines. Larger wind turbinesyield more power with fewer turbines,24 and may lead theindustry toward the development of offshore wind farms.25

For offshore applications, the absence of noise regulationswill allow the deployment of generators in the 3-5 MWrange, reducing needed area while producing moreelectricity. Advances in deep-water siting, specificallyfoundation construction and transmission efficiency, willallow developers to take advantage of the higher windspeeds and reduced turbulence farther from shore.Finally, concepts such as floating turbines are now beingdeveloped for commercial use.

In addition to turbine structural modifications, advances inwind resource monitoring and modeling will be critical.Innovative wind mapping techniques such as the satellitemapping conducted by the SWERA project will help locatepotential wind sources and site turbines quickly andaccurately. Additionally, advances in computational fluiddynamics (CFD) will allow better modeling of wind flowacross rotor blades and wind and wave interaction withturbine towers.

The industry is also aggressively developing low wind-speed turbine technologies through improved, largerotors and towers as well as more efficient electro-mechanical conversion devices, such as generators.Electrical components must effectively harness the littlemechanical energy available in low wind-speed areas,particularly in off-grid locations.

LAC R&D: The adaptation of existing turbine designs tothe fierce conditions of Latin America’s best wind powersites may offer one of the best opportunities for localrenewable energy R&D in the region. Presently, there isburgeoning interest in public and private wind powerresearch initiatives in both Mexico and Argentina, where


Oaxaca and Southern Patagonia respectively featuresome of the strongest, harshest wind regimes in the world.Because these winds pose both an enormous generationopportunity and a major operating challenge to manyturbines, research in both countries has been undertakento facilitate the testing and modification of existing windturbine designs to withstand these conditions. Argentina’sIMPSA is already producing turbines targeted towards theBrazilian market, and Argentina’s INVAP and the UNDP-funded CERTE research center in Mexico have alsoembarked on longer-term projects to produce originalturbine designs for high-speed winds.

Economics

The cost of wind energy has decreased tremendously overthe past three decades, which along with wind power’srelatively short construction time has fueled its tremendousgrowth over the past four years. Like most renewableenergy sources, the majority of costs for wind power areincurred during the design and construction phases anddrop precipitously once facilities are operational.

Overall Generation Costs: Taking into account all costsover the life of a wind project as well as the expectedamount of power generated, onshore wind power plantsproduce electricity at an estimated average of 5-8 centsper kilowatt-hour.26 This represents a decrease fromestimated costs of more than 80 cents per kilowatt-hourin 1980, although decreases in costs have slowed in thepast decade.27 This is slightly more expensive thanaverage generating costs for small hydro or geothermalpower of 4-7 cents per kilowatt-hour, but substantiallycheaper than solar power, which can range from 20-80cents per kilowatt-hour.

While this may still be competitive with conventional gridsources in a growing number of areas thanks to risingfossil fuel costs, most countries that have deployedsubstantial quantities of wind power have had to providepolicy incentives for its deployment, such as feed-in tariffsin Europe and tax credits and state renewable portfoliostandards (RPS) in the U.S. In Latin America and theCaribbean, nearly half of the region’s operational windpower capacity and most of its capacity underconstruction has been developed under Brazil’s PROINFAfeed-in tariff program.

Offshore Wind: Due the substantial drilling, construction,and cable installation costs incurred for offshore windinstallations, generation from these facilities issubstantially higher, at an estimated 8-12 cents perkilowatt-hour.28 However, future offshore generation costs

may drop significantly (~40% by 2020) relative to onshore(20-25% by 2020) due to the decrease in offshoreelectrical interconnection costs and the construction oflarger turbines.29

Small-Scale Turbines: Finally, while there is little dataavailable on the performance of emerging small-scalewind turbines, it is estimated that they have generatingcosts of 15-35 cents per kilowatt-hour, with higher costsreflecting their lack of economies of scale.30

Capital Costs: The main capital costs are manufacturingand installation of the wind turbine. The table below showsthe wind turbine itself comprising 74-82% of the total costof surveyed onshore wind projects in Europe. Gridconnection costs and foundation construction costs aresignificantly smaller, although these can comprise asignificantly higher proportion of costs for offshoreinstallations.

It is important to note that installation costs are highly site-specific, which can limit the utility of cost comparisonsbetween projects. However, for the sake of comparison,data from New Energy Finance on wind power projectfinancings in Latin America and the Caribbean since 2005reveals an average cost of $2,400 per kilowatt of installedcapacity. Costs ranged significantly between projects, from$1,300 per kilowatt for Mexico’s state-developed La Venta IIproject to $4,300 per kilowatt for a 2.4 MW plant built in theenvironmentally sensitive Galapagos Islands by internationaldonors and the Ecuadorian government. This is slightlymore than both small hydro ($2,200) and geothermal($2,300) costs per kilowatt, and the greater intermittency ofwind resources means significantly less electricitygenerated per kilowatt installed.

Operating Costs: Operation and Maintenance (O&M)costs are traditionally low for wind plants. Turbines aregenerally designed to operate for 120,000 hours over a20-year lifespan and have annual O&M costs of roughlyUS$10 per megawatt-hour (MWh).32 Turbines normallyrequire servicing and inspection once every six months.33 If

Table 4.4a Cost Structure for a Typical Medium-SizedWind Turbine (850 kW-1.5 MW)

Cost Component Share of Total Cost (%)

Turbine 74-82

Foundation 1-6

Electric installation 1-9

Grid connection 2-9

Consultancy 1-3

Land 1-3

Financial costs 1-5

Road construction 1-5

Source: EWEA 31


individual components fail within the turbine, the turbineoperator can choose to replace the rotor blades, gearbox,or generator at a cost on the order of 15-20% of originalturbine cost per component.34

Outlook

Wind energy is expected to continue growing at a torridpace globally due to the ongoing convergence ofeconomic as well as policy drivers in key markets. Despiteits intermittency and slightly higher costs, wind power isgrowing faster than small hydro or geothermal due to amuch larger universe of potential sites, faster constructiontimes, and more robust policy support than these relativelymore-established alternatives in many countries. Asoffshore installations become more technically andeconomically viable, the resource will be utilized at aneven greater rate. Use of offshore resources will alsoencourage the research, development, andcommercialization of increasingly larger wind turbines thatcan take advantage of unrestricted energy production andgenerate more electricity. Small-scale wind turbines arealso expected to proliferate as more small businesses andhomeowners in developed areas as well as ruralcommunities seek to harness strong local winds fordistributed generation.

This global trend is certainly reflected in Latin America,which has seen the fastest growth in wind power in recentyears of all non-hydro renewable sources, with 334 MW, ortwo thirds of its total cumulative capacity, built since 2005,compared to only 26.5 MW of geothermal capacity thathas been brought online over this period. However, mostof this new capacity has been built in Brazil due to thegenerous feed-in tariffs offered under the PROINFAprogram, a uniquely effective incentive in the region thatbecame fully subscribed this year and thus discontinuedas a source of incentives for future projects.

Because wind power facilities are not as cost-competitiveon average as small hydro or geothermal power, theirdevelopment is more sensitive to the existence ofappropriate policy incentives. However, while most of theworld’s wind power to date has been built in Europeancountries such as Germany, Spain, and Denmark that haveused generous feed-in tariffs to spur its development, thefastest growing wind power markets in the world in recentyears have been in the relatively lightly-subsidized U.S. andChina, suggesting that the need for incentives is declininggiven rising demand and higher electricity prices. At thesame time, rising wind power costs due to acceleratingglobal turbine demand will at least partially offset thesetrends, further underscoring the importance of incentives.

Given the fact that Brazil has just discontinued the mostproven incentive program for wind power in the region, thesector’s immediate growth prospects face someuncertainty. While a growing number of countries in LatinAmerica and the Caribbean have recently enactedincentives likely to benefit wind projects, including Chile,Guatemala, Honduras, and the Dominican Republic, theyare still too new to have had a major impact, and noneoffer the guaranteed income streams created by Brazil’sPROINFA in Brazil. Moreover, the development of windpower by the private sector is limited by failed or partialreforms in Argentina and Mexico, respectively, both ofwhich could be regional leaders in wind developmentgiven their world-class wind resources.

Wind power is already cheaperthan retail power prices for majorcommercial and/or industrial usersin many countries, leading largeprivate sector companies to buildor contract directly with wind farmsin Mexico, Chile, and Argentina.

Despite these questions over whether the region’s policyframeworks will be sufficient to encourage the widespreaddeployment of wind power in the near term, as windpower becomes increasingly competitive withconventional generation sources these incentives willbecome less necessary. Indeed, wind power is alreadycheaper than retail power prices for major commercialand/or industrial users in many countries, leading largeprivate sector companies to build or contract directly withwind farms in Mexico, Chile, and Argentina. While theintermittency of wind power makes it ill suited to supply allof a firm’s power, the diversification of its powerpurchasing portfolio with renewables can help hedgeagainst rising fossil fuel prices, and the ability of windpower to be built quickly and at a wide range of scalesand locales often makes it better suited for thesecommercial and industrial users than small hydro orgeothermal power.

In Mexico and Argentina in particular, the growing interestby the private sector in developing its own wind powerpowerfully illustrates the way in which renewablegeneration developed by decentralized private sectoractors is well positioned to address failures of poorlyregulated, centralized power systems. As discussed in thesection on Electricity Market Structures, this trend echoesthe way in which the emergence of gas turbines built by


relatively small independent power producers (IPPs) shookup existing regulated utility paradigms in the 1980s and1990s. As the least expensive and most widely deployedby far of the newly emerging renewable energytechnologies of wind, solar, and marine power, thesuccess or failure of wind will play a major role indetermining whether renewable power ushers in a similarparadigm change in the 21st century.


4.5 Solar Power

Introduction

The sun is ultimately the source of most of the renewableand non-renewable energy on the planet (with theexception of geothermal power), with an estimatedpotential to generate 15,000 times more energy thancurrent global energy consumption.1 The challenge toutilizing this potentially limitless resource is capturing thesolar energy efficiently at a competitive cost, as solar cellspresently produce power at a much higher cost perkilowatt-hour than other renewable sources.

Because of its high costs, virtually all of the grid-connected solar power in the world has been developedin countries that have offered incentives targetedtowards this sector. At the end of 2007, Germany haddeveloped 3.8 GW of solar power – roughly half theworld total – followed by the United States with 903 MW,Spain with 670 MW, Italy with 108 MW, and South Koreawith 85 MW. The global market also includes 2.7 GW ofoff-grid installations, for a total of 10.5 GW from allsources. Due to a lack of incentives, development ofsolar in the LAC region has been minimal, with just 25MW identified, predominantly found in off-grid systems inMexico and Brazil.

This section will review various methods of collecting solarenergy and available technologies, evaluate performancecharacteristics useful for comparing solar energytechnologies and examine existing natural resourcesnecessary for optimal solar power generation.

Technology


Components

Solar-based electricity generation is the conversion ofsolar radiation into electricity, through the use ofphotovoltaic (PV) cells or concentrating solar energy toheat a fluid energy transfer medium. A PV cell iscomposed of a semi-conductor like silicon, or in the caseof thin-film solar PV cadmium telluride (CdTe) or copper,indium, gallium, selenide (CIGS). The semi-conductor isassembled such that an uneven positive and negativeelectronic field exists, facilitating the flow of lose electrons.Incoming photons (sunlight) strike the semiconductingmaterial forcing electrons to be ejected from thesemiconductor, which in turn creates a flow of electrons.Each PV cell can generate a given amount of electricitybased on its rated efficiency of converting sunlight to

energy. PV cells can be connected in series and housedwithin a solar array to meet capacity and size restriction orrequirements.

Polysilicon: Conventional solar PV panels aremanufactured using two or more monocrystalline orpolycrystalline silicon wafers sandwiched betweenglass plates. Monocrystalline silicon wafers are cut frompure silicon rods, and are the most efficient for energyconversion. Polycrystalline wafers are manufactured bymelting and molding silicon onto a specific shape. Thisprocess is more cost effective, allows for more versatilecell and module construction but suffers efficiency lossdue to the formation multiple crystalline structureswithin the silicon wafer. These structures act to deflectmore light, reducing overall electron release andelectricity flow.2

Thin-Film: Thin film solar panels are manufactured byapplying a thin layer of a semi-conductor material, such asCIGS (copper, indium, gallium and selenium) or CdTe(Cadmium Telluride) to a sheet of glass, metal or plastic.Compared with traditional polysilicon-based solar panelsthat use 200-300μm thick silicon crystal wafers, a 1-2μmlayer of a semi-conductor is required for thin-film panels.3

The thicker silicon wafers are cut from a silicon crystal blockand laminated between glass sheets, often with spacesbetween silicon cells. Alternately, a thin film semi-conductoris basically painted onto a backing, maximizing usable area.Thin film solar panels also perform better than silicon-basedPV systems in low light, and higher temperatures. Thisrelatively simple sounding production process greatlyenhances solar module’s useful applications and greatlyreduces the overall production cost, but is difficult toimplement on a large scale.4 Additionally, the lower costsare accompanied by lower efficiencies when compared toconventional silicon solar panels.

Concentrating Solar Power (CSP): Concentrating solarpower (CSP) systems utilize mirrors to focus solarradiation on a single location. The focused energy isused to heat an energy transfer medium, like water, forsteam generation. Focusing the sun’s radiation andapplying a multiplier effect increases incident solarinsolation, or the amount of radiation per unit area duringa period of time, commonly denoted as kW/m2/year.Greater levels of concentrated solar energy yield highertemperatures and greater energy production potential.The one drawback of this technology is that it requiresuninterrupted sunlight for the energy transfer medium toreach that critical, most efficient energy producingtemperature. Because of this, CSP systems are onlysuited for remote desert locations where there is littleexisting energy transmission infrastructure.



The wide range of solar technologies and innovative usescan make comparison difficult. However, three criteria—electrical efficiency, capacity factor, and availability—dopermit a rudimentary comparison of different solar energies.

Efficiency in the solar energy industry is generally definedas the amount of electricity produced divided by theamount of solar radiation striking the solar cell.

Photovoltaic modules have the advantage of a singleenergy conversion step, yet this single step is still achallenge using existing technologies.

Polysilicon: Under laboratory conditions, the NationalRenewable Energy Laboratory (NREL) has achieved40.8%5 efficiency in 2008 while researchers at theUniversity of Delaware (UD) claim to have developed a cellcapable of a 42.8% energy conversion in 2007 withprojections of reaching 50% by 2010.6 Presently the NRELholds the world record for efficiency due to the fact thatthe UD system has not be independently verified. Forcommercial production, however, silicon-based PVmodules achieve efficiencies around 15%,7 and may reachas high as 20% in some cases.

Thin-Film: Today, the commercial efficiency of thin filmsolar cells ranges from only 5% to 13%,8 compared with15-20% for silicon PV cells, while the NREL has achieved19.9% efficiency for CIGS modules in lab tests.9

Presently, the majority of thin film solar panels are madewith CdTe due to lower costs and resource availability.These modules have a commercial efficiency of about10% and a lab efficiency of about 16%.10 While CIGSmodules have a much higher potential efficiency, large-scale production issues are hampering its commercialviability.11

CSP: CSP units require the conversion of solar energyinto thermal energy before electricity can be produced.CSP units thus depend on both the collector efficiencyand the steam-cycle efficiency of the heated fluid.Conversion from one energy form to another reducesefficiency as the energy losses are experienced thoughconduction, friction associated with mechanical heatengines. For this reason, overall solar thermal plantefficiencies are normally about 15%.12

Nevertheless, recent advances in this technology haveachieved efficiencies as high as 30-40% due to focusedinsolation. Flat-plat PV modules are considered “one sun

insolation” systems because they only absorb the ambientsolar radiation that strikes them. The technology thatallows the high efficiency PV systems focuses solarradiation onto a single solar cell, thus achieving insolationequivalents of greater than 400 suns.13 CSP arrays thatcan utilize both the solar energy directly for PV energygeneration and indirectly for heat generation can achieveeven greater efficiencies, but this technology will not beviable for some time.

Capacity factors in solar energy are usually given as either“with storage” or “without.” This distinction cansignificantly change the efficiencies reported. One shouldgenerally look at capacity factors without storage to havea clear understanding of how the solar generator willperform independent of storage units, which can beadded later to augment the baseline efficiency of thegenerator. Generally, commercial solar generator capacityfactors (without storage) are in the 10-20% range14

regardless of whether they are solar thermal orphotovoltaic. Meteorological variations and efficiencylosses prevent the units from operating at maximumoutput for the entire time they are in sunlight.

A final performance characteristic to consider is theavailability of solar electricity generators. Where capacityfactors explain the percentage of time a power plant is atmaximum capacity, availability defines how much time theplant is operationally ready. In other words, availability isthe percentage of time the plant is physically ready foroperation should sunlight be available. Due to the maturityof the technology, most solar conversion technologies areavailable nearly 100% of the time.15


The land resource requirements of solar energy are currentlyquite significant. For example, generating 100 megawatts(MW) at 10% efficiency would require 3-10 km2 of landusing a photovoltaic or CSP electric system,16 while theNREL estimates that land usage for trough-based CSPgenerators is roughly 0.02-0.04 km2 per MW-installedcapacity.17 Note that by using units of square kilometers permegawatt (km2/MW) we are assuming no thermal storage inthis system, whereas units of km2/MW/year would be moreappropriate for facilities with thermal storage.

Regrettably, solar power generation often excludes otherland uses due the fragility of the collector systems and theneed to maximize collector ground space. Nevertheless,innovative techniques are being used to mount solarpanels to existing buildings and infrastructure so as tomaximize land usage and decrease solar-exclusive landusage figures. Solar power production also has the addedbenefit that it does not require land usage for feeder fuels.

Solareff = Electricity Generated

Incident Solar Energy


CSP generators can require significant quantities of waterto create the steam that spins the turbine-generatormechanism. After passing through the turbine, the water istoo cool to provide additional power but too hot tocirculate through the collectors again. Thus, evaporationpools must be used to cool the water. These evaporationpools can consume a significant amount of the local watersupply, on the order of 2.4 m3/MWh.18


One significant benefit to solar energy is scalability andthus minimal infrastructure requirements compared toresources such as wind. Solar collectors can be used inremote locations and transported by a variety of methods,ranging from pack mules to space vehicles. Significantroad improvements are usually required for thetransportation of either power generation units orinstallation equipment of solar energy applications.

The intermittency of solar power can complicate gridinfrastructure. Most electrical grids – as well asassociated generation, usage, and stabilizationequipment – were not designed for power sources withvariable and unpredictable electrical output. As withwind power, solar grid-connection must be carefullyanalyzed so as not to injure the solar generator or thelocal power grid.

Solar power equipment is easilytransported and is a scalabletechnology, making it suitable foroff-grid applications.

Due to its ease of transport, solar power equipment canalso be used in off-grid applications with few connectionissues due to the scalability of the technology. Forexample, if solar electricity or solar heating is used topower individual, off-grid buildings (residential orindustrial), the electricity demand of that building can betailored to meet expected sunlight availability oroccasional “resource outages.” The relative ease ofmanaging a single load makes solar power units ideal foroff-grid applications.

Expected usage is also important in considering solar powerintegration. Solar power production characteristics indicatethat this technology normally cannot be used as a base-loadpower source. Source intermittency, lower performancequalities, and resource requirements make solar powerproduction a tool for on-grid, peak-loading mitigation. Assuch, solar power can complement a comprehensiveportfolio of other base-load power source options.


While solar energy is a zero-emission, renewable resource,there are still environmental concerns related to cellmanufacturing and the ultimate disposal of toxic materialsused to create photovoltaic solar panels.

If fossil energy is used in the extraction of naturalresources or production of solar cells, carbon dioxide andother greenhouse gas emissions can be attributed to theproduction process. The actual materials used for theproduction of the solar cells, which includes silicon forconventional solar, and cadmium-telluride (CdTe) andcopper, indium, gallium, and selenium (CIGS) for thin filmsolar, also raise environmental concerns.19 Compared withCdTe and CIGS, silicon solar cells require more water andabiotic inputs (fuel, minerals, etc.). Furthermore, silicon-based solar cells typically require greater life cycle energyinputs than thin-film cells and thus result in greater CO2emissions per kWh generated.20 In general, CdTe is themost environmentally favorable when compared withsilicon and CIGS. However, its energy efficiency rating isthe lowest at 9% compared with 11% for CIGS andaround 14% for silicon.21 Thin film technologies have amuch lower environmental impact, and an inherentadvantage over silicon, due to their extremely minimalresource requirements, as mentioned above.

Considering human health in the manufacturing anddisposal of solar cells, silicon itself is relatively inert but itcan be dangerous to workers if it is crushed into powderand inhaled. The manufacturing process for silicon-basedcells requires the cutting of wafers from silicon crystalrods, which can create dust. Alternately, thin filmmanufacturers print the semi-conductor to a backing likeglass, which can intrinsically minimize the potential forworker inhalation of airborne particles.

Little is known about the life-cycle toxicity impacts of the thin-film solar panels, however. While pure cadmium is a toxicmaterial known to cause kidney and respiratory problems, itbecomes much less hazardous when combined withtelluride. CdTe would have to be heated to at least 1041°C(less than the 800°C to 900°C of a house fire) before it couldbreak down and 1700°C to melt.22 With respect to CIGS, theEPA has identified selenium as a toxin and carcinogen thatcan bioaccumulate though the food web. Gallium is alsoknown to have a low level of toxicity, but compared withCdTe, CIGS has the lowest overall toxicity level.23

To address the disposal issue, companies like First Solar, aCdTe manufacturer, have agreed to take back and recyclesolar panels at the end of their usable life.24 Unfortunately,not all solar producers are participating in recyclingprojects at the moment, but they will likely adopt recycling


policies as consumer pressure for environmentally friendlyproducts mounts. Additionally, further research is neededto fully understand the potential health and environmentalimpacts that the production of solar PV cells may have.Despite this uncertainty, however, the environmental andhealth impacts of the production and use of solar cells aresignificantly less than fossil fuels. Coal emits an“unavoidable” 14 μ(Cd)/kWh, as compared with 0.06μ(Cd)/kWh for a CdTe solar system, in addition to mercury,greenhouse gasses like CO2, SOx and NOx, andparticulate matter.25

Aside from manufacturing and disposal concerns, solarpower poses an ecological challenge in the siting of largeCSP or solar PV energy farms. This issue is slightlymitigated by the fact that these larger systems are mosteffective in deserts and remote regions where there iscomparatively little biodiversity. Additionally, waterrequirements for CSP facilities also raise environmentalconcerns as these facilities operate optimally in locationswhere water resources are often scarce.

Applicability

Resource Evaluation

Regardless of the solar technology to be utilized, certainsite-specific solar characteristics must be considered toensure viability. The three main criteria to investigatewhen siting solar plants are power density or irradiance,angular distribution (diffuse or direct components) andspectral distribution.26 Power density is the amount ofsolar energy the sun imparts per given area, oftenmeasured in watts per square-meter (W/m2). Themaximum power density on earth is 1000 W/m2 with anaverage power density of 100-300 W/m2.27 The angulardistribution is a measure of the angles at which the sunwill hit the site. Distribution can vary significantly as onemoves north or south. Finally, spectral distributionmeasures how fast the photons are moving when theystrike the solar collector, thus helping to determine thelevel of power that can be produced from “momentumtransfer.” These three measures will define how well a sitewill produce electricity or heating.

Solar site investigations should commence with clear-sky,solar-power density data (given in W/m2) as well as siteinsolation data.28 Recall that insolation is essentially powerdensity over a given time (for example, kW/m2/year). Solarinsolation data thus describes the overall quantity of solarenergy absorbed by an area per year, while power densitydata assesses the concentration of solar energy absorbed.The insolation data is particularly useful for evaluating theeconomic potential of a solar energy project,29 as it

provides an approximate forecasting of expected averagesolar concentrations over the course of a year. Once thesedata are collected, sophisticated analyses can beperformed to determine if solar power is technicallypossible in a given location.

Other Energy Uses

Solar-based heating, or solar thermal, is the use of solarenergy to increase the thermal temperature of anothermedium, generally air or water, for domestic or industrialuse. This is accomplished by utilizing a solar collector, athermal storage device, and a distribution system. As thesolar radiation encounters the solar collector, fluid insidethe collector absorbs the thermal energy, resulting in anelevation of the fluid temperature. This thermally-excited,“hot” fluid is then transported to a thermal storage unituntil it is required at some remote location. Oncecommanded, the distribution system transports the hotfluid to the requesting location. This system can either bea closed-loop cycle as found with building radiators usedto replace traditional boilers, or an open-loop cycle whereair is heated and pumped into a room for heating.


Technical advances could have a significant impact on thepracticality of solar-based power. Novel ideas such as theability to mimic organic photosynthesis in the productionof hydrogen via artificial photosynthesis30 are valiantaspirations, but near-term solutions are required for trueprogress in this sector. Much research and developmenthas focused on solar cell photovoltaics, where innovationis reducing production costs and increasing unit efficiency.Advanced materials research is helping to increaseelectricity output while reducing the need for rareresources such as silicon. New designs and productionadvances have decreased mass-production time framesand multiplied production centers across the globe. Thesetrends are expected to continue as photovoltaic poweroccupies an increasingly significant portion of bothdeveloped and developing country power productionportfolios.31

Concentrating solar power (CSP) plants are also expectedto become a focus of development and commercialization.One of the most exciting developments in this field is thepotential for these plants to produce power when the sunis unavailable. Specifically, these plants will be able toburn natural gas and neighboring landfill gas to heat thefluids normally heated by sunlight,32 thus increasing plantefficiency and capacity factors tremendously.Alternatively, CSP facilities that use molten salt as theheated fluid can store this medium in thermal storage


facilities so that it can be utilized at night to run turbine-generators. For these reasons, it is expected that CSPplants will be fully competitive with conventional power-production plants by 2016.33

Building-Integrated Photovoltaics: Since theemergence of more cost competitive thin film technology,building-integrated photovoltaic (BIPV) systems have alsobecome a viable construction option.34 BIPV systemsincorporate solar technology directly into constructionmaterials like roofing shingles and building facades.These dual purpose materials help decrease theinstallation costs of solar cells as they become integratedwith construction costs.

However, contractors may often be wary of these new,untested materials due to potentially high replacementcosts should there be a defect in the product.Furthermore, BIPV is only available for new construction orrenovation, which is a relatively small share of all surfacesthat could potentially be harnessed for solar generation.35

When solar companies partner with construction firms itbecomes easier to control for quality and ensure a moreefficient product.36 Additionally, offering substantialwarranties on systems in states with attractive solarincentives helps assuage consumer skepticism overinvesting in this type of emerging solar application.

Economics

While the deployment of solar currently faces significantconstraints due to high costs compared to otherrenewables, these costs are expected to fall across theindustry in the short-term, as silicon supplies expand, agrowing number of thin-film producers reach commerciallevels of production, and the industry as a wholeconsolidates technology, production, and distribution toachieve increasing economies of scale.

Costs

The average cost per kWh of solar power may varysignificantly depending on levels of solar insolation, thescale of an installation, and the photovoltaic technologyused. REN21 broadly estimates solar generation today tocost between $0.20 and $0.80/kWh, depending on thelevel of insolation (with $0.20/kWh in the sunniestplaces). The U.S. Department of Energy estimatesresidential solar to cost between $0.28 - $0.30/kWh,while larger-scale commercial solar installations canproduce power for as little as $0.14 - $0.16/kWh. In thecoming years, the DOE estimates that residential solarwill cost between $0.17 - $0.19/kWh by 2010 and $0.09 -$0.14/kWh by 2015. Commercial costs are expected to

range from $0.09 - $0.10/kWh by 2010 and $0.06 -$0.07/kWh by 2015.37

Capital Costs: The actual installed end-user costs for asolar power system include a number of components suchas labor, parts, and installer overhead as well as the solarpanel itself, which usually comprises between 45% and60% of the total cost of the system.38, 39 The final, installedcosts per watt of a typical home power system are brokendown below.40

Both the installation and solar panel costs are expected tosteadily decline in the coming years, which will bring theprice of a solar system closer to the production price ofthe panels.

Polysilicon Panels: According to Solarbuzz, the averagecost of solar PV in September of 2008 was between$4.85/watt-peak. This price tag is up from $4.49 in 2005 asthe greater demand for solar power drove the price up.42

Thin-Film Panels: In September 2008 the lowest price for thinfilm solar was $3.47/watt-peak.43 Despite the low commercialefficiencies of thin film technology, these lower costs per wattare expected to make them an attractive option over othersolar technologies, especially for large-scale as well asbuilding-integrated installations. Currently, thin-film solarpanels comprise roughly 20% of the solar energy market,44

and are projected to increase to 26% by 2013 with over 10GW of solar equipment production expected by 2012.45

Operational Costs: Over the long run, upkeep andmaintenance of solar PV systems is relatively low becauseit is solid-state technology, that is, it does not have movingparts, unless sophisticated solar tracking technology isused. Most, if not all, estimates point out that solar PVsystems have a longevity between 20-30 years, and someeven suggest much longer.

Table 4.5a Solar PV Cost Itemization

Item Cost % of total Cost

Solar Panel

Polysilicon $1.50 18.18%

Creating the wafer $0.75 9.09%

Creating the cell from the wafer $0.75 9.09%

Compiling the solar panel $0.75 9.09%

TOTAL SOLAR PANEL $3.75 45.5%

Other Costs

Inverters $0.50 6.06%

Racks $0.75 9.09%

Labor $1.25 15.15%

Installer’s overhead $2.00 24.24%

TOTAL OTHER COSTS $4.50 54.5%

TOTAL COST PER WATT $8.25 100%

Source: Wall Street Journal41


CSP: CSP plants are expected to be less expensive forutility-scale generation, although these plants have notbeen built in decades. According to the NREL andSandina National Laboratories, CSP costs about$0.12/kWh including both capital and operational costs.This value is expected to drop to $0.05/kWh in the next 10years.46 The majority of CSP costs come from the massiveup-front investments required to built these facilities to theappropriate scale. Like solar PV, over the lifetime of a CSPfacility, operational costs are expected to be minimal.

Outlook

While the long-term potential of solar power is virtuallylimitless, the near term picture is much more complex, asgrowth is expected to remain significantly dependent onthe shifting availability of international subsidy programs,even as prices begin to decrease and new technologiesemerge in the coming years. A growing number ofjurisdictions throughout the U.S., EU, and Asia havesought to put incentive programs in place in order tostimulate the development of the ecosystems of solarsuppliers, developers, and installers necessary to facilitatethe adoption of this resource as costs decline.

In contrast to these other regions of the world, LatinAmerica and the Caribbean countries have largely failed tooffer significant support for the deployment of solar poweraside from small-scale systems for off-grid users.Although these rural electrification programs are importantand could be expanded significantly, the region has muchgreater potential for the development of this resourceoutside of these limited applications, and this potential willgrow significantly with the emergence of building-integrated photovoltaics (BIPV) and other novelappliations. The lack of incentives for the use of solarpower by grid-connected consumers could result in theregion being left behind as the solar sector takes off.


4.6 Marine (Wave/Tidal)

Introduction

The potential energy to be gained from marine-basedpower sources is enormous. It is estimated that globalwave power production potential is 8,000-80,000 terawatt-hours per year (TWh/y) or 1-10TW, roughly the amount ofenergy consumed globally each year.1 Tidal power hasequally impressive potential, offering 3,000 gigawatts(GW).2 Though this sector is still largely in the research anddevelopment phases,3 various technologies are beginningto emerge commercially. This section will investigate thesedevelopments, the science the technology is based on,and how decision makers should assess marine-basedpower sources.

This section begins with an analysis of the technicalcomponents and performance criteria of marine-basedgeneration technology. It will then discuss theinfrastructure requirements for marine power units and thelocations at which marine power can be realistically sited.It will be argued that marine power is ideally suited forbase-load, on-grid applications, though performance-reducing factors such as seasonal meteorological changesmust be considered. This section will then consider theenvironmental impact of marine power, with a particularfocus on water and land requirements.

The next portion of this section will discuss marine-powersiting, describe the necessary resource evaluations, andexplain why certain sites are superior to others. Expectedtechnological advancements in the sector will also beconsidered, with a focus on the potential of marinethermal variations as a power source.

Finally, this section addresses the cost considerationsassociated with marine-based power and the technicaland economic challenges to effective commercialization.In particular, the obstacles to continuous ocean generationand transmission of electricity will be emphasized. Devicesfor this type of generation must withstand wind, water, andcorrosion. These forces render exceedingly difficult thesiting, installation, operation, and maintenance of thistechnology.

This section will conclude with a review of why tidalpower is considered more feasible than wave-basedpower, which is still in the research and developmentstages.4 As a whole, marine power must not onlydemonstrate financial viability versus traditional powersources, it must also compete with more maturerenewable technologies for a limited supply of research

funding. It is a challenging environment, and marinepower should be viewed as a technology with significantpotential, but not one that should be considered forimmediate, large-scale investment and deployment bydeveloping countries.

Technology


Components

Waves are a product of surface wind and seafloorgeologic formations, whereas tidal energy derives from thegravitational interactions between the sun, moon andEarth. Useful energy is derived from these sources insimilar ways based on the principles of fluid dynamics thatthey share. For this reason, the term “marine” will besubstituted for “wave” and “tidal” when no distinction isnecessary. Until very recently, the largest wave-basedgeneration facility in the world was located at the cliffs ofNorway with an installed capacity of only 1 megawatt(MW).5 In September 2008 a 2.25MW wave power systemdesigned by the Edinburgh-based company Peamis WavePower came online, making it the world’s largest wavepower generator. The facility may eventually expand to21MW and provide electricity to roughly 14,000 homes.6

There are numerous proposals for future facilities aroundthe world in the 2-4 MWrange, but most are still in theplanning and feasibility stage.

There are only three tidal barrage facilities operational inthe world right now, which utilize huge tidal dams muchlike large hydro projects to take advantage of major tidaldifferentials. The largest tidal plant is the French dam-typelocated in La Rance, France. It has a capacity of 240MWand has been in operation since 1966.7 The second largestis a 20MW facility in the Bay of Fundy in Annapolis and isthe only such facility in North America.8

The first commercial offshore tidal turbine, or what can bethought of as an underwater wind turbine, was installed offthe coast of Northern Ireland in July 2008. Initially thefacility is operating at 150kW, but Marine Current Turbines,the company that developed the system, expects it togenerate up to 1.2MW, enough to power 1,000 homes,when fully operational in 2009.9

The two principal marine power generation mechanismsare turbine-generator devices and oscillation-harnessing devices. Turbine-based hydrogeneratorsoperate similarly to wind or geothermal-basedgenerators. As the tide or wave passes across theblades of the hydroturbine rotor, the blades experiencelift and rotate around the hub of the rotor. The rotor hub


is connected to a driveshaft, which is then connectedto a generator. When the rotor rotates under the force ofthe water passing over the blades, the driveshaftrotates inside the generator, producing electromagneticvariations and thus electricity. It is important to recallthat saltwater is far denser than air, allowinghydroturbines to produce large amounts of energydespite the fact that they rotate slower than their dry-land relatives. Hydroturbines can be free standing onthe ocean floor, or imbedded in tidal dams to harnessenergy as the seawater fills the reservoir at high tideand then drains at low tide.

Oscillation-harnessing devices generally use a hydraulic-generator to produce electricity. In this form, marineenergy is used to move hydraulic pistons that compresschambers of fluid (normally oil or water). The pressurizedsubstance in these chambers is then forced past theblades of a hydroturbine, which functions as describedabove. These oscillating devices can come in variousforms, such as large worm-like, floating structures on thesurface of the water with internal hydraulic-generators, oroscillating water towers that utilize the rise and fall of thewater level to push air through a shore-based turbine-generator.

However the device operates, most are secured to theseafloor in some fashion. These securing structures oftenserve the dual purpose of anchoring the generator deviceand supporting electric transmission lines. Transmissionlines then run along the seafloor to the local, on-shoreelectrical grid.


The performance criteria discussed in this section aresimilar to those found in other sections of this report so asto permit comparison between the technologies. This said,individual technologies should also be compared tovariants within their own sector, a process that requires adetailed cost-benefit analysis of each design. One of themain performance criteria discussed in each of thepreceding sections is the overall efficiency of thetechnology. The nascent nature of the marine powerindustry makes the acquisition of this informationchallenging. Various reports have estimated marine turbineefficiency at between 30%10 and 50%.11 This rangeindicates that decision makers should seek additionalinformation as to how efficiency calculations wereconducted and whether these methods are consideredreliable in the industry.

Capacity factors are an additional form of comparison thatcan be utilized in marine-power decisions. Capacity factoris defined as:

Capacity factor is the percentage of time that the powersource is operating at maximum power output. Thecapacity factors for most marine power sources arerelatively low compared to other renewable energies. Onereport found that the wave technologies evaluated rangedfrom 7-25% and tidal technologies ranged from 20-25%.12

These low figures could be due to factors including overlylarge generators or small rotors. Alternatively, the devicescould have been appropriately designed for maximumelectrical output but located in an area that simply did notproduce sufficient energy.

An additional method for evaluating reliability isavailability, defined as the percentage of time a device isphysically ready to generate electricity. This measurenormally assesses component durability. Availability forcertain tidal power units has been surprisingly high. Onestudy found that a dam-type, tidal plant in La Rance,France and a similar plant in Canada had achievedimpressive availabilities of approximately 97% after initialmodifications and reasonable maintenancerequirements.13 However, because wave powertechnology is still largely under development, availabilityfigures would not be representative of the technology andtherefore are omitted here.


Relatively low resource requirements are an attractiveaspect of marine power. The most significant requirementis land and sea space. Many shoreline technologiesrequire at least one land-based building in which to housethe turbine-generator and other electronic equipment.Some reservoir-type installations also require land to floodwith seawater so that it can later be drained for electricitygeneration. Although no official statistics exist for howmuch land is needed, economies of scale suggest that it iseconomically prudent to install more than one shorelineturbine-generator and maximize the reservoir-basin size.

With regard to sea-based technologies, much of theconcern is with naval traffic. Some wave technologiesdiscuss using surface areas of approximately 0.125 km2,thus posing a significant hazard for maritime surface vesselsin the area. Similarly, submarine power generators can posea hazard to surface ships and submarines. Therefore,revisions to navigational charts and explicit warning deviceswill be required to mitigate the possibility of accidentalcollisions. In addition, response protocols and action planswill be required for any collisions that do occur.

Capacity

Factor =



operated at maximum output for 100% of the

above time period



Much of the infrastructure required to install marine powergenerators already exists in the oil and gas industry.Vessels specifically designed to transport necessaryequipment and personnel are used daily across the globe,as are the required anchor-drilling and cable-layingplatforms. This technology has already facilitated theinstallation of off-shore wind farms, as discussed earlier inthis report. However, the high demand for these vessels isproducing delays, which could affect marine- and wind-based generator installations. Decision makers should alsoconsider the inherent meteorological variability that existswhenever operating on or near the ocean, especially inareas where weather is known to be volatile. Though roadrequirements will be minimal for most marine-based powergeneration technologies, some infrastructure may needupgrading. Hydroturbines for oscillating water tower anddam-type generation stations are often extremely heavyand can require robust transportation networks. Almost allmarine-based power will need some type of shore-basedelectrical power devices (transformers, rectifiers, etc.)housed near the shoreline, sometimes in remote locations.As with most renewable technologies, marine power willrequire healthy onshore power grids that can withstandsudden interruptions.


The environmental impact of marine power depends onwhat form the generation device takes. For example,hydroturbines placed in a tidal dam to capture the energyof the seawater as it ingresses and egresses can impedesea life migration and induce silt build-up.14 Additionally,tidal dams can require a significant amount of shorelinesand dredging, water pollution due to cement pouring,and ecosystem disruption. It is reasonable to expect thistype of effect with most marine power technologiesbecause many marine technologies require some type ofsolid-ground foundations from which to operate. Thisgrounding thus requires drilling, foundation laying, andother procedures that can affect the environmentsurrounding the electricity generators.

Nevertheless, marine power is extremely “green” in terms ofemissions. The majority of marine technologies use waterand air as the only fuel sources and do little to contaminateeither. As with solar, the most significant emissions willcome from the manufacturing of the generating devices.These emissions will require appropriate legislationconcerning proper use and clean-up. With regard to clean-up, some oscillating-motion devices use working fluidsbesides water or air (normally oil). These technologies couldemit toxins into the environment after prolonged use oraccidental impact, requiring routine maintenance andeffective spill-response procedures.

Applicability

Resource Evaluation

Neither form of marine power is effective without theappropriate conditions. Evaluating potential marine-powerinstallations will require detailed wave, tidal, and oceancurrent analyses as well as seasonal metrological studiesacross multiple years. Wave and tidal maps exist for a fewspecific countries and can be used to estimatepreliminarily marine energy potential.

Tidal power is the more location-sensitive of the two forms ofenergy because it relies on the difference between high andlow tide, known as tidal range. This difference in turndepends on season, time of day, and longitudinal location.Specifically, tidal differences must be greater than fivemeters, a condition that prevails in only about 40 sitesaround the world.15 Together, these sites could harness just3% of the 3,000 GW available globally, due to technicallimitations.16 Nevertheless, hydroturbines using tidal powercan generate a significant amount of energy. A hydroturbineblade diameter of 15 m operating in a 3.6-4.9 knot (6.7-9.1km/h) flow field can generate the same quantity of energy asa 60 m diameter wind turbine, assuming similar conditions.17

In addition to a five-meter tidal differential, most forms oftidal power require a water depth of 20-30 meters.18

Traditionally, barrages or dams are constructed acrossestuaries or bays with large natural tidal ranges. The waterflowing in during high tide is captured and released duringlow tide to drive turbines. Another form of tidal powertechnology is under development that does not require theuse of dams or barrages. Offshore tidal power, or free-flowtidal power generators utilize underwater “tidal turbines,”similar to wind turbines, which can harness tidal flowenergy and ocean current energy. These turbines can beconstructed over a wider coastal area because they do notrequire an estuary or bay to store the potential energy andthey only require water flowing between 4 and 5.5mph tobe economically viable. Offshore tidal turbines are alsomuch less environmentally intrusive than tidal bargesystems because they require fewer resources toconstruct, less space for optimal operation and do notrequire the use of an entire estuarine ecosystem.19

Wave power generally has less stringent requirementsthan tidal power. Offshore systems are often anchored inwater that is 40 meters deep or more,20 while shorelineoscillating water columns need only 10-25 meters of waterdepth.21 Site evaluations must include assessments ofaverage wave power, generally measured as the quantityof energy per unit width of a progressing wave with unitsof kWh/m. A wave-strength of 30 kWh/m is consideredreasonable for wave power generation,22 and areas with


sustained wind speeds generally have more wave-powergeneration potential.

Other Energy Uses

Marine power technologies have few secondary uses, inlarge part because of distance from shore. Otherrenewable energies, such as wind, can utilize excessmechanical energy to perform tasks such as pumpingwater to higher elevations. Marine energies are often toofar from the coast to take advantage of excessmechanical energy in this manner. Moreover, there is noheat transfer in marine power technologies. Otherrenewable sources, such as geothermal and solar,produce immense amounts of heat that can be used forother functions.


Innovative marine power designs and ideas abound, butfew have proven technically feasible and even fewer havebecome commercially viable. One technology that hasshown potential is Ocean Thermal Energy Conversion(OTEC). Effective almost anywhere on earth, OTECutilizes the ocean temperature difference between thesurface and at least a 1,000m depth. The technologyoperates like a binary-cycle geothermal plant. Warm,ocean surface water is passed through a heat exchangerwith a separate working fluid that has a very low boilingpoint such as ammonia. The surface water vaporizes theammonia, causing it to expand and rotate a turbine-generator. The discharged ammonia is then circulatedthrough a second heat exchanger which contains coldwater from the depths of the ocean. This cold interfacecauses the ammonia to condense before returning to thefirst heat exchanger to begin the process again. It isbelieved that this source of energy could produce 1013

Watts of base-load power per year,23 roughly four ordersof magnitude the energy consumed in the U.S. annually.24

Notwithstanding this immense potential, technical hurdleshave slowed development of the technology.

Economics

As discussed, marine energy is still not economicallyviable. Technical challenges and competition withconventional and other renewable sources have provendaunting. The sector also suffers from limitedcommunication between industry researchers andinvestors. If government and institutional investors couldbe shown the potential of marine-based power, there is achance the industry could grow significantly. However,even if the marine power industry experiences a massiveexpansion, it is still years, if not decades, behind othermore mature renewable energies.

Costs

As with most renewable energies, the greatest cost outlayis in development. Site evaluation and equipmentmanufacturing and installation are costly. One studyestimates that wave technology construction timelinescould vary in length from 1-10 years while tidal facilityconstruction could last 3-10 years. Even these estimatesdepend on the commercialization of currently unavailabletechnology.25 High construction costs and long timelinesare a powerful disincentive for investors26 and constitutethe greatest obstacle to the growth of the sector.

Because marine-power generation is still in its early stages,exact commercialized cost estimates are difficult to obtain.Nevertheless, industry experts appear to agree that ifexisting technology were commercialized today, costs forwave energy would be approximately US$100/MWh andUS$80/MWh for tidal energy, assuming optimal sitings.27 Inaddition, capital costs are estimated to be US$4-8m/MW-installed for wave technologies, and $3-4m/MW-installedfor tidal facilities with 30-9000 MW-installed capacity, againassuming commercialization.28 These costs are highrelative to other renewable sources. Geothermal powerplants, which satisfy comparable base-load requirements,are approximately $2.8m/MW-installed29 and wind turbinescost $0.79m/MW-installed.30 Significant cost reductions willbe necessary if marine power is to approach economicviability and compete with other renewable energytechnologies.

One considerable advantage to marine power is thatoperation and maintenance costs are relatively low. Forthe dam-type plants in France and Canada mentionedabove, generator components had to modified after initialinstallation but have since been highly reliable andrequired only modest maintenance.31 Similarly,maintenance costs for wave-based technologies are lowerthan first expected due to the fact that many devices canbe brought to the surface for servicing. Nonetheless,reductions in development stage costs will be essentialbefore investors will appreciate lower operation andmaintenance costs.

Outlook

As marine-based energy moves from research anddevelopment towards commercialization, capable sectorleaders will begin to emerge. High-profile pilot programscould help bring marine power into the mainstream, andtechnology transfer from other renewable technologies mayalso boost this promising sector. Presently, however, all of thisresearch and development is taking place in the U.S. and EU,despite LAC’s considerable marine power potential.


4.7 Biofuels & Bioenergy

Introduction

Biofuels are fuels derived from biological sources, includingvirgin crops, agricultural and forestry residues, and animaland vegetable waste oils. This report will focus on biofuelsfor transport — ethanol and biodiesel — and biomass andbiogas for thermal and electric power generation.

While technologies to produce biofuels are as old asvehicles themselves, higher costs compared to petroleum-based fuels have limited their use. During the past severalyears, high oil prices, increasing concerns about climatechange, and growing debates over energy security andenergy independence have combined to facilitate anexplosion of interest in these long-established, first-generation processes as well as promisingnext-generation technologies yet to reach the commercialstage. Backed by strong government support in manycountries, global biofuels production has exploded, withethanol production more than doubling since 2000 to 13.5billion gallons and biodiesel production, starting from amuch smaller base, growing threefold to two billiongallons.1 Though biofuels are a much faster-growingsource for transportation energy than petroleum, theyrepresent only 2% of total transport fuel use worldwide.2

Ethanol produced in the U.S. and Brazil, which in 2006accounted for 4.9 billion and 4.5 billion gallons,respectively, account for approximately 70% of totalglobal ethanol production.3 Biodiesel production is muchsmaller and led by Europe, which produced 1.5 billiongallons in 2006 and accounted for approximately 77% ofglobal production. (The U.S. was a distant second with250 million gallons produced.)4

Bioenergy’s share of the world’s energy supply has beenstable since at least 1973. The IEA estimates thatcombustible renewables and waste — which includesmunicipal waste, industrial waste, primary biomass, andbiogas — accounted for 10.6% and 10.1% of the world’stotal primary energy supply in 1973 and 2006,respectively.5 Yet, in 2006, two-thirds of this wasresidential consumption of primary biomass:6 woodybiomass combusted for heat and cooking, which thissection will not address.

This report will address the remaining one-third ofcombustible renewables and waste that is combusteddirectly or transformed for thermal and electric powergeneration, referred to herein as “bioenergy.” Primary solidbiomass accounted for 2.9% of the world’s primary energy

supply in 2005, with municipal waste, industrial waste, andbiogas7 accounting for a miniscule 0.02%, 0.01%, and0.01%, respectively.8

Bioenergy can be produced through various methods,such as biomass co-firing with hydrocarbons atindustrial facilities; biomass cogeneration at agro-industrial facilities; bioconversion of municipal solidwaste (MSW) methane; or small-scale biogas productionthrough anaerobic digestion. Biomass sources includeforestry and agricultural products and residues,industrial residues such as from sawmills, and wastestreams. Biogas includes methane gas capture fromagricultural, industrial, and municipal solid waste. Inaddition to their significance as an actual and potentialsource of power in themselves, biomass and biogas arefrequently used in biofuels projects in order to enhanceproductivity, lower costs, and improve energy balanceand environmental performance.

Rapid development of the biofuels and bioenergy industryhas produced growing pains, including increasingcommodity and feedstock costs, food security concerns,and environmental impact in the former, and difficultiesexpanding supply chains beyond the highly localized levelin the latter. However, as detailed below, new feedstocks,practices, and developing technologies are generatingoptimism that these issues will be addressed.

Technology

Bioconversion Processes9

The following section briefly describes the steps involvedin bioconversion for biofuels and bioenergy.

Ethanol

Although the initial steps of different ethanol productionmethods vary according to feedstock, all processesinvolve the extraction of sugars for fermentation anddistillation into the final ethanol product.

Sugarcane Ethanol

• Extraction: The sugarcane is crushed to extract thejuice, which is collected. Additional steps, such asimbibation or diffusion (adding water to the bagasse),can maximize juice extraction. The bagasse can beburned in boilers to help generate power for the distilleryor used to make paper.

• Purification: The juice is filtered through a variety ofmethods such as straining, sedimentation, and centrifugalforce. It is then chemically treated, heated, and putthrough a process of evaporation to extract excess water.


• Saccharification: Lime is added to the juice mixture,and the liquid is then heated and cooled again. After thisphase, the juice is pasteurized and sterilized.

• Fermentation: The sugars are transformed into ethanoland carbon dioxide through a biochemical process inwhich yeast is added to ferment the sugars. Thisprocess includes several stages of fermentation, afterwhich the yeast is removed from the ethanol bycentrifuge.

• Distillation: The mixture containing 7%–10% alcoholand unfermented solids is processed in a series ofdistillation columns to remove the unfermented matter.The hydrous ethanol leaves through the top of the finalcolumn with a strength of 96%, and the leftover phlegmleaves through the bottom of the final column.

• Dehydration: The hydrous ethanol is dehydrated usingbenzol, which is later removed, leaving a mixture of99.7% pure or anhydrous ethanol.

Corn-based Ethanol

Corn can be processed through either dry or wet milling. Dry milling is more cost-effective than wet milling andrequires less equipment. Wet milling entails higherequipment costs, and the process uses hazardous sulfurdioxide. Wet milling yields more valuable co-productssuch as corn oil. Dry milling accounts for 79% of ethanolproduction in the U.S., and wet milling accounts for theremaining 21%.10 Both are identical after the first step forwet milling, called “steeping” or “separation”.

• Steeping/Separation: Corn is steeped in water andsulfur dioxide for 24 to 36 hours to separate the starchand protein, after which the corn is ground to breakapart the germ and kernel.

• Milling: The feedstock is ground into a fine powdercalled “meal.”

• Liquefaction: The meal is mixed with water and anenzyme called “alpha-amylase.” It is then passedthrough a cooker to liquefy the starch.

• Saccharification: The liquid starch, or “mash,” is cooledand a second enzyme, called “gluco-amylase,” is addedto convert the liquid starch into dextrose, a fermentablesugar.

• Fermentation: Yeast is added to the mash to fermentthe dextrose into ethanol and carbon dioxide. Thisprocess entails several stages of fermentation.

• Distillation: The fermented mash, now called “beer,”containing roughly 10% alcohol and unfermented solids,is processed in a series of distillation columns to removethe unfermented matter. The hydrous ethanol alcoholleaves through the top of the final column with a strengthof 96%, and the leftover residue, or “stillage,” leavesthrough the bottom of the final column and is moved to aco-product processing area.

• Dehydration: The remaining water is removed from thealcohol, often using a molecular sieve, leaving 200-proofanhydrous ethanol.

• Denaturing: Gasoline is added to the anhydrousethanol, usually 2%–5%, making it ready for use as fueland unfit for human consumption.

The main co-products of dry milling are distiller’s driedgrain with sobules (DDGS), condensed syrup, and carbondioxide. DDGS and the condensed syrup can be sold asa feed additive, while captured carbon dioxide can beused for a variety of purposes including soft-drinkmanufacturing and the enhancement of plant growth ingreenhouses.11 Newer dry-mill plants may separate corngerm and fiber in a new process, called “dryfractionation,” producing more potential by-productstreams. Wet milled corn-based ethanol plants co-produce corn oil, corn gluten meal, corn gluten feed, andcarbon dioxide.12 Some large wet mill plants incorporatethe production of vitamins, food and feed additives,aquaculture, and hydroponic vegetable production usingthe carbon dioxide to enhance growth.

Biodiesel

Biodiesel production is produced through transesterification,in which one ester is converted into another using an alcoholand a catalyst. Essentially, the glycerin in vegetable oil isreplaced with an alcohol. Feedstocks include rapeseed,soybeans, palm oil, jatropha, and other vegetable seeds andoils, but the process is the same.

• Extraction: The oil is extracted from the seed or nutthrough the use of a solvent and/or through mechanicalcrushing.

• Pre-treatment: The oil is filtered and pre-processed toremove water and impurities. Free fatty acids present inthe oil are removed and can be converted into biodiesel.

• Alcohol and Catalyst Mixing: An alcohol, eithermethanol or ethanol, and a catalyst, usually sodium orpotassium hydroxide, are mixed together, and the pre-treated fats and oils are then added to the mixture.


• Reaction: The mixture is charged into a closed-reactionvessel, where it is kept above the boiling point foralcohol to accelerate the reaction. Some systems involvereaction at room temperature. During this phase, thetriglycerides, or oil molecules, are broken down andreformed into biodiesel and glycerin.

• Separation: The biodiesel and glycerin can beseparated by gravity or centrifuge.

• Alcohol Removal: The excess alcohol is removedthrough either flash evaporation or distillation and can becollected and reused.

• Glycerin Neutralization: Unused catalyst and soapsremaining in the glycerin are neutralized with an acid,and the glycerin is stored. On some occasions, saltforms during this phase, which can be collected andused as fertilizer.

• Washing: After separation from the glycerin, the biodieselcan be gently washed to remove impurities such ascatalyst or soap, which are then dried and stored.

Bioenergy

Bioenergy processes entail the thermochemical orbiochemical conversion of organic material to generateenergy. Under first-generation technology, primary solidbiomass can be combusted directly or gasified throughthermochemical conversion to produce heat andelectricity. Feedstocks such as forestry waste and sawmillresidues, sometimes processed into pellets, sugarcanebagasse, palm nut fibers, woody biomass from dedicatedenergy crops and other agricultural waste products suchas peanut shells or sunflower hulls are primary sources ofraw material. Biogas is methane gas released by organicmatter. Its sources for use in power generation includemunicipal solid waste, agricultural effluents, manure, andindustrial effluents. Gas must be rid of other components,such as carbon dioxide, ammonia, and sulphides, and canthen replace natural gas in most applications. Once theorganic material has been processed through theanaerobic digester, and biogas is captured for powergeneration, the effluent can be separated from its solid(organic) and liquid forms. The organic material isdegraded by enzymes into acetate, carbon dioxide, andhydrogen. The acetate and hydrogen are converted tomethane and carbon dioxide in either a mesophilic orthermophilic fermentation process.

Thermochemical Conversion:

Under these processes, heat is applied to achieve bio-conversion.

• Combustion: Primary biomass is combusted toproduce heat or drive a steam-powered electricgenerator. One common application is the co-firing of

biomass with coal and other hydrocarbons, wherebybiomass is fed into boilers or kilns to displacehydrocarbons. Another is co-generation, whereby100% biomass is used to heat steam-driven generators,which produce energy for consumption on site, withexcess power sold to the grid. This method iscommonly applied in sugar and ethanol mills.

• Gasification or Thermophilic Digestion: Biomass isfed into a digester, which is heated to 55 degreesCelsius, and the residence time is typically 12–14 days.The biogas can then be fed into a gas turbine andcompressed or synthesized into liquid fuel and fed intoan engine for heat or electric power generation.Thermophilic digestion systems offer higher methaneproduction, faster throughput, better pathogen and virus“kill” than biochemical or mesophilic anaerobicdigestion (discussed below) but require more expensivetechnology, greater energy input, and a higher degree ofoperation and monitoring and thus tend to be used onan industrial scale.13

Biochemical Conversion:

This process, also known as “mesophilic digestion,” doesnot require the application of heat for bio-conversion and istypically used on a small scale in rural settings. The digesteris heated to 30–35 degrees Celsius, and the feedstockremains in the digester typically for 15–30 days. Mesophilicdigestion tends to be more robust and tolerant than thethermophilic process. However, total gas production isreduced, and larger digestion tanks and sanitization arerequired.14 In the case of municipal solid waste (MSW),landfill methane gas is captured from existing cappedlandfills, and the gas is fed to power generators.

Sources of Improvements for Biofuels

While the basic technologies for first-generation biofuelsproduction are well established, a number of incrementalimprovements promise to increase efficiency, particularly inregions where industrialized agriculture is less established.In terms of improving feedstocks, per-acre yields haveincreased dramatically through the use of geneticallymodified strains that are resistant to insects and diseasesand more tolerant of herbicides and drought.15 Moreover, indeveloped and some developing countries, advancedtechnologies in farm management (including the use ofglobal positioning systems (GPS)), the adoption of reducedtill and no-till farming practices, slow-release fertilizer, andimproved irrigation systems have all been proven toincrease the efficiency of feedstock production.


A variety of energy-saving technologies may be utilizedat modern biofuels-production facilities. For example,heat exchangers are widely used in ethanol plants tocapture waste heat from the cooking of starch for use inthe distillation process, reducing overall energy inputs.New enzymes have also shown promise forsaccharifying starches without the need to cook themat all. The increasing efficiency of process automationstemming from the use of distributed control systems(DCS) in the 1980s and 1990s has allowed for dramaticincreases in productivity, reducing labor requirementsfor U.S. ethanol plants by more than 50% over the past15 years. Similarly, sugarcane-based ethanol producersthroughout Latin America have been able to increaseefficiencies and reduce labor requirements with theadoption of high-efficiency bagasse-fired cogenerationsystems and increased automation. Under greenharvesting, sugarcane growers forgo burning cane inthe fields and collect the residues for co-generation(and potentially cellulosic ethanol once the technologybecomes economically viable).

Sources of Improvements for Bioenergy

In addition to traditional biomass and biogas combustion,advanced gasification technologies are being developedto convert MSW into energy without negative emissions.American and Swedish firms have developed gasificationtechnology that is on its way to being commercialized.Gasification technology produces syngas and electrical

energy from MSW, and other technologies convert “blackliquor” (concentrated biomass from pulp and sawmills)into co-production of pulp and renewable electricity andhave reached commercialization. While not yetwidespread, the waste-to-energy gasification technologyhas direct application for all urban areas confronted withwaste-management problems and could be utilizedthroughout Latin American once the technology becomescost-competitive.


Biofuels Performance

Energy Balance

The “net energy balance” of biofuels production refers tothe energy content of fossil energy inputs required toproduce the fuel, versus the energy contained in the finalproduct. A full life-cycle evaluation for biofuelsproduction must assess the energy associated withgrowing, harvesting, and transporting feedstocks as wellas with transporting, distributing, and combusting thefuel.16 Calculated energy balances can vary widely,depending on which steps are included in the process,which technologies are used, the value of by-products,and other factors, making the precise energy balance ofa given fuel open to considerable and increasinglycontentious debate.

Chart 4.7a Energy Balance of Biofuels

Gas

olin

e

Diese

l

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orn

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r

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lulo

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esel

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-Pal

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il

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Though not definitive, Chart 4.7a illustrates how muchthese values can vary among feedstocks and includeswidely cited values for each. While some have arguedthat the energy balance of corn-based ethanol isactually negative, the U.S. Department of Energy (DOE)and most other sources award it a slight positivebalance of 1.3–1.5 units of energy returned for everyunit invested.17 Sugarcane-based ethanol, by contrast,offers an energy balance estimated at 8.3 units returnedfor every unit invested, due to the efficiency of thecrop’s production in Brazil and other tropical regionsand the ability of producers to co-generate power withbagasse waste. Cellulosic ethanol technologies,discussed at length below, hold the promise of evenhigher energy returns, ranging from roughly five unitsusing corn stover to more than 12 units fromswitchgrass.

The energy balances of biodiesels are generallyconsidered higher than for ethanol, with rape- andsoybean-based biodiesel at the low end of 2–3 unitsreturned per unit invested and palm oil ranking the highestby far, with a return of nine units.18

Vehicle Performance

As liquid fuels that can be blended with gasoline anddiesel, ethanol and biodiesel enjoy greater vehicle-fuelcompatibility than other alternative fuels such ascompressed natural gas (CNG) or hydrogen and can beused at low levels in conventional engines with nomodification, although higher-level blends requireinexpensive modifications or flex-fuel engines in the caseof ethanol. In general, both ethanol and biodiesel havepositive and negative effects on vehicle performance.

Ethanol: Because alcohols can degrade some types ofplastic, rubber, and other elastomer components, andbecause it can accelerate corrosion of certain metalsused in vehicle ignition and fuel system components, theuse of ethanol blends higher than E10 in unmodifiedengines can eventually cause component failure.19 Thereis debate over whether slightly higher-level blends can beused without modifications. Brazil blends 20%–25%ethanol in all its gasoline supplies, with few technicalproblems, and Minnesota and other ethanol-producingU.S. states are lobbying for the study of E20 blends.20

For high-level blends such as E85, however, flex-fueltechnology is necessary. This technology, which costs anestimated $100–$150 per vehicle, uses alcohol-resistantmaterials in the fuel system and includes a system thatcan detect the fuel blend and adjust engine controlsaccordingly.

As an oxygenate, ethanol allows fuel to be more fullycombusted, reducing carbon monoxide and particulatematter emissions. It also contains less sulfur thangasoline, reducing health and acid rain impacts.Ethanol’s high octane rating reduces engine knock (thecombustion of fuel too early in the cylinder), improvingthe efficiency of vehicle operation.21 However, ethanolhas only two-thirds the energy content of gasoline,meaning that vehicles will drive proportionately shorterdistances on a gallon of ethanol than on a gallon of gas.While this difference might not be noticeable at low blendlevels, use of E85 can result in a mileage penalty ofapproximately 25%.22

Biodiesel: Biodiesel is generally more compatible withexisting vehicles than ethanol, requiring few enginemodifications for use even in pure (B100) form, althoughlong-term operation on high-level blends can potentiallydegrade rubber hoses, seals, and gaskets in fuelsystems.23 Blends of up to B20 can be used in virtuallyany diesel engine with no modifications.

Like ethanol, biodiesel can improve engine performance. Ithas a higher cetane number and significantly betterlubricity than petroleum diesel, providing superior engineperformance.24 Even a 1% blend can improve lubricity byup to 30%, reducing engine wear and tear and extendingengine life. These improvements in efficiency from highercetane and lubricity effectively reduce the mileage impactof biodiesel (biodiesel has only 90% of the energy contentof conventional diesel) to just a few percentage points.25

Moreover, biodiesel is non-toxic and has a higher flashpoint, making it safer to handle.26 Biodiesel’s mild solventproperties can also help to keep engines clean bydissolving diesel sediments that collect at the bottom offueling lines, tanks, and delivery systems over time.27 Whilethis can cause clogging in the fuel filter at first, once thesedeposits have been removed, the vehicle will run moreefficiently.

One of biodiesel’s principal technical downsides is itsrelatively poor cold flow properties, which cause it tocongeal in cold weather more easily than diesel fuel. Theseverity of this problem varies by feedstock and is morepronounced for palm oil and waste cooking oil.28 Thisproblem creates performance issues and inhibitsinternational trade in the fuel, as some biodiesels are notsuitable for use in colder regions. The lack ofstandardization generally inhibits its fungibility. However,from a technical perspective, the problem can beaddressed by using heaters to keep the fuel warm,keeping the vehicle indoors when not in use, and blendingthe fuel with winterizing agents or other additives.29


Bioenergy Efficiencies

Biomass and biogas bio-conversion yields can vary widelydepending upon the technology used, the scale of thepower plant, and the type of power being generated. Table4.7a summarizes the lower heat value (LHV) efficiencies ofsome bio-conversion processes. Advanced next-generation bio-conversion processes can improveefficiencies and are discussed at length below.

Biofuels Resource Requirements

Land: While a variety of feedstocks under development,such as jatropha, can be grown on marginal orunproductive land, first generation biofuels productionrequires arable land and water supplies for the productionof feedstocks. It has been estimated that 11 to 12 millionacres globally are being used for biofuel crop production,about 1% of the total area under cultivation,31 though thisratio is higher in biofuels producing countries.

The global average of ethanol production per hectare isapproximately 3,500 liters per hectare, but landrequirements for a given volume of biofuels can varysignificantly according to feedstocks and climate. Forinstance, Brazil, the world’s most efficient producer ofethanol, has 2.5 million hectares, or about 5% of croppedland, dedicated to sugarcane for biofuels and produces anaverage of 6,200 liters of ethanol per hectare. By contrast,the U.S. requires 4 million hectares, or about 4% of itscropped land, with production of about 3,300 liters perhectare. Europe, the largest biodiesel-producing region,produces 1,700 liters per hectare of biodiesel fromrapeseed, the most common feedstock.

The productivity per acre of different feedstocks can varysignificantly depending on climatic and agronomicconditions, farming techniques, and other factors. Yieldsfor second-generation crops such as sweet sorghum,cellulosic crops like switchgrass and miscanthus, as wellas biodiesel yields for jatropha have yet to be proven on a

large scale, although demonstration and commercialprojects are underway. As mentioned above, advances infarming techniques and the advent of genetically modifiedplants have steadily and substantially increased the peracre yields of many crops during the past 30 years, a trendlikely to continue in the years to come.32

Water: Globally, biofuel crops account for roughly 100 km3of evapotranspired water and 44 km3 of irrigated waterconsumption — just 1% and 2%, respectively of globalwater consumption by crops.33 On average, it takes 2,500liters of crop evapotranspiration and 820 liters of irrigationwater to produce one liter of biofuel, but this varies widelyby region. In Europe, rainfed rapeseed uses negligiblequantities of irrigation water, and Brazil’s mostly rainfedsugarcane also requires very little irrigation. By contrast,China and India rely heavily on irrigation for agriculture,averaging 2,400 liters and 3,500 liters of irrigated water,respectively, for every liter of biofuel produced.


The efficiency of biofuels and bioenergy production can besignificantly influenced by access to infrastructure andlogistics, both for the transportation of feedstocks to plant,and biofuels to market, and biomass resources to bio-conversion plants, and in the interconnection of biomassand biogas power-generation facilities to national orregional grids. Though not common, integrating biogasproduction to natural gas grids would preclude the need toemploy dedicated power-generating infrastructure as thefuel feeds into the grid.

Ethanol plants are generally sited near feedstocksupplies rather than near markets such as withsugarcane, where processing must occur soon afterharvesting, as feedstock inputs are bulky, high-volume,and low-density compared to liquid biofuels outputs.34

This concern is less pressing for biodiesel feedstocks,however, as the vegetable oils used as inputs are energy-dense and easy to transport, which has facilitated agrowing trade in raw palm oil.35

Table 4.7a Efficiencies for Different Bio-conversion Options

Conversion Option Net Efficiency Lower Heat Value (LHV) Basis

Biogas production via anaerobic digestion and landfill gas production 10% – 15% (assuming onsite production of electricity)

Biomass combustion for heat 70% – 90% for modern industrial furnaces

Biomass combustion for electrical power generation 20% – 40%

Co-firing of biomass with coal for electric power generation 30% – 40%

Gasification for heat production 80% – 90%

Gasification or combined heat and power (CHP) using gas engines 15% – 30% electrical; 60% – 80% overall

Gasification using combined cycles for electric power generation 40% – 50%

Source: IEA30


In general, transportation of biofuels and ethanol todistant markets is becoming increasingly problematic asproduction scales up. Ethanol cannot be transported inpipelines with oil, and while low-biodiesel blends havebeen tested in existing petroleum pipelines, questionsremain about the fuel’s cold-flow properties, fungibility,and material compatibility.36 Because of theseconstraints, biofuels are currently transported by rail,tanker truck, and barge, resulting in much highertransportation costs. The constraints posed by thisinefficient logistics chain has resulted in seriousinfrastructure bottlenecks in the U.S. as the ethanolindustry has grown. While pipelines offer a much moreefficient means of transportation, they also requiremassive capital investments, estimated at roughly $1million per mile in the U.S.37 and consistently high levelsof long-term demand to secure financing.

There have been reports that U.S. ethanol producers arestudying the potential for ethanol pipelines connectingthe producing states of the Midwest with the majormarkets of the coasts, but no concrete proposals havebeen made, and the recent downturn in the industry anduncertainties over future demand have made this type ofproject even riskier.38 By contrast, Brazil’s state-owned oilcompany, Petrobras, is positioning itself as a majorplayer in the marketing and logistics of Brazilian ethanol

and plans to build two pipelines connecting the center-south ethanol producing state of Goias to the São Pauloport of São Sebastiao and to the southern port ofParanagua in Parana State.39 These pipelines are beingdeveloped with an eye to ethanol exports, which Brazilhopes to quadruple to 3.8 billion liters per year by 2011.40

To this end, Brazil is also investing in terminals alongmajor rivers that pass through ethanol-producingregions, allowing for the shipment of ethanol on bargesand minimizing road transport.

Biomass and biogas feedstocks’ transportation costs aresubstantial, and transportation and logistics chains forthese resources tend to be highly localized. Furthermore,biomass and biogas feedstocks are not commoditized,thus bioconversion plants are generally located nearfeedstock sources as well. Nevertheless, there are a fewexamples of long-distance trade flows of biomassresources, for example, the exporting of palm kernelshells from Malaysia to the Netherlands or wood pelletsfrom Canada to Sweden, which are occurring despite thebulkiness and low energy content of most primarybiomass.41 This requires dedicated infrastructure in termsof ports and terminals, in addition to adequate landtransportation infrastructure via road or rail. Bioenergycan also be exported as electricity throughinterconnected grids.

Chart 4.7b Percent Reduction in Life-Cycle Greenhouse Gas Emissions for Selected Biofuels

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HighEstimate

Low Estimate



Despite their mixed environmental record, and despiteconcerns about global food security, discussed below,some international organizations, national governments,and environmental groups offer at least qualified supportfor biofuels on environmental and energy security grounds,although most also stress the need to ensure that biofuelsdevelopment proceeds sustainably. All note theimportance of adopting best practices in agriculturalmanagement to minimize potential negative impacts ofcurrent methods, and all emphasize the vital need todevelop and deploy next-generation technologies andfeedstocks.

Climate Change

Transportation currently accounts for approximately 20% ofthe world’s greenhouse emissions. In developed countries,such as the U.S., it accounts for 30%.42 Biofuels have beenwidely touted for their potential to reduce greenhousegases, since the carbon dioxide released upon combustionis equal to the amount sequestered during the growth of thefeedstock used to produce it, making it carbon-neutral.However, as noted above, carbon-emitting fossil fuels arewidely used to produce feedstocks and the biofuelsthemselves, resulting in relative emissions reductions of lessthan 100% compared to gasoline or diesel.

Power stations account for 21.3% of global greenhousegas emissions.43 Since the fossil energy inputs required forbiofuel production can come from sources that vary widelythemselves in terms of carbon content (for example,facilities using natural gas produce far fewer emissionsthan facilities using coal, and facilities replacing fossil fuelswith biomass sources reduce emissions even further) thegreenhouse emissions of biofuels production varies evenmore widely than the energy efficiency of the process.44

Assessing the greenhouse impacts of biofuels use is mademore complex by the emissions resulting from convertingland to biofuel feedstock production, a process that candramatically affect the life-cycle greenhouse emissions ofa given project. Emissions from land-use change arisefrom direct conversion, which includes land converteddirectly from another use to agricultural land for theproduction of biofuel feedstocks, as well as indirectconversion, when forested areas are cleared to make wayfor crops displaced by biofuel feedstocks.

For example, biodiesel derived from palm oil grown inIndonesia on already-utilized or unproductive lands canreduce lifecycle greenhouse emissions by three tons forevery ton of biodiesel. Yet, the process of drainingwetlands to create new plantations produces an average

of 33 tons of carbon dioxide emissions per ton of palm oilproduced.45 While Brazil’s sugarcane production occursmostly in the São Paulo region, far from rainforests, andposes no such direct threat, its potential to force otheragricultural and cattle producers to clear land invulnerable regions is a considerable indirect risk, but onethat is often difficult to establish and quantify.

The development of an internationally agreed-upon systemfor calculating and monitoring life-cycle greenhouseemissions from biofuels is a critical challenge if biofuels areto be effectively integrated into carbon markets and otherclimate change policies. Biofuels producers and carbon-project developers, such as EcoSecurities, have tried toestablish the eligibility of biofuels projects for credits underthe Kyoto Protocol’s Clean Development Mechanism, butthe structure of these credit streams and the methods forcalculating actual life-cycle emission reductions are thesubjects of ongoing debate.

The potential to reduce greenhouse gas emissionsthrough bioenergy production is well accepted and notcontroversial. Methane gas has global warming impact21 times as great as carbon dioxide. Biomass powergeneration can significantly reduce emissions, dependingon which hydrocarbon fuel it replaces. For example, co-firing biomass at power plants worldwide could displaceapproximately 14% of the fossil fuel currently used inpower production or roughly 2% of total fossil fuel useworldwide.46 Coal and peat accounted for 42% of fuel-based greenhouse gas emissions in 2006, oil 38%, andnatural gas 19%.47 Biomass and biogas methodologiesare well established and widely used under the CleanDevelopment Mechanism, including MSW methane gascapture, bagasse-based co-generation, agricultural-effluent methane gas capture, and co-firing of biomasswith coal.

Land Impacts

In addition to the global climate change impacts of land-use changes noted above, the conversion of forests toagricultural land for biofuels production can have negativelocal effects. Forests provide a wide range of ecosystemservices, including income from harvesting or tourism,watershed regulation, protection from extreme weather,and timber, which can be particularly important to the poorin developing countries.48 Forests also representenormous sources of biodiversity (particularly in tropicalregions), an ecosystem service of global importance.Moreover, increased use of water and fertilizer to growbiofuels crops can result in soil contamination and erosion,a problem that could be exacerbated if biofuels productionwere to push crop production into less-productive areasrequiring even greater quantities of these inputs.49


Under some circumstances, the cultivation of biofuelscrops may produce positive local impacts. The cultivationof certain feedstocks can add nutrients back to the soiland help curtail soil erosion. For example, alternating cornwith soybeans can help replace nitrogen depleted by corncrops. Jatropha, a non-edible, oil-producing shrub that isgarnering growing interest as a biodiesel feedstock, canbe grown on marginal lands unsuitable for growing foodcrops and is being studied for its potential inbioremediation strategies to improve degraded soil.50

Next-generation feedstocks may also make positive localenvironmental impacts. Recent research by the U.S.Department of Agriculture’s Agricultural Research Serviceindicates that the high-yield switchgrass cultivars beingconsidered for use as a cellulosic biomass feedstock arevery similar genetically to native grasses in the U.S.Midwest, making them compatible with conservation andrestoration efforts in the region.51 Algal oil productiontechnologies currently under development can be placedanywhere that has sunlight, including the desert, rooftops,and even power plant smokestacks, where they could beused to reduce carbon emissions.52

Water Impacts

Water resources, already an issue of growing internationalconcern, are also impacted by local biofuel feedstockproduction. An October 2007 study by the InternationalWater Management Institute (IWMI) indicates that aprojected quadrupling of global biofuels production to 140billion liters by 2030 would require 170 km3 of additionalwater in the form of evapotranspiration (compared to7,600 km3 for food) and 180 km3 more withdrawals for

irrigation (compared to 2,980 km3 for food).53 Becausethese represent increases of just 2%–5% on overallagricultural land use, major changes in water systems on aglobal level are not expected.54

However, as with other aspects of biofuels production,local impacts can vary widely. A November 2007 reportby the National Research Council of the U.S. NationalAcademies warned that although increased agriculturalproduction for biofuels was not expected to alternational-aggregate water use, “significant regional andlocal impacts” were likely, particularly where waterresources are already stressed, such as the Ogallaaquifier area in the Midwest, the Colorado River, and theSan Joaquin Valley of California.55 Similarly, China andIndia both face regional and seasonal water shortagesas they attempt to expand their heavily irrigatedagriculture to feed huge populations, and theaforementioned IWMI report warns that majorexpansions of these countries’ biofuels production couldexacerbate their growing water crises.56

Beyond added stress on water supplies, increasedbiofuels cultivation can also result in more pesticide andherbicide contamination in water supplies, as well as thecreation of low-oxygen dead zones in bodies of waterfrom fertilizer runoff.57 These impacts are a particularconcern for corn, which is a leaky crop that results inhigher levels of runoff and usually requires more fertilizerand pesticide inputs than other biofuels crops. Whileimproved farm-management practices and biotechnologyadvances may mitigate these impacts, cellulosic biofuelfeedstock crops, such as switchgrass, which requires

Chart 4.7c Projected Ethanol Yields, Gallon per Acre

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Source: Anderson, Da Silva, ICRISAT, Hodes, Macedo, Tilman.


fewer inputs and less water, promise much more dramaticreductions in water usage. Jatropha has also been hailedfor its smaller environmental footprint, especially in water-constrained India.58

Resource Evaluation

Biofuels feedstock potential is heavily determined by localclimatic and agronomic conditions, which determine thecrops that can be grown effectively in a given area. Ingeneral, tropical countries have the highest concentrationof suitable and available land and have climatic conditionsthat ensure the highest yields and the most productivecrops, particularly sugarcane and palm. When water is nota limiting condition, tropical countries generally have twoto three times the agricultural productivity of temperateregions.59 For example, Brazil is the world’s largestproducer of sugarcane due to plentiful rains, fertile soil,and climatic conditions that allow it two growing seasonsper year. Similarly, the tropical climate of Southeast Asiahas allowed Indonesia and Malaysia to dominate theglobal production of palm oil. Beyond proximity tofeedstocks, biofuel production facilities can benefit frombeing sited close to key transport infrastructure, such asrail lines and rivers. Access to affordable electricitysupplies can also significantly improve the economics ofbiofuel production, and the ability of sugarcane producersto derive some or all of their power needs from thecombustion of leftover bagasse constitutes an importantpotential advantage in this regard.

Biofuels make up a very small portion of overall globalbioenergy use. Biomass sources provide about 45 EJ ofenergy worldwide, only 1.5 EJ of which takes the form ofbiofuels.60 In fact, only 7 EJ of this bioenergy supply takesthe form of modern bioenergy applications (includingcommercial power generation and transport fuels), withthe rest going to the burning of biomass for cooking andspace heating, mostly in developing countries. Whilebiomass generally represents less than 10% of energy usein industrialized countries, it can provide 20%–30% inmany developing countries and as much as 50%–90% oftotal energy demand in some of the least developedcountries.61 Biomass resource availability frequentlydepends on corollary economic activities, such asresidues from Canadian sawmills being correlated withU.S. housing construction, or Malaysian palm kernel husksupply being correlated with palm oil production.


First-generation biofuels are almost exclusively producedfrom food crops. As discussed below, the growing debateover food versus fuel is leading many to challenge thecontinued expansion of these biofuel sources in somecountries, particularly in the U.S. and EU, where relativelyinefficient feedstocks require subsidies and mandates inorder to be feasible. The limits that food needs impose onthe use of these crops, as well as the promise of greateryields per acre, are driving a great deal of research intonext-generation technologies that can produce biofuels

Chart 4.7d Project Biodiesel Yields, Gallon per Acre

0

100

200

300

400

500

600

700

SoybeansSafflowerSunflowerRapeseedPalm Oil Jatropha(Projected)

Gal

lon/

Acr

e

Source: Fraiture and Riesing


from a wider range of biomass sources. Biofuels andbioenergy may compete for feedstocks in the future ascellulosic ethanol begins to be sourced with commonbiomass feedstocks, including agricultural, forestry, andindustrial residues; municipal waste; and fast-growingtrees, grasses, and other dedicated energy crops arelikely to be the focus of near- and medium-term biofuelproduction.62 Second-generation bioenergy technology isfocused on obtaining diverse fuel streams form biomass,including synthetic fuels and bio-oil, which can be usedfor transportation in addition to thermal and electricpower generation.

Unlike the relatively simple first-generation fermentationand transesterification processes used to create biofuelsfrom food crops, these biomass sources require moreadvanced conversion technologies. In general, feedstockcosts for these technologies will be lower than for first-generation fuels, while capital costs (and enzyme costs forenzymatic facilities) will be higher. This decomposition ofbiomass feedstocks is also expected to pave the way forthe development of advanced biorefineries that canintegrate several processes to yield a number of bio-sourced products from a given quantity of feedstock, inthe same way that petrochemical refineries produce anumber of products from crude oil.

Enzymatic – Cellulosic Ethanol

While first-generation ethanol production ferments simplesugars and starches, the majority of carbon in plantmaterial is found in complex, highly stable cellulose andhemicellulose chains that are much more resistant tochemical action.63 One method of unlocking this potentialsource of energy is to utilize enzymes to hydrolyze thecellulosic portion of the biomass (the single largest sourceof plant carbon) into its component sugars, making themavailable for fermentation to fuel ethanol — commonlyreferred to as “cellulosic ethanol.”64

While a number of government-subsidizeddemonstration plants are being developed,commercially viable cellulosic ethanol projects areestimated to be at least four years away due to highenzyme and capital costs.65 Production costs today areroughly $3 per gallon—more than double the cost ofU.S. corn-based ethanol — although DOE believes thatcosts will drop to $1.30 per gallon by 2012.66

Hydroprocessing — Renewable or Green Diesel

In addition to Fischer-Tropsch-based synthetic fuels, somemajor oil and chemical companies, including UOP, Eni, GalpEnergia, and Neste Oil, are developing proprietarytechnologies that upgrade vegetable or animal oilfeedstocks through high-pressure hydrogenation to make

them suitable for the production of quality diesel-compatiblefuels using existing petroleum-refinery technologies.67

Several plants using these technologies are planned or areunder construction, potentially bringing hundreds of millionsof gallons of capacity online in the next few years.68

Thermochemical — Pyrolysis or Bio-Oil

Pyrolysis (or fast pyrolysis) technologies rapidly heatbiomass in the absence of oxygen to produce a liquidfuel. Often called “pyrolysis oil” or “bio-oil,” this liquidproduct is similar to fuel oil and can be stored, pumped,and transported like petroleum products. It can bedirectly substituted for heavy or light fuel oil as well asnatural gas in a number of applications, includingstationary diesel engines, industrial boilers, pulp andsawmill kilns, power plants, and district heating.69 Bio-oilrequires further processing to be used as atransportation fuel, through further synthetic fuelprocessing technologies (see below). Pyrolysis is alreadycompetitive with fuel oil or natural gas in many markets,and a number of plants are being developed in Canadaand South America, although refining the oil for transportfuel use is not currently economical.

Gasification — Biomass-to-Liquids

Gasification is similar to pyrolysis in that it heats biomassunder conditions where available oxygen is much lessthan needed for efficient combustion. Where the zero-oxygen conditions of pyrolysis produce a mostly liquidproduct, heating with low, controlled levels of oxygenproduces a synthesis gas of hydrogen and carbonmonoxide.70 This gas, also called “syngas,” burns morecleanly than the biofuels from which it is derived and canbe used in boilers and gas turbines in this form orconverted to a high-quality liquid transportation fuelthrough the Fischer-Tropsch (FT) process or similartechnologies.71

While this technology is not yet widely deployed, playersin several industries, including established gasificationtechnology firms, the German car manufacturersVolkswagen and Daimler, and food-processing giant TysonFoods, have announced major commercial-scale projectsunder development.72, 73

Economics

As with other aspects of biofuels production, theeconomic picture for biofuels is strongly affected bylocal factors. Costs can vary widely according tofeedstock, climate, conversion process, scale ofproduction, and regional economic conditions, makinggeneral cost estimates problematic. Moreover, there is


a paucity of data on smaller producers outside the U.S.,the EU, and Brazil,74 and comprehensive data are notyet available on the effects of last year’s increasedcommodity prices, including not only feedstocks butalso fossil fuels, steel, copper, and other constructionmaterials.

On the demand side, fuel markets are heavily fragmentedby protectionist trade policies, a patchwork of regional andnational biofuels incentives, a lack of standardization, anda lack of international trade logistics and infrastructure.Thus, output prices vary considerably by location. Theimplications of trade policy and logistics will be discussedat length in a subsequent section.

As mentioned earlier, bioenergy markets are highlydiverse and frequently highly localized, with the exceptionof a few emerging supply chains that are driving a trendtoward the commoditization of certain biomassresources. Given this heterogeneity, it is difficult toestablish an aggregate figure for total investment andoperating costs for bioenergy production. Nevertheless,investment costs associated with some bioenergytechnologies are detailed in Table 4.7b.

Biofuels Costs

Biofuel production costs include costs for feedstocks,non-feedstock operating expenses, and capitalexpenditures. While these production costs can varywidely, depending on the factors noted above, feedstockcosts have the largest influence for first-generationproduction technologies, which is why overall productioncosts are generally differentiated by feedstock, as in thediagram below. Among current technologies, sugarcane-based ethanol is by far the cheapest, at $0.30–$0.50 perliter, roughly half the $0.60–$0.80 per liter for corn-basedethanol. Biodiesel from waste oil is the only competitivebiodiesel, at $0.40–$0.55 per liter, compared to vegetableoil costs of $0.70-$1 per liter. Next-generationtechnologies utilizing biomass feedstocks will offer adifferent cost profile, with lower-cost feedstocks andgreater costs for capital as well as enzymes needed in theoperating process.76 Bioenergy costs vary significantly bysource and technology, making it difficult to posit areliable, average referential cost structure.

Feedstock Costs: Feedstocks are the largest costcomponent for biofuels production, as they account for50%–70% and 70%–85% of overall production costs forethanol and biodiesel, respectively77 although this cost canbe partially offset in each case through the sale of drieddistiller’s grains (DDG) or excess electricity from ethanolproduction and cogeneration and glycerin from biodieselproduction.78 For ethanol, operating costs including labor,chemicals, and energy comprise a third of productioncost. Capital expenditures (discussed below) account for asixth of production costs. For biodiesel plants, these non-feedstock costs constitute a proportionately lower share ofvariable costs.

Note that feedstock production costs can vary significantlyby region due to labor costs and other economicdifferences, even when the feedstock crop itself is thesame. For example, Brazilian-grown sugarcane is the mostefficient ethanol source in the world, but corn is a morecost-effective feedstock in the U.S., due in part to highsugar prices.79 These relationships can change over time:A recent study indicates that high world sugar prices keptethanol production from being cost-effective even in Brazilfor most of the period between January 1990 and April2007, and corn was a less costly feedstock for ethanolproduction when world sugar prices hit their peak in2000.80 These changing feedstock prices should bedistinguished from the underlying per-acre efficiency ofthese crops, discussed above.

U.S. and EU ethanol and biodiesel production issignificantly more expensive than gasoline or diesel fuel,and both require significant subsidies to compete.Conversely, Brazil’s highly efficient and subsidy-freesugarcane ethanol production is the only major source ofbiofuels that can even compete with fossil fuels on a per-gallon-equivalent basis, as indicated in Chart 4.7a.81 Thevulnerability of U.S. and EU producers was demonstratedin 2007, when record prices for grains and oilseeds forcedmany existing plants to shut down and disrupted plans fornew capacity.

Non-Feedstock Operating Costs: Non-feedstockoperating costs vary by technology and feedstock. WithU.S. maize prices of $3.35 per bushel ($131.89 per metric

Table 4.7b Investment Costs for Different Bio-conversion Options

Conversion Option Investment Cost Ranges ($/kW)

Biomass combustion for heat 300–800/Kwth* for automatic furnaces, 300–700/kWh for larger furnaces

Biomass combustion for electrical power generation 1,600–2,500/kWh

Co-firing of biomass with coal for electric power generation 100–1,000/kWh plus costs of existing power station, depending on biomass fuel and co-firing configuration

Gasification or combined heat and power (CHP) using gas engines 1,000–3,000 kWh, depending on configuration

* kilowatt thermal output

Source: IEA75


ton) in 2006/2007, and an ethanol yield of approximately108 gallons per metric tons of maize, gross productioncosts were approximately $491.72 per cubic meter ($1.86per gallon). With additional co-product sales of $112.88per metric ton, net production costs are estimated at$406.52 per cubic meter ($1.54 per gallon). Total operatingcosts for dry-milled ethanol production in the U.S. were$0.64 per gallon in 2006/2007, up from $0.58 a gallon in2005, including an increase in energy and fuel costs from$0.27 to $0.32 per gallon.82 Total operating costs for wetmilled ethanol production in the U.S. were $0.77 per gallonin 2006/2007, up from $0.70 per gallon in 2005, whichincludes a more than doubling of energy and fuel costsfrom $0.21 per gallon to $0.47 per gallon. In Brazil, thegross production cost of sugarcane ethanol in 2007 was$1.16 per gallon and its net production cost was $1.13 pergallon when accounting for the co-product credit.Operating costs for Brazilian ethanol have been estimatedat an average of $0.22 per gallon. In Europe, the net costfor grain-based ethanol is $2.19 per gallon and $1.82 pergallon for sugar beet–based ethanol.83

The capital costs for biofuels production facilities may varywidely by location, based on factors including raw materialcosts, access to utilities and other infrastructure, andenvironmental-compliance costs.84 In general, biofuels-production facilities benefit from production economies ofscale. For example, a tripling of plant size for both dry-milland wet-mill ethanol plants in the U.S. can reduce capitalcosts by up to 40% per unit of capacity, saving about$0.03 per liter for a 150-million-liter dry-mill plantcompared to a 50-million-liter plant.85 Furthermore, capitalcosts have fallen over time due to increasedstandardization of technology and equipment. However, in2006 and 2007, capital costs increased due to aconsiderable construction boom.86

By contrast, biodiesel plants utilize simpler processes and canbe economically viable even on a small scale.87 They generallybenefit less, if at all, from economies of scale.88 In the U.S.,construction costs for corn-based ethanol plants averaged$1.57 per gallon of annual capacity in a 2005 survey, althoughthese capital costs included a fairly wide range, from $1.05 to$3.00 per gallon.89 2005 figures place the costs of capacity forBrazilian sugarcane ethanol producers at $1.32 per gallon.Biodiesel production capacity can also vary widely in cost, butit has been estimated at $1.04 per gallon of capacity in theU.S. in 2004.90 Note that increases in global constructioncosts across the board, as well as rapidly growing demand forconstruction firms with expertise in this area, haveundoubtedly driven up costs over the past two years. On theother hand, in recent years biodiesel plants in particular havedeveloped improved technologies and modular designs thathave reduced costs in some cases.

Fuel Pricing

Global biofuels markets are fragmented, withinternational trade currently accounting for only about10% of the world’s biofuel consumption.91 The immaturityof the international market is due to a range of factorsincluding a lack of harmonization in standards, protectivetariffs in major U.S. and EU markets, and the relativelylow level of global demand for biofuels compared topetroleum products. These factors have impedednecessary investments in logistics and infrastructurenetworks.

In the absence of liquid and deep international markets,biofuel prices are determined by fossil fuel prices, thelocal economics of production, and national and localsubsidies for producers, distributors, and consumers.These local pricing dynamics will be discussed at lengthlater in this report.

Socio-Economic Impacts

In addition to the environmental and economic effects ofbiofuels use, the industry’s growth has affected foodprices, economic development, and energy security. An in-depth examination of these socio-economic issues isbeyond the scope of this report, but it is clear that theseissues will influence the development of the industry andpublic policy surrounding it.

Food vs. Fuel

The coincidence of booming global biofuels productionfrom grain and oilseed crops and rising food prices has ledcritics, from Fidel Castro92 to global food-processingconglomerates93 to the UN Special Rapporteur on theRight to Food,94 to draw a direct correlation between thetwo. In reality, rising food prices are attributable to severalfactors, including increasing demand for meat and dairyproducts in developing countries due to rising incomesand high energy prices that have driven up coststhroughout the food supply chain.


Every dollar spent on new biomass

or bioenergy projects generates

approximately two to four dollars of

additional value in the economy,

depending on specific conditions.


Until late 2008, in Brazil and elsewhere, growing biofuelproduction had coincided with falling global sugar pricesover the same period, demonstrating that the influence ofbiofuels production on commodity prices is oftenoutweighed by other factors. In this case, the drop inprices had been driven largely by massive increases inproduction from India95 and Thailand,96 whosegovernments have recently encouraged ethanolproduction to help alleviate the glut of sugar in the market.Moreover, sugar plays a smaller role in the global foodchain than grain and oilseed crops, making the expansionof its use less of a concern for consumers. In the longerterm, as global biofuel production comes increasingly fromnon-food biomass crops, jatropha, and various wasteresidues, these negative impacts will abate.

Economic Development

The ability of biofuels production to create new marketsfor agricultural products and facilitate rural developmenthas also been hailed in recent years. Biofuels advocateshave stressed these advantages as the food vs. fueldebate has escalated. In fact, as part of the country’sSocial Fuel Seal program, Brazil’s President Lula hasemphasized that biofuel production improves rural incomeand thereby makes food more affordable for thesepopulations.97

While many justifiably protest that these benefits are notneeded by the heavily subsidized farmers of the U.S. andEU, they can be a source of great hope for the large, ruralpopulations of many developing countries. Indeed, thehead of energy policy at the UN Food and AgricultureOrganization (FAO) claims that biofuels are “the bestopportunity there has been since the ‘green revolution’ tobring really a new wind of development in rural areas.”98

Moreover, increasingly expensive oil imports can have aparticularly negative effect on poor developing countries,where energy costs in general comprise a much largershare of household expenditures. Where governmentssubsidize or otherwise regulate fuel prices, fiscal accountshave been severely impacted. The substitution of oilimports with locally produced biofuels can help moderatethe effects of high energy costs in these areas andimprove country balances of trade. The fact that manymore countries can produce biofuels than can produce oilwill ensure that the benefits of a global biofuels market willextend beyond a few producers.99

Energy Security

Advocates often stress that locally grown biofuels canreduce energy security risks, but oil industry expertscaution that energy independence is different from energysecurity, which has generally been ensured by embracing

international trade, mutual interdependence, anddiversification of energy supplies.100 Moreover, the importof biofuels from reliable and sustainable producers canfacilitate energy diversification and improve countries’overall energy security positions.

Outlook

The IEA Bioenergy Task Force estimates that withcontinuing technological progress, global biomassresource potential could be increased from the current 45EJ to 100–300 EJ annually by 2050 using only currentlycultivated agricultural lands and without jeopardizing worldfood supplies.101 As much as 200 EJ of this potential isassumed to be from low-cost perennial biomass cropsgrown for next-generation biofuels, a critical technologicaldevelopment for the future expansion of biofuels.Moreover, an additional 100 EJ could be produced, albeitwith lower productivity and higher costs, on marginal anddegraded lands. Organic wastes and residues couldsupply another 40–170 EJ. In all, the Task Force estimatesthat global bioenergy potential could surpass 400 EJ thiscentury — more than the total current fossil energy use of388 EJ. However, achieving this potential will require anumber of steps in addition to the development of newtechnologies, most prominently the crafting andenforcement of sustainability criteria and the developmentof efficient global markets for biofuels.



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10 World Energy Council. “Survey of Energy Resources 2007.” September 2007. 10Sept 2008 <http://www.worldenergy.org/publications/survey_of_energy_resources_2007/default.asp>.

11 New Energy Finance. “New Energy Finance Desktop 3.0.” New Energy Finance. 11Sept 2008 <http://www.newenergymatters.com>.

12 World Energy Council. “Survey of Energy Resources 2007.” September 2007. 10Sept 2008 <http://www.worldenergy.org/publications/survey_of_energy_resources_2007/default.asp>.


14 US Department of Energy National Renewable Energy Laboratory. “SmallHydropower Systems.” July 2001. 7 Dec. 2007<http://www.osti.gov/bridge/product.biblio.jsp?osti_id=783400>.

15 European Small Hydropower Association. “Hydropower Technology.” 2004. Dec.2007 <http://www.esha.be/fileadmin/esha_files/documents/SHERPA/SHERPA_fiche_the_technologyl.pdf>.



18 Ibid.19 European Small Hydropower Association. “Environmental Integration of Small

Hydropower Plants.” 6 Dec. 2007<http://www.esha.be/fileadmin/esha_files/documents/publications/publications/Brochure_EN.pdf>.


21 European Small Hydropower Association. “Environmental Integration of SmallHydropower Plants.” 6 Dec. 2007<http://www.esha.be/fileadmin/esha_files/documents/publications/publications/Brochure_EN.pdf>.

22 Ibid.23 European Small Hydropower Association. “Hydropower Technology.” 2004. Dec.

2007 <http://www.esha.be/fileadmin/esha_files/documents/SHERPA/SHERPA_fiche_the_technologyl.pdf>.





28 Ibid.29 Thematic Network on Small Hydropower. Guide on How to Develop a Small

Hydropower Plant. 2004. Dec. 2007<http://www.esha.be/fileadmin/esha_files/documents/publications/publications/Part_1_Guide_on_how_to_develop_a_small_hydropower_plant-_Final.pdf>.








37 Ibid.38 Thematic Network on Small Hydropower. Guide on How to Develop a Small

Hydropower Plant. 2004. Dec. 2007<http://www.esha.be/fileadmin/esha_files/documents/publications/publications/Part_1_Guide_on_how_to_develop_a_small_hydropower_plant-_Final.pdf>.Ibid.

39 Camjahi, Simon. “Small Hydro Projects Using Existing Infrastructure.” Comexhidro.21 Feb 2008<http://www.conae.gob.mx/work/sites/CONAE/resources/LocalContent/2820/1/images/Salomon_Camhaji.pdf>.

40 Comision Nacional de Energia y Comision Nacional de Riego. “Estimacion PotencialHidroelectrico Asociado a Obras de Riego Existentes o en Proyecto.” Procivil Chile.Oct 2007. 18 Mar 2008 <http://www.chileriego.cl/incjs/download.asp?glb_cod_nodo=20080128143822&hdd_nom_archivo=resumen%20de%20resultados%202.pdf>.






45 Hidroeléctrica Candelaria, S.A. “Candelaria Hydroelectric Project – Project DesignDocument.” CDM – Executive Board. 9 July 2006. 10 Mar 2008<http://www.mgminter.com/pdd/co2_PDD%20Candelaria%20Hydroelectric%20Project.pdf>.

46 Interview with Rodrigo Toromo, Hidrosecacao, by John Atkinson. 30 July 2008.47 Tecnoguat, S.A. “Matanzas Hydroelectric Plant – Project Design Document.” CDM

– Executive Board. 8 Jul 2005. 10 Mar 2008 <http://cdm.unfccc.int/UserManagement/FileStorage/BCO5JJX4H2W5A5SJD85IXCBO57JUO8>.

48 Thematic Network on Small Hydropower. Guide on How to Develop a SmallHydropower Plant. 2004. Dec. 2007<http://www.esha.be/fileadmin/esha_files/documents/publications/publications/Part_1_Guide_on_how_to_develop_a_small_hydropower_plant-_Final.pdf>..




52 RETScreen International. “RETScreen International Small Hydro Project Model.” 7Dec. 2007 <http://www.retscreen.net/ang/g_small.php>.

53 Thematic Network on Small Hydro Power. “Proposals for a European Strategy ofResearch, Development and Demonstration (RD&D) for Renewable Energy fromSmall Hydropower – Summary.” May 2005. Dec. 2007<http://www.esha.be/fileadmin/esha_files/documents/publications/publications/Stra_doc_summary_2005.pdf>.

54 European Small Hydropower Association. “Small Hydropower: Innovation is OurBusiness.” 12 Dec. 2007 <www.esha.be/fileadmin/esha_files/documents/publications/publications/Innovation_is_our_business.pdf>.







61 Fundación Solar. “Memoria de Labores – 2006-2007.” Fundación Solar. June2007. 12 Mar 2008 <http://www.fundacionsolar.org.gt/Documentos/Memoria%20FS%20ARTE%20FINAL.pdf>.

62 E-mail communications with Marta Riviera, Fundación Solar, June 4, 2008.63 European Small Hydropower Association. “Small Hydropower for Developing

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9 Hulen, J.B. and P.M. Wright. “Geothermal Energy for Electric Power.” GeothermalEnergy May 2001: p 5. Energy and Geoscience Institude of the University of Utah.Dec. 3, 2007 < http://www.geothermal.org/GeoEnergy.pdf>.

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11 Hulen, J.B. and P.M. Wright. “Geothermal Energy for Electric Power.” GeothermalEnergy May 2001: p 5. Energy and Geoscience Institude of the University of Utah.Dec. 3, 2007 <http://www.egi.utah.edu/geothermal/GeothermalBrochure.pdf>.

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21 Hulen, J.B. and P.M. Wright. “Geothermal Resources.” Geothermal Energy May2001: p 3. Energy and Geoscience Institude of the University of Utah. Dec. 3, 2007<http://www.egi.utah.edu/geothermal/GeothermalBrochure.pdf>.

22 Geothermal Energy Association (GEA). “Executive Summar.” Factors AffectingCosts of Geothermal Power Development Aug. 2005: p 4. Dec. 5, 2007<http://www.geo-energy.org/publications/reports/Factors%20Affecting%20Cost%20of%20Geothermal%20Power%20Development%20-%20August%202005.pdf>.

23 Hulen, J.B. and P.M. Wright. “Geothermal Heat for Direct Use.” Geothermal EnergyMay 2001: p 6. Energy and Geoscience Institude of the University of Utah. Dec. 3,2007 < http://www.geothermal.org/GeoEnergy.pdfhttp:// www.egi.utah.edu/geothermal/GeothermalBrochure.pdf>.



26 Hulen, J.B. and P.M. Wright. “Geothermal Resources.” Geothermal Energy May2001: p 3. Energy and Geoscience Institude of the University of Utah. Dec. 3, 2007<http://www.egi.utah.edu/geothermal/GeothermalBrochure.pdf>.

27 Schirber, Michael. “Whatever Happened to Geothermal Energy ?“ LiveScience Dec.4, 2007. Dec. 4, 2007 <http://www.livescience.com/environment/071204-geothermal-energy.html>.

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29 Schirber, Michael. “Whatever Happened to Geothermal Energy ?“ LiveScience Dec.4, 2007. Dec. 4, 2007 <http://www.livescience.com/environment/071204-geothermal-energy.html>.

30 Pribnow, D.F.C. & Hamza, V.M. “Enhanced Geothermal Systems: New Perspectivesfor Large Scale Exploitation of Geothermal Resources in South America.”http://www.bgr.de/veransta/igc2000/pribnow_ext_abst.pdf







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23 National Renewable Energy Lab (NREL). “What is Ocean Thermal EnergyConversion.” NREL: Ocean Thermal Energy Conversion. n.d. NREL. 12/05/07<http://www.nrel.gov/otec/what.html>.

24 United States Energy Information Administration (EIA). “Net Internal Demand,Capacity Resources, and Capacity Margins by North American Electric ReliabilityCouncil Region.” EIA. Oct. 22, 2007. EIA. Dec. 12, 2007<http://www.eia.doe.gov/cneaf/electricity/epa/epat3p2.html>.

25 Redding Energy Management Pty Ltd et al. “Marine Energy Resources.” 2%Renewables Target in Power Supplies 06/18/06: p 95, 97. 12/05/07<http://www.greenhouse.gov.au/markets/mret/pubs/10_marine.pdf>.




29 Geothermal Energy Association (GEA). “All About Geothermal Energy – Power PlantCost.” GEA. n.d. GEA. Dec. 12, 2007 <http://www.geo-energy.org/aboutGE/powerPlantCost.asp>.

30 American Wind Energy Association (AWEA). “The Economics of Wind Energy.”AWEA. Feb. 2005. AWEA. Dec. 12, 2007<http://www.awea.org/pubs/factsheets/EconomicsOfWind-Feb2005.pdf>.



1 International Energy Agency Bioenergy Task Force Executive Committee. “PotentialContribution of Bioenergy to the World’s Future Energy Demand.” Sept. 2007. Dec.2007 <http://www.ieabioenergy.com/LibItem.aspx?id=5584>; Renewable FuelsAssociation. “RFA – The Industry – Industry Statistics – Annual World EthanolProduction by Country.” 30 Nov. 2007<http://www.ethanolrfa.org/industry/statistics/#E>; and European Biodiesel Board.“2006-07 production statistics confirm a strong growth in the EU, but legislative andfair trade improvements are urgently needed to confirm expansion.” 17 July 2007.Dec. 2007 <http://www.ebb-eu.org/EBBpressreleases/EBB%20press%20release%202006%20stats%202007%20cap%20Final.pdf>.

2 N.a. “UN agency urges review of biofuel policies to ensure poor can benefit.” UNNews Service. 8 Oct. 2008.

3 Renewable Fuels Association. “RFA – The Industry – Industry Statistics – AnnualWorld Ethanol Production by Country.” 30 Nov. 2007<http://www.ethanolrfa.org/industry/statistics/#E>.

4 European Biodiesel Board. “2006-07 production statistics confirm a strong growthin the EU, but legislative and fair trade improvements are urgently needed to confirmexpansion.” 17 July 2007. Dec. 2007 <http://www.ebb-eu.org/EBBpressreleases/EBB%20press%20release%202006%20stats%202007%20cap%20Final.pdf>.

5 N.a. International Energy Agency “Key World Energy Statistics 2008.” N.d. 2008.Paris, France.

6 International Energy Agency. Accessed 10 Sept. 2008.http://iea.org/Textbase/stats/renewdata.asp?COUNTRY_CODE=29&Submit=Submit

7 Excludes residential biogas use.8 International Energy Agency. Accessed 10 Sept. 2008.

http://iea.org/Textbase/stats/renewdata.asp?COUNTRY_CODE=29&Submit=Submit9 Garten Rothkopf. A Blueprint for Green Energy in the Americas. 2006. 12 Dec.

2007 <http://gartenrothkopf.com/content/index.cfm/ContentID/2646/SectionID/858>.

10 United States Department of Agriculture. The Economic Feasibility of EthanolProduction from Sugar in the United States. July 2006. Dec. 2007<www.usda.gov/oce/EthanolSugarFeasibilityReport3.pdf>.

11 Ibid.12 Ibid.13 The European Anaerobic Digestion Network. Accessed on 18 Jan. 2008.

http://www.adnett.org/index.html 14 European Biomass Industry Association. Accessed 18 Jan. 2008.

http://www.eubia.org/108.0.html15 United States Department of Agriculture. The Economic Feasibility of Ethanol

Production from Sugar in the United States. July 2006. Dec. 2007<www.usda.gov/oce/EthanolSugarFeasibilityReport3.pdf>.

16 Childs, Britt and Rob Bradley. Plants at the Pump: Biofuels, Climate Change, andSustainability. World Resources Institute. 3 Dec. 2007. Dec. 2007<http://www.wri.org/publication/plants-pump-biofuels-climate-change-and-sustainability>.

17 Ibid.18 Ibid.19 International Energy Agency. “Biofuels For Transport: An International Perspective.”

2004. Dec. 2007 <http://www.iea.org/textbase/nppdf/free/2004/biofuels2004.pdf>.20 Childs, Britt and Rob Bradley. Plants at the Pump: Biofuels, Climate Change, and

Sustainability. World Resources Institute. 3 Dec. 2007. Dec. 2007<http://www.wri.org/publication/plants-pump-biofuels-climate-change-and-sustainability>.

21 Ibid.22 National Ethanol Vehicle Coalition. “2007 Federal Legislative Agenda, 1st Session,

110th Congress.” January 19, 2007.23 International Energy Agency. “Biofuels For Transport: An International Perspective.”

2004. Dec. 2007 <http://www.iea.org/textbase/nppdf/free/2004/biofuels2004.pdf>.24 Childs, Britt and Rob Bradley. Plants at the Pump: Biofuels, Climate Change, and


25 International Energy Agency. “Biofuels For Transport: An International Perspective.”2004. Dec. 2007 <http://www.iea.org/textbase/nppdf/free/2004/biofuels2004.pdf>.



28 Nielsen, Stephan. “Just How Liquid Are Biofuels?” New Energy Finance. Vol. 5,Issue 6, Oct. 2007.



31 Fraiture, Charlotte de, Mark Giordano, Liao Yongsong. “Biofuels and implications foragricultural water use: blue impacts of green energy.” International WaterManagement Institute. Oct. 2007. Dec. 2007<http://www.iwmi.cgiar.org/EWMA/files/papers/Biofuels%20-%20Charlotte.pdf>.

32 U.S. Department of Energy — Energy Information Administration. “Biofuels in theU.S. Transportation Sector.” Feb. 2007. Dec. 2007<http://www.eia.doe.gov/oiaf/analysispaper/biomass.html>.



35 Ibid.36 McElroy, Anduin Kirkbride. “Pipeline Potential.” Biodiesel Magazine. Feb. 2007.

Dec. 2007 <http://biodieselmagazine.com/article-print.jsp?article_id=1441>.37 “Ethanol pipeline a possibility, to link Nebraska to Chicago, California, Southeast,”

Biofuels Digest, September 19, 2007.http://biofuelsdigest.com/blog2/2007/09/19/ethanol-pipeline-a-possibility-to-link-nebraska-to-chicago-california-southeast/

38 Biofuels Digest. “Ethanol pipeline a possibility, to link Nebraska to Chicago,California, Southeast.” 19 Sept. 2007. Dec. 2007<http://biofuelsdigest.com/blog2/2007/09/19/ethanol-pipeline-a-possibility-to-link-nebraska-to-chicago-california-southeast/>.

39 Fan, Grace. “Cosan Warns Against Petrobras Ethanol Pipeline.” Dow JonesNewswires. 24 Sept. 2007. Dec. 2007<http://www.cattlenetwork.com/content.asp?contentid=162861>.


40 Childs, Britt and Rob Bradley. Plants at the Pump: Biofuels, Climate Change, andSustainability. World Resources Institute. 3 Dec. 2007.<http://www.wri.org/publication/plants-pump-biofuels-climate-change-and-sustainability>.

41 Jungingner, Martin et al. “Sustainable International Bioenergy Trade: SecuringSupply and Demand.” IEA Task 40. N.d.


43 Rhode, Robert cites Emission Database for Global Atmospheric Research version3.2, fast track 2000 project. Accessed 15 Oct. 2008.http://en.wikipedia.org/wiki/Image:Greenhouse_Gas_by_Sector.png

44 Ibid.45 Childs, Britt and Rob Bradley. Plants at the Pump: Biofuels, Climate Change, and


46 Tustin, John. “Co-utilization of Biomass with Fossil Fuels,” IEA BioenergySecretariat. Rotorua, New Zealand. 25 May 2005.

47 IEA. Accessed 10 Oct. 2008. http://wds.iea.org/WDS/TableViewer/tableView.aspx48 Ibid.49 Eaglesham, Allan, William F. Brown, and Ralph W.F. Hardy. The Biobased Economy

of the Twenty-First Century: Agriculture Expanding into Health, Energy, Chemicals,and Materials. Report 12, Ithaca: National Agricultural Biotechnology Council, 2000.

50 Green Car Congress. “Bioremediation for Mined Land to Grow BiodieselFeedstock.” 6 May 2005. December 2007<http://www.greencarcongress.com/2005/05/bioremediation_.html>.

51 Biopact. “Geneticist finds switchgrass could bridge bioenergy and conservation.”15 Oct. 2007. Dec. 2007 <http://biopact.com/2007/10/geneticist-finds-switchgrass-could.html>.

52 BusinessWeek. “Here Comes Pond Scum Power.” 3 Dec. 2007.<http://www.businessweek.com/magazine/content/07_49/b4061075.htm>.


54 Ibid.55 Green Car Congress. “National Research Council Warns on Water Impact of

Accelerating Biofuels Production.” 10 Oct. 2007. Dec. 2007<http://www.greencarcongress.com/2007/10/national-resear.html>.


57 Engelhaupt, Erika, “Biofueling water problems.” Environmental Science andTechnology Online. 10 Oct. 2007. Dec. 2007 <http://pubs.acs.org/subscribe/journals/esthag-w/2007/oct/policy/ee_biofuels.html>.

58 Barta, Patrick. “Jatropha Plant Gains Steam in Global Race for Biofuels.” Wall StreetJournal. 24 Aug. 2007. Dec. 2007<http://online.wsj.com/article/SB118788662080906716.html>.

59 Doornbosch, Richard and Ronald Steenblik. “Biofuels: Is the Cure Worse than theDisease?” OECD Round Table on Sustainable Development. 11 Sept. 2007. Dec.2007 <http://media.ft.com/cms/fb8b5078-5fdb-11dc-b0fe-0000779fd2ac.pdf>.

60 International Energy Agency Bioenergy Task Force Executive Committee. “PotentialContribution of Bioenergy to the World’s Future Energy Demand.” Sept. 2007. Dec.2007 <http://www.ieabioenergy.com/LibItem.aspx?id=5584>.

61 Ibid.62 U.S. Department of Energy Biomass Program. “Biomass Feedstocks.” 1 Dec. 2007

<http://www1.eere.energy.gov/biomass/biomass_feedstocks.html>.63 U.S. Department of Energy Biomass Program. “Understanding Biomass as a

Source of Sugars and Energy.” 1 Dec. 2007<http://www1.eere.energy.gov/biomass/understanding_biomass.html>.

64 U.S. Department of Energy Biomass Program. “Sugar Platform.” 1 Dec. 2007<http://www1.eere.energy.gov/biomass/sugar_platform.html>.

65 Destexhe, Alain. “Advancing cellulosic ethanol.” Presentation to IEA BioenergyGroup. 29 Oct. 2007. Dec. 2007<http://www.ieabioenergy.com/DocSet.aspx?id=5668&ret=lib>.

66 Jackson, Sam. “University of Tennessee Office of Bioenergy Programs.”Presentation to the West Tennessee Research and Education Center. 21 Aug. 2007.Dec. 2007 <http://www.utbioenergy.org/NR/rdonlyres/C299150A-4A84-4700-84BD-A39BD23CF57E/581/JacksonExtinservice2008.pdf>.

67 Green Car Congress. “Neste Oil Aims to Become World’s Leading Producer ofSecond-Generation Renewable Diesel.” 27 Sept. 2006. Dec. 2007<http://www.greencarcongress.com/2006/09/neste_oil_aims_.html>.

68 Green Car Congress. “Eni to Build Renewable Diesel Facilities Using UOPsEcofining Biomass Hydrogenation Technology.” 20 June 2007. Dec. 2007<http://www.greencarcongress.com/2007/06/eni_to_build_re.html>; Honeywell.“Galp Energia Selects UOP/Eni Ecofining Technology to Produce Green Diesel Fuelfrom Biofeedstocks.” 28 Nov. 2007. Dec. 2007<http://www.honeywell.com/sites/portal?smap=honeywell&page=pressrel_detail&theme=T8&id=A59284757-0D4A-A4BF-7D09-00D1F8AF1B01&catID=cat1b754a4-fb536f3d74-3e3e4447ab3472a0c2a5e5fdc1e6517d&c=n>.; and Green CarCongress. “Neste Oil to Build 245M Gallon/Year NExBTL Renewable Diesel Plant inSingapore.” 30 Nov. 2007. Dec. 2007<http://www.greencarcongress.com/2007/11/neste-oil-to-bu.html>.

69 Bradley, Doug. “European Market Study for BioOil (Pyrolysis Oil).” IEA BioenergyTask 40. 15 Dec. 2006. Dec. 2007 <http://www.bioenergytrade.org/downloads/bradleyeuropeanbiooilmarketstudyfinaldec15.pdf>.

70 U.S. Department of Energy Biomass Program. “Biomass Gasification.” 3 Dec. 2007<http://www1.eere.energy.gov/biomass/printable_versions/gasification.html>.

71 Ibid.72 Green Car Congress. “Volkswagen and Daimler Buy Stakes in BTL Company

CHOREN.” 11 Oct. 2007. Dec. 2007<http://www.greencarcongress.com/2007/10/volkswagen-and-.html>.

73 Green Car Congress. “Tyson and Syntroleum to Develop Renewable Synthetic FuelsPlants.” 25 June 2007. Dec. 2007<http://www.greencarcongress.com/2007/06/tyson-and-syntr.html>.

74 UN Food and Agriculture Organization Global Bioenergy Partnership (GBEP). AReview of the Current State of Bioenergy Development in G8 +5 Countries. 2007.Dec. 2007 <www.fao.org/docrep/010/a1348e/a1348e00.htm>.



77 International Energy Agency. “Biofuels for Transport: An International Perspective”.Paris, 2004.





82 F.O. Lichts. “Ethanol Production Costs – A Worldwide Survey.”. F.O. Lichts, 2007.83 Ibid.84 United States Department of Agriculture. The Economic Feasibility of Ethanol

Production from Sugar in the United States. July 2006. Dec. 2007<www.usda.gov/oce/EthanolSugarFeasibilityReport3.pdf>.


86 F.O. Lichts. “Ethanol Production Costs – A Worldwide Survey”. F.O. Lichts, 2007.87 Childs, Britt and Rob Bradley. Plants at the Pump: Biofuels, Climate Change, and




90 Radich, Anthony. “Biodiesel Performance, Costs, and Use.” U.S. Department ofEnergy Energy Information Administration. Dec. 1 2007<http://www.eia.doe.gov/oiaf/analysispaper/biodiesel/>.


92 BBC News. “Castro hits out at U.S. biofuel use.” 29 Mar. 2007. 12 Dec. 2007<http://news.bbc.co.uk/2/hi/americas/6505881.stm>.


93 Associated Press. “Ethanol boom, rising corn prices divide farm lobbyists.” 17Sept. 2007. 12 Dec. 2007 <http://www.iht.com/articles/ap/2007/09/18/america/NA-FEA-FIN-US-Ethanol-Divided-Farm.php>.

94 IRIN Africa. “Global: UN food agency regrets “crime against humanity” label onbiofuels.” UN Office for the Coordination of Humanitarian Affairs. 1 Nov. 2007. Dec.2007 <http://www.irinnews.org/report.aspx?ReportID=75104>.

95 Parija, Pratik, and Bibhudatta Pradhan. “India Makes Sale of Ethanol-Blended FuelCompulsory.” Bloomberg. 9 Oct. 2007. Dec. 2007<http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNXNYwiMWwi4>.

96 Bloomberg. “Thailand to double ethanol content in petrol.” 6 Nov. 2007. Dec. 2007<http://biz.thestar.com.my/news/story.asp?file=/2007/11/6/business/19388585&sec=business>.

97 da Silva, President Luiz Inácio Lula. “Speech to the International Conference onBiofuels.” 5 July 2007. Dec. 2007<http://www.brazil.org.uk/newsandmedia/speeches_files/20070705.html>.

98 Pomeroy, Robin. “Interview – Biofuel can help poor as well as climate – FAO.”Reuters. 5 June 2007. Dec. 2007<http://www.alertnet.org/thenews/newsdesk/L04384353.htm>.

99 da Silva, President Luiz Inácio Lula. “Speech to the International Conference onBiofuels.” 5 July 2007. Dec. 2007<http://www.brazil.org.uk/newsandmedia/speeches_files/20070705.html>.

100 Yergin, Daniel. “The Fundamentals of Energy Security.” Testimony for theCommittee on Foreign Affairs, U.S. House of Representatives. 22 Mar. 2007. Dec.2007 <http://foreignaffairs.house.gov/110/yer032207.htm>.

101 International Energy Agency Bioenergy Task Force Executive Committee.“Potential Contribution of Bioenergy to the World’s Future Energy Demand.” Sept.2007. Dec. 2007 <http://www.ieabioenergy.com/LibItem.aspx?id=5584

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