Gregor Meerganz von Medeazza Sylvia Larrea Carla Tully The Inter-American Development Bank PSLO Meeting October 15, 2008 IDB’s commitment to green energy

Gregor Meerganz von MedeazzaSylvia LarreaCarla Tully

The Inter-American Development Bank

PSLO MeetingOctober 15, 2008

IDB’s commitment to green energy

Presentation Outline

» IDB’s Sustainable Energy and Climate Change Initiative

» Biofuels Case Study: Itumbiara, Ituiutaba, Campina Verde

» IDB Biofuels Sustainability Scorecard





Energy & Climate Change: Challenges for the LAC Region

» LAC countries confront a twin dilemma:- They must boost their energy consumption to fuel economic and social

development. - Energy use has been largely responsible for an increase in greenhouse

gases emissions

» Approx. 10% of total population (50 million people) does not have electricity.

» Energy demand in LAC will increase 75% by 2030.- Required investments to satisfy such demand will be around US$ 1,600

billion.

» Achieve sustainability of energy supply and rational use of energy resources- Regulatory and institutional frameworks- Pre-investment funding for project preparation


Expected Impacts of Climate Change in LAC

» Andean inter-tropical glaciers likely to disappear over the next decades

» Changes in precipitation trends

» Continuous decline in natural land cover at very high rates

» Risk of significant species extinctions in many areas of tropical Latin America

» 50% of agricultural lands likely to be subjected to desertification and salinisation in some areas, by the 2050s

» Increase in the number of people experiencing water stress likely to be between 7 and 77 million by the 2020s

» The expected increases in sea-level rise (SLR), weather and climatic variability and extremes are very likely to affect coastal areas


IDB’s response: SECCI

» Approved by the IDB Board in March 2007

» A response to LAC’s request for an expanded role in sustainable energy and climate change in LAC

» IDB contribution to the new international clean energy investment framework

» Bank wide-initiative complementing the Bank’s existing efforts in energy

» Technical Cooperation, programmatic PBL and Investment Grant: support for IDB project lending and policy lending


IDB Sustainable Energy and Climate Change Initiative2008 Activity


1. RENEWABLE ENERGY AND EFFICIENCY

15 TCs (US$8.5m) / 5 Loans (US$300m)

3. CARBON FINANCING5 TCs (US$2.8m)

4. CLIMATE CHANGE ADAPTATION3 TCs (US$2.6m)

2. SUSTAINABLE BIOENERGY9 TCs (US$4.2m) / 4 Loans (US$310m)

5. MULTI-PILLAR10 TCs (US$6.3m) / 3 PBL Loans (US$825m)

Climate Investment Funds: IDB’s leadership on Climate Change in LAC

» New funds for promoting low carbon and climate resilient growth and development

» CIF - Two Funds: Clean Technology (CTF) and Strategic Climate Fund (SCF)

» Purpose: to scale-up investments moving from project to programs

» Fill immediate financial gap for urgent actions until the post-2012 regime financial architecture is effective

» Accelerate public and private investments

» Amount: US$ 6.1 Billion

» Timeframe: now and for next 5 years


SECCI Policy-based programs: Mexico and Colombia

» Country-specific Stern Report

» Strengthening Environmental Ministries responsible for CC policies

» Mainstreaming CC in priority sectors

» Development of CC plans for 15 states (Mexico)


SECCI’s Operational Structure

Energy

Transportation

Water and Sanitation

Rural Dev & Natural Disasters

Infrastructure and Environment Sector

SECCISECCI


SECCI’s Biofuel objectives

» Assess the economic viability of biofuels and bioenergy development.

» Provide sustainability assessment to mitigate potential adverse social and environmental impacts.

» Assist Latin America and the Caribbean in becoming a leader in “climate friendly” biofuels production by increasing research and expertise in second generation biofuels.

» Provide country-level policy assistance in support of biofuel development.

» Finance sustainable biofuel and bioenergy programs, including feedstock development, production facilities, and related infrastructure.


Promoting Sustainable Biofuels

“The lesson learned is that we have to distinguish between the various biofuel options, looking very carefully at the different feedstocks, agricultural practices and production processes to ensure that only the most sustainable biofuels are promoted: the ones that offer climate benefits while protecting biodiversity and food security”


Key Trends in Biofuels

» Increasing demand given high price of oil and climate change awareness

» Moving target – scientific opinion continues to evolve

» Highly complex issue with a series of trade-offs

» Focus on sustainability standards, but no available tools for assessment so far


IDB Supporting Investment in Sustainable Biofuels

» Biofuels action plans and technical cooperation

» Partnership with the Roundtable on Sustainable Biofuels

» Biofuels Sustainability Scorecard for assessing biofuels projects


IDB’s role in knowledge sharing and regional cooperation

» Brazil-US MoU: IDB partnership to elaborate Biofuel Blueprints in Central America and the Caribbean

» Meso-American Biofuels working group- Sharing best practices and technology transfer- Action plans for regional initiatives for ethanol

and biodiesel

» Upcoming regional stakeholder meetings with the RSB focusing on sustainability


IDB Support

» “Blueprints” and Action Plans for Biofuels– suitability for

production– mapping of areas for

feedstock development and production facilities

– Regulatory and legal issues

» Technical cooperation– sustainability

standards, – Clean Development

Mechanism credits; – new technology

utilization


IDB Private Sector Projects

Ethanol feedstocks: - Grain sorghum- Municipal waste- Pineapple waste- Sugar beet- Sugarcane- Sweet sorghum

Biodiesel feedstocks:- Castor bean oil- Jatropha- Palm oil- Recycled kitchen oil- Soy- Sunflower oil





Bioenergy Projects: Background

» Demand for sugar and ethanol, expected for the domestic and export market to grow at an annual average rate of 4% and 14%, respectively, until 2020.

» Brazil will have to undertake substantial capital investments to increase its sugarcane, sugar and ethanol production estimated at US$70 billion.

» This Projects will provide part of such investment in the sector.

Bioenergy Projects: Project Location

Minas Gerais

Goiás

Itumbiara

Ituitaba

Campina Verde

Minas Gerais

Goiás

Minas Gerais

Goiás

Itumbiara

Ituitaba

Campina Verde

Bioenergy Projects: Description and Structure

» Construction, operation and management of: (i) 3 greenfields sugar and ethanol mills located in the States of Goiás and Minas Gerais with a total cane crushing capacity of 8.1 million tons per year; (ii) a 168 MW biomass-based co-generation plant; and (iii) the development of sugarcane plantations.

» Full commercial and legal due diligence, hiring consultants for:Local and international legal reviewTechnical/engineering reviewAgricultural reviewInsurance reviewMarket reviewFinancial and economic reviewEnvironment review

Bioenergy Projects: Description and Structure

» Project challenges. Risk identification and proposed mitigants.

» Environmental considerations.

» Financing structure:Total Project costs US$1 billion.Long-term debt: IDB A-Loan for US$260M and B-Loan for

US$350MTenor: 13 and 15 years

Bioenergy Projects: Benefits

» Improve the competitiveness of the sugar and ethanol industry in Brazil by having a low-cost vertically-integrated facility as well as satisfying part of the growing domestic and international demand for ethanol;

» Create significant impact on the regional economy, by

contributing to the creation of business and technological clustering.

» Generate direct and indirect jobs (during construction and operation) while increasing the qualifications and level of training of the employees hired in the plants.

» Increase the contribution of bioenergy in the national energy matrix (i.e., with 56 MW of biomass renewable energy).

Bioenergy Projects: Monitoring

Monitoring during the life of the transaction with annual or semiannual reports:

» Technical review» Agricultural review» Environmental and Social review» Insurance review




» IDB Biofuels Sustainability Scorecard


SECCI/SCF Scorecard Process

» High demand in biofuels

» Needed a way to screen for the “best” projects

» Sought internal and external feedback from academics, environmental NGOs, financial institutions, investors, and biofuels project developers in the US, EU, and in LAC

» Launched the Scorecard on 9th of September at 4th Annual Western Hemisphere Energy Security and Cooperation Forum, hosted at IDB.

» A 6-month broad public consultation period has begun with the posting of the Scorecard on the website


Scorecard Scope

» IDB knowledge product developed for use by financial institutions, investors/developers, and IDB at all stages of project lifecycle– Government entities, NGOs, and other members of biofuels

community also expected to benefit from Scorecard

» Thinking tool for how to address environmental and social sustainability issues– Does not provide a single score– Fosters communication with clients about specific

sustainability issues related to biofuels– Not a replacement for environmental and social due diligence

» Addresses complex issues in an organized and visual way– Color map allows user to assess sustainability of project,

including key trade-offs


Scorecard Use

» Colors used to designate rating from excellent to unsatisfactory

» If red (unsatisfactory), project should not be pursued

» Promote discussions about sustainability issues at an early stage

» Framework for providing clients with guidance on sustainability throughout project lifecycle

» Already used to improve the sustainability of various biofuel projects

» Anticipate potential obstacles (future regulations, import restrictions, community response, etc.)

» Complimentary to environmental and social due diligence process


Biofuels Sustainability Scorecard

www.iadb.org/scorecard/

contacts:[email protected]@iadb.org

[email protected]


mailto:[email protected]



Examples of Use

» A biofuels project in Uruguay already benefited from the Scorecard: the IDB team raised concerns to the client about a potential ‘food vs fuel’ issue. IDB and the client are working together to identify methodologies for evaluating the issue and ensuring the sustainability of the project

» Another project in Costa Rica also used the Scorecard guidelines: the client was counseled to cultivate grain sorghum in rotation with rice on fallow land where rice is currently cultivated only 6 months per year, instead of displacing year-round production of rice on irrigated productive land

» Another example of use is with a Fund client that will provide loans to biofuels producers in LAC: they will use the Scorecard in assessing projects for their own sub-lending


Next steps

» Regional stakeholder meetings with Roundtable on Sustainable Biofuels

» Presentation to World Bank and MDB working group on biofuels

» Working with EXR on presentation of Scorecard in other venues

» Revise Scorecard based on results of broader public consultation, IDB experience with Scorecard, and continued evolution of scientific information and perspectives


Documents

Gregor Meerganz von Medeazza Sylvia Larrea Carla Tully The Inter-American Development Bank PSLO Meeting October 15, 2008 IDB’s commitment to green energy