Argentina takes controversial step backwards on biofuels

RIO DE JANEIRO, BRAZIL – Historically an agricultural power, Argentina has become a major producer of biofuels in recent years.

However, the South American country is now taking a step backwards in the use of this petroleum substitute in transportation, a decision heavily influenced by the economy and virtually nothing by the environmental issue.

On July 15, with the support of the government of center-left president Alberto Fernández, Congress passed a new Biofuels Regulatory Framework which will be in force until 2030.

The new law, published on August 4, reduces from 10 to 5% the mandatory minimum percentage of biodiesel made from soybean oil, and allows the government to lower it to 3% should it consider it convenient to reduce its sale price to consumers.

As for gasoline, the minimum of 12% bioethanol, based on corn and sugar cane, is maintained for the time being, but the government is allowed to lower it to 9%.

“The mandatory cuts of petroleum-derived fuels with biofuels came into effect in 2010 and since then have resulted in the largest reduction of greenhouse gas (GHG) emissions in Argentina’s history, at least until 2019,” said energy consultant Luciano Caratori, a researcher at the Torcuato Di Tella Foundation who specializes in environmental issues, and former undersecretary of National Energy Planning.

The expert refers to 2019, because this was the first year in which non-conventional renewable energies (basically, wind and solar) began to play a significant role in the generation of electricity in the 44.4 million inhabitants country.

According to official data, they currently account for 9.7% of the energy matrix in a country that has 87% of its primary energy based on fossil fuels, of which 54% is natural gas, 31% is oil and the remainder is coal.

Latin America’s third largest economy is a net exporter of oil, but due to its low refining capacity it is also a net importer of gasoline and diesel.

Caratori says that the reduction in biofuel use is inconsistent with the climate change mitigation commitments Argentina submitted in December 2020, in the update of its Nationally Determined Contribution (NDC) under the Paris Agreement.

In fact, the country pledged to reduce its greenhouse gas emissions by over 20% by 2030 from the peak reached in 2007, and to reach carbon neutrality by 2050.

One of the ways to reach those goals is to reduce emissions from transportation – a sector that accounted for 33% of total energy demand in 2019 – through the use of biofuels and hydrogen and electrification, according to the NDC.

“There don’t seem to be too many opportunities in Argentina to offset the emissions savings lost by cutting the use of biofuels, and 2030 is just around the corner,” Caratori said.

“To offset it, we need all the tools. And in this case, perhaps the worst aspect is the setback in an area in which the country has acquired much knowledge and capacity, with which it has become one of the world’s largest users of renewable energy in transportation,” he added.

In the Senate, Rubén Uñac, president of the Unicameral Commission of Energy, acknowledged that the biofuels industry enabled the creation of “new companies and thousands of jobs” over the past decade, through “investments of over US$3 billion,” but he said that the system needed a “deep reform.”

From the opposition, Gladys González, president of the Unicameral Commission of Environment and Sustainable Development, denounced “a fierce lobby of oil companies” and considered that the government “says one thing and does another,” because it publicly declares a deep commitment to fight climate change that does not translate into actions.

A study published in July by Caratori and Jorge Hilbert, a specialist of the National Institute of Agricultural Technology (INTA), points out that the current installed capacity of biodiesel and bioethanol production would allow meeting between 4.5% and 8% of Argentina’s internationally committed GHG emissions reduction.

“It is estimated that the decarbonization potential of biofuels is very significant with a minimum investment,” the study underlines.

PROS AND CONS DEPENDING ON PERSPECTIVE

The true impact of biofuels on the environment is still disputed. María Marta Di Paola, director of research at the Environment and Natural Resources Foundation (FARN), points out different reservations.

“We are concerned that biofuels could lead to an extension of the agricultural border, that they would compete with crops for food production, and that they would be based on agricultural production that is highly dependent on fossil fuels,” she said.

“Consequently, although biofuels are presented as an alternative for the energy transition, it is very difficult to quantify their true contribution to fighting climate change,” said the specialist from one of the country’s most respected environmental institutions.

And she concluded: “In any event, the government and Congress’ decision was related to other issues, which confirms that the space assigned to environmental debates in Argentina is very poor.”

However, doubts are dismissed in the sector.

“Less than 5% of Argentina’s arable land is associated with biofuels. In corn, only 3% of the total harvest is transformed into bioethanol,” said Claudio Molina, executive director of the Argentine Biofuels and Hydrogen Association, an organization that has been promoting the activity for 15 years.

Argentine biodiesel is produced by private, national and foreign companies and was first boosted by exports, which between 2012 and 2019 generated over US$1 billion per year in exports, according to official data.

However, the drop in demand due to the Covid-19 pandemic led to a sharp decline in 2020, when foreign sales reached only US$468 million.

Its main destination is the European Union, since the United States imposed high tariffs on Argentine biodiesel in 2017 to protect its soybean producers.

The pandemic’s impact on demand and an increase in the price of biodiesel pressured the government and left it faced with two alternatives that it wants to avert: authorize an increase in the price of fuels to the public or reduce oil companies’ margins, particularly of state-owned YPF.

The new law states that the government reserves itself the right to further reduce the percentage of biofuels whenever the rise in the prices of biodiesel or bioethanol inputs “could distort the price of fossil fuels at the pump” in service stations.

Axel Boerr is the vice-president of Explora, a company with the capacity to produce 120,000 tons of biodiesel annually at its plant in the outskirts of the city of Rosario, an area he defines as “Argentina’s Kuwait,” due to its concentration of plants generating energy from the oil of soybean fields that abound in the region.

Boerr stressed that biofuel production is a way to add value to agricultural production and escape the fate of Latin American countries as exporters of primary products.

“In addition, this will increase our foreign dependence, because Argentina is an importer of gasoline and diesel and will have to buy progressively more because it has no more oil refining capacity,” he said.

Political negotiation ensured that sugarcane bioethanol would remain with the current 6% cut. As a result, votes from legislators from northwestern provinces, which are sugarcane producers, were secured in Congress. The reduction from 6 to 3% was left open in the case of corn bioethanol.

“We don’t believe in the argument that we must protect the price of fuels for the public, because it is oil that determines them, not biofuels,” said Patrick Adam, executive director of the Chamber of Corn Bioethanol.

“Today we are working at 70% capacity and with these changes, which are a step backwards in terms of climate, we will drop to 40%. We were prepared to grow and this law caught us off guard,” he concluded.