Why Argentina’s Renewable Energy Program Has Stalled: Biofuels

PART I: Biodiesel’s Success Story Getting Watered Down

This is the first of a three part series entitled, Why Argentina’s Renewable Energy Program Has Stalled. This article outlines Argentina’s initial success in first generation biodiesel, first as exporter to Europe then with an increasing domestic mandate market. However, success seems to have been short-lived as political decisions have adversely affected the industry’s further development, leading to declining exports and an erratic domestic market.

Carlos St James
Carlos St James

About the Author: Carlos St. James founded the Argentine Renewable Energies Chamber; is a board member of the Latin American & Caribbean Council on Renewable Energy; founded and is chairman of the Middle East-Americas Energy Council; and publisher of The Latin American Energy Review.

Argentina was among the first proponents in Latin America to mandate renewables into its energy matrix, yet has done a terrible job of executing the laws’ laudable goals. The result has been lost investment, a dirtier environment, less electricity and fuel availability, but above all a missed opportunity for Argentina to shine in perhaps the most promising industry of the century — in which it has so very many natural competitive advantages and is attracting so much investment globally.

Nestor Kirchner’s timing could not have been better for the two groundbreaking renewable energy laws of 2006 – one mandating biofuel blends beginning 2010 and another requiring a minimum level of renewable energy usage by 2016. International investment in green energy was booming worldwide and at that time, the darling of all renewables was first generation biofuels – where Argentina’s advantage was at its greatest. The country’s private sector, awash in soy oil production (the primary feedstock to make biodiesel) began building production facilities: from fits-in-your-garage size to one of the world’s largest in soy rich Santa Fe province. The country’s industry was a legitimate success story and rose consistently in world biodiesel production rankings, from 8th in 2007 to second largest producer in 2012. The industry was enormous, efficient, and a massive exporter – i.e., a hard currency generator of some 1.2 billion dollars in 2009 alone – even before the domestic mandate kicked in.

The problem was that none of the two dozen officially approved biodiesel plants could take advantage of the numerous but misguided tax incentives offered by the biofuels law. It had been written with soy farmers in mind: Kirchner was taking aim at attracting repatriation of the abundant Argentine soy wealth stashed away in overseas bank accounts to build these new biodiesel plants, and thus the incentives were targeted exclusively for those whose primary business was farm production. Business entrepreneurs and the soy processing industry — the ones who actually invested in biodiesel plants and should have received the incentives — were not privy to them. But the agricultural community didn’t participate in this investment boom: in 2008 President Cristina Fernandez attempted to raise farm production taxes that put her at odds with the sector.

Yet the natural advantages were such that Argentina could have ended 2012 as the largest biodiesel producer in the world but lost significant momentum in the second half of the year — and has begun to drop in the rankings, soon to be overtaken first by Brazil, then Germany, in total production. The industry has been hit hard on both fronts: export markets as well as the domestic mandate. Spain decided to stop buying Argentine biodiesel after the government takeover of its Argentine oil company, YPF, while on the domestic side the economy ministry began taking over biofuels pricing aspects — to the point that it is now unclear what the correct formula to apply is, or which government office is in charge.

The Argentine biodiesel industry, once mighty and the shining star of the country’s renewable energy program, has peaked and begun to deflate overwhelmingly because of government mismanagement, in a context of growing global industry with some $15 billion in revenue, abundant domestic demand, and a great future in the creation and production of second and third generation biofuels — a sector in which Argentina could also excel.

The next piece in this series addresses renewable electricity in Argentina.

© Latin American Energy Review 2013

About the Author:

Carlos St James closeupCarlos St. James is the founder of the Argentine Renewable Energies Chamber (CADER, by its initials in Spanish); board member and was elected the first President Of the Latin American & Caribbean Council on Renewable Energy (LAC-CORE); founder and chairman of the Middle East-Americas Energy Council (MEAMEC); and founder and publisher of the Latin American Energy Review. His private sector background is focused primarily on finance and bringing together stakeholders so that deals get done. He advises governments on renewable energy policy, counsels private equity firms seeking to enter the region; and brings together stakeholders, including investors, for new energy projects.

He obtained his undergraduate degree in international economics from DePaul University and his masters in international relations from the Fletcher School at Tufts University.

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