Biofuel finance: Trends and governance options. Jan Willem van Gelder Durban Trade and Climate Change Symposium 6 December 2011

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1 Biofuel finance: Trends and governance options Jan Willem van Gelder Durban Trade and Climate Change Symposium 6 December 2011

2 Feedstock investment volumes 20 case studies: 4 feedstocks (sugarcane, jatropha, palm oil and soy) in 16 forest-rich countries in Asia, Africa and Latin America All investments in feedstock growing, corrected for % of crops used for biofuel Total $ billion in Lion s share in palm oil in Asia ($ billion) and sugarcane in Brazil ($ billion) Jatropha (7 case studies) very small: $ million

3 Biofuel investment volumes Biofuel production in 7 out of 20 case studies Total investments : US$ 5.7 to 6.7 billion Two-thirds in sugar-based ethanol One-third in biodiesel from soy and palm oil Hardly any investments in biodiesel from jatropha Biofuel from feedstock No. of countries researched No. of countries with biofuel investments Total biofuel investment (US$ billion) Jatropha Oil palm Soybean Sugarcane Totals

4 Financing sources Domestic Foreign Category Included in this category Provided to Entrepreneurs Governments Institutional investors Owner-managers of companies; passive private investors Government bodies; national development banks; state-owned companies Pension funds; insurance companies; managers of investment, hedge and private equity funds Small private companies State-owned companies; small and large private companies Small and large private companies; state-owned companies (via bonds) Private banks Commercial banks; investment banks Private and state-owned companies Entrepreneurs Governments Institutional investors Owner-managers of companies; passive private investors Development agencies and banks; investment offices and funds; export credit agencies; state-owned companies Pension funds; insurance companies; managers of investment, hedge and private equity funds Small private companies State-owned companies investing abroad; foreign private companies Small and large private companies; state-owned companies (via bonds) Private banks Commercial banks; investment banks Private and state-owned companies Multilateral banks World Bank (incl. IFC) and regional development banks Private and state-owned companies

5 Financial institutions by type 414 financial institutions in 20 case studies Domestic Government 100 Domestic Private Bank Domestic institutional Investor Foreign Government Foreign Private Bank 0 North America Europe Latin America & Caribbean Asia Pacific Africa Middle East Other Multilateral Foreign institutional Investor Multilateral

6 Importance of financiers By region Categories of financiers Africa Asia Latin America Number of case studies Domestic financiers Domestic entrepreneurs Domestic private banks Domestic institutional investors Domestic governments Foreign financiers Foreign entrepreneurs Foreign private banks Foreign institutional investors Foreign governments Multilateral banks

7 Finance as leverage Significant new investments in feedstocks and biofuel anticipated in Africa, Asia and Latin America: Domestic and foreign start-ups, larger agricultural companies, and companies from other sectors such as the oil industry Financed by domestic and foreign entrepreneurs, government agencies, public and private banks, and institutional investors Financiers could leverage sustainable developments: Strengthening economic development while respecting biodiversity and local communities, provided: Wider adoption of responsible biofuel investment policies Improved quality of such policies

8 Biofuel policies of financiers Quality criteria: 1. Principles, criteria and indicators in the policy should be based on internationally accepted standards; 2. Standards need to be measurable, reportable and verifiable (MRV); 3. Mechanisms for internal monitoring and external compliance; 4. The responsible financing policy needs to be applied to all forms of financing; and 5. The policy needs to apply to all types of companies active in the biofuel sector (plantations, refineries, traders, diversified companies). Multilateral bank policies meet the criteria Government agencies, public and private banks, and institutional investors often do not

9 Government policy options Producer countries could develop biofuel policies for all forms of public finance Subsidies, national development banks, investments by state-owned companies Consumer countries could extend criteria of biofuel import policies (i.e. EU RED criteria) to foreign public finance Export credits and subsidies, foreign development banks, development aid, foreign investments of state-owned companies Stimulate biofuel policies among pension funds and banks Including independent compliance and grievance mechanisms Change financial sector regulation Integrate sustainability issues in risk management (Basel III) Mandatory sustainability reporting

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