Oil Report

Food vs fuel debate changes biofuel financing-IDB

RIO DE JANEIRO, April 22 (Reuters) - The heated global food-versus-fuel debate has changed the way the Inter-American Development Bank (IDB) evaluates financing of biofuel projects that could siphon off staples like corn or soybeans, a senior official said on Tuesday.

“It’s a good thing that voices have been raised in that debate. Biofuels are not a complete panacea, we have to distinguish between what are the better sectors of biofuels,” IDB senior advisor Nathaniel Jackson said on the sidelines of the Latin American Renewable Energy Financing Forum.

The UN’s Food and Agriculture Organization said earlier this month a global increase in biofuels production threatens to make food for Latin America’s poor less accessible.

Critics have questioned the environmental and social benefits of biofuels, putting major producers like Brazil on the defensive.

IDB’s Jackson and other speakers at the forum said renewable energy including biofuels had a huge growth potential, but called for a smart, selective approach.

Jackson said the bank was totally discarding projects to produce ethanol from corn as is being done in the United States. While it was still interested in biofuels made from soy and sugar cane, it preferred to finance plants like jatropha, which are non-edible and require no arable land, he said.

“The ideal will be something like jatropha which clearly has no impact on food prices,” Jackson said. “Now, if they come to us with anything that would directly impact food prices, we say that’s probably not what we’re looking for...”

“We think sorghum would be appropriate, but for instance soy would not be ideal, as it impacts (food) prices. We do reckon sugar price does have an impact. It is by and large less desirable than jatropha, but then again, we have to look at the overall development picture,” he told Reuters.

He said the bank has overhauled its system of evaluating projects and now pays more attention to factors like prices, energy efficiency and regional development. That often means rejecting funding to some projects even if they work out financially and have government backing.

The IDB was supporting sugar cane-based biofuels in Brazil’s poor northeast, but would not do the same for the wealthy southeast, the main cane-growing region, he said.

“If there’s a sugar cane project coming our way we ask ‘where is it’? If it’s up there in the area we want to target, which the government wants to develop, then from that standpoint it comes into the equation,” Jackson said.

The IDB is expanding financing of biofuels to 10 percent of its $4 billion Latin American portfolio this year from less than 1 percent. At the end of 2008 bioenergy should have about the same share as traditional energy in the IDB budget. (Editing by David Gregorio)