UNCTAD SEEKS MORE ACTIVE ROLE WITH BIOFUELS: CONFERENCE ON

UNCLAS SECTION 01 OF 04 BRASILIA 002263 SIPDIS SENSITIVE SIPDIS DEPT FOR IO/EDA, OES/EGC, WHA/BSC, WHA/EPSC, EEB/ESC DEPT FOR GREG MANUEL GENEVA FOR ANN LOW AND CHUCK ASHLEY E.O. 12958: N/A TAGS: TRGY UN UNCTAD KGHG ECON SENV ENRG KSCA BR SUBJECT: UNCTAD SEEKS MORE ACTIVE ROLE WITH BIOFUELS: CONFERENCE ON BIOFUELS, DEC. 4-5, 2007, RIO DE JANEIRO ¶1. (U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED AND IS NOT FOR INTERNET DISTRIBUTION. ¶2. (SBU) SUMMARY. UNCTAD, together with the Government of Brazil (GoB),held a conference on biofuels in Rio de Janeiro, Brazil, on December 4-5 as a pre-event to the twelfth session of the United Nations Conference on Trade and Development (UNCTAD XII),which will take place in Accra, Ghana, in April 2008. UNCTAD officials and the representatives of nearly 30 countries expressed support for greater use of biofuels "if done right", and they saw UNCTAD as playing a constructive role in helping developing countries with biofuels. The preliminary list of recommendations coming out of the conference is provided below; when finalized these recommendations are supposed to feed into UNCTAD XII. END SUMMARY. BACKGROUND ¶3. (SBU) UNCTAD and the Energy Planning Agency of the Brazilian Ministry of Mines and Energy (EPE) hosted a conference on biofuels in Rio de Janeiro, Brazil, December 4-5, 2007, as a pre-event to UNCTAD XII, which will take place in Accra, Ghana, in April 2008, as well as to the International Conference on Biofuels which the GoB will host in November 2008 in Sao Paulo. Officials from 28 countries attended (including China, Europe, India, Africa, Iran, Cuba, Latin America and the United States),and UNCTAD, the Food and Agriculture Organization (FAO),the United Nations Environment Programme (UNEP) and the International Tropical Timber Organization (ITTO) sent representatives. Also, representatives from various universities, research centers, and the private sector participated. The USG was represented by Embassy Brasilia's Counselor for Environment, Science and Technology and by Consulate General Rio de Janeiro's political/economic specialist. UNCTAD'S VIEW ¶4. (SBU) Ms. Laksmi Puri, the Acting Deputy Secretary-General and Director, Division on International Trade in Goods and Services and Commodities, opened the conference describing the benefits of biofuels in addressing three simultaneous challenges: increasing energy security through energy diversification; reducing greenhouse gas gases; and promoting economic development. She stressed that handling biofuels had to be done "in the right way" in order to avoid impairing food security and causing deforestation. ¶5. (SBU) Puri saw a greater role for UNCTAD in helping developing countries to understand the implications of biofuels. She cautioned that developing countries need to keep an eye out for possible dumping and also technical barriers to trade (citing a case where UK groups were calling for a ban on imports of soy from Africa). She predicted that such technical barriers are likely to increase. With regard to greenhouse gases emissions, she stated that 10 to 12 percent of those emissions were related to transportation and so biofuels could make a significant contribution in reductions. Puri noted the issue of agriculture subsidies and that the climate change agreements can have significant trade implications. She commented that the Clean Development Mechanism (CDM) could be helpful with biofuels. However, she opined that biofuels were not a "panacea," though they can play an important role in a country's mix of energy. Puri said UNCTAD could help developing countries with certification schemes and could fill the knowledge gap with biofuels. UNCTAD already is preparing case studies regarding biofuels with Guatemala, Thailand and the Philippines. ¶6. (SBU) In closing the conference, Puri identified the need for significantly more funding for UNCTAD in order to play a more active role with biofuels. UNCTAD could be a clearinghouse for information and an incubator of ideas. She underscored that biofuels must serve the interest of economic development. On the margins of the conference, Puri encouraged the USG to help with funding for UNCTAD's biofuel activities. ¶7. (SBU) UNCTAD's Chairman of the International Advisory Expert Group to the Biofuels Initiative, Prof. Ignacy Sachs, took a different tact. He saw a need for governmental action, saying that society needed safeguards from irresponsible "voluntariness" from the private sector, apparently referring to such steps as deforestation to produce biofuels. In fact, he viewed the question of protecting the forests as a central one. He emphasized that the world is facing a transition from an oil based economy to a post-oil economy and biofuels should not be treated as a competitor to oil, BRASILIA 00002263 002 OF 004 but rather as a new option for energy. Sachs, a self-described "dinosaur," harked back to various ideas for raising revenues, from a carbon tax, to a tax on oil royalties, to a tax on airline tickets, and even to raising income tax rates (he spoke fondly of the days when the income tax rates were up at 90 percent). He spoke of the need for certification programs, such as for charcoal. (Note. Participants and speakers at the conference differed on whether certification programs should be voluntary or mandatory, with the Sao Paulo Union of Sugar Cane Growers (UNICA) and the Netherlands representative highlighting the benefits of a voluntary regime and the risk of running afoul of WTO rules with a mandatory one. End Note.) Sachs contended that UNCTAD should be active in "organizing the world biofuels market." Puri did not comment on or specifically endorse Sachs' statement, and the draft recommendations (see below) hew closer to her point of view rather than to his. BRAZILIAN GOVERNMENT'S VIEW ¶8. (SBU) Brazilian officials extolled the benefits of biofuels for the world and especially for developing countries. The President of EPE, Mauricio Tolmasquim, Brazil's clean energy matrix, with its extensive use of hydroelectric power and biofuels/biomass, as well as nuclear. He highlighted that Brazil will host the International Biofuel Conference in Sao Paulo in November 2008. ¶9. (SBU) Ambassador Antonio Simoes, the Director of the Energy Department of the Brazilian Ministry of Exterior Relations (MRE) from the Foreign Ministry),described the Brazilian experience and the GoB's interest in promoting greater use of biofuels in the world. Speaking frankly, he pointed out that biofuels would principally be a domestic matter. In Brazil's case, the country consumes 80 percent of production and exports only 20 percent. Biofuels can generate enormous benefits, such as in the case of Brazil where over the last 25 years it has saved about US$ 75 billion by not importing oil and using domestic biofuels instead. Simoes announced that Brazil will host an International Biofuels Conference in Sao Paulo in November 2008. ¶10. (SBU) Simones laid out the GoB's goal of making biofuels an international commodity. Today there are about 20 significant producers in the world, and he hoped that in the future there would be many more, but it has to be done in a sustainable manner with respect for the environment. He noted that the lack of water (which is critical for ethanol production) shouldn't preclude a country from producing biofuels; biodiesel can be produced in dry countries. ¶11. (SBU) Mr. Egon Krakhecke, the Head of the Brazilian Environment Ministry's Secretary for Extractive Industries and Sustainable Rural Development, stated that developed countries are primarily responsible for CO2 levels and have the primary responsibility for solving the problem. He stated that the United States is the leading contributor to CO2 emission and should adhere to the Kyoto Protocol following Australia's example. He said the GoB is working on a "Social Environment" certificate for its biofuels ensuring that it is produced in a sustainable manner. He concluded that trade barriers on ethanol are "unjustifiable" and not fair to the poor. USG COMMENT ¶12. (SBU) The USG representative (EST Counselor from Embassy Brasilia),per information provided by Washington and Geneva, advised Ms. Puri on the margins and also the conference publicly that the USG was pleased to see UNCTAD being active in the area of biofuels. In addition, the USG representative underscored the USG's support for the increased use and production of biofuels, stressing that biofuels need to be produced in a manner that does not adversely impact the environment through deforestation or biodiversity loss. TECHNICAL INFORMATION ¶13. (U) Numerous technical experts, primarily from Brazil and the United States, spoke at the conference about the state of play and future for biofuels. (Note: Conference officials announced that they would be posting these informative power point presentations on the UNCTAD website. End Note.) The experts generally agreed that ethanol from Brazilian sugar cane was inexpensive and produced substantial greenhouse gas emissions reductions, especially after factoring in the use of the bagasse (or remaining portions of the BRASILIA 00002263 003 OF 004 cane after squeezing the sugar out) in generating electricity. UNICA's Executive Director Eduardo Leao de Sousa highlighted Brazil's Program of Biofuels Certification (PBCB) and the International Round Table on Sustainable Biofuels. He noted that to comply with the Brazilian law on reducing burning of sugar cane (Law 11.241/02) - which is necessary if using manual harvesting - the sugar cane industry in Sao Paulo was moving to 100 percent mechanized harvesting. This unfortunately will lead to reductions in jobs. ¶14. (U) Dr. Eric Larson of Princeton painted a bright picture for the next generation of biofuels, especially those using thermo-chemical processes. These processes could come on line commercially in 5 to 10 years. Prof. Jose Moreira of the University of Sao Paulo and member of the International Panel on Climate Change (IPCC) stressed the known benefits of producing biofuels from sugar cane. He viewed commercialization of the next generation or cellulosic biofuels as being far off in the future. ¶15. (SBU) Prof. Robert Schaeffer of the Federal University of Rio de Janeiro emphasized the need to build engines specifically for biofuels, which would be more efficient burning biofuels than current gasoline versions. He made the point that genetically modified organisms could do much to improve crop productivity. He recognized that the use of GMOs was a controversial point in various parts of the world. FINANCING ¶16. (SBU) A UNEP expert on CDMs, Glen Hodes, explained why there had been practically no funding for biofuel projects. He could only identify one small project in China and it involved using waste cooking oil. He said trying to factor in direct environmental and indirect costs associated with a biofuels project was daunting for CDM analysts. (Comment. It appeared from the briefing that the prospects for future CDM funding for biofuel projects seemed bleak, even though Hodes said they were trying to address this problem. End Comment.) ¶17. (SBU) The project manager for the West African Biofuels Energy Fund (ECOWAS),Dr. Thierno Bocar Tall, described his organization's interest in working with the United States and others on technology transfer and financing. They are particularly interested in the prospects for biodiesel from cassava. CONFERENCE DRAFT RECOMMENDATIONS ¶18. (SBU) At the close of the conference, Lucas Assuncao, Chief of the Biofuels Unit at UNCTAD, distributed a draft note regarding the conference. He explained that the note would be reviewed further by UNCTAD members back in Geneva. There was only a brief, cursory discussion of the note at the conference. ¶19. (U) The draft note provides, in pertinent part, the following: Paragraph 11. In the Sao Paulo Consensus, adopted at UNCTAD XI, UNCTAD is mandated to address trade and development implications of new and dynamic sectors, specifically in those sectors with particular potential to offer development gains to developing countries. It is therefore proposed that the following activities, among others, are undertaken in the period 2008-2012: (a) Prepare country assessment of the potential for the production, domestic use and trade of biofuels in developing countries, including (i) economic feasibility studies to determine biofuels production costs and eventual subsidy levels, (ii) ways to prevent non-tariff barriers related to trade in biofuels and (iii) consider the use of certification/labelling/verification schemes that are fair and non-discriminatory. Such assessments should be complemented with capacity building activities for policy-makers and key stakeholders and include the exchange of experiences with other developing countries and the possibility of enhanced south-south cooperation; (b) Help create an enabling and appropriate domestic regulatory and investment environment that enables developing countries to enhance their supply capacity, secure market access and establish their comparative advantages in the emerging biofuels sector, taking fully into account national circumstances (population size, available land, scarce natural resources, competing land uses, dependency on BRASILIA 00002263 004 OF 004 foreign energy resources, climate and social conditions, etc...); (c) Conduct economic analysis on trade and climate change interface, for example by assessing trade and development impacts of specific emission reduction proposals under discussion at the UNFCCC negotiations for a new commitment period beyond 2012 under the Kyoto Protocol; (d) Serve as a clearing house for the exchange of policy relevant information on biofuels and organize international policy fora to discuss the interface and mutual supportiveness of trade and climate change policy at the international, regional and national levels; and (e) Development of training material on the rules of the Clean Development Mechanism (CDM),so that a considerable number of developing nations can attract investment via CDM towards energy development projects. COMMENTS ¶20. (SBU) UNCTAD's December 4-5 conference on biofuels was a low-key, technical discussion biofuels. The UNCTAD officials, GoB officials and conference participants were in favor of increasing the use of biofuels, though emphasizing it must be done in a sustainable manner and respecting the environment. It appears that UNCTAD is looking to obtain some form of mandate for additional work in the area coming out of UNCTAD XII to be held in Accra, Ghana in April 2008. SOBEL