Gregor Meerganz von Medeazza Sylvia Larrea Carla Tully

1. The Inter-American Development Bank PSLO Meeting October 15, 2008 IDB’s commitment to green energy Gregor Meerganz von Medeazza Sylvia Larrea Carla Tully

2. » IDB’s Sustainable Energy and Climate Change Initiative » Biofuels Case Study: Itumbiara, Ituiutaba, Campina Verde » IDB Biofuels Sustainability Scorecard Presentation Outline PSLO MeetingOctober 15, 2008

3. » IDB’s Sustainable Energy and Climate Change Initiative Presentation Outline PSLO MeetingOctober 15, 2008

4. » LAC countries confront a twin dilemma: - They must boost their energy consumption to fuel economic and social development. - Energy use has been largely responsible for an increase in greenhouse gases emissions »Approx. 10% of total population (50 million people) does not have electricity. » Energy demand in LAC will increase 75% by 2030. Required investments to satisfy such demand will be around US$ 1,600 billion. » Achieve sustainability of energy supply and rational use of energy resources Regulatory and institutional frameworks Pre-investment funding for project preparation Energy & Climate Change: Challenges for the LAC Region PSLO MeetingOctober 15, 2008

5. » Andean inter-tropical glaciers likely to disappear over the next decades » Changes in precipitation trends » Continuous decline in natural land cover at very high rates » Risk of significant species extinctions in many areas of tropical Latin America » 50% of agricultural lands likely to be subjected to desertification and salinisation in some areas, by the 2050s » Increase in the number of people experiencing water stress likely to be between 7 and 77 million by the 2020s » The expected increases in sea-level rise (SLR), weather and climatic variability and extremes are very likely to affect coastal areas Expected Impacts of Climate Change in LAC PSLO MeetingOctober 15, 2008

6. IDB’s response: SECCI » Approved by the IDB Board in March 2007 » A response to LAC’s request for an expanded role in sustainable energy and climate change in LAC » IDB contribution to the new international clean energy investment framework » Bank wide-initiative complementing the Bank’s existing efforts in energy » Technical Cooperation, programmatic PBL and Investment Grant: support for IDB project lending and policy lending PSLO MeetingOctober 15, 2008

7. RENEWABLE ENERGY AND EFFICIENCY • 15 TCs (US$8.5m) / 5 Loans (US$300m) 2. SUSTAINABLE BIOENERGY 9 TCs (US$4.2m) / 4 Loans (US$310m) • CLIMATE CHANGE ADAPTATION • 3 TCs (US$2.6m) • CARBON FINANCING • 5 TCs (US$2.8m) 5. MULTI-PILLAR 10 TCs (US$6.3m) / 3 PBL Loans (US$825m) IDB Sustainable Energy and Climate Change Initiative 2008 Activity PSLO MeetingOctober 15, 2008

8. » New funds for promoting low carbon and climate resilient growth and development » CIF - Two Funds: Clean Technology (CTF) and Strategic Climate Fund (SCF) » Purpose: to scale-up investments moving from project to programs » Fill immediate financial gap for urgent actions until the post-2012 regime financial architecture is effective »Accelerate public and private investments » Amount: US$ 6.1 Billion » Timeframe: now and for next 5 years Climate Investment Funds: IDB’s leadership on Climate Change in LAC PSLO MeetingOctober 15, 2008

9. » Country-specific Stern Report » Strengthening Environmental Ministries responsible for CC policies » Mainstreaming CC in priority sectors » Development of CC plans for 15 states (Mexico) SECCI Policy-based programs: Mexico and Colombia PSLO MeetingOctober 15, 2008

10. Infrastructure and Environment Sector Energy Water and Sanitation SECCI Transportation Rural Dev & Natural Disasters SECCI’s Operational Structure PSLO MeetingOctober 15, 2008

11. »Assess the economic viability of biofuels and bioenergy development. »Provide sustainability assessment to mitigate potential adverse social and environmental impacts. »Assist Latin America and the Caribbean in becoming a leader in “climate friendly” biofuels production by increasing research and expertise in second generation biofuels. »Provide country-level policy assistance in support of biofuel development. »Finance sustainable biofuel and bioenergy programs, including feedstock development, production facilities, and related infrastructure. SECCI’s Biofuel objectives PSLO MeetingOctober 15, 2008

12. “The lesson learned is that we have to distinguish between the various biofuel options, looking very carefully at the different feedstocks, agricultural practices and production processes to ensure that only the most sustainable biofuels are promoted: the ones that offer climate benefits while protecting biodiversity and food security” Promoting Sustainable Biofuels PSLO MeetingOctober 15, 2008

13. » Increasing demand given high price of oil and climate change awareness » Moving target – scientific opinion continues to evolve » Highly complex issue with a series of trade-offs » Focus on sustainability standards, but no available tools for assessment so far Key Trends in Biofuels PSLO MeetingOctober 15, 2008

14. »Biofuels action plans and technical cooperation »Partnership with the Roundtable on Sustainable Biofuels »Biofuels Sustainability Scorecard for assessing biofuels projects IDB Supporting Investment in Sustainable Biofuels PSLO MeetingOctober 15, 2008

15. »Brazil-US MoU: IDB partnership to elaborate Biofuel Blueprints in Central America and the Caribbean »Meso-American Biofuels working group - Sharing best practices and technology transfer - Action plans for regional initiatives for ethanol and biodiesel »Upcoming regional stakeholder meetings with the RSB focusing on sustainability IDB’s role in knowledge sharing and regional cooperation PSLO MeetingOctober 15, 2008

16. » “Blueprints” and Action Plans for Biofuels suitability for production mapping of areas for feedstock development and production facilities Regulatory and legal issues »Technical cooperation sustainability standards, Clean Development Mechanism credits; new technology utilization IDB Support PSLO MeetingOctober 15, 2008

17. Ethanol feedstocks: - Grain sorghum - Municipal waste - Pineapple waste - Sugar beet - Sugarcane - Sweet sorghum Biodiesel feedstocks: - Castor bean oil - Jatropha - Palm oil - Recycled kitchen oil - Soy - Sunflower oil IDB Private Sector Projects

18. » IDB’s Sustainable Energy and Climate Change Initiative » Biofuels Case Study: Itumbiara, Ituiutaba, Campina Verde Presentation Outline PSLO MeetingOctober 15, 2008

19. »Demand for sugar and ethanol, expected for the domestic and export market to grow at an annual average rate of 4% and 14%, respectively, until 2020. »Brazil will have to undertake substantial capital investments to increase its sugarcane, sugar and ethanol production estimated at US$70 billion. » This Projects will provide part of such investment in the sector. Bioenergy Projects: Background

20. Bioenergy Projects: Project Location

21. »Construction, operation and management of: (i) 3 greenfields sugar and ethanol mills located in the States of Goiás and Minas Gerais with a total cane crushing capacity of 8.1 million tons per year; (ii) a 168 MW biomass-based co-generation plant; and (iii) the development of sugarcane plantations. »Full commercial and legal due diligence, hiring consultants for: Local and international legal review Technical/engineering review Agricultural review Insurance review Market review Financial and economic review Environment review Bioenergy Projects: Description and Structure

22. »Project challenges. Risk identification and proposed mitigants. »Environmental considerations. »Financing structure: Total Project costs US$1 billion. Long-term debt: IDB A-Loan for US$260M and B-Loan for US$350M Tenor: 13 and 15 years Bioenergy Projects: Description and Structure

23. »Improve the competitiveness of the sugar and ethanol industry in Brazil by having a low-cost vertically-integrated facility as well as satisfying part of the growing domestic and international demand for ethanol; »Create significant impact on the regional economy, by contributing to the creation of business and technological clustering. »Generate direct and indirect jobs (during construction and operation) while increasing the qualifications and level of training of the employees hired in the plants. »Increase the contribution of bioenergy in the national energy matrix (i.e., with 56 MW of biomass renewable energy). Bioenergy Projects: Benefits

24. Monitoring during the life of the transaction with annual or semiannual reports: »Technical review »Agricultural review »Environmental and Social review »Insurance review Bioenergy Projects: Monitoring

25. » IDB’s Sustainable Energy and Climate Change Initiative » Biofuels Case Study: Itumbiara, Ituiutaba, Campina Verde » IDB Biofuels Sustainability Scorecard Presentation Outline PSLO MeetingOctober 15, 2008

26. »High demand in biofuels »Needed a way to screen for the “best” projects »Sought internal and external feedback from academics, environmental NGOs, financial institutions, investors, and biofuels project developers in the US, EU, and in LAC » Launched the Scorecard on 9th of September at 4th Annual Western Hemisphere Energy Security and Cooperation Forum, hosted at IDB. »A 6-month broad public consultation period has begun with the posting of the Scorecard on the website SECCI/SCF Scorecard Process PSLO MeetingOctober 15, 2008

27. »IDB knowledge product developed for use by financial institutions, investors/developers, and IDB at all stages of project lifecycle Government entities, NGOs, and other members of biofuels community also expected to benefit from Scorecard »Thinking tool for how to address environmental and social sustainability issues Does not provide a single score Fosters communication with clients about specific sustainability issues related to biofuels Not a replacement for environmental and social due diligence »Addresses complex issues in an organized and visual way Color map allows user to assess sustainability of project, including key trade-offs Scorecard Scope PSLO MeetingOctober 15, 2008

28. »Colors used to designate rating from excellent to unsatisfactory »If red (unsatisfactory), project should not be pursued »Promote discussions about sustainability issues at an early stage »Framework for providing clients with guidance on sustainability throughout project lifecycle » Already used to improve the sustainability of various biofuel projects »Anticipate potential obstacles (future regulations, import restrictions, community response, etc.) »Complimentary to environmental and social due diligence process Scorecard Use PSLO MeetingOctober 15, 2008

29. Biofuels Sustainability Scorecard www.iadb.org/scorecard/contacts:carlat@iadb.orgebeall@iadb.orggregorm@iadb.org PSLO MeetingOctober 15, 2008

30. »A biofuels project in Uruguay already benefited from the Scorecard: the IDB team raised concerns to the client about a potential ‘food vs fuel’ issue. IDB and the client are working together to identify methodologies for evaluating the issue and ensuring the sustainability of the project »Another project in Costa Rica also used the Scorecard guidelines: the client was counseled to cultivate grain sorghum in rotation with rice on fallow land where rice is currently cultivated only 6 months per year, instead of displacing year-round production of rice on irrigated productive land »Another example of use is with a Fund client that will provide loans to biofuels producers in LAC: they will use the Scorecard in assessing projects for their own sub-lending Examples of Use PSLO MeetingOctober 15, 2008

31. »Regional stakeholder meetings with Roundtable on Sustainable Biofuels »Presentation to World Bank and MDB working group on biofuels »Working with EXR on presentation of Scorecard in other venues »Revise Scorecard based on results of broader public consultation, IDB experience with Scorecard, and continued evolution of scientific information and perspectives Next steps PSLO MeetingOctober 15, 2008