ARGENTINA BIOFUEL PROJECT COMES WITH HEAVY ENVIRONMENTAL COSTS

by Marcela Valente

(IPS) BUENOS AIRES -- The passage of a law on biofuels in Argentina is both good and bad news for sustainable development. While the new law will encourage alternative sources of fuel, it will also boost much-criticized soybean production.

After two years of debate, the Argentine Senate approved on Wednesday a bill that will grant tax incentives to the producers of biofuels while guaranteeing them a share of the market for 15 years. However, the new law is less generous than the original version of the bill, submitted in 2004 by biofuel proponents.

The legislation grants tax exemptions to farmers who use vegetable oil to produce biodiesel, sugar cane or corn to produce ethanol, or organic waste to produce biogas.

Both biodiesel and ethanol are renewable, cleaner alternatives to costly and increasingly scarce petroleum derivatives.

To ensure a market for alternative fuels, the state will guarantee that four years after the law goes into effect, gas stations will be required to offer gasoline that contains 5 percent ethanol and diesel that is 5 percent biodiesel.

Vehicle engines require no modifications to run on these mixtures, say experts.

Oil-industry companies and large soybean producers complained that the new law does not include subsidies. They also protested the fact that the state will have the authority to oversee and regulate production of biofuels and to distribute the tax benefits.

The state will determine the requisites for projects to be eligible for the tax exemptions, and will set quotas every year for the benefits to be distributed, giving priority to small and medium companies, farmers, and regional economies.

But the corporations and agribusiness complain the tax incentives will be granted in an arbitrary manner.

Biodiesel releases almost the same amount of carbon dioxide -- the main greenhouse gas -- into the environment as diesel fuel, according to Argentina's Secretariat of the Environment.

But expanded production will also lead to an increase in the cultivation of oilseeds, which will contribute significantly to absorbing such emissions, notes the government body, which estimates that net emissions will be reduced to one-third of the current level once biodiesel is widely used.

The biofuel projects could thus qualify as clean development initiatives under the Kyoto Protocol on climate change. The clean development fund is aimed at helping industrialized countries and corporations cut their greenhouse gas emissions.

However, the environmental effects of biofuels will not all be positive in Argentina, activists warn.

The new law worries those who have criticized the continued expansion of soybean cultivation. Soybeans are the top export product and the most widely planted crop in Argentina, which is the third-largest soybean producer in the world after the United States and Brazil, and the leading exporter of soybean oil.

Argentina's soybean crop, which is mainly transgenic, threatens biodiversity in agriculture and hurts family farms and the rural social fabric, according to environmentalists and other critics. In the last decade, the expanding cultivation of soybean as the sole crop has prompted an exodus of seasonal workers and small farmers to the cities, while fueling the concentration of land ownership.

The Argentine branch of international environmental watchdog Greenpeace has launched several campaigns to protest the deforestation of land rich in biodiversity by large soybean farmers.

The worst episode occurred when the government of the northwestern province of Salta stripped the Pizarro nature reserve of its legal status as a protected area in order to auction off part of the land to agribusiness firms.

However, after 20 months of an intense campaign by environmentalists, indigenous groups and local residents, the sale of land was canceled and the reserve's protected status was restored.

This year, a total of 15.2 hectares of land will be used for soybean cultivation, which is over half of the entire area devoted to agriculture in Argentina. Soy output this year is expected to reach 40 million tons, a record high.

The soy industry encompasses sales of the beans themselves, soy meal -- widely used as animal feed because of its high protein content -- and soy oil.

To meet the new quota for biofuel production, producers estimate that the soy-growing area will expand by around 10 percent.

In an interview with IPS, Jorge Rulli of the Rural Reflection Group, a local environmental organization, said that the law will "inexorably reinforce the critical conditions of the current process of growing 'soyification' and permanently compromise Argentina's principal productive base, which is agricultural and livestock activity."

Rulli stressed that the employment generated by the processing of vegetable oil for fuel "will not compensate for the enormous unemployment provoked by this model of agriculture and does absolutely nothing to remedy its impact on the social fabric."

A report released in late 2005 by the Inter-American Institute for Cooperation on Agriculture (IICA) on biofuel prospects in Argentina and Brazil warned that the development of this sector would not come without a price for Argentina.

The potential negative impacts included the replacement of other crops, disturbance of land-rotation systems and undesired effects on the soil. As a result, the IICA stressed that a careful estimation of these impacts should form part of the overall evaluation of the costs and benefits of biofuel production initiatives.

"Let's suppose that Argentina doesn't produce biofuel and other countries do," said Alberto Rodriguez, executive director of the Argentine Vegetable Oil Industry Chamber. "The price of soy oil on the world market will rise, and soy cultivation will expand all the same."

On the other hand, Rodriguez predicted a drop in the price of soy meal. The yield of every soy plant is 80 percent meal and 20 percent oil. Therefore, if there is a greater demand for soy oil for biofuel, this will create an enormous supply of soy meal, which could drive down its market value.

Rodriguez added that it will be essential to promote production and trade for these new fuels based on costly inputs like vegetable oil or alcohol. In fact, he said, it is unlikely that they will account for more than 5 percent of blended fuels within the next four years, because of the increase in fuel prices this would entail.

Even with the rising price of petroleum it will be difficult for these alternative fuels to compete, which is why the sector will need direct subsidies, he maintained.

Nevertheless, investment in biofuel production has already begun to grow, thanks to the prospect of the law that made it through Congress this week and the incentive of increased demand from the European Union, which established a mandatory 5.7 percent biofuel content in all fuels by the year 2010. There are already about 50 small projects in operation, most geared to supplying energy for agricultural and livestock activity.

One of the companies created, Oilfox, has even managed to export biofuel, but is not yet producing the volume required. Company spokespersons explained that their buyers in Germany needed 10,000 tons of biofuel monthly for a shipping company, but they have only signed a contract for one-tenth of this amount.

In the meantime, the Spanish-Argentine oil and gas company Repsol YPF announced an investment of $30 million in a biofuel refinery in the province of Buenos Aires, which is expected to produce 100,000 tons a year as of 2007.