ALTERNATIVE FUELS, ETHANOL AND BIOFUELS

• Jurisdiction: Derecho Internacional

Mining and Oil and Gas Law, Development, and Investment - Book 2
(Apr 2007)
CHAPTER 16A
ALTERNATIVE FUELS, ETHANOL AND BIOFUELS
Roberto A. Fortunati
Attorney
Fortunati & Asociadoes
Buenos Aires, Argentina

ROBERTO A. FORTUNATI

Robert A. Fortunati established Fortunati & Asociados back in February 2003. His professional activity is mainly concentrated in the areas of banking, corporate finance, and structured financing, keeping his active presence in the oil and gas field. He is also consultant to The World Bank.

Mr. Fortunati acted as leading local counsel for several major project financings, mainly related to mining (including the one related to Veladero Poject in 2004), oil and gas, and utilities. He has led the market in the area of out-of-court debt restructurings (work-outs), and largely participated in the privatisation of state-owned companies, M&A and in the start-up of venture capital investments.

He is member of the board of directors of several corporations, including his acting as independent director and member of auditing committees, and arbitrator to the MAE (the local OTC electronic market.

In the academic ground, he is a member of the Advisory Board of the School of Law of Torcuato Di Tella University, Buenos Aires, and teacher of the postgraduate course on Oil and Gas, project financing Law, in the School of Law of the University of Buenos Aires. Furthermore, he has been a local and international speaker at several conferences and seminars in the areas of oil and gas, debt restructuring, project financing, and other financial matters, as well as a contributor to various publications.

Mr. Fortunati acted as General Counsel of Citigroup in Argentina, after being partner and member of the Administration Committee of Estudio Beccar Varela, in Buenos Aires. Mr. Fortunati started his professional career as in-house counsel of Amoco Argentina Oil Company. He graduated from the Law School of the University of Buenos Aires in 1979.

I. Introduction

We all know that biodiesel -a type of biofuel- has recently become the new star of the renewable fuels, specially in Argentina and Brazil where it seems as if everything that lives in the countryside can be liquefied and fed into our fuel tanks.

However, the usage of biofuels as a substitute of fossil fuels dates back to the dawn of diesel engines. In fact, in 1900 when Mr. Rudolf Diesel presented the engine that bears his name in the Paris Exposition, he did not use any fossil fuel. Instead, he fueled his first machine with nothing more and nothing less than a biofuel made out of peanut oil. Hence, if Mr. Diesel was here with us today, he would surely be smiling at us and saying: "You people have walked a long way back to my peanuts!". Anyway, the fact is that while Diesel's name had been immortalized with his engine, his peanuts had been buried in barrels of petroleum. However, the tide seems to be turning and as petroleum reservoirs go dryer and oil price sky rocket, the world turns its sight back to old good diesel peanuts.

II. Some facts

(a) What do we understand by fuels? Why are they considered to be clean?

So as to help better understanding of this new wave I will mention some basic facts about biofuels that although being usually understated as facts of common knowledge they might not be so "common" to everyone.

The prefix "Bio" in the word biofuels indicates that the fuels have an organic component. However, as we all know, petroleum fuels are fossil fuels and thus, they are also based in organic components.

One feature of biofuels that distinguishes them from fossil fuels is that their burning does not add to the stock of total carbon dioxide in the atmosphere and for that reason they are considered to be clean fuels. Furthermore, the fact that biofuels are biodegradable also makes them friendly to the environment.

But, why are biofuels considered to be clean if, like fossil fuels, combustion of biofuels also liberates CO₂ to the atmosphere? On the first place, the combustion process of biofuels entail chemical reactions that involve less polluting emission than fossil diesel fuels. Secondly, usage of biofuels to produce energy consists basically of combustion of plants that, while growing, have removed carbon dioxide from the atmosphere and liberated oxygen through the photosynthesis process.

Therefore, even though biofuels liberate CO₂ to the atmosphere while burnt in an engine, plants used for producing this biofuel have already removed the CO₂ that the engine is now liberating. Thus, biofuels are considered to be "CO₂ neutral", not adding to the carbon

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dioxide level in the atmosphere while fossil fuels as petroleum, -with all due respect to petroleum producers-, inject into the atmosphere additional new quantities of CO₂ which have lain fixed underground in oil deposits for millions of years.

Regarding their chemical composition, biofuels are the result of the processing of biomass such as plants, agricultural waste or wastes with organic components such as the wastes produced by the alimentary industry. Biomass is the basic raw material for biofuels and may be defined as any organic matter that can be used as an energy source. Most of vegetal species use solar power to create sugar from water and carbon dioxide through the photosynthesis process. Vegetal species store this energy in the form of glucose, starch, oil, etc. Therefore, biomass from vegetables stores power in the form of glucose, starch, oil, etc. and production of biofuels consists of making use of this power through the conversion of biomass into biofuels.

(b) Ethanol and Biodiesel

The two most common types of biofuels are ethanol and biodiesel.

Ethanol, also known as ethyl alcohol or grain alcohol, is produced by fermenting any biomass high in carbohydrates. It is mostly used as a blending agent with gasoline to increase octane and cut down carbon monoxide and other smog-causing emissions.

On the other hand, biodiesel is made by combining alcohol (usually methanol) with vegetable oil, animal fat or recycled cooking grease. It can be used as an additive to reduce vehicle emissions or in its pure form as a renewable alternative fuel for diesel engines.

So as to summarize, both biodiesel and ethanol are renewable energy sources based in the principle of conversion of biomass into liquid fuels. Besides the environmental benefits implied in the use of biofuels, their most significant advantage over other alternative fuels is that they can be converted directly into liquid fuels and can be used in existing vehicles with little or no adaptation. Thus, they can meet transportation fuel needs immediately without further conversions of engines. In other words, use of biodiesel is not a project for the future, it may become available at any time. Today you could ride your cars using biofuels. However, please don't try to fill out your tanks with your drinks right now. Just be patient, biofuels will be widely available in no time.

III. Development of biofuels in the US and UE.

The US has been using biofuels since the late 90s and during the last years, development of alternative fuels...