Argentina: Biodiesel Production In Argentina

Last Updated: 14 August 2007
Article by Mariana Caillet Bois and Gonzalo Castro

Introduction

Biodiesel production in Argentina has turned into an attractive investment opportunity. In fact, it is driving the attention of the global business community, as portrayed by CNN Money: one of the best business ideas of the world in 2006.1 The biodiesel industry in Argentina has earned such title mainly due to the large availability of natural resources and macroeconomic factors that, in conjunction with recently enacted federal and provincial legislation, make easy, inexpensive and potentially profitable to tap into the local biodiesel market.

What is biodiesel?

Biodiesel is a processed fuel derived from biological sources (such as soybean oil), that can be used in unmodified diesel-powered vehicles and machinery. The use of biodiesel generates less environmental pollution and represents a viable alternative to the already sensitive depletion and skyrocketing prices of fossil energy sources, such as gas and petroleum-based oil.

What are the advantages of biodiesel over fossil diesel?

In comparison to fossil diesel, biodiesel has the following ecological, economical and mechanical benefits2:

a) Ecological benefits

  1. Biodiesel comes from a renewable resource.
  2. Biodegradable.
  3. Less polluting than mineral diesel.
  4. Reduces particles (smoke) by more than 50 % and also carbon dioxide ("CO2") emissions.
  5. Free of sulfur, benzene and potentially carcinogenic substances.
  6. Includes products derived from the residue of its process, such as glycerin and organic fertilizers.

b) Economical benefits

  1. The production of biodiesel is encouraged by important tax incentives and exemptions at the domestic and international level.
  2. It gives independence as regards unavailability and variation of prices of the diesel oil fossil.
  3. Production is possible in a complete cycle (harvest – seed pressing - production of biodiesel), reducing costs and intermediaries.
  4. The marketing of by-products (expeller of soybean, sunflower, etc. as base for balanced cattle food/ glycerol 90 % purity) constitutes an incidental, profitable business and allows diversifying risks.

c) Mechanical benefits

  1. Biodiesel increases the efficiency and duplicates the life of the engine, improving its ignition and lubrication.
  2. High Flash point at approximately 130 °C - (fossil diesel around. 70 °C).
  3. It possesses an important lubricant power, and this is the reason why it can be considered an additive to improve the lubrication.

Why investing in biodiesel in Argentina?

With respect to Argentina’s economic structure, we can mention several comparative advantages:

  1. Existence of land with large and suitable areas that remain unexploited: Argentina is well-known for its large extensions of land for the development of growing crops that may be the primary source for the production of biodiesel.
  2. Inexpensive land. The land has a low cost compared to international rates, mainly due to the devaluation occurred in 2002 and to the large availability of lots for industrial and agricultural use.
  3. Low cost workforce. Since the devaluation, Argentine workers’ salaries have become highly competitive.
  4. Large availability of soybeans and soybean oil. Argentina is one of the world’s top soybean producers, providing multiple opportunities either to grow or purchase the crops necessary to produce biodiesel. Furthermore, Argentina is one of the world leaders in the export of vegetable oils. The Argentine vegetable oil industry is mainly export-based, with 95 % of its production allocated to the global market.
  5. Extensive domestic market for diesel. Diesel has the leading share on the domestic fuel consumption market, having strong presence in sectors such as: agricultural machinery, transportation and personal automobiles. Since biodiesel can power diesel engines without further conversion, there is a broad market ready to be explored.
  6. Favorable environmental impact. Biodiesel comparatively drops the emission of CO2 to the atmosphere, principal reason of the greenhouse effect that produces global warming. Therefore, investment in this sector may be used as part of an environmental-friendly policy and may also provide the opportunity to apply for certificates of emission reductions under the Kyoto Protocol. In this respect, the Kyoto Protocol finances investments by means of "carbon loans" to those parties reducing CO2 emissions.
  7. Commitment of the National Government: As mentioned below, the National Government has been supporting projects related to the production of biofuels by enacting new regulations.

In this sense, Argentina has recently enacted regulations aimed at expanding the biodiesel demand on the long run. Federal Law No. 26093 for the regulation and promotion of the production and sustainable use of biofuels (the "Biofuels Law")3 and its Regulatory Decree 109/2007 (the "Biofuels Decree")4 set forth the following guidelines for prospective investors in the biodiesel industry.

  1. Enforcement Authority. The permits and licenses necessary for the operation of a biodiesel production facility shall be processed and granted by the Federal Secretariat of Energy (the "FSE").5 The FSE will also analyze and decide on applications for promotional tax benefits.6
  2. Diesel Substitution. According to the law, biodiesel shall account for 5 percent of all diesel sold by 2010.7
  3. Tax incentives. There are promotional tax incentives for producers that comply with certain corporate requirements aimed at establishing that the majority ownership of biodiesel production facilities corresponds to farming and agricultural firms. 8
  4. A note for prospective biodiesel exporters: From 2010 onwards, the producers that were granted said incentives shall commercialize all of their production in the domestic market, and only if there is a surplus, the FSE will authorize certain exports. Additionally, the exported biodiesel will not be entitled to the tax benefits. 9

Conclusion

The possible depletion of the reserves of fossil-based energy sources, the consequent rising prices, the environmental deterioration and the growing concern of environmental groups, have activated the search of viable alternatives to petroleum-based oil and gas fuels. Under this global scenario, Argentina arises as a promising market for biodiesel production, not only because of the availability of its natural resources, but also due to its comparative advantages regarding domestic costs and regulatory promotional framework.

Footnotes

1. Paul Kaihla, "Soybeans that give you gas" CNNMoney.com. August 1 2006.

2. http://www.biodiesel.com.ar/?page_id=6

3. Federal Law Nº 26.093. enacted 04/19/2006.

4. National Decree Nº 109/2007, enacted 02/09/2007.

5. Biofuels Law: Art. 4 and 6; Biofuels Decree Art. 2 and 8.

6. Biofuels Decree Art. 18.

7. Biofuels Law: Art. 7.

8. Biofuels Law: Art. 13 and 15 ; Biofuels Decree Art. 19 and 20.

9. Biofuels Decree: Art. 19(h).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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