Biofuels

One of the world's greatest concerns currently is global warming. A continuous stream of scientific announcements, reports, documentaries, and headlines perpetually alert us to this impending threat.

However, it is argued that awareness alone is not enough and the terminology currently used is not effective enough in conveying the seriousness of the situation. Terms such as "global" have a modern, business-like ring, and "warming" has favorable connotations. In contrast, the German word "Klimakatastrophe," meaning climate catastrophe, was voted term of the year 2007.

Whatever terminology is used, global warming is a serious issue. The movement has gained such momentum that even the global warming skeptics simply cannot afford to do nothing.

In response, many countries (and companies) have developed and are already implementing climate change programs. There are claims and many controversies, particularly among scientists themselves, that many of the actions to combat climate change are actually accelerating the problem or giving rise to new problems or so-called false solutions.

We are bombarded with headlines such as "Going Green: It's a Disaster" and "Biofuels Targets Abandoned as Doubts Grow about Benefits." It is therefore not surprising that the renewable, clean energy sector, of which biofuels is just one small but important part, presents itself as a very complex and uncertain industry for investors.

Nexant has years of experience supporting clients within the biofuels industry through its combination of strategic, technical and commercial insights, enhanced by its perspective across the entire energy sector.

Future biofuels development will inevitably be driven by sociopolitical issues manifesting themselves through country-specific policies, particularly in respect of:

• Environmental protection
• Enhancing energy security
• Benefits to domestic industries

The industry has seen a sunshine period during 2004 through 2006 with positive support, both political and economic, and significant investment. During 2007 and 2008 several storm clouds emerged:

• The threat of over-building (resulting in collapsing share prices)
• Rising feedstock prices and the food versus fuel debate
• Second generation versus first generation
• Lack of clarity from governments in regards to tax breaks and mandates
• Collapsing oil prices
• Biofuels' green credentials put under scrutiny

When politics are a key driver, in any sector, neither continuity nor certainty is likely to be a dominant factor, whereas opportunity and uncertainty are. These compelling attributes are unlikely to go away as the industry enters its next stage of global development.