A tour of South America with Robert Habeck and Cem Özdemir

Hello and welcome to a new issue of our #StrawClever podcast. Today we welcome you to a very special issue of our podcast. Claus Sauter, the founder and Chief Executive Officer of VERBIO, has just returned from a major trip to South America with, among others, Robert Habeck, the German Federal Ministry for Economic Affairs and Energy, and his colleague Cem Özdemir, the German Federal Minister for Agriculture. I want to ask him about his experience there, and about how the issue of energy policy is seen on the other side of the Atlantic. Welcome to a new issue of the podcast, and welcome, Claus Sauter!

Good morning. Mr. Sauter, I am glad to see you. Can you update us on recent events – where have you been in the last few weeks?

Claus Sauter:I am also happy to meet you again, and that we are able to meet again so quickly, especially since there was a long break before our last meeting. Yes, the past four weeks have been very interesting. I was in Houston, Texas for a week, visiting the CERAWeek there. This is the world’s premier energy event which is held once a year; the whole world meets up there to discuss trends, the direction things are taking. Currently the top issue, and this is really something amazing considering that the conference was in Texas, is what can be done to reduce CO₂ emissions. Renewable hydrogen, this is a big issue – and all of this in the light of the USA’s subsidy policy, in particular the IRA. Now, that doesn’t stand for the Irish Republican Army; it refers to the Inflation Reduction Act. This is a subsidy package worth almost 400 billion US dollars, most of which will be spent on new technologies and on reducing CO₂. Biomethane is a top issue. So, the task is to do something to reduce CO₂ emissions, in particular in transport, and create an infrastructure for hydrogen, non-renewable, as here no differentiation is made. There are differentsubsidy rates that apply when electricity is generated from renewable sources, but also for electricity from nuclear power. It’s an interesting approach. And then last week I was in Latin America with Cem Özdemir, the German Federal Minister for Agriculture, and Robert Habeck, the German Federal Ministry for Economic Affairs, together with a group of business delegates. Approximately 50 journalists were also on the flight. Completely different topics, but also very interesting.

Mr. Sauter, what was it that motivated you, as a businessman, to join the representatives of the government on this flight, and to take part in the business delegation?

Claus Sauter:There were a whole range of reasons. First of all, it is our explicit objective that we need to be involved in the tropical and sub-tropical regions, as there is a lot of biomass there, unused biomass, and we can process these materials. We have taken a look at Brazil. It has a tropical and sub-tropical climate. Everything grows four or five times as quickly as it does here. And it has potential.

Potential means more biomass, or does it mean more fast-growing biomass?

Claus Sauter:When the Brazilians or Colombians talk about renewable energy, it is all about biomass. After that comes hydroelectric power, and then comes solar and wind. And in all areas, they have huge potential, but this applies above all to biomass and the combination, you know, two ministers from the Green party, and then in a country where agriculture is incredibly professionalised, especially in Brazil. Immense areas under cultivation, we are talking about monoculture here. We don’t have monocultures here, but there, what I mean is that you can drive three hours in one direction and all you see to your left and to your right is soya or maize or sugar beet. Sugar beet – then you have to drive for seven hours. This is incredible, and here I was particularly interested in seeing the reaction of a Federal Minister for Agriculture who is a member of the Green party, who has of course a different agenda, and the two of them invited me to join them. I mean, these are things that I cannot decide. I can’t just say, okay, fine, I will go on the flight with you; I have to be thankful, and then there is this combination, the destination, and the opportunity to meet representatives of the government, the impression they make, what is the interest there? Because, I mean, we will always need the society there, because we need building permits and so on and so on. Then the business representatives, the Chamber of Foreign Trade, they have invited people from industry, they have talked about their experiences. So much packed into such a short time, so many different opinions, it is difficult to fit it all in, and finally of course to see the impressions that were left on these Federal Ministers. Because after all, as far as agriculture goes, Brazil’s agriculture runs counter to everything that we want to achieve. In my view this is not a contradiction, because it is simply a huge country. I mean, after all it is 24 times the size of Germany, and 200 million people live there. That’s nothing. Completely different possibilities than we have, and then to take away – what is the impression to be taken away from discussions and to get a feel for what they will say. I mean, Cem Özdemir could say, look here, we will do no business with them at all! Look, what fertilisers do they use, what are they spraying? Nevertheless, we were all in agreement that we need the Latin American countries, with their climate, their land, with the potential that they have, also to produce solar energy and wind energy, and with that, renewable hydrogen. We need them. It doesn’t work without them, and Robert Habeck emphasised this several times. The world is forming into blocs, and the Chinese are approaching things in a very strategic way. And if we don’t react now, quickly, then others will take up the opportunities, especially the Chinese.

Does that mean, indirectly, the issue of ‘food or fuel’ – a topic that occupied you a year ago or six months ago, and perhaps still keeps you occupied. Is that not an issue there at all?

Claus Sauter:No. That was not an issue. We went to an event – there was a representative of the WWF who said that in Brazil we can double our agricultural production without having to cut down a single tree. I noticed something in Brazil, where I had already made the same trip 15 years ago with Mrs. Merkel, also with a business delegation to Brazil, although Peru and Mexico were also on the itinerary, the same tour. What I noticed was that the Brazilians, I don’t want to use the word ‘arrogant’, but they are reserved. They are no longer waiting for us. When I compare it to 15 years ago, they were much more enthusiastic about doing business with us. The situation was similar: Lula da Silva. Then, too, the issue of rainforest clearing was already on the agenda, but there was a very clear sense that the Brazilians were not waiting for us, they had offers, and they would take their opportunity. The Brazilians also talk about reindustrialisation, and I think this is a topic that we have hardly highlighted so far. We will experience a structural change, the biggest global structural change since the creation of the industrial society as we know it. And steel production has to go not only where there is iron ore, but also where there is cheap energy, and these are countries like Brazil, Australia, South Africa. We will only have the finishing processes. But the energy that we need, it must be generated from renewable sources. And these countries have the most favourable conditions for production. We have been aware of this for a while, and that’s why we are expanding globally. We have to go where the conditions are best for our technologies and for the way we produce energy. Here the USA is number 1, with these gigantic subsidies. And then it is the countries with tropical and sub-tropical climates. India belongs in this category, Southeast Asia, but also clearly Latin America, Brazil, Colombia, Venezuela as well, but it isn’t possible to go there.

Now, you have just said it, you are an old hand, so to speak, when it comes to such economic delegations. The flight across the Atlantic is relatively long, and when you see it from the outside, it most likely provides you with very, very direct access to politicians, doesn’t it? What do you try to do during such a flight, or what do othermembers of the delegation try to do? Can you discuss things, is it informal? Or can you really discuss and manage things in a completely different way than, say, in Berlin?

Claus Sauter:Yes, the advantage is that one is on a flight together. But the trip was incredibly challenging. We managed to sleep for only 18 or 20 hours over the whole five days. I think that Robert Habeck and Cem Özdemir slept even less, and on the outward journey we left at 10pm on Saturday evening, and on Sunday morning in Brazil it all continues. Yes, you need to take the opportunity to sleep. Also, there were not a lot of opportunities. You have to rest, but above all, of course, on this trip, you know, everybody is pushing themselves to their limits, and above all the two ministers, what an agenda they have worked through. They have my respect. Above all, you know, they need to be fit all the time. They are constantly in the spotlight, constantly making speeches, and we know that every word and every action is examined under the microscope. Overall, a really super experience. One of the reasons why I went along was, of course, to get an impression of our Green Minister of Economics and our Green Minister of Agriculture, to get a better understanding of the type of people they are. It was a very positive impression. Because there was an opportunity to talk to each other over a glass of water or a glass of juice. Alcohol is not a good idea on a trip like this, because it’s really, really, really exhausting, and there were things going on all the time. But I have to say, what I took away there, also the impression, that puts me in a very positive mood, yes. It gives me the impression that it is possible to get things done.

Mr. Sauter, from an outsider’s perspective, one imagines it as being somehow quite exciting and important. Is that so?

Claus Sauter:Yes, yes, of course it is, it is exciting, because you never know who you are going to meet. What I really enjoyed was that it was all organised a bit like a school trip. There were lots of interesting people there. There was Andrea Gebauer, President of the Federal Chamber of German Architects, there was a representative of the Rural Women’s Association – it was a wide range. It was not only business people, but also representatives of government organisations and associations. And there was a cooperative spirit among the people in the delegation. We were quickly on informal terms. Yes, it was a homogeneous group, which was a lot of fun. We also had interesting discussions among ourselves, and that’s the big difference compared to 15 years ago under Mrs. Merkel, when it was very stiff. I can only remember, I think, that I spoke with Mrs. Merkel once, for just 30 seconds. She was not interested in establishing contacts in any way. This time it was completely different. Cem Özdemir and Robert Habeck were very interested in what we do and how they can help us to establish contacts. Another difference compared to the Merkel delegation was that Cem Özdemir and Robert Habeck spent a lot of time speaking to civil society representatives. There were separate meetings in each place where people from local associations and local NGOs were invited, so they were not part of the government, but they represented minorities that have their own interests, mainly climate protection, and they could talk. I have to say that I was not present at these events. People would say, ‘Where are the two [ministers]?’ ‘They are meeting delegations from civil organisations.’ They spent a lot of time on this, which I find important. You could really feel that they were very interested in getting a feeling of the place we were visiting, and not just with their politician colleagues there, but to go their own way and get out and say, ‘I would like to know now how the people on the street are doing.’ When we were in Manaus, Robert Habeck and Cem Özdemir went to visit a village – again, I was not there. An indigenous population. And this was noticeable, and then later in other conversations they had been given a new perspective. So, it’s not about having more intensive business relations with them, with the Brazilians, to the detriment of civil society or to the detriment of the Amazon, but everyone benefits. I mean, it’s a point, an important one: there is a lot of criticism over here that the Brazilians are clearing the rainforest. They live from the rainforest. I mean, just as with us, which is also happening here, there is an impact, the rainforest and the trees that are there are also an economic factor. Obviously, it needs to be ensured that everything remains in balance, and like everywhere else there are criminal gangs who are cutting down trees without permission. But it is against the law. The Bolsonaro government did not do anything about it, and da Silva intends to take measures to prevent it. And Robert Habeck also talked intensively about that, wanted to understand that, and all the rest, and it’s basically about giving them the tools to be able to enforce the laws at all. It is now a firm intention; of course, more staff need to be hired. The area covered by the Amazon alone is eight times as large as the Federal Republic of Germany. Eight times! If someone somewhere in a corner of the Uckermark cuts a tree and makes a fire, it is unlikely that anyone will notice. And Robert had an idea that we can help them. They need helicopters, they need modern equipment to make it possible to monitor this land and to ensure that the laws are upheld. Yes, it was very interesting, they have invested a lot of time in this. Otherwise, as I already said, it was a very, very challenging trip. Very little sleep at night, we were late getting to our hotels, and out again early at six in the morning, then into the bus. The whole delegation, how many of them were there? Eighty altogether, all of them had to be driven around in a troop. It was a challenge to make sure that no one was left behind.

Who was it that the group always needed to wait for?

Claus Sauter:The group did not wait for anyone. It happened to me one time, actually we were supposed to be leaving at seven in the morning and then suddenly we were told 6.45, and I didn’t get the information about the 6.45 start, so I got a call, ‘We are leaving now.’ So, I asked, ‘Why now? It is only 6.45.’ ‘Yes, we are leaving at 6.45!’ So, I had to pack and leave, and get down there quickly. They were really gone, the convoy, and it doesn’t stop, even for red lights. But an embassy employee was waiting for me, and we actually managed to catch up with the convoy by car. That was in Brasilia, before we flew to Manaus, otherwise the trip would have endedfor me at that point. Then I would have had to find a way to fly home from Brasilia. Yes, there was no waiting for anyone. It’s right, because I mean, how far would you get when you have 80 people there? The key people are the two ministers, they have their itinerary, and the rest are waiting for the ministers. That’s all right.

What is it generally like in such a business delegation? Can you take us behind the curtains a bit further? What are the financial arrangements? Do you get your flight tickets sent to you by the Federal Government somehow? That would not be so easy from a compliance perspective, would it?

Claus Sauter:No, obviously you have to pay for your flight yourself, and the hotel, too, clearly, all of the accommodation costs. The state doesn’t pay any of the costs. It would not make sense; everyone has to pay their own way. How it works for the press I don’t know. But for the business delegation that was how it worked – everyone paid their own costs.

And in conclusion, can you say that it was a successful trip for you or for Germany, for the business location?

Claus Sauter:It isn’t possible to say that. It is a long road ahead; the focus is on the free trade agreement with Latin America, known as Mercosur. Robert Habeck also made a statement about that. And this has been under negotiation since 1999, that is almost 25 years. I believe this was an important signal, like other signals; the Federal President was present at Lula da Silva’s inauguration. Then the visit of the Federal Minister for Agriculture and the Federal Minister for Economic Affairs, also clear signals. And the message is clear: we want to work with you. I would go further – we need to work with you. Whether this will be a success, on a political level, we will see. I am reading about a lot of opposition to the Mercosur agreement in the press. In my view, this opposition is a mistake. Although naturally I understand it – look, I am also a farmer. And I know that the Brazilians, how they practice agriculture and the efficiency they have, they would flatten us. That is the problem that the Federal Minister for Economic Affairs needs to solve. For this reason, the combination of the Federal Minister of Economic Affairs and the Federal Minister for Agriculture was perfect. But he has to manage this balancing act, how he then wants to keep our German agriculture – but that applies to the rest of Europe as well – competitive. So, lots of options, new options, when you work with countries like that. Not only can they produce renewable energy more cheaply than we can, but they can also produce many agricultural products much more cheaply, and you have to find the right balance. This is now political work by the two federal ministers to convince other Europeans, because it is not just Germany that decides. It will be decided at EU level. And whether it will be a success or not, we will know that in two, three, four years. The same applies to myself. For me it was a success, in that I was able to learn from the trip. At the end of the day, I have to make decisions together with my colleagues on the Management Board: where do we invest, where do we go, andwhat are the markets we want to serve? And there was the discussion over the last twelve months, this ‘food or fuel’ debate – that was anything but helpful. Quite the opposite, in fact. It doesn’t contribute anything; it has not helped at all. It has only served to scare off VERBIO investors, and naturally I took the opportunity to clear up some of the details. And in this respect, it was a great opportunity, because we were in this agricultural giant with these possibilities, and then on the other hand we thought that with a few tonnes of rye, which we might not be able to process as biofuel, we could save the world. So, the thought that the world will starve, that is now off the agenda. and there was enough time to discuss that fully. And when it comes to other issues, that you want to have extensive agriculture or more areas for natural reservations, this ‘food or fuel’ debate is the wrong discussion. Then you have to go to the farmers, then you have to make offers to the farmers, because at the end of the day, if they have less contracts, they will make less money. And somehow, they need to keep their businesses going. And agriculture is not a highly profitable business. Not at all. Instead, we have to make massive investments and the margins are thin. But all of these things, one could go into detail and be successful or unsuccessful – success, we will see. We have used the time to talk to one another, sensibly, in a friendly manner, and to exchange arguments. This is the only way to progress, we have to talk to each other.

So, it was successful for you, as a businessman.

Claus Sauter:Absolutely. It was, I think, the most intensive week I have had in recent years. I was following many objectives, where I have made progress in each area – and accordingly, if I could choose who was also on the trip, and if I could have chosen the destination, I would have done it exactly this way. So, I am thankful that I was invited to join them. I mean, I am not exactly someone who says what people want to hear, I am sometimes loud in sharing my opinions, so I would have understood it if they had said that they didn’t want me to be there. But it was excellent. A super trip, I have brought lots of new impressions back with me, I have had good discussions, and I hope that I was able to provide some input on the discussions that are sometimes taking the wrong turn here in Germany. We will see what the result will be.

What then actually is the biggest advantage of such a trip? That you are able to deepen your contacts with the German delegates on the trip, or the meetings with the people from the countries that you visit?

Claus Sauter:Exactly, that’s what it is all about. We are a business delegation, and on the other side the participants are also representatives of businesses, and the politicians have a coordination role of bringing the two sides together. And this happened both in Brazil and in Colombia, where we met business people in the industries, that offer technology, and officials from the local ministries responsible forthe subsidy programmes. All these things happen here, and we have a stated objective that we want to invest in Brazil. And what surprised me – our focus was not on Colombia, but the people we met in Colombia, they were almost more interesting. In my view that was more interesting. They were straightforward, they had a concrete interest. They were prepared. They are less reserved than the Brazilians. In this respect, the part [of the trip] was also very interesting and business cards were exchanged. You give each other a brief impression of who does what, and then the work starts. In the five or ten minutes that are available, when there are a lot of other people around, it is not possible to conclude things then. My office is already in the process of organising telephone appointments, where there is time to sit down together for two hours, exchange ideas and explore the possibilities. Our objective as VERBIO, our stated objective is to build a global network of production facilities that process biomass using our technologies. For this purpose, Latin America is one of the top addresses. For this reason, the visit, the coordinating role of the ministers, this was helpful.

You mentioned a little about the different attitudes in Brazil and Colombia. How are these two countries positioned, or countries in general in South America, when it comes to energy policy? Is it even possible to summarise it that way?

Claus Sauter:Absolutely, this was also a top issue. This also left a strong impression on both ministers. Brazil obtains 92 percent of its electricity from renewable sources, the majority of which is hydroelectric power. 92 percent, and approximately 60 percent of transport is also decarbonised. Using ethanol. They are a long way ahead of us. The average Brazilian, I don’t know exactly now, has a carbon footprint of less than two tonnes. They are not far away from being a decarbonised society. I say Brazil will be the one out of the G20 countries that will be truly carbon neutral, and that won’t take until 2035, it will be faster than that. What’s more, they have huge potential to share this with us, too. The situation is the same in Colombia. However, we have to differentiate how we look at Colombia. Last year, we were Colombia’s largest customer. We have bought huge quantities of coal from there. That means that the Colombians had a carbon footprint of approximately two tonnes of CO₂. A lot of renewable energy, but not in the same volume as in Brazil. But there is a much bigger social divide there. There is a very small class of wealthy people with a lot of money. The rest are less fortunate, but they're all anxious to do something there. When we get there, we are actually the petitioners, because we have, I assume, a CO₂. footprint of eight to ten tons this year. So, there is still a long way to go to get anywhere at all there, but there is a readiness to work together, and there is no question that they also see business opportunities to do so. It was a very positive impression.

I still have the pictures in my mind now of you cutting the green ribbon together in Iowa for your newest factory there. How long before that happens in South America? If we think back now 15 years as you just outlined, your trip 15 years ago with Angela Merkel, and now this one with Robert Habeck and Cem Özdemir, it probably won’t take another 15 years for that to happen again, right?

Claus Sauter:Next time I would be 70! I will definitely not be running around on some trip with some minister somewhere then. I cannot give you an answer, I don’t know. We are not under any time pressure. The Brazilian tax system, for example, is much more complicated than the one we have in Germany. Yes, it is hard to believe. But the representatives of German companies stressed this again and again. And we need to generate enough knowledge in order to even get a feeling for whether we can achieve anything there. Look at the prerequisites: cheap biomass, residual biomass waste products, rain, sun. It’s all there. We can start tomorrow. But it isn’t as simple as that, because there is a regulatory system in place. What taxes, how much? How does it work? The missing double-taxation treaty. That was a massive issue between Brazil and Germany. It means that when you invest there, and generate profits in Brazil, taxes have to be paid there, and when it is a German company, you have to pay taxes again. So, you can forget it already. That means that these things need to be considered carefully, the possible logistics need to be examined. Then it is possible to make an investment decision at some time in the future. We are still in that process now. We have been in that process for more than a year already. We already had some specific proposals. However, we had to discard them again, and to some extent we are back to the beginning of the process. But it isn’t too bad. We have learned from this. I have no idea how long it will take, but I hope it won’t be 15 years.

At the beginning of our recording, you talked about the American IRA Act, which has been the subject of a great deal of discussion recently, also from a European perspective, because the Americans are spending a great deal of money and perhaps, from our point of view, reacting very quickly again. Is that something we are missing from a European or perhaps also a German perspective? Do we need something similar? This is something that is being talked about repeatedly. Or is what we are trying to do here in Europe or in Germany already enough to counter that, in this case talking about and asking specifically about your company?

Claus Sauter:I answer your question with another question. You are in business. If you invest something, and then someone comes around the corner and says, that’s exactly the industry we want, for every euro that you invest I will give you 50 cents, what would you do?

Is it as straightforward as that? Is it only a question of money?

Claus Sauter:Everything we need for our business is there. That’s why we made the decision before the IRA – we have raw materials, corn, corn straw, there arepipelines there, a huge market, everything. And now someone comes along again and says ‘for every investment you make’. There is not 50 percent to be had everywhere. In certain areas, for example, where additional jobs are created, in the coal regions, there is up to 50 percent, but 30 percent is guaranteed, and it is as simple as that. Yes. I compare it to the situation before the German unification. I am from Bavaria. I came here, after all, also to take advantage of these financial opportunities, these subsidies, investment allowances, and it was so easy at that time. You invested something and you got 25 percent investment allowance, and the stipulation was: create jobs. That was the simple requirement. In the USA the requirement is now: reduce CO₂ emissions. That is the stipulation. But that is just one part of the story. For the products that we then produce, every biofuel used as an input, there is a further bonus from the government on top for biofuels that are particularly low on CO₂. Hydrogen – much more pragmatic. Here the discussion about where the electricity will come from for the electrolyser has been going on for two, three years. The Americans are doing it very differently. They say, we need an infrastructure for the hydrogen, and the source of the electricity is not important at the moment. Okay, so build electrolysers here, create infrastructure, and then depending on the CO₂ balance, there’s a subsidy of up to three dollars per kilogram of hydrogen for ten years. So that means I don’t care at all if Steffi Lemke becomes President of the United States of America tomorrow, because she can’t change this law. It is enacted for ten years. This brings everything together. A pragmatic approach, the willingness to pump in a lot of money, simple rules and investor security, reliability. Everything an investor loves. It is very clear: if Europe does not react, everything will move there. Just as we lost the solar industry, which had its beginnings here in Germany, in Europe, just as we lost that to the Chinese, we will lose the other technologies to the Americans. The Americans have learned. They are not making the same mistake twice. A reaction is needed here.

Finally, did you also talk about this with the two ministers on the plane, and if so, do they feel that there is an awareness of this on the part of German politicians?

Claus Sauter:Yes, we have spoken about it. There is very much an awareness there, but Germany does not decide that on its own; these things are decided in Brussels. What many people also don’t know is that the German federal government doesn’t have all kinds of freedom to promote industries there [in Germany]. We are within the European Union, and there are so-called aid guidelines. There are clear rules that apply to all European member states. That means that if the Minister of the Economy decides to spend money somewhere, he cannot approve that spending. Take the pipeline from Rostock to the PCK [PCK Schwedt refinery]. This is an issue under current debate. The shareholders are not prepared to invest. From a macroeconomic standpoint, however, it would be necessary. So, the Federal Government thought of building a new pipeline. Yes, but it cannot decide that by itself, it has to ask Brussels, and if Brussels says no, then nothing happens, andthat’s the problem. There are extremely conflicting interests at work. In my opinion, when it comes to industry policy and the Bulgarians, Romanians and French are all involved, then it is a mistake. You can’t lump everything together; the problems in Bulgaria and Romania are completely different to those in Germany or France, but first and foremost in Germany, because unlike the French we actually shut down our entire traditional power supply. Now a lot of money is needed to finance this transformation, and that has to come from somewhere. And when it is done, then we will have a good infrastructure. But it will come, and there is an awareness that there needs to be a response to the IRA. It’s there, but their hands are tied.

A very last question, Mr. Sauter – if you were allowed to choose tomorrow, which region would you fly to next with such a delegation?

Claus Sauter:Just now, nowhere at all! We have so many things to do now, and so many things on the table. We need to sort through these things. So, for the next few years I’m not going anywhere, but you have to make sure you put the ball in the net. It’s not just about always travelling around and having all kinds of conversations, but results have to be delivered, and that’s what we’re doing.

Now on that note, welcome back!

Claus Sauter:Alright! Thank you.

Mr. Sauter, thank you for your insight into the trip with the government’s business delegation and your further insights, and I have to say one doesn’t get this sort of insights every day. We look forward with interest to see how VERBIO continues to progress, and we are already looking forward to the next time we meet here in the podcast series. Thank you to our listeners, too, and until the next issue of the #StrawClever podcast.

The #StrawClever podcast can be downloaded using the Apple Podcast, Deezer, Google Podcast, Spotify, and from the strohklug.de website.