Biofuels Production and Consumption in Brazil: Status, Advances and Challenges

May 03, 2019

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by Glaucia Mendes Souza, Rubens Maciel Filho, Luís Cassinelli, Carlos Henrique de Brito Cruz, and Renato D. Godinho (IEA Bioenergy Task 39 Newsletter) 1. Status of the Brazilian Biofuels Industry
Brazil has an energy matrix with substantial renewable content, with renewables (including hydropower) accounting
for 42.9% of the total domestic energy supply (Brazilian Energy Balance 2018).

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Even with an energy matrix that favors renewable sources, Brazil is still dependent on fossil fuels, which account for
57.1% of the domestic supply; oil derivates alone represent 36.4% of all non-renewable sources (Figure 1). In order to
promote the production of biofuels, the country has been investing in incentive policies since the 1930s. There are tax
exemptions for biofuel producers, ethanol flex fuel vehicles and ethanol fuel, and also for biodiesel production, and in
addition there is now a new law for biofuels, Renovabio. As a result of these policies, today Brazil has a biofuel
mandatory blend level of 27% ethanol in gasoline and 10% biodiesel in diesel. Hydrous ethanol (comprising
approximately 95% ethanol + 5% water) is also marketed in all gas stations in Brazil.

1.1.Ethanol
It all began with sugarcane ethanol. As a major producer of sugarcane, in 1931 the Brazilian government implemented
a compulsory blend of at least 5% anhydrous ethanol in gasoline, aimed at reducing the country’s dependence on
imported petroleum by utilizing excess production by the sugar industry to produce ethanol.

Some decades later, in 1976, in response to the impacts on the oil supply and price shocks during the 1970s, the
Brazilian government created Proalcool, a program to incentivize fuel alcohol production. This program led to
increasing the ethanol blending level in gasoline up to 25% (E25) and it also introduced the use of hydrated (also known
as hydrous) ethanol (“E100”; actually about E95) for use in dedicated vehicles. The Proalcool program also established:
lower consumer prices for hydrated ethanol than for ethanol-blended gasoline; competitive prices for ethanol
producers; and favorable financing conditions for sugar-ethanol mills to increase their production capacity. It also
reduced taxes on new cars and annual registration fees for vehicles capable of running on hydrated ethanol. Under the
Proalcool program, all gas stations in Brazil became able to sell hydrated ethanol and the Brazilian government created
ethanol storage reserves to ensure supply throughout the year.

Brazil’s policies related to fuel ethanol were revised in 1985, due to the decline in oil prices and the strengthening of
international sugar prices, and this led to a temporary end to the Proálcool initiative. The sugarcane industry became
focused on maximizing sugar production for export instead of ethanol.

In 2003, a new phase of expansion of sugarcane-based sugar and ethanol production took place motivated by the
automotive industry launch of new flex-fuel cars (FFVs) capable of using either gasoline (with 20-25% anhydrous
ethanol), hydrated ethanol or any blend of the two. These new FFVs were well accepted by consumers: as a result, the
consumption of hydrated ethanol in the domestic market made a strong comeback. This also created opportunities for
another expansion of the sugarcane industry in Brazil. During the period of 2003–2008, the Brazilian sugarcane industry
grew rapidly, with many new and more efficient sugar-ethanol mills commissioned. An industry consolidation also occurred during this time, as positive indicators for the industry’s environmental sustainability were demonstrated
alongside support for new technology development and technology transfer. It was at this time that ethanol started to
become a main product in many sugar-ethanol plants and the concept of new mills only dedicated to ethanol
production became an opportunity to explore.

However, in 2008, the Brazilian ethanol agroindustry started to suffer due to its increasing lack of competitiveness in
relation to gasoline and policies, with the use of petroleum-derived products economically favored. As the Brazilian
automotive fleet was flex-fuel, gasoline demand increased and ethanol demand decreased such that by 2010 ethanol
production was 30% less than in 2008.

However, over the intervening years, ethanol production has slowly increased.

As of December 2017, 382 ethanol plants were producing anhydrous and hydrous ethanol. Total anhydrous and hydrous ethanol production capacities were 128,000 m³/day and 237,000 m³/day, respectively.

In 2018, the share of ethanol in the fuel matrix used by light duty vehicles (Otto Cycle - in gasoline equivalent) reached
50.2%, the highest in history. This occurred despite a decrease in sugarcane production.

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Besides sugarcane, Brazil now produces ethanol from corn grain and this is increasing.

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Besides financing, another way Brazil is promoting biofuels is through excise duty reductions.

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1.2. Biodiesel
Brazil has a mandatory blend of 10% biodiesel in diesel. The biodiesel program started in the 1980s, with the PRO-OLEO
(Plan for the Production of Vegetable Oils for Energy Purposes) program, which established a mixture of 30% vegetable
oils or derivatives in diesel and, in the long run, aimed for a total substitution. The proposed technological alternative
was to produce biofuels by transesterification of vegetable oils. The main motivation was the oil crisis and sharp
increase in fuel prices. After the fall in international oil prices in 1986, the PRO-OLEO program was abandoned.

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2. Biofuel Policies: RenovaBio, Brazilian new biofuels legislation
Brazil’s Proalcool and the Biodiesel programs were started mostly for economic and energy security reasons. More
recent governmental programs consider sustainability concerns, with a focus on social and environmental aspects. One
example is RenovaBio, the new legislation established for the biofuel sector in 2017. The RenovaBio program’s objective
is to revitalize Brazil’s biodiesel sector and meet its annual decarbonization targets committed to at the 21st Conference
of the Parties (COP21)...

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3. Advances in biofuels production technologies
The recent international climate agreement and the enactment of laws such as RenovaBio promise an even greater
future for biofuels in Brazil’s energy sector. In addition to encouraging increased production and use of conventional
biofuels, greatly increased production of advanced (lignocellulosic) biofuels will also be critical to achieving future
emission reduction goals. Accordingly, Brazil is investing in substantial research and development to tackle the technoeconomic challenges of producing lower carbon intensity advanced biofuels cost competitively.

When it comes to production of advanced biofuels, Brazil has two commercial cellulosic ethanol plants. These are
GranBio’s Bioflex-I plant in São Miguel dos Campos (Alagoas), with a nominal annual production capacity of 82 million
liters, and Raízen’s plant in Piracicaba (São Paulo), with an annual capacity of 42 million liters. In addition, there is an
experimental plant within the Cane Technology Center (CTC) in Piracicaba, with an annual capacity of 3 million liters.

The first two commercial plants are still in start up phase operating below their nominal capacities as they work to
debug technical problems mainly in the pre-treatment and lignin filtration processing stages.

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4. Support for innovation
Due to Brazil’s competitive advantages in producing renewable energy and biofuels, and growing biofuels feedstocks,
there are already several science and technology funds that support technology innovation in these areas. The National
Bank for Social and Economic Development (BNDES) provides specific credit lines for the sugar, ethanol and bioenergy
industries to fund investments in sugarcane production, expansion of industrial capacity for sugar and ethanol
production, power cogeneration, logistics and multimodal transportation. In 2016, BNDES financed a total of R$2.02
billion in investments for the sugarcane/sugar/ethanol/energy cogeneration industry. The Raízen cellulosic ethanol
plant in Piracicaba, for example, received R$ 207 million in financing from BNDES, which represents over 80% of the
plant’s total cost of R$ 250 million.

In addition to national institutions like BNDES, CNPq and FINEP, the state of São Paulo’s funding agency, FAPESP, plays
an important role in supporting innovative companies in the bioenergy sector.

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5. Biofuture Platform
The growing consensus around the world about the need to transition to a low carbon economy has resulted in a new
wave of international collaboration, dialogue and activity around clean and sustainable energy. The lack of a fully
dedicated multilateral agency entrusted with energy issues contributed to a multiplicity of initiatives and fora on this
subject. The international energy transition debate so far has been mostly focused on energy efficiency, the power
sector, and electrification. Few initiatives have paid sufficient attention to the need and the means to rapidly scale up
sustainable bioenergy production and demand, despite most climate and energy projections from IEA, IRENA, and the
IPCC pointing out that a significantly increased deployment of sustainable bioenergy is also a condition for meeting the
Paris Agreement objectives. READ MORE

Brazil cane mills swing back to ethanol as sugar recovery fizzles (Reuters)