Can Second-Generation Ethanol Production Help Decarbonize the World?

by Brian Kenny (Cold Call/Harvard Business Review) How Brazil’s green energy champion, Raízen, is expanding the market for second-generation ethanol and other sugar-cane waste biofuels. -- Raízen, a bioenergy company headquartered in São Paulo, is Brazil’s leader in sugar and ethanol production and the world’s leading ethanol trader. Since its creation in 2011, the company had primarily produced first-generation ethanol (E1G) from sugarcane, a crop that can also be used to produce sugar.

In 2015, Raízen also started to produce second-generation ethanol (E2G), a biofuel derived from residual and waste materials, such as cane bagasse and straw – which don’t compete with food production. The company’s growth strategy focused on developing and boosting a low carbon portfolio that focused on E2G, based on the belief that Raízen—and Brazil—could help the world decarbonize and profit from the energy transition.

Paula Kovarsky, Raízen’s chief strategy and sustainability officer, was confident the company could become a global green energy champion. But after the board’s approval for the first round of E2G investments, she faced a complex challenge: how to expand the market for second-generation ethanol and other sugar-cane waste biofuels, in order to ensure Raízen’s long-term growth.

Harvard Business School professor Gunnar Trumbull and Kovarsky discuss the company’s strategy for bringing second-generation ethanol to the world in the case, “Raízen: Helping to Decarbonize the World?” READ MORE; includes AUDIO and TRANSCRIPT

Excerpt from Financial Times: But executives are most animated about ethanol, especially so-called second-generation ethanol, which is produced from the leftover pulp from crushed sugarcane, known as its bagasse. As its production is sustainable, using only the waste byproduct, this type of ethanol is classified as an advanced biofuel.

“The most important growth is coming from the renewable production of advanced biofuels — that is where the core of our growth is,” says Ricardo Mussa, chief executive. “Until two years ago, we were only using one-third of the energy — that from the [sugarcane] juice. Now, we’ve developed technology that gets [another third from] the bagasse by putting an enzyme into it.” Much of the demand is being driven by Japan, California and, in particular, Europe, which has imposed stringent requirements for renewables but is reluctant to trade farmland for ethanol production — the so-called food versus fuel debate. “I have no issue with demand today,” says Mussa. “At first, we said ‘let’s test the market’ and see if it would be willing to contract volumes for a long period of time with minimal price guarantee. And, to my surprise, they wanted everything we have.” He says the second-generation ethanol is being used in fuels blended with petrol, bioplastics and chemicals. But there is also growing interest in using it to make sustainable aviation fuel because its longer-term supply is relatively stable. This offers advantages over used cooking oil — a more established method of making sustainable aviation fuel but the supply of which can be unreliable.

But Mussa, like many in the sector, defends ethanol as a good choice for emerging economies, which do not have the resources to invest in building the infrastructure for EVs. “Brazil is a developing country, it has to be cheap,” he says. “When we look at the entire equation, it makes much more sense [to use ethanol]. We already have an installed car manufacturing industry. We have the flex fuel technology. I see a different [kind of] development here, [more] like in Africa or India.” He added that the subject of EVs had less resonance in Brazil, because the country’s electricity mix is already almost 90 per cent renewable thanks to its prowess in hydro, solar and, more recently, wind power. “For Europe, there is no other way,” he says. “They don’t have enough biofuel to decarbonise, so I understand [why they will use EVs]. In Brazil, this is not an issue.” READ MORE