Brazil – The Biofuel Baron

Brazil has been a pioneer in biofuels for almost a century, with sugar-based ethanol first fuelling cars in the 1920s. But it wasn’t until the oil price shocks of the 1970s that Brazil, which in those days was an oil importer, began to seriously develop biofuel technology. The country’s huge sugar production gave it plenty of feedstock but it also helped that Brazil has a large internal market and a sophisticated technology base. Indeed that internal market became a key factor when new laws made it compulsory for all petrol sold in Brazil to include a blend of ethanol. At present the level of ethanol blend stands between 18% and 27.5%.

"But this incredible growth hasn’t come without challenges…"

Technological innovation played its part too, with the introduction of flex fuel vehicles that can run on either blended petrol or pure ethanol. The vehicles have been a hit with drivers and now make up 70% of all light vehicles in the country. As a result the country’s 30 billion litres of annual ethanol production has taken a 42% share of the petrol usage. Meanwhile biomass power plants that use bagasse, the unwanted leftovers from the sugar harvest, provide 4% of Brazil’s electricity. In addition to reducing fossil fuel dependence it is estimated that Brazil’s use of biofuels has helped reduce its carbon dioxide emissions by more than 600million tonnes.

But this incredible growth hasn’t come without challenges, explained Géraldine Kutas, head of international affairs for the Brazilian Sugarcane Industry Association (UNICA), at a recent Canning House event. “The industry is at a moment of real change. Low sugar prices have led to mills closing while pro-biofuel policies in consumer countries have been challenged. Eighty mills have closed since 2008 while thousands of jobs has been lost – so it is a serious restructuring.”

The next generation

Fortunately, however, a new technology has emerged to revitalise the Brazilian biofuel industry. “Until now the sector has relied upon 1st Generation (1G) biofuels”, said Dr. Mairi J. Black, a research associate at University College London, at a recent Canning House event. “These are derived from commodity crops with easily extractable sugars, starches and oils which are simple to process into bioethanol and biodiesel.” But that method of just relying on the most accessible parts of selected crops ignores the full potential energy that could be released. “2nd Generation’ (2G) biofuels are derived from cellulose, hemicelluloses, lignocelluloses etc of plant biomass. Feedstocks can be crop residues, forestry feedstock (residues or dedicated crops) or purpose grown non-food crops.”

At present two plants are producing 2G ethanol on a commercial scale in Brazil, with a combined output of 120 million litres. That relatively small output is because 2G remains more expensive than its predecessor, but the technology has room for much more expansion, explains Kutas. “It gives us the potential to increase ethanol production by 50% with the same planted area, it means no seasonality as you can have production all the year long and there are great synergies with the existing 1G sugar mills and infrastructure.” The key will be to bring down the costs and, judging from Brazil’s previous experience with 1G, that will require a combination of favourable policymaking, technological innovation and investment.

Why Biofuels?

Despite the fact that 2G biofuel will require extra capital, technology and regulations, investors can still expect it to happen. Of course there will be hiccoughs along the way - as the recent tough years in the Brazilian sugar industry have shown. But the inexorable trend will be towards 2G biofuel technology because it is uniquely placed to solve several of the world’s major problems. A rapidly growing global population, which is expected to hit 9 billion in 2050, up from 7 billion today, will place extreme pressure on global food and energy supplies. The challenge is to meet that extra demand in a way that is socially, environmentally and economically sustainable. And, if managed carefully, 2G biofuel looks like it can do just that.

“Biofuels have already brought many benefits”, says Dr. Black, “and 2G offers a way to extend that. Biofuels reduce GHG emissions compared with fossil fuels, improve energy security, create employment, provide alternative markets for farmers and forestry and offer an opportunity to protect the environment.” In particular Dr. Black notes that 2G biofuel “provides use for ‘waste’ materials, creates wider opportunities for planting (for example in lower grade lands that are less productive for food), while its higher productivity means that it uses land more efficiently and does more to cut greenhouse gas emissions.”

Perhaps the biggest criticism of biofuel is the alleged impact that it has on food supply. It takes 1 tonne of sugar cane to produce the same amount of energy as 1.2 barrels of oil, so it needs a lot of feedstock. Subsequently critics accuse the industry of diverting valuable farming land away from food production. On a superficial analysis there may appear to be a link, said Jeremy Woods, Lecturer at Imperial College London, in a recent Canning House event. “Between 2005 and 2015, biofuel production increased by 245%, while over the same period global food commodity prices increased by 26% and the prices consumers paid for food also increased by 245%.” That apparent causal link has caused many NGOs to oppose biofuels. However, Woods believes that closer analysis reveals a more complex relationship. “One very important factor is that the global population increased by 810 million during that time. But despite the population growth, 167 million fewer people suffered from hunger and under-nourishment in 2015 than a decade earlier. Over the same decade, biofuel production expanded rapidly along with the number of people suffering early mortality and disease from consuming too much of the wrong foods. Today, more people are malnourished from overconsumption than are undernourished due to insufficient food. Over the coming decade, the global population suffering from hunger is projected to decline while the number suffering from diseases caused by overconsumption is projected to steadily rise.”

The link between biofuels production and food supply is clearly not a simple one and would appear to vary depending on local factors. However, those that do worry about the impact of biofuels on food production will welcome the fact that 2G biofuels can boost production from non-food sources. “Because of the wide-range of feedstocks we can move away from ‘1st Generation’ biofuels which rely on and potentially compete with food uses”, says Dr. Black. Indeed Kutas notes that there are 25 million hectares of degraded pasture in Brazil that are not suitable for food crops but could be used to grow feedstock for 2G biofuel.

The impacts of 2G biofuels will be global, but Brazil seems particularly well positioned to take advantage. The country is already the world’s largest sugar producer and exporter, while it is the 2nd largest biofuels producer, accounting for 20% of global exports. That strong lead in 1G biofuels can help it take the lead in 2G. Brazil is endowed with an abundant and cheap source biomass, which means that 2G is scalable and sustainable.  The extensive 1G infrastructure is also a help as it will cover the increased costs of 2G. Of course, as in any part of the energy matrix, friendly government policy would help to speed up the adoption of the new technology. But with 2G costs expected to fall to less than half of those for 1G biofuels by 2016, this is an investment story that isn’t going away.