RenovaBio Opportunities and Biofuels Outlook in Brazil

Abstract

Brazil is the second largest producer of biofuels in the word, after the USA. Biofuel production in the country was boosted in the 1970s by public policies such as Pro-Alcool (considered a successful policy to strengthen ethanol production). However, the competitive prices of fossil fuels and ethanol shortages due to high sugar prices have created market insecurity concerning investments in ethanol production and also in the supply side. Brazil produced 28.3 billion litres of ethanol and 3.8 billion litres of biodiesel in 2016. The production percentage increase in the last decade were 25% and 840% for ethanol and biodiesel, respectively, showing a stagnation in ethanol sector and technological advances and viability increase in biodiesel sector. To retake the expansion biofuel in Brazil, a governmental program, RenovaBio, was created to encourage private investments in the sector, including advances in second and third generation of biofuels, and also help the country meet decarbonization goals according to the Paris Agreement. Unlike Pro-Alcool, the program intends to push biofuels production without focusing on a specific type. Although it expects to retake the Brazilian expansion in biofuels, the real impact in the sector is still unclear. The goal of this article is to understand the sector in Brazil in the last decade and how RenovaBio could affect the first, second and third generation of biofuel production. The key concept of RenovaBio is to reduce the carbon emission and improve life-cycle performance of biofuels. The program provides an opportunity for the biofuel producer to commercialize decarbonization credits (CBIO) in the market. The CBIO is generated by the difference between fossil fuel CO2e emission (baseline) and its biofuel substitute. The higher this difference, the more CBIO could be issued and commercialized. Therefore, as cellulosic ethanol usually presents a smaller carbon footprint compared to first-generation ethanol, the viability of advanced biofuels could possibly increase. By these means, RenovaBio could lead to a reduction of ethanol prices and a real expansion of biofuel technology development and production in Brazil.