HIGHER BLENDS

Transport decarbonization is a challenge for societies around the world. Today, fossil fuels are a major GHG emitter, globally. Sugarcane ethanol can be blended with fossil fuels to reduce GHG emissions and increase an engine’s performance, a simple process that does not require any new technologies to implement.

Higher Blends

Ethanol supports emission reductions immediately. In 2003, Brazil launched its first flex-fuel vehicle, a technology that allows the vehicle to run with 100% ethanol, fossil fuels or any mixture of the two fuels. Today, 80% of the vehicles in Brazil are flex-fuel and 98% of new cars sold incorporate this technology. This has avoided 515 million tons of CO2 from entering the atmosphere.

Thanks to its consistent regulatory framework, that promotes flex-fuel adoption and sets a mandatory minimum biofuels blend for fossil fuels, Brazil has been able to replace 48% of fossil fuel consumption with ethanol.

ETHANOL

BIOFUELS MANDATES AROUND THE WORLD

There are current 64 countries with biofuel targets mandated in the world

LARGEST SUGAR CONSUMERS
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In the Americas, currently 14 countries have biofuel mandates;

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The bulk of mandates come from the EU-27;

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About 40% of American countries have mandates or targets in place or under consideration;

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Other regions include 12 mandates in Asia-Pacific, 11 in Africa and the Indian Ocean, and two from non-EU countries in Europe;

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Besides the EU, the major blending mandates that will drive global demand are set in the US, China and Brazil.

China Ethanol Policy

Up to now China has not implemented its national E10 blending mandate launched in 2017. This situation was necessary because of the substantial difficulties found meeting production targets due to shortages and rising prices of key raw materials such as corn, low oil prices, as well as other distribution and pricing challenges.

Up to now, only six provinces and cities including Jilin, Heilongjiang, Liaoning, Anhui, Henan, and Tianjin have achieved closed full coverage of ethanol gasoline, although not uniformly at the E10 blending rate. At the end of 2019, the National Development and Reform Commission and the National Energy Administration held a meeting to adjust the nationwide promotion plan to encourage provinces to adopt the E10 policy. It was reported coverage nationwide had not yet reached 50% as of the end of 2020.

It has been estimated China’s total fuel ethanol production capacity in 2019 prior to the Covid-19 pandemic was around 13 billion liters, far less than the 20 million liters needed to implement nationwide E10 blending rate. With the cumulative impact of the Covid-19 pandemic still being assessed it is estimated China’s actual fuel ethanol production in 2020 dropped to 3 billion liters, or pre-2017 levels.

Draft Energy Law and 14th Five Year Plan

Although no official revision of the E10 policy has been announced, biofuels are included in the Draft Energy Law, effectively making the biofuels promotion part of China’s permanent national energy strategy. The National Energy Administration included “promoting ethanol gasoline” as part of its list of 9 “major tasks” in 2020. The Draft Energy Law prioritizes the use of renewable power sources and aims to set future targets for both its production and its share of the country’s overall energy mix. The law aims to bring all of China’s disparate energy laws under the same roof, and will be an important tool implementing goals in the 14th Five Year Plan. The new law heavily favors transition to renewables and “new energy” by providing better access to the power grid, and “biofuels” are included in the law’s definition of new energy.

In 2009, China promised the international community that by 2020, non-fossil energy will account for 15% of the total energy consumption. The share of non-fossil energy reached 15.3% by the end of 2019, so China has already met this initial goal, and is in the process of setting future targets. In 2020, China set forth a goal of “carbon neutrality” by 2060, and CO2 emissions peaky by 2030.

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EU Ethanol Policy

The European Union (EU) is the fourth largest market for ethanol in the world. Although the EU biofuels market is dominated by biodiesel (80 percent), ethanol consumption has increased more rapidly than other biofuels in the last years.

The EU regulatory framework for biofuels is based on four main Directives adopted in 2008, 2015 and 2018:

  • The Directive on the promotion of the use of energy from renewable sources that requires 10 percent of the energy used in transport to come from renewables by 2020. Although no dedicated quota was allocated to specific energy sources, most of this 10 percent is expected to come from liquid biofuels. This regulation replaces Directive EC 2003/30, which established a non-binding target of 5.75 percent for biofuels consumption in 2010.
  • The Fuel Quality Directive requires greenhouse gas emissions from transport fuels be reduced by 6 percent by 2020 .
  • The so-called ILUC Directive which amends the two previous texts as far as indirect land use change is concerned. The participation of conventional biofuels in the 10% target is limited to 7%. The indicative target for advanced biofuels is 0.5%.
  • The new Renewable Energy Directive (recast) that covers the period 2021 to 2030. The EU is conditioning the mandatory target for biofuels on compliance with three main sustainability criteria. A reduction of at least 35 percent of greenhouse gas emissions until 2017 when the threshold increases to 50 percent (60 percent for new plants). No production in areas with high carbon stocks (like forests and wetlands) or in areas of high biodiversity (such as forests, wetlands, preserved areas, and highly biodiverse grasslands). Reporting obligation on practices to protect soil, air and water quality, and on the ratification by biofuels exporting countries of some International Labour Organization and environmental conventions. Based on this Directive, EU member states have elaborated their national action plans to reach the 10 percent target. Most of them have adopted mandatory blends and some countries provide fiscal incentives.

The EU ethanol market is highly protected

The EU imposes a € 0.19/liter (around US$ 0.72/gallon) tariff on undenatured ethanol. The import duty for denatured ethanol is € 0.10/liter (approximately US$ 0.38/gallon). The tariff does not distinguish between the different uses of ethanol (beverage, fuel, industrial).

After 20 years of negotiations, the EU and Mercosur countries successfully closed an agreement of principle for the conclusion of a free-trade agreement on June 28, 2019. This agreement will provide for a more favorable treatment for Brazilian ethanol exports to Europe in the form of a TRQ (650,000 tons) with reduced intra-quota duties.

India Ethanol Policy

India’s Ethanol Blended Petrol (EBP) Programme is aimed at achieving multiple outcomes, including environmental gains/benefits, reduction of import dependency and provision of a boost to the agriculture sector.

Since 2014, Indian government has been looking to increase indigenous production of ethanol. The steps have included the introduction of a administered price mechanism, opening an alternate route for ethanol production, an amendment to Industries Act. 1951 which legislates exclusive control of denatured ethanol by the Central Government and reduction in Goods & Service Tax (GST) from 18% to 5%.

National Policy on Biofuels – 2018

The most recent initiative has been the National Policy on Biofuels – 2018 which aims at increasing the scope of raw material for ethanol procurement, interest subvention scheme for enhancement and increasing of the ethanol production capacity and extension of EBP Program to the country since April 01, 2019.

Expected Benefits:

  • Reduce Import Dependency
  • Cleaner Environment
  • Health benefits
  • MSW Management
  • Infrastructural Investment in Rural Areas
  • Employment Generation
  • Additional Income to Farmers

The steps taken by the government to increase ethanol procurement by PSU Oil Manufacturing Companies (OMCs) from 38 crore liters during Ethanol Supply Year (ESY) 2013-14 to 164.75 crore litres in the ongoing ESY 2018-19, have led to up to 17.09.2019 thereby achieving average blend percentage of 5.50%. Currently the Ethanol blending target for ESY 2021-22 is 10% which is to progressively increase to 20% by ESY 2029-30.

Based on several suggestions from stakeholders of the ethanol industry, the Ministry of Petroleum and Natural Gas has prepared the Long Term Ethanol Procurement Policy under the EBP Program.

The National Policy on Biofuel (NPB) of 2018 provides an indicative target of 20% ethanol blending in petrol by 2030. As a step in this direction, OMCs are to procure ethanol derived from C heavy molasses, B heavy molasses, sugarcane Juice, sugar, sugar syrup, damaged food grains unfit for human consumption, surplus food grains as decided by National Biofuel Coordination Committee (NBCC) under the ambit of NPB-2018, including fruit and vegetable wastes.

Under the EBP Program, OMCs procure and blend up to 10% ethanol in petrol. Further, the government has decided that the price of ethanol derived from damaged and surplus food grains has to be fixed by OMCs. Based on the estimated petrol demand for an OMC location and ethanol prices as fixed for an ESY, OMCs estimate the ethanol demand and float tender/Expression of Interest (EOI).

OMCs shall devise appropriate mechanisms/issue detailed procedure/guidelines for procurement of ethanol on long term basis in accordance with the provisions of this policy.

US Ethanol Policy

The United States is the largest producer and consumer of ethanol in the world. Corn ethanol has been produced in the U.S. for more than 30 years and has become a thriving industry.

U.S. farms and refineries generate more than half of the world’s ethanol and produced nearly 53 billion liters (13.8 billion gallons) in 2020.

Ethanol policy is governed by the Environmental Protection Agency (EPA) which oversees the Renewable Fuel Standard (RFS2) program. Created by the U.S. Congress in 2007, RFS2 requires continually increasing volumes of renewable resources into the nation’s fuel supply. In 2022, for example, 136 billion liters (36 billion gallons) of biofuel would be required to be mixed in the US gasoline but this goal will most likely not be achieved.

The RFS

Sugarcane’s role in the U.S.

Major State Ethanol Policies

The RFS, while ambitious, faces ongoing challenges.

The U.S. economy has not absorbed the billions of gallons Congress anticipated when it passed the RFS nearly 14 years ago. EPA has repeatedly revised downwards the volume obligations of the RFS. The pandemic and a slowing economy will further reduce the demand for gasoline.

Second, making E15 ethanol a nationwide reality has proven difficult. A gallon of gas consisting of 15 percent ethanol would benefit America’s environment and help the RFS fulfill its volumetric goals, but widespread implementation has been slower than expected because of inconsistent government rules. Older cars generally cannot use E15 and for many years its sale had been banned during summer because of smog concerns.

Finally, there is the small refinery exemption (SRE). This loophole frees small operators from the renewable fuel volume requirements if they can prove a “disproportionate economic impact.” According to industry estimates this exemption has caused the loss of more than 2.6 billion gallons of ethanol demand. The SRE is also opaque, making it difficult for the public to understand which refineries are exempted and exactly what volume of renewable fuel was exempted.

Sugarcane’s role in the U.S.

As it was implementing RFS2, the EPA determined sugarcane ethanol cuts carbon dioxide emissions by more than 60 percent and designated it an Advanced Renewable Fuel. This designation puts sugarcane ethanol in an important category of superior biofuels that would make up 79.5 billion liters (21 billion gallons) of the fuel supply in the United States by 2022 – an amount equal to about 14 percent of today’s gasoline market.

While Brazilian exports make up only 0.5 percent of all advanced volumes, the potential for this clean biofuel may be appealing to U.S. and state policymakers as they develop aggressive policies to address climate change.

Major State Ethanol Policies

In 2007, California enacted the world’s first low-carbon fuel standard (LCFS) to lower by 10 percent the carbon intensity of its transportation fuels when compared to gasoline by the year 2030.

The California Air Resources Board (CARB) oversees the program and is responsible for conducting a life-cycle analysis for all fuels used for transportation in the state. Under CARB’s most recent analysis, Brazilian sugarcane ethanol is considered one of the lowest carbon fuels available today at commercial scale. It is vital to helping California meet its LCFS goals.

Today, California, Oregon, Washington and British Columbia are collaborating to align policies to reduce GHG and promote clean energy. Over time, these governments will create a market that will further attract investors and offer a roadmap for the rest of the nation to emulate.