Brazil’s biofuel program could require US$10bn in investments, says consultancy

Brazil’s fuels of the future (Combustíveis do Futuro) program could create additional annual demand of 11.7Bl (billion liters) of liquid biofuels and 3.4Bm3 of biomethane and require up to 58 billion reais (US$10.4bn) of investment in additional production capacity. 

That estimation is from a study by consultancy Oliver Wyman, a business of Marsh McLennan, shared exclusively with BNamericas.

Source: Oliver Wyman

Source: Oliver Wyman

Approved in March by the lower house of congress, the bill that establishes the program is currently being analyzed by the senate. It creates national programs for green diesel, sustainable aviation fuels (SAF) and biomethane, as well as increasing the proportion of ethanol and biodiesel in the gasoline and diesel blends.

The yearly demand projected could represent an increase of up to 33% in the energy demand for liquid biofuels compared with 2022.

The volumes calculated by Oliver Wyman comprise 3.6Bl of anhydrous ethanol, 5.2Bl of biodiesel, 1.9Bl of renewable diesel, 1Bl of SAF, as well as the 3.4Bm3 of biomethane.

Additional biofuel and biomethane production will increase energy security and reduce reliance on imports by 54% for liquid fuels and 38% for natural gas.

When fully implemented, the program will close approximately 15% of the emissions gap to achieve the nationally determined contribution (NDC) under the Paris Agreement, cutting emissions by approximately 27Mt of CO2 equivalent. 

The study underlined that additional levers could be also explored during discussions in congress to further incentivize increased demand for low-emission fuels in the country, such as the use of biomethane in transportation.

On the other hand, the implementation of the program may also create risks such as reduced engine performance, increased maintenance costs and hikes in natural gas prices for final consumers due to higher levels of biofuel in the blends. 

The report mapped out key factors that could be discussed to encourage demand and manage risks related to the bill, which could still be amended. 

One of them would be the creation of a carbon credit market, aimed at accelerating the use of biofuels in Brazil, allowing the emissions to be considered in the analysis of alternatives too. 

A second factor is that the mandates (minimum blends of biofuels in fossil fuels) for SAF and biomethane consider an emissions reduction target, which is different from the current mandates for ethanol and biodiesel. 

“This new model has implications for suppliers and consumers that need to be considered,” Rodolfo Taveira, director of the energy and natural resources area at Oliver Wyman and one of the authors of the study, told BNamericas. 

Currently, the maximum legal limit of ethanol in the gasoline mix throughout the country is 27.5% with a minimum of 18%. The text approved by the chamber of deputies provides for a maximum percentage of 35%, as long as the technical feasibility is proven for engines powered exclusively by gasoline.

In the case of biodiesel mixed with fossil diesel, the current percentage is 14% and, according to the bill, that percentage will rise to 20% by March 2030.

For natural gas and aviation fuel, the bill establishes a reduction of the carbon emission footprint of 10% in both cases. Until 2026, natural gas distributors would need to blend biomethane into natural gas in order to meet this target, while airline companies would need to do the same using SAF, but until 2037.

Taveira said that encouraging the use of biomethane only by replacing natural gas may limit the incentive for biomethane as a solution to decarbonize transport, which represents an additional opportunity to be considered in the analysis of the bill.

The ideal, according to the consultant, was for the bill to establish the replacement of diesel with biomethane and natural gas.

He also said that, as the bill establishes an increase in biofuel blends, this could lead to an increase in costs for the end consumer, especially in the case of fuels where the cost of production is higher than fossil alternatives. 

“In addition, stricter quality control is needed to guarantee the standardization of a greater number of production sources and reduce the risk for users,” said Taveira.