Monday, 2nd July 2012

Jose Virgilio Enei of Machado, Meyer, Sendacz e Opice Advogados says Brazil has the potential to become a major ethanol exporter, as long as it overcomes a few obstacles first.

The biofuel market in Brazil is largely dominated by ethanol, including its hydrous and anhydrous products, with residual room for biodiesel, which accounts for 5 per cent of overall biofuel volume production and is produced from crops such as soy, pinhão manso and mamona.

In 2011, total sugar cane production reached a record 620 million tons in Brazil, resulting in 38 million tons of sugar (using 45 per cent of the sugar cane produced) and 27 billion litres of ethanol (using the remaining 55 per cent).

The US and Brazil are the largest producers of ethanol globally, producing 34 billion litres and 27 billion litres in 2008 respectively, followed distantly by France, with 1.2 billion litres in the same year. As a reference, biodiesel production is much more equally distributed: Germany leads production with 2.2 billion litres, followed closely by several other countries such as France, the US, Brazil and Argentina.

Brazilian sugar cane and ethanol production has more than doubled in the last decade, but despite this substantial growth our domestic market still absorbs most of the ethanol produced. Less than 7.5 per cent (approximately 2 billion litres) of the ethanol produced in Brazil last year was exported. The main export destinations are the US (141 million litres), Japan (68 million litres) and the Netherlands (19 million litres).

Barriers to entry

Although Brazilian ethanol has been mostly serving the country’s domestic market, there is huge exporting potential in the future as global markets migrate to cleaner sources of fuel and are willing to reduce their oil dependency by increasing their mixing requirements. Brazilian ethanol is more competitive than biodiesel and can satisfy these goals, but the demand for sugar cane ethanol is still modest due to local subsidies for corn ethanol in the US, despite the relaxation of former importation quotas, and non-tariff barriers in the European Union.

In the EU, biofuels only satisfy applicable mandatory mixing or use requirements if their production, inside or outside the territory of the EU, meets certain sustainability criteria. These include the requirement that gas emission savings are at least 35 per cent (or 60 per cent as of 2018), and that these biofuels are not cultivated from land with a high biodiversity value or land with high carbon stock, such as forestry or wetlands. It may not suffice that biofuels are produced in non-biodiverse land, if, by doing so, they displace other cultures that then end up moving to protected areas.

The Brazilian government, with the support of industry associations such as Unica, is making efforts to overcome the above-mentioned barriers for global markets. In this regard, bills have been proposed to Congress in order to create an official sustainability certification for ethanol produced in Brazil, as well as to prohibit the cultivation of sugar cane in rich biodiverse areas such as the Amazon or the Pantanal. These proposed laws, if approved, could help exporters to evidence fulfilment of sustainability criteria set by the European Union and other international markets.

This article is based on a presentation made by Jose Virgilio Enei at Latin Lawyer’s Third Annual Oil & Gas Conference in São Paulo in May.

(Latin Lawyer 02.07.2012)

(Notícia na Íntegra)