HIGHER
BLENDS

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

Sugarcane

Whilst time and money has been spent on research and development into the transport sector globally, often complemented by breaks to incentivize companies and consumers to adopt electric vehicles, a low-cost and ready-to-implement alternative is available.

Ethanol can support emission reductions immediately, requiring consistent regulatory frameworks to promote the blending of biofuels with fossil fuels. 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 have incorporated this technology.

To date, this has avoided 515 million tons of CO2 from entering the atmosphere.

Due to flex-fuel adoption and the mandatory percentage of biofuels blended with fossil fuels (E27 is the baseline practice today), Brazil has been able to replace 48% of fossil fuel consumption with ethanol.


ETHANOL

BIOFUELS MANDATES
AROUND THE WORLD

Ethanol biofuels mandates around the world

There are current 64 countries with biofuel targets mandated in the world. In all of the Americas, 14 countries already have mandates.

Sugarcane

In September 2017, ambitious targets for full coverage of blended 10% ethanol fuel by 2020 and scaling up production of cellulosic ethanol substantially by 2025 were set in ‘Implementation plan on expanding bio-ethanol vehicle fuel production and use’ from the National Development and Reform Commission, National Energy Administration and 13 other ministries and agencies.

At this time, Chinese law restricts fuel ethanol processing to licensed facilities that produce and supply fuel ethanol to national refiners and fuel marketing companies. Provincial Development and Reform Commissions (DRCs) are responsible for the distribution of franchise licenses for fuel production, refining, and marketing.

In 2018, 7 provinces and cities fully implemented mandatory E10 fuel ethanol blending. These were Anhui, Guangxi, Heilongjiang, Henan, Jilin, Liaoning, and Tianjin provinces. Another 5 provinces partially implemented E10 at varying levels. These were Hebei, Shandong, Jiangsu, Inner Mongolia, and Hubei provinces.

In 2019, 3 provinces (Shanxi, Zhejiang, and Guangdong) launched pilot programs in a select few cities. Shanxi, Shandong, Hebei, Zhejiang provinces have officially announced that they will begin implementing E10 in 2020, for a total of 26 provinces. Industry sources report that Shanghai, Hubei, and Hunan provinces are projected to unveil policies to adopt E10 province-wide by 2020. Reaching the 2020 target would have required about 15 million tons of the biofuel annually, more than the current output, which is about 16% of the country’s current consumption.

Draft Energy Law

No official revision of the E10 policy has been announced, but biofuels are included in the Draft Energy Law, effectively making the biofuels promotion part of China’s permanent national energy strategy.

Furthermore, the National Energy Administration in late April 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.

Sugarcane

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:

  1. 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.
  2. The Fuel Quality Directive requires greenhouse gas emissions from transport fuels be reduced by 6 percent by 2020 .
  3. 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%.
  4. 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.

Sugarcane

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

The Indian government since 2014 has been looking to increase indigenous production of ethanol. The steps have included introduction of administered price mechanism, opening alternate route for ethanol production, 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 scope of raw material for ethanol procurement, interest subvention scheme for enhancement and augmentation of the ethanol production capacity and extension of EBP Programme 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 litres 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% and which is to progressively increase to 20% by ESY 2029-30.

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

The National Policy on Biofuel (NPB) – 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 Programme, 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.

Sugarcane

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 50 billion liters (15.8 billion gallons) in 2019.

Ethanol policy is governed by 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, 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.