Brazil is the second largest biofuels producer in the world, following the US. Biofuels accounted for 22% of its transport energy in 2022 and production is set to reach 32.95bn litres in 2023, 7% more than the previous year, due to a steady increase in sugarcane and corn ethanol production.

Brazil is also the third largest biodiesel producer, following Indonesia and the US. Brazilian biodiesel production is more heavily regulated than bioethanol and imports are not permitted. Total biodiesel production is forecast to reach 7.1bn litres in 2023, a 5% increase on 2022, according to the US Department of Agriculture (USDA) Foreign Agriculture Service (FAS).

As well as being a global pioneer in biofuels, the country combines a successful formula of biofuels mandates, financial incentives and sustainability requirements to ensure secure and affordable biofuels supplies.

Forward-thinking policies
Ethanol mandates began in earnest in 1975 with the ProAlcohol programme and blending has grown to the current 27% (E27) ethanol blending mandate. The take-up has been impressive, given the proliferation of flex-fuel vehicles which can run on gasoline or ethanol. These now comprise nearly 90% of Brazil’s light-duty vehicle fleet, according to the latest International Energy Agency (IEA) Renewable Market Update. Now, Brazil’s Ministry of Mines is considering increasing ethanol blending up to 30% (E30).

In addition to the E27 blend, the light duty fleet also has access to pure E100 hydrous ethanol.

Blending targets were established for biodiesel in 2005 and have risen from 2% to 12% in 2023, with a target of 15% by 2026. However, high biodiesel prices have slowed uptake.

Introduction of the RenovaBio programme in 2016, under the National Biofuel Policy, set lifecycle greenhouse gas (GHG) intensity reduction targets for the transport sector and establishes long-term incentives for liquid biofuels. The policy also recognises the strategic role that biomethane, biokerosene (for aviation) and other biofuels can play in the country’s energy security.

RenovaBio is composed of three strategic axes setting annual carbon intensity reductions and a market for carbon credit trading.

• First, on an annual basis the government sets decarbonisation targets for 10 years, with mandatory targets for fuel distributors. 
• Second, biofuels producers voluntarily certify their production and receive energy-environmental sufficiency scores. 
• Third, these scores are multiplied by the volume of biofuels traded, resulting in a decarbonisation credit (CBio) that a producer can market. One CBio is equivalent to one tonne of CO₂e emission avoided.

According to the 2023 USDA FAS report on biofuels, there are 339 biofuels plants in Brazil (representing 75% of biofuels plants in the country) which are certified to issue CBios. These include 238 sugarcane ethanol plants, six sugarcane and corn ethanol plants, one cellulosic ethanol plant, five corn ethanol plants, 38 biodiesel plants and six biomethane plants.

No foreign plants have been certified, as they are not yet able to generate CBios. The average price of CBios has reached record levels on the São Paulo stock exchange, with a high of R$146.40/CBio ($30.06/CBio).

The first wheat ethanol plant is expected to open in Rio Grande de Sul in 2024, generating about 11.1mn l/y of ethanol.

Financial incentives
Brazil offers preferential tax treatment for flex-fuel vehicles. There is also preferential tax treatment for ethanol compared to gasoline, as well as tax exemptions for biodiesel, depending on the raw material, scale of production and region of production.

In June 2022, the Brazilian government capped the state tax for circulation of goods and services (ICMS) on fuels between 17–18% and CIDE (Contribution for Intervention in Economic Domain) taxes on gasoline and ethanol to zero to control fuel prices. In mid-July, the government approved an amendment preserving the tax differential between hydrous ethanol and gasoline.

The Brazil National Bank for Social and Economic Development also provides credit lines for investment in sugar, ethanol, cogeneration, transport and feedstock, as well as a separate climate fund to reduce carbon intensity. The Ministry of Energy and Mines also provides special tax regimes for bioenergy projects.

Brazil offers preferential tax treatment for flex-fuel vehicles. There is also preferential tax treatment for ethanol compared to gasoline as well as tax exemptions for biodiesel, depending on the raw material, scale of production and region of production. 

Secure and affordable supplies
Historically, ethanol has always been priced below or near the cost of gasoline. The Brazilian government also modifies support levels and blending requirements to ensure that supplies remain affordable. However, since 2015 there has been no need to modify the 27% blending requirement for ethanol.

Although the ‘food versus fuel’ debate has far less profile in Brazil than in European biofuels debates, Brazil maintains land use protection via its Forest Code for agro-ecological zoning and voluntary measures such as the Soy Moratorium. But there are outstanding legal challenges about agro-ecological zoning for sugarcane, notes the IEA. Sugarcane is the main source of feedstock for ethanol production in Brazil, followed by corn.

Encouraging innovation
The launch in 2021 by the administration of President Luiz Inacio Lula da Silva of the Fuel of the Future Programme is designed to expand the use of renewable fuels and reduce emissions in Latin America’s largest economy. The programme identifies sustainable aviation fuel (SAF); cellulosic ethanol; and carbon capture, usage and storage (CCUS) as research priorities.

A prime objective is to diversify the feedstocks used to produce biofuels. The Brazilian government estimates that ethanol use could expand by 55% to 46bn litres by 2030 and biodiesel by 85% to 11.5bn litres from 2022 levels. As the IEA points out in its biofuels policy insight report on Brazil, India and the US for the Global Biofuel Alliance: ‘This level of expansion could occur in parallel with Amazon protection and reforestation efforts by increasing crop yields, intercropping, expanding production of marginal lands and expanding waste and residues use.’

Brazil has vast amounts of agricultural residues that could be used to produce transport biofuels. Currently, four ‘second generation’ cellulosic ethanol facilities are under construction, planning to use agricultural residues to produce ethanol at commercial scale.

Biodiesel concerns
The RenovaBio programme and CBios also apply to biodiesel, but demand for biodiesel is not growing much. The USDA reckons that ‘Brazil’s biodiesel policy and programmes are at risk of stagnating’, despite the policy to incentivise low-carbon fuels for environmental sustainability. There are no minimal GHG reduction criteria for biodiesel, and no certification scheme to independently verify fuel carbon intensities. This has raised concern over the impact of direct and indirect land use change and the true carbon intensity of palm-oil based biodiesel and soya-based biodiesel in Brazil.

According to the Brazilian National Agency for Petroleum, Natural Gas and Biofuels (ANP), about 65% of biodiesel production in 2022 was from soybean oil and 16.2% from greasy material. The remainder was animal fat (7.9%), palm oil (2.1%) and other fatty materials (8.8%). Total estimated Brazilian biodiesel production in 2023 is 7.1bn litres, a 5% increase compared to 2022.

Brazil currently has 59 authorised biodiesel plants, according to the ANP.

Advanced biofuels
Total cellulosic ‘second generation’ ethanol production for 2023 is estimated to be 51mn litres, which is insignificant compared to total ethanol production. The USDA believes that ‘the industry remains stymied with the lack of specific policies targeting and supporting its expansion’.

In 2022, Acelen signed a memorandum of understanding with the government of Bahia for $R12bn ($2.46bn) investment in a biorefinery within the Matarpipe refinery, backed by the United Arab Emirates. The plant is targeted to produce 20,000 b/d of renewable diesel plus SAF by 2026.

Petrobras entered the biorefining market in 2022, with the launch of the Getulio Vargas biorefining plant in Parana with 5mn l/d of biodiesel, which the company plans to raise to 21mn l/d. Vibra Energia also plans to sell advanced biofuels produced from palm oil at Roraima and in the Manua Free Trade Zone from 2025.

Raizen, a 50:50 joint venture between Shell and Brazil’s Cosan has invested $R 2.8bn ($0.57bn) in construction of three new cellulosic ethanol plants in addition to the existing plant in Piracicaba in São Paulo. The new E2G (second generation ethanol) plants are due to start operating this year, doubling Raizen’s capacity to 2mn l/y of E2G.

Bioflex also has a 30mn l/y E2G plant in Alagoa.

Renewable diesel and SAF
Unlike other major biodiesel markets in Europe and the US, Brazil is only now looking at the potential of renewable diesel. Only hydrogenation-derived renewable diesel (HDRD) is commercially available at scale. There is a similar situation for SAF, which falls well behind other countries. Effective incentive policy, financial support or mandates have yet to emerge in Brazil.

Palm oil producer Brazil Biofuels (BBF) and fuel distributor Vibra Energia are to build the first HDRD plant in the country. The R$1.8bn ($0.36bn) plant will use palm oil as feedstock and is due to start operation by 2025, with initial capacity of 500mn l/y of HDRD.

ECB is building the Omega Green plant in Paraguay, which is due to start operation in 2024, with capacity of 27.6mn l/y, shared between renewable diesel, SAF and green naphtha.

The ANP is developing specifications for renewable diesel, ‘diesel verde’. The Brazilian government has also discussed introducing a SAF-use mandate that would take effect from January 2027, targeting reduction of Brazilian airline GHG emissions by 1% and potentially reaching 10%. By which time aviation companies operating in Brazil will need to commit to decarbonisation targets set under the CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) scheme. The Brazilian government is expected to connect RenovaBio to CORSIA, potentially increasing the liquidity of CBio decarbonisation credits.

Embraer, the Brazilian aircraft manufacturer has signed a letter of intention with biofuel producer Raizen to encourage development of SAF.

Under the Ministry of Mines and Energy/Energy Research Enterprise (MME/EPE) Brazilian Decennial Energy Plan, SAF is targeted to gain 1.4% market share (130,000 m³) of total jet fuel demand.

Brazil’s wide-ranging tango of biofuels developments and climate-related mandates should prove music to some environmentalists’ ears, so long as it doesn’t lay waste to large stretches of Amazon jungle or impinge on the fuel versus food debate.

To find out more about Brazil’s energy transition, visit the Energy Institute Statistical Review Country Transition Tracker.