Biofuels in the Pan Amazon

The spikes in commodity prices in the first decade of the twenty-first century coincided with a global boom in biofuels. The interest in biofuels was motivated allegedly by a concern for global warming but other, more mundane, reasons played a vital role. In advanced economies, this included a geopolitical urgency to lessen dependence on fossil-fuel imports from countries suffering political instability, combined with the political expediency of supporting domestic production of agricultural commodities. Well-known examples include the corn lobby in the United States and the rapeseed constituency in the European Union.

Biofuel policies in both jurisdictions are now under pressure. Low oil prices have reduced demand for biofuels, while the unexpectedly rapid development of electric vehicles and renewable energy provide more attractive pathways for lowering greenhouse gases (GHG). The long-delayed operation of advanced biofuel production has caused several companies to declare bankruptcy and dampened investment in these once-promising technologies.

Finally, concern about indirect land-use change and food security issues has motivated the EU to roll back subsidies and end policies that once favoured the biofuel industry. The US is a net exporter of ethanol but imports about twenty per cent of its biodiesel consumption, which is largely based on soy.

In South America, several countries have adopted biofuel policies. The motivation in these countries has little to do with climate change, being more obviously meant to advance rural development and boost export industries. Brazil, Colombia, Peru and Ecuador all have biofuel mandates that require distributors and retailers to blend a specified amount of biofuel with traditional fossil fuels. Gasoline is mixed with ethanol produced from sugar cane and maize, while biodiesel is a blend using derivatives of soy or palm oil or waste oil and fats collected from the food chain.

Brazil has a long history of promoting bioenergy, particularly ethanol from sugar cane, and the Brazilian sugar industry is renowned for its efficiency and low GHG footprint. Brazilian companies also lead efforts to produce cellulosic ethanol and most use waste biomass as a source of thermal energy to generate electrical energy that is monetized in domestic electricity markets. Brazil is the world’s largest producer and exporter of ethanol and has recently started to export biomass pellets from agricultural waste to North American and European utilities seeking to reduce emissions from coal-fired power plants. An increasing number of corporations with landholdings in Mato Grosso are building thermal biomass plants with plans to install carbon-capture and sequestration technologies over the medium-term.

The expansion in maize cultivation in Mato Grosso has catalyzed its use as a feedstock for the production of ethanol. Manufactured in Brazil for the first time in 2012, maize-based ethanol has exploded as a business model with 1.4 billion liters produced in 2019/2020 and 3.2 billion liters projected for 2021/2022. Current production represents about four per cent of total national ethanol consumption, but is expected to reach twenty per cent by the end of the decade (8.0 billion liters).

As of 2019, there were seven maize-based distilleries operating in Mato Grosso, three under construction and seven in different stages of planning. A large plant, capable of manufacturing 500 million liters annually, requires a $US 100 million investment; it will generate gross revenues of ~ $US 200 million and create as many as 8,000 direct and indirect jobs. The nominal value of maize-based ethanol production was approximately $US 1.3 billion in 2020/2021; about half can be attributed to Mato Grosso.

The economic impact of maize-based ethanol is magnified by fermentation byproducts with their own commercial value: corn oil and a solid residue known as DDGS (distiller’s dried grains and solvents). Corn oil has chemical characteristics similar to soy and can be sold into vegetable oil markets; DDGS is even more lucrative because it is rich in protein and vitamins that makes it an excellent feed supplement for the livestock industry.

The development of a maize-based ethanol industry has resolved a crucial challenge for the industrial farm sector: surplus maize stocks. Unprocessed grain is non competitive in global markets due to high transportation costs, but as a biofuel feedstock it can be commerecialised in domestic energy markets, while corn oil and DDGS add value to meat products destined for overseas markets.

The Brazilian government supports biodiesel production with a blend mandate of ten per cent. Most of the feedstock is soy oil, which in 2019 totaled 4.8 million cubic metres. This volume is equivalent to the oil content of ~18 per cent of the total national production and fifty per cent of the soy oil processed domestically within Brazil. Mato Grosso produced 26 per cent of that total. In contrast, < 2 per cent of the biodiesel mandate was supplied by palm oil, which represented less than six per cent of the total national harvest in 2019. Most of that was produced by Brasil Biofuels, which blends it with conventional diesel to fuel its eighteen power plants located in Acre, Roraima, Rondônia and Amazonas.

The decision to promote soy rather than palm oil as a biodiesel feedstock is noteworthy because the GHG footprint of Brazilian palm oil is significantly smaller than soy. The carbon emissions of palm oil are approximately fifty per cent less than soy when land-use change is excluded from the calculation; however, if palm oil is assumed to be deforestation-free and soy expansion occurs via the conversion of Cerrado landscapes, then the GHG footprint is about 140 per cent less for palm oil when compared to soy. Palm oil produced on degraded pastures is carbon negative because both above and below ground biomass increases over time until it reaches an equilibrium after a couple of decades.

Presumably, the decision to give priority to soy over palm oil was driven by the pre-existing logistical infrastructure near the urban centres in Southeast Brazil and the limited capacity of palm oil companies to produce the volume of feedstock required by regulatory mandates. Political influence may also have contributed to favouring the soy sector, which had gross revenues of about $US 40 billion in 2015 compared to about $350 million for palm oil.

Colombia designed its biofuel programme to support the domestic sugar cane and palm oil industries, two business sectors with influential constituencies that also generate tens of thousands of jobs in the rural economy. Biodiesel mandates increased production and now represents about a third of total production, which helped palm oil companies manage supplies impacted by disease outbreak and fluctuating export markets. Producers hope to penetrate overseas biodiesel markets in the future by creating deforestation-free supply chains.

In Peru, the decision to adopt biofuel mandates was meant to fortify its rural-sector economy and, simultaneously, reduce imports of vegetable oil, valued at about $US 500 million per year. This did not have the desired effect, however. Instead, fossil-fuel companies imported soy oil from Argentina by ocean transport, which enjoyed a price advantage when compared to palm oil hauled over the Andes by truck. The price differential was so large that Grupo Palmas shuttered its biofuel refinery in Tocache in 2014 – only two years after its inauguration.

In Ecuador, the government elected to impose ethanol mandates, but declined to do the same for biodiesel. Apparently, the subsidised price for fossil-fuel diesel makes the implementation of a biodiesel mandate problematic because it would lead to an increase in the cost of diesel fuel at the pump. Producer groups have called for a policy that promotes biodiesel, but the enthusiasm for a biodiesel mandate varies among stakeholders: larger companies are active proponents, while the representatives of the smaller producers are less enthusiastic. The conventional logic for opposition to a biodiesel mandate is hard to understand given the obvious macro-economic benefits of a domestic biodiesel market and the example of Colombia, which has used the domestic biodiesel market as a mechanism to expand both production and exports.

In Bolivia, the government of Evo Morales rejected all biofuel policies that would have diverted revenues from the state-controlled oil company to the agricultural sector, which is dominated by private companies linked to the political opposition. This may be about to change, however; in 2021, the newly elected government of Arce Catacora announced a plan to develop a biodiesel refinery. The proposed $US 250 million investment would alleviate the country’s reliance on imported diesel.

Unlike the biofuel mandates in Colombia, Peru and Brazil, which are based on blends of fatty acid methyl-ester (B5, B10, B20), the proposed refinery would convert vegetable oil to pure biodiesel (B100). The project would require an additional 250,000 hectares (about 617,000 acres) of soybean plantations, which historically have been created by deforestation. The government expressed a commitment to use other feedstocks, such as waste animal fat, or to invest in the industrial production of a Macauba palm, a native species with commercial potential.

“A Perfect Storm in the Amazon” is a book by Timothy Killeen and contains the author’s viewpoints and analysis. The second edition was published by The White Horse in 2021, under the terms of a Creative Commons license (CC BY 4.0 license).

Read the other excerpted portions of chapter 3 here:

Article published by Mayra

Amazon Biodiversity, Amazon Conservation, Amazon Destruction, Amazon People, Amazon Rainforest, Community Development, Conservation, Deforestation, Development, Environment, Forests, Rainforests, Sustainable Development, Threats To Rainforests, Threats To The Amazon, Tropical Forests

Brazil, Colombia, Ecuador, Latin America, Peru, South America

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