Brazil Look to Benefit from US Renewable Fuel Standard Mandates

US rules on ethanol usage will favour Brazilian cane sugar producers and could lead to a surge in imports in the coming years, according to a research note from Rabobank International.

However, if Brazilian imports do surge, US legislators will likely act to change the rules, the analysts warned.

The 2010 update of the US Renewable Fuels Standard (RFS2) mandates that a steadily rising quantity of renewable fuels be used in transportation, with particular emphasis on expanding 'advanced' biofuels, such as cellulosic ethanol and other biofuels that do not compete with food production and produce less greenhouse gas over the lifecycle than 'conventional' corn-based ethanol.

This year, RFS2 mandates 15.2 billion gallons of renewable fuels be used, of which 2 billion gallons should be advanced biofuels - implying 13.2 billion gallons of conventional ethanol. By 2015, the total figure rises to 20.5 billion gallons, with 5.5 billion in advanced biofuels.

However, Rabobank's February report, The Future of Ethanol, predicts that cellulosic ethanol will not be viable on a commercial scale "any time soon" so, assuming steady growth in biodiesel production, the opportunity for other advanced biofuels grows from 500 million gallons in 2011 to 4 billion gallons in 2015.

"This could present a huge opportunity for Brazilian producers, whose ethanol qualifies for advanced biofuels status," the report says. "However, political realities are such that if the US ethanol programme ends up merely and primarily benefitting the growth of sugar-based ethanol in Brazil, it will be of questionable political sustainability."

Traditionally, Brazil has exported ethanol to the US. But last year the South American nation started importing US ethanol, as a declining cane crop impacted domestic ethanol production. Brazil could continue to import in 2012 if the cane crop disappoints again, the Rabobank analysts said.

The US abolished an ethanol blending credit and taxes on ethanol imports at the end of 2011. However, Rabobank believes ethanol production will increase slightly this year, driven by the rising mandate. The analysts noted that most ethanol production is still profitable without the blending credit, and the US biofuels lobby is turning its attention to increasing the percentage of ethanol in gasoline to 15% from 10% - which will increase demand for its product - and widening the definition of 'advanced'.

By. Christopher Cundy

Source: Environmental-Finance