Etanol

In the six months since EcoEngineers´ first article on RenovaBio, ethanol markets in the U.S. and Brazil have been hit hard by the COVID pandemic, and demand has plummeted. The Brazilian government recently proposed a reduced target for 2020 that trims the goal 50 percent, from 28 million CBIOs to 14.5 million. Its approval depends on public consultation and other regulatory agents´ agreement, which are likely to happen by the end of July.

The program has been prepared for CBIO transactions since April. However, regulated parties are waiting for the target review approval, as its revision might impact CBIO prices and regulated party purchasing strategies.

Two initial transactions have taken place in the regulated market. The modeling used by Ministério de Minas e Energia (MME) that supported the target definitions, which are currently under review, considered 50 reais (or about $10 USD) as the equilibrium price. The first transaction of 200 CBIOs were settled at 51 reais per CBIO. The second transaction of 2,000 CBIOs was settled at 15 reais per CBIO. However, those volumes are not substantial enough to draft any trends on pricing.

That said, $10 per CBIO means is possible to harness a premium of 3 cents per gallon for U.S. corn ethanol exported to Brazil with a carbon intensity (CI) of 50 g CO2e/MJ. However, receiving a CI score of 50 has its challenges under RenovaBio´s calculation tool, RenovaCalc. The tool uses the parameters listed below as inputs for the life-cycle analysis (LCA) modeling:

*Crop yield, fertilizer application, and N2O emission rate

*Fuel and electricity inputs

*Energy allocation for co-products

*Transport distance for inbound feedstock and biomass for energy generation

Perhaps the largest roadblock for U.S. producers is that Renovabio requires traceability of the corn feedstock back to the farm where it originated, as can be seen in Figure 1.

"I don?´t believe they will allow non-traceable ethanol to be part of RenovaBio," said Felipe Bottini, founding partner of Green Domus, a leading RenovaBio verification body. "The Verification Body will analyze the criteria but not make it public."

Bottini also expressed concerns about the difficulties in sharing feedstock data with the importer of the ethanol, since the importer is the sole applicant for obtaining CBIOs under RenovaBio. "In the case of the imported ethanol, the importing entity is the one entitled to generate CBIOs," he said. "I think this agenda is less driven by biofuel producers and more driven at a political level." The U.S. Grains Council and Growth Energy have petitioned the Brazilian government to reconsider this issue and are awaiting a response.2

Bottini further adds that U.S. ethanol imports are critical to maintain year-round supply of ethanol in Brazil, and it is in Brazil´s best interests to encourage imports. "Sugarcane ethanol production is seasonal," he said. "Thus, to supply the market importation has to occur for the inter-harvest periods."

Renovabio also has even more requirements for participation. For example, non-deforestation has to be proven through a set of parameters. Producers also must possess an active or pending public electronic registration with Brazil that proves all invested properties aren´t infringing on permanent protected areas of native vegetation. This includes self-reported information from producers into the federal database. The equivalent instrument for abroad operations is unclear, since the U.S. does not have the same regulation criteria.

All of these challenges are drivers of change and growth in the ethanol sector. At EcoEngineers, we believe global ethanol trade will increase, and it is important to manage and reduce the carbon intensity of operations to meet different program requirements. Ethanol producers should be prepared to send product to meet the Brazilian demand. They can do that by modeling their operations in RenovaCalc and exploring ways to lower their CI score.