Douglas Morris from Emerson’s alternative energy industry team discusses biofuel investment by multinational companies in Brazil.
Biofuels, whether you are talking about the traditional or advanced variety, is a favorite topic for debate in the United States. Most recently, legislators voted to remove some popular government subsidies for ethanol, but long-term loan guarantees and legislation for other financial support is still under debate/consideration. This regulatory environment places the future of US biofuels development in a bit of a holding pattern until there is more certainty about long-term subsidies and mandatory renewable fuel quotas. All the while, there’s a movement taking place to the south where the macro environment is more amenable to biofuels growth. Specifically, I’m talking about Brazil, where multinationals are forming joint ventures to monetize the vast amounts of available sugar cane and prove processing technologies. The catch phrase that I’ve heard in the industry is “sugar is the new crude”.
So what makes investment in Brazil so attractive? Since the beginning of their ethanol fuel program some decades ago, Brazil has been improving both their manufacturing productivity and yields for sugar cane. To help build demand, Brazil mandated the use of multi-fuel vehicles as highlighted this week in a Wall Street Journal opinion piece.
There is plenty of existing farm acreage to cultivate and Brazil has a mature biofuels infrastructure. In addition to processing pure sugar, the leftover bagasse can be used in cellulosic or other processing pathways to make advanced biofuels and chemicals.
These early investors will have the benefit of some cost certainty over sugar cane, which will help them as the worlds’ demand for renewable energy sources grows. There’s always risk in making early market entry decisions, but cane sugar offers a flexible feedstock that can provide multiple production options as demand for renewable end products shakes out. An incomplete list of companies forming joint ventures in Brazil includes Shell (Cosan), BP (Companhia Nacional de Açúcar e Álcool), and Dow (Mitsui).