// . //  Nossos Insights //  Why Brazil’s Biofuels Strategy Could Boost Decarbonization

Brazil has emerged as a global leader in biofuel production, particularly with its successful ethanol industry. The country’s abundant sugarcane crops serve as the primary feedstock for ethanol production. Biodiesel production has also gained significant momentum in recent years. The country has successfully diversified its energy sources and implemented a mandatory blending policy that not only reduced its dependence on imported diesel but also contributed to a considerable reduction in greenhouse gas emissions.

Exhibit 1: Domestic production of biofuels
Brazil was the world’s No. 2 biofuel producer in 2021, in millions of liters.

Why Brazil should increase its biofuel production

Under Brazil’s current policies, emissions will continue to rise, and the country will not meet its 2030 Nationally Determined Contribution (NDC) target by 183 MtCO2eq and would need international support for a portion of the actions required to limit warming to 1.5°C.

Brazil’s wealth in natural resources provides the country with a good opportunity to increase biofuel penetration, and thus help close the gap to existing unconditional NDC targets. We will simulate alternatives on three different fuel mix scenarios for 2030:

  • Current pace: Considers current policies and market conditions
  • Increased pace: Considers a moderate pace adoption of biofuels
  • Accelerated pace: Considers a fast pace adoption of biofuels
Exhibit 2: Summary of transport energy matrix under different scenarios
Impact of four scenarios on Brazil’s transportation sector emissions reductions by 2030, in peta joules
Fonte: EPE and Oliver Wyman proprietary data and analysis

Different scenarios of the transport energy matrix

By incentivizing ethanol consumption and increasing its ratio in existing flex cars from 33% to 66%, Brazil will increase ethanol consumption in 2030 by 29% and reduce 11.6 MtCO2eq. If this shift happens in an accelerated pace and 100% of flex engines consume ethanol by 2030, and flex cars sales reach 80%, the impact in Brazil greenhouse emission could jump to 24.9 MtCO2eq, requiring ethanol production to have 62% share in light duty fueling.

Biodiesel production is growing and if Brazil keeps at the current pace, it could reach a blend of 20% in 2030 (versus 15% in 2016). This would represent an additional 5% replacement of diesel A, the major source of CO2 emissions in Brazil, and it would reduce approximately 7.1 MtCO2eq. Current biodiesel production capacity in Brazil reached 12.3 billion liters per year in 2021, as suppliers anticipated additional demand. Experience from other countries suggests that this is a goal within Brazil’s range. In Indonesia, the blending mandates are expected to reach 35% by the end of 2023 and if Brazil manages to reach similar blending levels similar, it could reduce imports to 5% and increase total biodiesel contribution to NDC targets to 29 MtCO2eq.

Incentivizing renewable diesel production could have an important economical andenvironmental benefit. A 5% blend mandate of RD/HVO in diesel would reduce an additional 7.2 MtCO2eq to help close the gap. Brazil has abundant and widely available feedstocks without threatening food security and is yet to fully explore the potential of used cooking oil. As per our accelerated pace scenario, ifBrazil implements a 10% HVO mandate, this would increase RD/HVO demand to 5.8 billion liters, equivalent to approximately eight new biorefineries in the country. Some players are already taking advantage of the RD/HVO opportunity window and announcing new plants, potentially replacing 3.5% of diesel demand in 2030.

The European Union recently set a target of replacing 6% of aviation fuel with sustainable aviation fuel (SAF) by 2030. Considering abundancy of feedstocks, if it established a similar target, Brazil could replace 0.3 billion liters of aviation fuel and reduce 0.6 MtCO2eq. To limit emissions from air travel to 2019 levels, about 15% of the jet fuel consumed in 2030 would have to be SAF. In an accelerated pace scenario, if Brazil reaches this mark, the impact on greenhouse emissions would reach 1.6 MtCO2eq.

The Brazilian Association for Biogas Production (ABIOGAS) expects biogas production in Brazil to reach 30 million m3 per day by 2030, equivalent to 16.5 billion Nm3 of biomethane. If 15% of the biogas/biomethane produced is allocated to the transportation sector, this would represent 2.4 million m3 per day, replacing 42% of the projected NGC demand and reducing 0.8 MtCO2eq of greenhouse gas emissions. In an accelerated pace, Brazil could reach the International Energy Agency (IEA) benchmark and allocate 30% of the biomethane to the transport sector and double the impact on greenhouse emission to 1.6 MtCO2eq.

Exhibit 3: Impact of different scenarios to close NDC emission GAP
In scenarios of increasing or accelerating the pace of replacing fossil fuels with biofuels, each type of biofuel would contribute emissions reductions by 2030, in MtCO2eq
Fonte: Oliver Wyman proprietary data and analysis

How biofuels can cut Brazil’s emissions and boost its energy security

Speeding up the energy transition pace by incentivizing biofuels would lead to a significant reduction in Brazil’'s overall greenhouse gas emissions by 2030. The substitution of fossil fuels with biofuels would help mitigate from 27.4 to 71.6 MtCO2eq in 2030, equivalent to more than the entire emission of country like Portugal (~61.4 MtCO2eq in 2021), contributing to national and global climate change mitigation efforts. By 2030, Brazil could increase its share of biofuels from 21% in 2021 to 33% and 48% in the increased and accelerated pace scenarios, respectively.

This would enhance energy security, reduce trade imbalances, and strengthen the country’'s self-sufficiency in meeting its energy needs. If implemented, the proposed scenarios would replace between 11.9 and 30.4 billion liters of diesel equivalent, 19% % of Brazil’s 2021 total demand, and 82% of 2021 diesel imports. By providing long-term incentives and support for biofuel production, Brazil can make significant strides in achieving its sustainable development goals, reducing emissions, enhancing energy security, and promoting economic development.

Authored by Rodrigo Borges, Rodolfo Taveira, and Ivo Godoi Jr.