Biofuels Mandates Outside the U.S.
AgMRC Renewable Energy & Climate Change Newsletter
Dr. Robert Wisner
University Professor Emeritus
At least 60 countries outside the U.S. are in various stages of implementing or expanding mandated blending of biodiesel and/or ethanol in motor fuels.(1) A number of these countries hope to increase their mandates in the future. Most are mandating lower levels of ethanol blending than the approximately 10% average ethanol-gasoline blend now typical in the U.S. Brazil is a major exception, with mandated ethanol blends fluctuating in the 20 to 25 percent range, depending on the size of its domestic sugar crop, sugar prices, gasoline prices, and ethanol prices. A few other countries are considering development of biofuels mandates. In some cases, these mandates may create future export market opportunities for the U.S. ethanol and biodiesel industries. In others, they create additional global demand for vegetable oils and grain that are potential influences on grain and oilseed prices and availability of these materials for food use and in livestock, dairy, and poultry production.
The largest and currently most important of these mandates are in Brazil, EU, Argentina, Canada, and China. In this article, we look at some of the details of mandates in these countries.
Brazil’s biofuels program has its origins in petroleum export embargos of the early 1970s and was designed to reduce the nation’s dependence of foreign oil. Unlike many countries, Brazil has a huge base of actual and potential farmland. In a sizable part of its land base, the climate and soils are very well suited for sugar cane production, making it the world’s largest producer of that commodity. Sugar cane has several advantages over other crops in producing ethanol. It is a perennial that requires replanting only every 6 or 7 years, thus reducing the inputs needed for its production. Secondly, it has a very high sugar yield per acre, which allows a high ethanol yield per acre. Also, once the juice is extracted from the plants to produce sugar or ethanol, the remaining plant material is used as a source of heat for the processing operation. That lowers the ethanol production cost and also lowers the output of greenhouse gases more than other feedstocks. Its energy balance is very high, with some reports placing it in the 8 to 10 range, meaning it produces 8 to 10 times the energy required to produce it. (2)
At this writing, Brazil mandates require a 20% blend of ethanol with gasoline (E-20), although the blend has been as high as E-25. Recently, there has been talk of raising the blend to 25%. Whether that occurs will depend some on the size of the next sugar crop to be harvested in late March and April 2013. In addition, a large majority of the newer Brazilian automobiles are flex fuel vehicles that can use up to 100% hydrous ethanol. Consequently, along with E-20 to E-25, Brazil markets 100% hydrous ethanol to consumers who want to use it. Our contacts in Brazil indicate motorists there need about a 30% lower price for this fuel than for gasoline to offset the lower ethanol miles per gallon.
Brazil’ mandates have allowed it to greatly reduce its petroleum imports. Depending on the size of its sugar crop and the U.S. corn crop, it competes with the U.S. as either the largest or second-largest ethanol exporter in the world. This year, a substantial portion of its exports are being shipped to the U.S. For the longer term, Brazil appears to be positioning itself for a further expansion in its ethanol exports.
Brazil’s biodiesel mandates are a much more recent development. (3) Although some biodiesel research had occurred decades earlier, strong emphasis on biodiesel began in the mid-2000s with a B-2 blending mandate requiring 2% biodiesel in diesel fuel. This mandate increased to B-5 in 2010. Recent reports indicate the Brazilian biodiesel industry has a large excess capacity and is only producing at 40% of its maximum capability. Biodiesel producers are working to increase the mandate to B-7.5 ahead of its scheduled increase to B-10 in 2014 and B-20 by 2020. (4)
Soybean oil is the major feedstock for producing Brazilian biodiesel. Soybean oil accounts for about 82% of the nation’s biodiesel production, along with 16% from animal tallow and a small amount from cottonseed, sunflower, palm, and sesame oils, as well as other minor oilseed oils.(5) Brazil’s biodiesel production was reported at 2.67 billion liters last year (706 million gallons). Accordingly, about 4.34 billion pounds of soybean oil were used by the industry. That is equivalent to the oil from approximately 380 million bushels of soybeans. A doubling of Brazil’s biodiesel production in the next two years could tighten its soybean oil supplies significantly.
Argentina has mandates for use of both ethanol and biodiesel. Its biodiesel production at 3 billion liters (793 million gallons) is much larger than the ethanol industry. A 2011 Foreign Agricultural Service, USDA report indicated Argentine ethanol production was expected to be 206 million liters (54 million gallons) in 2012. (6)
Argentina’s biodiesel mandate went into effect in 2010 at a required 5% blend level. A short time later it was increased to7.5%. The mandate was scheduled to increase to 10% late this year, but the increase reportedly has been delayed due to tight soybean oil supplies. Soybean oil accounts for almost all of the biodiesel feedstock being used by the Argentine biodiesel industry. Its total production requires the equivalent of soybean oil from about 520 million bushels of soybeans, or the oil from about one-fourth of the expected 2012-13 Argentine soybean crop. The country has been a major biodiesel exporter, with about half of its exports going to Spain until EU implemented import restrictions on non-EU biodiesel. Argentina’s tax policies create a major incentive to process soybean oil into biodiesel rather than export it as vegetable oil. Soybean oil exports are taxed at a 32% rate, while biodiesel is taxed at only a 16.6% effective rate after rebates. (7)
Argentine fuel ethanol for 2012 was forecast at 260 million liters (69 million gallons), made exclusively from sugarcane and molasses. Production at that level is large enough for a national ethanol-gasoline blend of between 2% and 3%. Its 5% ethanol blending mandate had not yet been fulfilled in mid-2011and was not expected to be filled in 2012. There are 4 or 5 new Argentine ethanol plants in the planning and/or construction phase that will use grain as a feedstock. When current investments in grain-based ethanol plants are completed and in operation, production is expected to increase enough to allow an 8% to 10% national average ethanol-gasoline blend. (8) These plants were expected to be completed by 2013 or 2014.
Canada Biofuels Mandates (9)
Canadian biofuels mandates were implemented on December 15, 2010. Unlike the U.S., its mandates focus on the supply (production and imports) rather than on blenders who blend the fuels with gasoline and diesel fuel. Canada has national biofuels mandates of E-5 for ethanol and B-2 for biodiesel. In addition, four provinces have individual mandates that are equal to or higher than those at the federal level. The table below from Foreign Agricultural Service, USDA and the Canadian Renewable Fuel Association, shows provincial mandates for ethanol and biodiesel. (10)
|Renewable Fuels Standards, by Province
|* Increase from 3% to 5% by 2012.
|** In April 2011.
|*** Target by 2012, from advanced renewable fuels.
|**** Possible target in co-operation with the federal government.
|Source: Canadian Renewable Fuels Association
Half of Canada’s bioethanol production is in the three provinces of Saskatchewan, Manitoba, and Ontario. Early projections placed Canada’s 2012 bioethanol production at 1,375 million liters (363.4 million gallons). That is well below the Canadian government’s goal of 1,900 million liters (502 million gallons) per year.
The Canadian government also is moving ahead with implementation plans for a 2% biodiesel & heating oil blending mandate. Implementation of the plan has been delayed until December 31, 2012 in eastern Canada to allow time for development of the necessary blending infrastructure. Canadian biodiesel production was estimated at 140 million liters (37 million gallons) in 2012. That compares with 158 million in 2011. Early projections indicate production may reach 475 million liters (126 million gallons) with the start-up of a large plant in Saskatchewan. The federal government’s goal is for biodiesel production to reach 600 million liters (158.6 million gallons) annually. Tallow accounted for approximately 60% of the Canadian biodiesel feedstock in 2010 and 2011. The startup of the new Saskatchewan plant is expected to reduce tallow’s share of the feedstocks to about 35%, since the new plant is designed for biodiesel production from canola oil. Estimated sources of feedstocks for Canadian bioethanol production for 2012 were 67% from corn, 31% from wheat, and 2% from other sources. Canada is not expected to be a major exporter of biofuels in the foreseeable future.
EU Biofuels Mandates
EU’s first biofuels mandates were initiated in 2003 with a voluntary 2010 target of 5.75% for renewable fuels to be used for transport fuels. The target included not only biodiesel and ethanol but electricity, hydrogen, and other renewable fuels as they are developed. That target was replaced in late 2009 by a mandatory 10% renewable transport fuels target. (11) At that time, EU also increased its B-5 standard to B-7. Concern about climate change and a desire to reduce greenhouse gas emissions are major concerns underlying the EU renewable fuels program. The plan set a 20% renewable fuels target for 2020.
In mid-October of this year, the European Commission developed a proposal that would allow only a maximum of 5% of EU transport fuels to be produced from food crops such as grains, sugar, and oilseeds. The current 10% target would remain in effect but the other 5% would need to come from waste-based fuels and other non-feed and non-food feedstocks. This is only a proposal and has not yet been put into effect. (12)
The largest type of biofuel transport fuel produced in the EU is biodiesel. Figure 1 shown 2010 biodiesel production by country and the EU total. The EU total that year was approximately 2.81 billion gallons. Data for the chart are from the European Biodiesel Board, http://www.ebb-eu.org/stats.php
EU’s biodiesel industry is much larger than that of the U.S. For comparison, U.S. biodiesel production in 2011 was 967 million gallons (13) or only about one-third as much as in the EU. U.S. biodiesel production is continuing to increase and will likely remain in an expansion pattern for the next few years with increased government advanced biofuels mandates. U.S. biodiesel production in the first nine months of 2012 was 20.5% above the same period of 2011. (14)
As the chart indicates, Europe’s top five biodiesel producers are Germany, France, Spain, Italy, and Belguim, in that order. With proposed changes in the EU biofuels mandates, future expansion potential of EU’s biodiesel industry is uncertain.
The chart below shows the trend in EU biodiesel production, imports, and use as well as similar information for bioethanol. Although EU biodiesel production is large, it is inadequate to meet market demand. As a result, EU is a large importer of biodiesel. Its ethanol industry is much smaller than the biodiesel industry. The chart is from Bob Flach, Karin Bendz and Sabine Lieberz, Foreign Agricultural Service, USDA, EU Biofuels Annual 2012, GAIN Report No. NL2020, June 25, 2012: http://www.usda-france.fr/media/Biofuels%20Annual_The%20Hague_EU-27_6-25-2012.pdf
The chart indicates EU’s ethanol production is slightly more than half as large as its biodiesel output. EU biodiesel production is projected to increase modestly in 2013 as shown by the upper dashed line. Biodiesel imports, shown by the second from the bottom dashed lines are projected to decline in 2013. Ethanol production, shown by the fourth line from the top, has been trending upward for several years and is projected to continue increasing in 2013. Ethanol imports, shown by the lowest dashed line, have been nearly level for the last few years. EU ethanol imports in recent years have been about 1.0 billion liters (264 million gallons). Most of the imports previously originated from Brazil, but the U.S. became the main supplier in 2010. The U.S. also was the dominant supplier of biodiesel imports to EU until it applied anti-dumping and countervailing duties in March 2009. Since then, Argentina and Indonesia have become its major biodiesel suppliers. However, EU biodiesel imports are expected to decline with Spain’s current enforcement of regulations that restrict its imports to biodiesel produced in the EU. (15)
Projected feedstocks needed for EU biofuels production are approximately 10.1 million tons of grain (398 million corn equivalent bushels), about 10.3 million tons of sugar beets, and about 9.7 million tons of vegetable oils and animal fats. The vegetable oils and animal fats would be the equivalent of the vegetable oil from approximately 1.83 billion bushels of soybeans or the oil from slightly more than one-half of a normal U.S. soybean crop. However, much of the oil for EU biodiesel comes from rapeseed and palm oil, which have much higher oil yields per ton than soybeans. Mid-year projections of 2012 co-product production from required feedstocks for EU biofuels consumption were 3.7 million metric tons of distillers grain and 14 million tons of oil meals. (16)
EU’s total use of gasoline is much smaller than that of biodiesel. Its 2012 gasoline use is estimated at 32 million gallons, compared with 63 million gallons of diesel fuel. Its average ethanol blend in gasoline is estimated at 4.8%. The average biodiesel blend is estimated at 5.8%. Projections through 2020 indicate EU gasoline use will decline modestly while diesel fuel use will increase substantially. (17)
China Biofuels Mandates (18)
Ethanol--China has five fuel ethanol plants and mandated ethanol blending with gasoline in 10 provinces. In the last few years, its policies have required that any additional biofuels production facilities are not to use food or feed ingredients as feedstocks. Any new facilities also are not to use feedstocks from land that would otherwise produce feed or food crops. Total fuel ethanol production in 2011 was estimated and projected to be 2,217 million liters (586 million gallons). That would be equivalent to approximately 4.2% of the U.S. 2011-12 marketing year ethanol production. Four of the plants use grain. About 80% of the feedstock for these plants is corn, with 20% accounted for by wheat and rice. The average production of these plants is 130 million gallons per year. A fifth much smaller plant uses cassava as the feedstock. Its production is estimated at 47 million gallons per year. China is encouraging research and development of advanced biofuels that would use cellulosic materials and urban wastes as feedstocks. Ethanol blending rates in the 10 provinces are mandated at 10%, but local officials indicate the blend rate ranges from 8 to 12 percent, depending on price relationships between ethanol and gasoline. China’s central government has subsidies for fuel ethanol production that have been gradually declining. In 2008, the subsidy was $0.20 per liter ($0.757 per gallon). It was decreased to $0.19 per liter in 2009 and $0.17 per liter ($0.643 per gallon) in 2010. Any future growth in China’s fuel ethanol production is expected to come from non-food feedstocks rather than grain.
Biodiesel – China’s biodiesel industry has substantially larger production capacity than its ethanol sector. However, because of strong competition with the food industries for feedstocks and a lack of subsidies, recent production has been far below maximum capacity. Production in 2010 was estimated at 227.2 million liters (60 million gallons). That would be about 6.7% of its reported production capacity. Fuel prices in the transportation sector are government controlled, and as a result price ceilings have been below recent costs of biodiesel production. The main feedstocks for China’s biodiesel industry are waste cooking oils and residue from oilseed crushing plants. The waste oils also are in demand as ingredients for animal feeds. In times of extremely high-priced vegetable oil, local sources indicate restaurants also may compete for these oils, probably by using the oils longer than normal. Due to limited availability of feedstocks, the national government has not mandated the use of biofuels. Because of competition with the food and feed industries, significant future growth in Chinese biodiesel production should not be expected unless a non-feed and non-food feedstock is developed.
With relatively high petroleum prices and concerns about greenhouse gas emissions that may be related to climate change, many countries have developed biofuels mandates. Over time, these mandates have the potential to increase the global demand for vegetable oils and grain to some degree. However, the largest part of the growth in production of these conventional biofuels likely has already occurred. By far, the largest users of grain-based and vegetable-oil based biofuels are the U.S. and EU. In the U.S., grain use for ethanol almost certainly will expand at a much slower rate in the future than in the last seven years. Expansion of U.S. biodiesel production may exceed ethanol production on a percentage basis for a few more years because of rapidly increasing government mandates for use of advanced biofuels. Biodiesel currently is the only source of large-scale U.S. domestic advanced biofuels production. Development of drop-in fuels, cellulosic ethanol, and other advanced biofuels in the years ahead could slow the growth in U.S. biodiesel production and may cause a shift in EU biofuels demand.
In the EU, a growing concern about biofuels completion with food and feed needs appears to be causing a shift in emphasis toward higher priority on biofuels that don't require’ feed or food-based biofuels. In South America, the biodiesel industry is expanding rapidly. It likely will absorb increased supplies of soybean oil in the next several years and may constrain Argentine and Brazilian soybean oil exports to some extent. Expanding Argentine ethanol production, may require processing of some additional corn for biofuel in the next several years and could reduce future availability of its corn exports. In China, conventional ethanol and biodiesel production may be at or near their foreseeable maximum levels, but future expansion may occur through development of advanced biofuels.
1 See Jim Lane, “Biofuels Mandates Around the World: 2012”, Biofuels Digest, November 22, 2012
2 See G. Feller and T. Philpott, “What Brazil can teach the U.S. about energy and ethanol”, GRIST, Dec. 15, 2006, and Robert Rapier, "Report: Brazilian Ethanol is Sustainable”, Consumer Energy Report, Oct 10, 2006 :
3 Mark S. Langevin, "The Brazilian Biodiesel Program,” Journal of Energy Security, December 14, 2010
4 Michael Place, “Biodiesel sector needs US$14bn by 2020, says report – Brazil", Business News Americas, August 2, 2012 and Meghan Sapp, “Brazil biodiesel industry seeks bailout through higher mandate”, August 6, 2012
5 Michael Place, Ibid.
6 Ken Joseph, Foreign Agricultural Service, GAIN Report, Argentina Biofuels Annual, July 8, 2011
9 Based on information from Robin Gray, GAIN Report Number CA11036, Canada Biofuels Annual, July 5, 2011
10 Ibid. The table is from page 8.
11 Susanne Retka Schill, “EU adopts 10 percent biofuels mandate”, Biodiesel Magazine, January 01, 2009
12 European Commission Press release, “New Commission proposal to minimise the climate impacts of biofuel production”, Reference: IP/12/1112, Event Date: 17/10/2012
13 Source of U.S data: U.S. Energy Information Agency
15 Bob Flach, Karin Bendz and Sabine Lieberz, Foreign Agricultural Service, USDA, EU Biofuels Annual 2012, GAIN Report No. NL2020, June 25, 2012
18 Ryan R. Scott and Jiang Junyang, Foreign Agricultural Service, USDA, Peoples’ Republic of China Biofuels Annual, Report, GAIN Report No. 11039.