The Development of Bioethanol Markets under Sustainability Requirements
This project examines the development of bioethanol markets since 2005 when sustainability regulations for biofuels were introduced globally. Special attention is given to the cases of Brazil and Sweden. The research was structured with a bottom-up approach, and addressed three specific angles of the complex issue of how bioethanol markets have evolved under sustainability requirements.
The first part introduces an economic sustainability view of ethanol. The examples of E100 in Brazil and E85 in Sweden provide insights on the elastic consumer behavior that new markets may experience, serving to guide strategies in different contexts. The second part bridges experiences in national contexts with the recent trend for biofuel sustainability regulation in international markets. The third part examines how, in a fuel competition context, the incorporation of costs related to sustainability certification can change the attractiveness of high-bioethanol blends for consumers.
Objective
The ultimate objective of the project is to verify how the introduction of sustainability criteria for biofuels can cause shifts in relative prices between ethanol and gasoline in fuel markets. As consumers choose their fuel in flex-fuel fleets, prices tend to be the defining factor behind consumer choice. The study gives particular attention to the institutional framework of how gasoline is priced in different markets, as well as the weight of sustainability rules on final biofuel prices.
Summary of accomplishments
The results show that the introduction of sustainability criteria for biofuels is likely to have three effects on the bioethanol industry:
- compliance through incremental improvements in sustainability practices and certification;
- risk diversification by engaging in multi-output production models; and
- market leakage, as operators seek less-regulated markets.
In a fuel competition context, the incorporation of costs related to sustainability certification can change the attractiveness of high-bioethanol blends for consumers. The model of sustainability adopted by major international markets is based on regulations enforced by mandatory certification. As biofuel market share increased, producers were faced with costs for sustainability certification in order to obtain market access. While it was expected that ‘sustainably’ produced biofuels would be rewarded with higher prices in the EU, price premiums for ethanol have in general been very small or inexistent, with certified fuels becoming the new norm in the market. New costs brought into the market through sustainability certification can make it difficult to balance between national policies heavily reliant on consumer choice between fuels (and associated price-elasticities), and the deployment of high blends of ethanol, such as E100 and E85. By analyzing the three aspects (consumer behavior and market dynamics for ethanol in Brazil and Sweden, the introduction of sustainability criteria for biofuels, and the implications of sustainability for consumer choice between fuels) this work sought to increase understanding about the highly complex issue of biofuel market formation in the face of sustainability requirements.
Thus sustainability certification has a cost, which needs to be orchestrated with other sectors of the economy to achieve multiple environmental and social objectives. This research suggested that crucial areas of economic and environmental sustainability have been often dealt with separately in biofuel policymaking. This has resulted in weaknesses that deserve attention in future policy efforts so that biofuel systems and markets can be improved and continue expanding in a sustainable way.
Project leader
Prof. Semida Silveira
Researchers
Prof. Semida Silveira
Henrique Pacini