Fuels of the future: Unpacking the pathway for advanced fuels in Brazil

New renewable diesel and sustainable aviation fuel mandates in Brazil have attracted investors to the domestic market, with a focus on regional supply security while also looking to meet the country's energy transition requirements.

On March 13, the lower house of Brazil's National Congress approved the "Fuels of the Future" bill, now due to be voted in urgency by the senate. The bill establishes blending increases for ethanol and biodiesel, as well as creates a new mandate for biomethane, green diesel or renewable diesel and SAF throughout Brazil's National Program for Decarbonization of the Producers and Importers of Natural Gas and Biomethane Incentives, the National Green Diesel Program, or PNDV, and the National Sustainable Aviation Fuel Program, or ProBioQAV.

ProBioQAV also intends to reinforce the voluntary goals established by the Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA.

S&P Global Commodity Insights expects the hydrotreated esters and fatty acids (HEFA) production pathway to remain dominant globally in 2024, accounting for 97% of dedicated SAF production capacity. HEFA involves a technology that refines lipid feedstocks for green diesel, SAF and other biofuels through a process that uses hydrogen as the other key feedstock.

In Brazil, "green diesel" refers to what is known in the international market as hydrotreated vegetable oil or renewable diesel. While green diesel and renewable diesel are synonymous, HVO is the most known pathway globally to produce diesel from renewable feedstock.

It is important to highlight that green diesel and biodiesel are different biofuels, despite both being produced from biomass and being a viable option to decarbonize transportation fuels. The main difference between biodiesel and green diesel relies on the presence of oxygen in the biodiesel molecule: biodiesel is an ester, the oxygen is obtained from vegetable oils' transesterification and directly impacts product characteristics, while green diesel can be considered a drop-in fuel, which has the exact composition of fossil diesel.

The National Council for Energy Policy, or CNPE, will set the minimum quantity of green diesel to be added to diesel of fossil origin, CNPE council member Suzana Borschiver said regarding the PNDV. "This additional amount must be at least 3% per volume and will consider sales throughout the national territory."

"To define this minimum volume, the council must analyze the conditions for supplying green diesel, including the availability of feedstocks, capacity, and location of production; the impact of mandatory minimum participation on the price to the final consumer; and the competitiveness in international markets of green diesel produced in Brazil," Borschiver said.

Regulation

In 2021, the National Agency of Petroleum, Natural Gas and Biofuels, or ANP, published the Resolution 842, which can be considered a regulatory framework landmark for the inclusion of green diesel into the Brazilian energy matrix. SAF was first regulated in 2019, with an update made in 2021 via Resolution 856.

The green diesel resolution defined the pathways and feedstocks authorized for biofuel production in the country, which are the same in producing SAF: hydrotreatment of biomass-derived oil, algae oil, microalgae oil, animal fat and biomass fatty acids; Fischer-Tropics biomass-to-liquids; fermentation of carbohydrates present in biomass; oligomerization of ethyl alcohol (ethanol) or isobutyl alcohol (isobutanol); and the catalytic hydrothermolysis of vegetable oil (in natura or residual), algae oil, microalgae oil, animal fat and biomass fatty acids.

With these possible pathways, Brazil will have to strategically ensure feedstocks to produce both SAF and green diesel, especially considering the country's dependence on sugarcane to produce ethanol and soybean oil to produce biodiesel. Other sources of renewable feedstocks have been studied to enhance feedstock availability.

Considering that global SAF and green diesel production capacity is ramping up on the back of supportive policy, there is an incentive to secure feedstocks with low-carbon intensities and more companies may be seen targeting investments in agriculture to speed up the development of cover crops and energy crops, according to a Commodity Insights report published in January.

A policy already in place and worth mentioning is the National Biofuels Policy, or RenovaBio, that has authorized the HEFA pathway to obtain the Certificate of Efficient Biofuel Production, in ANP resolution 758 of 2018, for the national production of its resulted biofuels, including green diesel and SAF. RenovaBio also has pathways approved for ethanol, biomethane and biodiesel.

Projects

"Brazil is already a global reference in using clean and renewable fuels in its energy matrix, such as ethanol and biodiesel, which are increasingly driven by climate change, decarbonization and the energy transition," Borschiver said. "In this context, green diesel, a fuel produced from 100% renewable sources, gains strength as a promising solution in Brazil, as it offers a renewable energy source, significantly mitigates environmental impacts, and promises the generation of wealth in different regions."

Investments in Latin American biorefineries include the Omega Green project, to be constructed in Paraguay by Brazil's Be8. Other biorefineries have been announced with projects yet to be confirmed, such as BrasilBiofuels, Acelen and Petrobras in Brazil, SGP BioEnergy in Panama and Yacimento Petroliferos Fiscales Bolivianos in Bolivia.

Petrobras also stated plans to adapt existing refineries for co-processing diesel and sell the so-called Diesel R, with a percentage of vegetable oil in the range of 5%-10%. The co-processed diesel is not included in the "Fuels of the Future" bill, since a fuel that is not produced using 100% renewable feedstock cannot be considered a biofuel.

Based on the announcements of both RD and Diesel R plants, Brazil´s production capacity could jump from 145,000 mt in 2023 to almost 2.5 million mt in 2030, Commodity Insights data shows.

All biorefineries and co-proceed refineries of Latin America are mapped out below with its estimation of size per capacity.

According to Amanda Duarte Gondim, coordinator of the Management Project for the Brazilian Biokerosene and Sustainable Aviation Hydrocarbons Network, the main drivers for the prices of biofuels "include the cost of raw materials, production, and fuel distribution expenses."

"For these biofuels to reach competitive prices against fossil fuels, it will be necessary to diversify raw materials, including even agricultural and urban waste, in order to reduce dependence on a single source, and develop technologies to lower production costs," Gondim said. "Certainly, it will be necessary to implement policies that favor the production and consumption of renewable fuels, such as mandatory blending targets, carbon credits, and tax exemptions."

With increases in minimum blending for first-generation fuels, such as ethanol and biodiesel, as well as new mandates for advanced biofuels, like green diesel, biomethane and SAF, the "Fuels of the Future" initiative could bring Brazil at an inflection point -- from being a seller of agricultural raw materials into an enhanced biofuels consumer.