With 332,000,000, there are more cars on the road in China than anywhere in the world. Today, most run on pure petrol, but as of next year, Chinese fuel companies will add 10 percent of ethanol, with potentially far-reaching implications for the consumption of fossil fuels.
The enormous potential of the Chinese consumer market has energized Brazil’s biofuel industry, the world’s second-largest behind the U.S. The sector, after suffering from fuel price shocks as a result of shifts in government policy, has now been buoyed by the potential of the Chinese market.
Furthermore, in May, China and Brazil resolved a Brazilian complaint to the World Trade Organization (WTO) about Chinese tariffs on sugar, paving the way for increased imports. Brazilian farmers also expect the agreement to open the door for more of the country’s ethanol on the Chinese market.
While environmentalists are optimistic that adding ethanol to Chinese petrol will massively cut greenhouse gas emissions, they are wary of other knock-on effects. The biofuel industry requires vast maize and sugarcane plantations, which may encroach on forests.
“There is the risk of trading one problem, fossil fuels, for one that is much worse: deforestation,” said Ricardo Junqueira Fujii, a conservation analyst at NGO WWF Brazil.
He added that the country’s potential to produce low-carbon fuel could double without compromising food production.
Now, Brazilian society and the government have a responsibility to establish adequate public policies for land use and conservation of the Amazon, Cerrado, and other Brazilian biomes, Fujii said.
The Chinese government announced the new biofuel quota in September 2017 as part of its commitment to reduce fossil fuel consumption under the Paris Agreement on climate change.
“The addition increases the degree of octane in the fuel, improving mileage. It avoids the use of heavy metals (especially lead), and reduces global carbon dioxide emissions,” said ldo Sauer, of the University of São Paulo.
However, planting crops to produce ethanol can bring about a change in land use, Brazil’s primary source of emissions.
Since 2009, Brazil has had a process of Agro-Ecological Sugarcane Zoning, which blocks sugarcane fields from encroaching onto indigenous lands or areas of native vegetation. The crops can only be planted on degraded pastures.
However, the ruralist caucus in Brazil’s Congress has pushed for changes.
In 2017, Senator Flexa Ribeiro proposed a bill to clear land in the Cerrado region and grassland areas within the Amazon. Protests from environmentalists and even some farmers eventually led to the proposal being shelved last year.
However, the region earmarked for sugarcane expansion is not the Amazon, but the area known as “Matopiba,” which straddles the states of Maranhão, Tocantins, Piauí, and Bahia in the Cerrado, which is already impacted by the expansion of soy farming.
Oversight agencies are struggling to keep up with developments, as they are still fighting to implement existing protective measures.
In 2014, the Brazilian government started implementing a rural environment registration program for farmers to register their land, thereby making it easier for law enforcement to trace illegal deforestation on private property. Five years later, however, many farms are still unregistered.
“The deadline for rural environment registration has been delayed several times, and compliance with environmental regularisation programs, where farmers present their plans to resolve any identified environmental risks, is low,” said Mr. Fujii. There are also concerns about work. Today, the harvest is mostly mechanized, which has significantly reduced slave labor in sugarcane fields, but increased unemployment in rural areas.
According to the University of São Paulo’s Centre for Advanced Studies in Applied Economics (CEPEA), sugarcane production formally employs approximately 750,000 people in Brazil, some 42 percent fewer than the 1,283,258 formal workers registered in 2008.
Eduardo Leão, executive director of the Brazilian Sugarcane Industry Association (UNICA), told Diálogo Chino that the overall economic benefits are undeniable.
“The sugarcane energy sector is an important source of employment and income. In each municipality where a plantation is installed, the per capita income increases by USD 1,000 per year,” he said.
Despite China’s integration of ethanol creating optimism in Brazil, market observers are cautious, as trade could still be affected by a recent cooling in U.S.-China trade tensions as well as other factors.
China is expected to consume 15 million tons of biofuel in the coming year. The country can produce approximately 3 million tons annually, a figure that could hit 5 million in 2020, according to market data provider IHS Markit.
This would leave a shortfall of around 10 million tons, which could allow Brazil—whose largest trading partner is China—to become a leading supplier. Brazil’s domestic ethanol production for the 2018–2019 season was around 33.1 million tons.
Artur Yabe Milanez, head of biofuels at the Brazilian Development Bank (BNDES), said the prospects are “excellent.”
“For years, Brazil has tried to open the Chinese market to ethanol, and it appears that the efforts are now paying off,” he said.
Brazil is also capable of producing diverse biofuel crops and has turned to maize as an alternative to sugarcane, which has traditionally been used for domestic production.
“The sector receives large investments, especially in [the states of] Mato Grosso and Goiás, including [for] flex mills that run on maize and sugarcane,” explains Ricardo Tomczyk, president of the National Union of Maize Ethanol (UNEM).
Tomczyk added that China is making preparations to produce its own ethanol from imported raw materials, but there may be limits to its production capacity, which he said could create opportunities for Brazil.
However, competition with other countries is intense. Currently, the U.S. is China’s leading ethanol supplier, and a recent truce in the long-running trade war could strengthen cooperation between the two countries in the biofuels sector.
“The U.S. will want a slice of the ethanol market, which is certainly on the negotiating table for a truce,” Mr. Sauer said.
Food v. fuel
Experts remain cautious following the sector’s previous ups and downs, which have historically been linked to food price fluctuations.
“The addition of ethanol to petrol has been mandatory in Brazil since 1938, and since that time there has been bargaining with sugarcane producers,” Mr. Sauer said. “When sugar prices on the international market were bad, there was pressure to increase the level of ethanol in petrol, and this still happens today.”
Following a biofuels boom a decade ago that coincided with a spike in global food prices, there is still some unease about the industry.
A recent UN Food and Agriculture Organization (FAO) report highlighted how biofuels could drive up crop prices when oil prices rise.
Today, however, the debate is less heated than in 2012, when then-FAO chief José Graziano da Silva said the use of corn for ethanol in the U.S. was increasing grain prices the world over. He later softened his stance.
“We need to move from the food versus fuel debate to a food and fuel debate. There is no question: food comes first,” Mr. Graziano said in 2015. “But biofuels should not be simply seen as a threat or a magical solution. Like anything else, they can do good or bad.”
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