There are 332 million cars on the road in China, more than anywhere in the world. Most run on pure petrol, but from next year Chinese fuel companies will add 10% ethanol, a move that could have far reaching implications for the consumption of fossil fuels.
Brazil’s biofuel industry is the world’s second largest behind the US. In recent years it has suffered from fuel price shocks resulting from shifts in government policy, but it has been buoyed by the enormous potential of the Chinese market.
In May, China and Brazil resolved a Brazilian complaint to the World Trade Organisation (WTO) about Chinese tariffs on sugar, paving the way for greater imports. Brazilian farmers also expect the agreement to open the door for more Brazilian ethanol.
Environmentalists are optimistic that adding ethanol to Chinese petrol will cut greenhouse gas emissions but they are wary of unintended consequences because the biofuel industry requires large maize and sugarcane plantations that can 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.
Brazil has a responsibility to define 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.
“Adding it 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 main source of emissions.
Since 2009, Brazil has had a process of Agro-Ecological Sugarcane Zoning that blocks cane fields from encroaching onto indigenous lands or areas of native vegetation. It can only be planted on degraded pastures.
However, the ruralista agribusiness caucus in Brazil’s legislature has pushed to change the law.
In 2017, Senator Flexa Ribeiro proposed a bill to clear land in the Cerrado savannah and grassland areas within the Amazon region. Protests from environmentalists and even some farmers eventually led to the proposal being shelved last year.
The region earmarked for sugarcane expansion is not the Amazon but the area known as Matopiba that 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 pace with developments as they are still fighting to implement existing protections.
In 2014, the Brazilian government started implementing a rural environment registration programme for farmers to register their land, thereby making it easier for law enforcement to trace illegal deforestation on private property. But five years later, many farms are still unregistered.
“The deadline for rural environment registration has been delayed several times, and compliance with environmental regularisation programmes, where farmers present their plans to resolve any identified environmental risks, is low,” said Fujii.
There are also labour concerns. The harvest is mostly mechanised, which has reduced slave labour in cane fields but increased unemployment in rural areas.
According to the University of São Paulo’s Centre for Advanced Studies in Applied Economics (CEPEA), cane production formally employs approximately 750,000 people in Brazil, some 42% fewer than the 1,283,258 formal workers registered in 2008.
Nonetheless, Eduardo Leão, executive director of the Brazilian Sugarcane Industry Association (UNICA), told Diálogo Chino that the economic benefits are undeniable.
“The sugarcane energy sector is an important source of employment and income. In each municipality where a plant is installed, the per capita income increases by US$1,000 per year,” he said.
Opportunities for Brazil
China is expected to consume 15 million tonnes of biofuels in the coming year. The country currently has the capacity to produce approximately three million tonnes annually, a figure that could hit five million in 2020, according to market data provider IHS Markit.
This would leave a shortfall of around 10 million tonnes, 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 tonnes.
“The prospects are excellent,” said Artur Yabe Milanez, head of biofuels at Brazilian development bank BNDES. “For years, Brazil has tried to open the Chinese market to ethanol, and it appears that the efforts are now paying off.”
Brazil is also capable of producing diverse biofuel crops and is turning to maize as an alternative to sugarcane, which has traditionally been used for domestic production.
“The sector receives large investments, especially in Mato Grosso and Goiás, including [for] flex mills that run on maize and sugarcane,” explained 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 would create opportunities for Brazil.
Food vs Fuel
Following a biofuels boom a decade ago that coincided with a spike in global food prices, there is still some unease about the industry.
“The addition of ethanol to petrol has been mandatory in Brazil since 1938, and since that time there has been bargaining with sugarcane producers,” 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.”
A recent UN Food and Agriculture Organisation (FAO) report highlighted how biofuels can drive up crop prices when oil prices rise.
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 US 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,” Graziano said in 2015. “But biofuels should not be simply seen as a threat or as a magical solution. Like anything else, they can do good or bad.”
This post was written by Sarita Reed and Vincius Fontana and published originally in China Dialogue.