Biomass use is a major opportunity and has three main applications: First, to expand the use of biofuels for aviation or as a replacement for diesel. Second, to develop the biomethane industry, and third, to use biomass for steel production and other high-temperature processes. Brazil as a leader in the use of biomass, is well-positioned to become the world’s largest sustainable fuels producer.
Brazil is a leader in the use of biomass, the country has a unique capacity and competitiveness for producing biomass, with shorter growth cycles and proximity between the planted areas and the industries that use it. Producers can be segmented into two groups: those that produce biomass as a by-product of their industrial processes (e.g., sugarcane, palm oil, pulp and paper), and those that need a dedicated planting for consumption (e.g., chemicals and petrochemicals, mining companies, consumer goods, steel companies).
Sustainable aviation fuels (SAF)
Technology could enable the use of biomass as a feedstock for advanced fuels, chemicals, and plastics. Brazil’s great feedstock potential position it as a potential world leader in sustainable aviation fuel production. The total opportunity could amount to up to USD 40 billion by 2040 with a focus on the export market.
Aviation is one of the hard-to-abate sectors and accounts for 2 to 3% of global emissions. Although several technologies are under development such as hydrogen, batteries, and fuel cells, they will have limited impact on most of the emissions generated by the industry until well after 2050. However, sustainable aviation fuels represent the only technically viable option to decarbonize over 70% of the industry’s emissions.
Sustainable aviation fuels (SAF) are “drop-in” fuels that can directly replace jet fuel with GHG emissions reductions of 70% to 100%. The reduction potential depends primarily on the type of feedstock used. SAF has been in commercial use since 2011. Consequently, many expect global demand for SAF to increase rapidly, driven mostly by regulation and corporate commitments. SAF should meet almost 40% of the total aviation energy demand by 2050.
Export possibilities
Access to foreign markets will be defined by future regulation, which will determine the acceptability of feedstocks and production processes. SAF regulation is characterized by two key elements: feedstock type and GHG emissions. The EU is focusing on both feedstock types and emissions, and the rest of the market, including the US, is focusing mainly on GHG emissions. Purpose-grown oil trees on degraded pastureland seem to fulfill both requirements and the resulting fuel is likely to be marketable in all markets. Soybean oil SAF fulfills the emission requirements in the US and other regions but does not fulfill feedstock requirements in the EU.
Will Brazil become the worlds largest sustainable fuels producer? Brazil’s potential relies on its ability to export its sustainable fuel production. This will be driven by regulation and local demand. The market is expected to have short- and, possibly, longer-term shortages of selected feedstocks for the most competitive pathways. This means Brazil could potentially sell all its production to foreign markets. However, the US market could be significantly less attractive to exporters given recent Inflation Reduction Act (IRA) measures that favor local production. This may also make any US-produced volumes more competitive in export markets. Moreover, SAF production hubs present an opportunity to use bioenergy with carbon capture and storage (BECCS) technologies to produce biofuels with negative emissions, enabling users to avoid the concentration step because it is already over 95% concentrated.
Cooperation along the value chain has helped the SAF industry take off in the EU and the US, especially when there was little regulatory certainty regarding demand volumes. While regulation currently provides more certainty, offtake agreements with customers (e.g., airlines) remain beneficial (e.g., for improving project “finance-ability”), especially when they represent new pathways (e.g., the production of macaúba on a commercial scale).
Biomethane and renewable methane
Brazil can build a strong biomethane industry worth more than USD 15 billion in total market value by 2040 based on waste and byproducts from five industries (sugarcane, beef, dairy, pork, and urban waste and sewage).
Biomethane is produced through the anaerobic digestion of biomass with proven commercial application for different feedstocks. Biomethane can be used to generate heat or electricity for self-consumption and/or sale (via power purchase agreements or PPAs) and sold as renewable natural gas (RNG) replacing natural gas in industrial applications and transportation markets.
Currently, the estimation is that the viable feedstock in Brazil could supply approximately 50% of the total Brazilian demand for natural gas. This potential is largely untapped. Today, Brazil uses only 10% of its total biomethane potential. Most of the current usage comes from urban sewage and waste directed toward electricity production. While Brazil almost entirely converts its urban waste and sewage to biomethane, it barely uses its sugar cane and animal waste resources, which account for 90% of the total potential.
The economics of the optimal uses of biomethane by types of feedstock will evolve over the next 10 years, driven by the cost of alternatives like natural gas and electricity. Key factors for determining the optimal use include production volumes and locations since the distance to the grids determines transportation cost.
One interesting opportunity involves the production of RNG, which is attractive not only to potential producers but also to the country in general. By establishing “virtual pipelines” composed of trucks transporting RNG (either compressed or liquified), Brazil could double its production of renewable natural gas and reduce its dependence on foreign LNG imports by roughly half the average amount imported yearly in the last 10 years. This would help reduce the price of natural gas in Brazil and decrease the country’s reliance on foreign sources.
Implications for Brazilian institutions
Capturing this opportunity will not be easy, requiring significant will and joint effort. Some sectors, such as renewable energy, are on a growth trajectory and have already achieved high levels of maturity in terms of regulatory mechanisms and market development. Other sectors, however, need to achieve scale and will require targeted efforts to develop in these two areas.
For the Brazilian government and its entities, it will be important to understand how to optimize the legal and regulatory frameworks that already exist to govern these new value chains and create new mechanisms accordingly. It could choose to provide support to incentivize and de-risk investments in this space, similar to what was done with ethanol. This support could take multiple forms. For example, establishing blend mandates would accelerate development by guaranteeing local demand, direct financial support, and/or the facilitation of access to external markets (via trade treaty agreements and interventions).
The green economy is gradually becoming embedded in the strategies of businesses and governments. This opportunity that can make Brazil the largest sustainable fuels producer in the world may be equivalent to the size of the current agricultural market. Brazil and its institutions are well positioned to capture it.
