The Biofuels market is growing quickly as it represents a renewable energy alternative that is, as of today, more profitable than wind or solar. At the same time, governments worldwide are implementing liquid fuel blend mandates, which oblige their refineries and producers to blend petroleum gasoline with either ethanol or biodiesel. This article explores government blend mandates for liquid fuels around the world and their impact on the agriculture industry.
Fuel Blend Mandates around the World
More than 60 high and middle-income nations and jurisdictions worldwide impose fuel blend mandates upon their national consumer energy industries. These include the United States, the European Union, Colombia, Brazil, China, and Angola, just to name a few. When it comes to biofuel blend mandates there are two different types: ethanol mandates and biodiesel mandates. Ethanol mix mandates are for regular gasoline motors and engines, whereas biodiesel mix mandates are for diesel vehicles. Ethanol mandates and mixes are identified with an E, meanwhile, biodiesel is identified with a B or an RD for renewable diesel. For example, the state of New South Wales in Australia has in place an E7 blend mandate and a B2 mandate. This means that regular gasoline must contain 7% ethanol and diesel fuel must contain 2% biodiesel. Similarly, Brazil has one of the highest ethanol blend mandates in the world at E27. Meanwhile, the Chinese government has a B10 mandate target to achieve by 2020 and nine provinces within the country currently implement E10 mandates.
Biofuels Market is Growing
A major drawback from fuel blend mandates is that these government regulations put stress on the domestic agricultural industry, particularly during years of poor harvests. Ethanol is mainly produced from corn in North America and sugarcane in South America. Meanwhile, biodiesel is produced from soybeans, animal fat, palm oil, and used cooking oil, amongst other things. Therefore, these biofuels are completely dependent on the agricultural markets. This is true to such an extent that, during years of drought and poor harvests, countries with biofuel mandates temporarily suspend the enforcement of blend legislation. Similarly, countries gage whether or not their agricultural industry would be capable of keeping up with an increase in demand before legislating blend mandate increases.
In this regard, countries and jurisdictions that are introducing biofuel mandates see these as a way of boosting energy independence through domestic agriculture. This is why, many countries are reluctant to promote or legislate import-dependent biofuel blends. Certainly, exceptions are made during years with poor agricultural harvests to import ethanol and biodiesel. However, exceptions are rare and, in most cases, governments would rather grant moratoriums on blend mandates than become import dependent. Nevertheless, when it comes to biofuel exports and production, the United States corn-ethanol complex is a leader in global markets.
The Case of Colombia
Currently, Colombia’s blend mandates for most of the national territory stand at approximately E8 and B7. Mostly reliant on domestic production for both biodiesel and ethanol, Colombia barely missed its total ethanol needs in 2015 producing 456 million liters. Similarly, Colombia produced 583 million liters of biodiesel in 2015. Given the rapid growth in fuel consumption and the ongoing economic growth, Colombia expects to open two new biodiesel facilities next year as well as one new ethanol facility. All-three production facilities are expected to yield an additional 110 million liters of biodiesel as well as 100 million additional liters of ethanol by 2017. Investors and agricultural managers should keep the biofuels sector in mind when developing their strategic plans. Furthermore, they should pay close attention to biofuel legislation, given that these regulations can have a profound impact on agricultural market prices.