February 27th, 2015

Brazil Raises Ethanol Rate to 27%

Beginning this month, all gasoline sold in Brazil is now required to contain at least 27 percent ethanol, up from the previous minimum of 25 percent. This mandate was decided in a meeting between presidential chief of staff Aloizio Mercadante and leaders of the Unica association representing sugar producers. The agreement was ratified by President Dilma Rousseff before taking effect.

The agreement aims to halt a wave of closures of ethanol plants in Brazil. In recent years, local firms such as Raizen, Biosev, Bunge, Sao Martinho and Guarani have struggled to post consistent profits as rising production costs combined with government gasoline subsidies have reduced mills’ profit margins. As many as 83 sugar cane mills of the more than 400 in the country have closed their doors since 2008 in the worst crisis in the sector’s history. Another 67 are undergoing court-administered reorganization.

Unica has said that, if the crisis continues, another nine plants might close this year.

Unica Chief Executive Officer Elizabeth Farina said mills had sufficient supplies of the biofuel to meet additional demand. The two-percent raise from the 25 percent ethanol blend is expected to increase annual ethanol demand by some 2 billion liters (528.3 million gallons).

Also improving the outlook for mills was the government’s January decision to raise taxes on gasoline starting on Feb. 1, allowing ethanol mills to raise prices in tandem and recover profit margins.

“Tests performed to monitor gas emissions, consumption, wear on parts and engine performance demonstrated it is viable for motor vehicles to use fuel mixtures with the new levels of ethanol,” Farina said.

Nearly 90 percent of motor vehicles produced in Brazil are equipped with flex-fuel technology that allows them to run on either gasoline or ethanol.

Farina said Brazilian car makers are already carrying out tests to see whether the proportion of ethanol can be raised to 27.5 percent.

Feb15 Brazil Ethanol 2

Brazil recently raised the percentage of ethanol in its gasoline, in part to combat the recent financial difficulties of Brazilian ethanol plants. Credit: NAFTC.

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