Episode 9 of our Energy Talks podcast is a conversation on road transport decarbonization policies, especially the case of Brazil, with Daniel Amaral, the Director of Economic and Regulatory Affairs at ABIOVE, the Brazilian Association of Vegetable Oil Industries. The interview, carried out by SGS INSPIRE Business Development Manager, Claire Couet, also included Henry Gomez, SGS INSPIRE Market Analyst for Latin America and the Caribbean.

Hello everyone, this is episode #9 of our Inspiring Energy Talks. I'm Claire Couet. I'm a Business Development Manager for SGS INSPIRE and today together we will be focusing on Latin America. We will take a closer look at the various transport decarbonization policies in the region with a special focus on road transport and on the case of Brazil.

For this special podcast edition on Latin America, I have the great pleasure of receiving Daniel Amaral.

Daniel, you are the Director for Economic and Regulatory Affairs at ABIOVE, the Brazilian Association of Vegetable Oil Industries. You have been working at ABIOVE since 2007 and have been active in supporting the Brazilian biodiesel program since its inception, from the voluntary blend to the current 14% mandate. Currently, you are involved in the discussions to increase the mandatory blend to 25% and to create the green diesel (HVO) program with up to 3% blending in commercial diesel, as well as shaping the social and environmental requirements for these two biofuels. Daniel, you hold a Ph.D. in Applied Economics from the University of São Paulo (USP).

Daniel, we are so grateful that you accepted our invitation. Welcome to our podcast.

Thank you, Claire. Thank you, Henry. I'm glad to be here to talk with you about Biodiesel programme in Brazil. Thank you so much.

I am also pleased to be joined by my colleague Henry Gomez, Henry is our SGS INSPIRE market analyst for Latin America and the Caribbean, he has an excellent understanding of what is happening in the region in terms of transport policies and transport fuel quality. Dear Henry, great to have you with us.

Thank you, Claire. I'm glad to be here with you and also with our audience. Thank you.

Fantastic. OK, gentlemen, let's kick off with my first question that goes to you, Daniel, could you tell us more about ABIOVE and its members?

Thank you. Well, ABIOVE is the Brazilian Association of Vegetable Oil Industries. We have now 20 associates members and they have several activities ranging from trading of soybeans but also, and especially, as this is the main focus of ABIOVE, on crushing of oil seeds. In Brazil, the main oil seed is soy bean.

So it's very common that we see several statistics about soybean supply and demand, but we also have other oil seeds in Brazil that are processed and industrialized such as cotton seed, palm oil and rapeseed and also some flour. But soybeans are the main oil seeds and, our companies, they crush, they produce soybean meal, soybean oil. Brazil is a big exporter of both products and also has an important domestic market consumption. So our companies, they work in all these activities for almost 20 years, biodiesel has become an important source of demand for soybean oil, too. So, this is why they invested in biodiesel plants and this is why also ABIOVE deals with biodiesel topics in Brazil, discusses policies and, and also propose activities to strengthen this sector.

Thank you, Daniel. Of course, you have with the work of ABIOVE, an important focus on biodiesel, but I'm going to ask you now a question that maybe is the bigger picture. We start with the bigger picture and then we will go to the details. How do you see the path for decarbonization of passenger cars and commercial vehicles, including trucks, buses in the region, in Latin America in general, if you go, you know, wider than Brazil, what is your take on that?

Well, I would say that the decarbonization in Latin America should focus on the usage of biofuels substituting fossil fuels. I think that's a good path. Since in almost all countries we have available lands already deforested, so we should not deforest any native vegetation for production. But we already have a good amount of deforested lands that could produce biofuels crops. And in this sense, we can say that ethanol and biodiesel are the main products to be used in the region. This is the case for Brazil and but we also can say that for Argentina, we can say that for Colombia, we can talk about that also in Paraguay, Bolivia. And we have this vision because we have an important fleet running on internal combustion engines. So we have this capital already invested. And this is an opportunity to decarbonize using this capital and also creating opportunities in agriculture, so in this sense we see that the biofuels in Latin America are a way to reinforce GDP, employment and the best usage of our natural resources to decarbonize.

I see, decarbonization and growth, hand in hand. Henry, if you would have to comment on what Daniel said, would you like to point out at other countries in the region or what is your take?

Yeah, most countries are implementing strategies to decarbonize their economies, focusing on the transportation sector. Hydrogen, SAF and Electro mobility roadmaps exist or are being developed in Costa Rica, Chile, Panama, Uruguay, Brazil, Ecuador, Peru, Bolivia, Paraguay, and Mexico. However, the bioenergy potential in an energy matrix is particularly highlighted. The region is one of the most significant crop producers worldwide. Specific laws and regulations regarding biofuels policies have been developed in the Latin American countries. Argentina already implements 12% bioethanol mandate in gasoline and 7.5% of biodiesel mandate in diesel, Paraguay has a 24% ethanol and 5% biodiesel mandate, Peru has a 7.8 % ethanol and 5% biodiesel mandate. Uruguay has 8.5% ethanol mandate, Jamaica has a 10% ethanol mandate. Well, I want to mention that the region is ahead in this biofuels field in addition to Brazil, a discussion and proposal to increase the biodiesel mandates are being developed in Peru, Argentina and Paraguay. Other countries, such as Ecuador, Bolivia, Panama, Costa Rica, Honduras, Mexico, Dominican Republic and Guatemala have indirect mandates and biofuel blend specifications. Those are some examples of how the region is focused on developing the biofuel sector.

Thank you, Henry. So Daniel, if I come back to you, you said obviously that you see that biofuels are a solution for the region because they meet two points, they are a source of growth as they stimulate the agricultural sector and at the same time they meet the domestic demand and it's the case also for Brazil, you said that there is an increasing domestic demand, so if you, if you had to zoom now on the existing plans and policies regarding the decarbonization of commercial and passenger vehicles within Brazil, what could you tell me?

Well, I could tell you that we made a good job on ethanol. That was very important for light duty vehicles, passenger cars. You can see that, in Brazil, you have petrol stations with full ethanol (E100) or gasoline mixed with 27% of ethanol. So, in this sense, if you take all light vehicles as a whole, you can see in Brazil that ethanol plays a very important role and the challenge is to incorporate all environmental social issues so that the consumer can understand that and can exert its preference for ethanol, for the full ethanol.

Regarding heavy vehicles, the challenge is bigger in our view. Brazil is a net importer of diesel, so we still need to import huge volumes of fossil fuels, especially diesel to supply our needs, you can see that in our trade statistics, and the biodiesel comes - in that sense - to fill the gap. For of course environment and social issues, the biodiesel in Brazil has strong requirements in terms of reduction of GHG emissions and also inclusion of small producers, small farms for the supply. But at the same time, as we can progress on the biodiesel mandate, we can also see that it substitutes this is imported diesel. In this sense, we can see that Brazil reinforces its economic activities as it substitutes diesel that brings pollution and also GDP outside Brazil for of renewable fuel that creates opportunities here in also is environmentally clean.

So, our current law states that the Brazilian biodiesel can go in a mandatory blend up to 15%, and that we will reach next year. But now we are discussing a bill in the Brazilian Congress to increase that cap to 25%. So, in this sense we are creating several other opportunities for investment in supply chain, also crushing of oil seeds to produce vegetable oils to increase significantly the amount of biofuels in the commercial diesel.

In this bill, we can say that there is also mandate of 3% of green diesel that should be applied in our national diesel. So, in way, we can also say that Brazil is creating a new opportunity, a new supply chain, to introduce this advanced biofuel and also the side effects it has, like bio refineries.

Hmmm, understood, that makes sense. And do you think that this 25% is feasible, is it realistic?

Well, this 25% is planned to be in use in 10 years. So, we think that around 2035, Brazil will be with full capacity to produce and consume this 25%, we think that it’s achievable since we have all the raw materials for that, and we think that the industrial capacity is also very available. The challenge to reach that is how we will do with the huge amount of soybean meal that will be produced as a co-product of soybean oil. In this sense, we know that the gradual increase of the blending is adequate for Brazil, since we can create more markets for exports of this soy bean meal, we can also consume more here in our animal proteins and we can do that in an affordable way.

Thank you. So Daniel, still for you. I would like to build on what you already said. So you mentioned the increase you know of biodiesel that's really also helping the heavy duty vehicle sector to decarbonize and I think you've sort of, you know, showed the path also for the plans of more biofuels in the transport sector beyond road transport. Yeah. So looking at aviation for example, can you give us maybe a flavour of how this could look like? So if we move away from road transport and if we look at aviation or marine, you know, how do you see these sectors decarbonize with biofuels?

Good question. If you search for the recent projects made by Petrobras, the Brazilian oil company, the company is already using 24% of biodiesel as bunkering fuel, so maritime diesel. It's very interesting that the maritime sector that was very far from environmental requirements is now very fast on trying to keep the pace of this mandate. We saw that, on sulfur, now we are seeing that on GHG emissions and it's very interesting. So Brazil can offer to the world good, much better bunkering fuels with 24% of biodiesel and we know that this is just the beginning, probably we can start new tests and new activities to increase the biodiesel blend in this product. So good perspectives on maritime transportation.

When we come to aviation, I think we should have a better agreement on this between Brazil, MERCOSUR countries USA and also Europe regarding the raw materials used for that. We think it doesn't make sense to exclude some kinds of raw materials from the biofuel production. We see that especially in Europe where there are discussions and requirements trying to exclude soy bean oil, palm oil from that. We think that it's not a good option since we need to have a global understanding about that and also considering that vegetable oils are almost all of them very interdependent. If demand from 1 product goes up, the price of all of them in some sense goes to the same direction because they can substitute each other.

This is a discussion that doesn't make sense because it practically forgets what are the main drivers of all these sectors. We should focus on good requirements for production like cut off date for the deforestation, GHG emission reduction as a minimum, just to mention a few. But just to exclude doesn't make sense, it doesn’t make sense to exclude the main two vegetable oils in the world.

So in doing that, we are also excluding opportunities for the countries that produce these biofuels. So how can we do that if an airplane uses a sustainable aviation fuel made from Brazilian palm oil, Brazilian soybean oil that's completely sustainable without deforestation, without bad agricultural practice? And we can say the same for many other countries.

So in my view it doesn't make sense to do that, we should work together to decarbonize and to have common requirements and good requirements and reasonable requirements for that. Just to exclude or raise several trade barriers, its not a good option and will not reinforce our trade and also will not help to combat climate change. So when we see the domestic policies, I think many countries are doing a good job. But when we talk about international agreements, I think we are very far from that.

That's very interesting. Could you mention, for example, one international agreement? Are you thinking about EU Mercosur, for example, could you mention, you know, an international agreement that you have in mind that is tackling these topics?

Well, I had in mind especially the discussions about the aviation fuels especially because we see these issues being discussed there and still very far from reasonable conclusion. Especially when we see that we have regions like Mercosur, countries that have good land, they have lots of opportunities to produce and export to the sustainable aviation fuel and a region that could consume like Europe, but we are far from a good understanding of what's reasonable in terms of environmental conditions. In Brazil, a good figure for you, we have some people who estimate that in Brazil we have 170 million hectares of pastures, underutilized or degraded, in Brazil. And we could cover at least part of that to produce grains and oil crops and so on.

Embrapa, our Brazilian agricultural research, estimated that of this land at least 20 million hectares could be converted for soybeans. And when we say soybeans, we say soybean first crop, corn second crop and depending on the regions, also a third crop. So what would the best for our regions to produce more, to export for Europe to reduce food costs for Europeans, and also to receive investments from the Europeans to produce in this region. And we are talking about a land that's already available, we would use more intensely a land that's already there available. So I don't see why this big picture is not being captured by the leaders of both regions.

I hear your frustration here. I think we're not going to remake the debate because this has been a very, very intense discussion over many years. But if I am playing the devil's advocate here, I know that, for example, Europe is seeing green hydrogen in Brazil, I mean potential investments to produce green hydrogen for European needs in Brazil. I think it's something that has been discussed. I don't know if you want to comment about that or you Henry, how do you see that?

No, I want I if I may add to the comments from Daniel that now in the Fuels of the Future project in the Congress, they are they are planning to include a 1% SAF mandate, as of 2027.

I think maybe Daniel can confirm how the discussions are going, but yes, this is challenging for the region, not only for Brazil. The region has different challenge about technologies for example, investments, also, some regulations in some specific countries like Argentina. But also about feedstocks, in my personal opinion, we need all the feedstocks to cover the demand that is going to be created after the new mandates for road, maritime and also aviation. It is needed to to use all the feedstocks; first generation biofuel, second generation and including third generation but using waste is a challenge in our region for the logistics and also for the competitive prices of the crops and that is that is our economic advantage compared with other regions.

Oh, that's very helpful Henry. If we stay maybe on the feedstock, I would like to see, what are the long term plans of your members in that respect, is this something you could comment about, Daniel?

Well, what's on the ABIOVE plans, and also in other institutions in Brazil, especially government institutions, is how can we increase higher oil content oil crops? So if you see soybeans, we produce in Brazil around 150 now for this crop, but for the next crop, some projections are ready, it will come to 170 and 175 millions tonnes of soy beans. So very impressive numbers. Corn is also increasing a lot in Brazil, but soy bean has only 20% of oil content, less than that. And corn 4/5%. So we need to increase oil crops with higher oil: rape seed, sunflower, peanuts. But we are also discussing how to increase perennial crops such as palm oil and Macaúba. That's a very native Brazilian oil crop. When they talk about the rape seed especially, the perspectives are very good because the specialists say that we could increase rapeseed production as a second crop after soy bean or after corn. So it's quite good because rates it has much higher oil content such as 40%, 45%. And Embrapa is adapting rape seed varieties to our “cerrado” which is our savannah. So many companies are thinking that it could be the next wave for oil crop production in Brazil, especially considering that we could use the segment more intensely and and depending on the industrial facility also the same crushing plant. So we can use the same capital to do that, that's quite good and logistics also are very similar.

But when we go to perennial crops, the challenges are especially on how can we produce this crop since they need four or five years to start producing and that's very expensive first considering the credit costs here, Brazil has a very high interest rate, yet it improved over the last years, but is still very high considering international terms, if you compare Brazil to US or Europe or OECD countries. And also the opportunities costs because in the same land that you need four or five years to start having production, you could have produced like soybeans and corn on the same land. So it's very difficult to overcome these hurdles. But as we see several investments from also oil companies, they need this vegetable oil, as Macaúba is a native Brazilian perennial crop, it's quite interesting to see the investments going also to research and science to understand the best seeds for each climate. Brazil is a very huge country, so we need to adapt the seeds for several different climates, soils and lands.

Absolutely. That was really enlightening for you to give us that panorama of options Daniel, thank you so much for covering that. I would like to ask a question to Henry now. Henry, if you had to pick some challenges that you see for the biodiesel sector in general in Latin America, you know also in some countries mandates are not being met. What would be your diagnosis on what's happening?

OK. Thank you, Claire. Let me bring some brainstorming about the region. Some countries like Peru, for example, has to import biodiesel or biodiesel blends to meet their domestic demand. Investment and fiscal incentives are needed to increase the domestic production. In Colombia, production capacity and mandates could be increased also, this is the regulatory efforts that can be made. Increasing the share of waste used as feedstocks is challenging, also considering the current logistic limitations and local prices as I mentioned some minutes ago. UCO, Cellulosic material and sewage for example, could increase their participation in the our the biorefinery diets. This could strengthen the Latin American position to export biofuels to stringent markets such as Europe and the US. These markets still raise questions about the land use, requiring more second and third generation biofuels.

And this is the discussion. All those feedstocks will be needed to increase the biodiesel bending mandates in our forecast and simultaneously the SAF production targets during the coming years. The region also needs investments to increase biodiesel production and crushing capacities, mainly the crushing capacity I think in the case of Brazil. Those investments will lead to the modernization of the current biofuel plants, including using why not, HVO technologies and alcohol-to-jet technologies, and maybe why not using waste and green hydrogen to produce synthetic fuels in the future. Fiscal incentives, macroeconomic stability and some other countries and congruent policies will be needed. And there is a lot to do, yet mainly in in big countries like Mexico or Venezuela or Cuba that can enter in this race also.

Thank you Henry, it's very good to see what's happening and the different, I would say, “options” for the future. Daniel if I have to ask you for a final word for this discussion maybe on how you see the future or how you would like the future to be for your sector, for your members, for your association. A final word. What would it be?

Well, maybe my final word is that maybe we could try to remember the first discussions on biofuels that I experienced in years 2000. Then at that time we had a much more win-win discussions, cooperation, investments. I remember that time, we made very good friends in Europe, in the USA because we participated in several discussions and international meetings about how could we do that together, how we could invest and produce and consume more sustainable products and trying to define the good requirements for all of us in a in a sense that the challenge is global? Maybe many effects are local, but the challenge is global. So I really would like to see that climate of cooperation that I saw some years ago, that could be very good to see again. And I think we have all the material to do that again. Thank you.

Excellent call for more cooperation and you, Henry. What would be your final word?

Yes, I support also this point of view that that Daniel has that it is needed the international cooperation in the case of Europe and South America and Mercosur specifically; we are complementary economies, so there are a lot of opportunities there that we are losing at the time. We can do more about it.

And what has to change to make that climate of cooperation come back? This is a question to both of you.

Well, I think we need to see that the challenges are for all of us if we keep behaving like an island we will have small results. We should stop thinking like summing and also start thinking about multiplying. Some people say, if Brazil produces and exports more, we will lose.

We should think that if Brazil exports a good product and you will consume that, it's good for all of us. Europe can be part of these new revenues and profits and also enjoy this investing in good companies, so we could reinforce our Atlantic Partnership.

Thank you. Thank you both for your insights. I am very grateful for your time. To our audience: we will be back after the summer with more episodes on what's happening in road transport fuels in the US, in Japan, but also what's happening with EU transport policies after the European elections that took place in June with the new European Commission taking office in autumn. Thank you for listening. Thank you, everyone out there. See you soon.

Thank you, Claire.