Stalling Growth in BioEthanol Demand
Global bioethanol usage fell in 2011. After over a decade of expansion this marks a reversal in what had been a period of very positive growth in the development and use of renewable energy. Though at face value the fall in demand represents a short term set back, and seems to have been out of line with the rises in crude oil prices that should make renewable alternatives competitive, the reasons behind the fall in use are both economic and rational.
By Toby Cohen, Czarnikow Group
AS THE BIOETHANOL market develops, demand is being led by a combination of mandates and market incentives – perhaps the biggest difference between the US and Brazil. Mandates have the advantage of ensuring usage and are a useful policy tool in encouraging development. Markets, on the other
over the past five years and has been growing on average at 20% a year. Growth has been helped by converging price trends between commodity markets and higher overall energy prices that have enabled the pricing of renewable alternatives to become competitive. The introduction of the flex fuel car in 2003 reinvigorated Brazilian ethanol demand resulting in a period of rapid growth in discretionary usage between 2005 and 2009. Demand has since fallen in response to price – a reflection of the contradicting trends in global commodity markets vis-a-vis Brazilian government policy. Since 2009, the biggest driver behind the growth
in ethanol usage has been policy, in particular US bioenergy legislation and the demand mandates set out in the Renewable Fuel Standard (RFS). As a consequence, the US bioethanol market has significantly outpaced Brazil and we have seen a shift in the dynamics between the two countries that dominate the ethanol market but have very differing approaches to growth and production pathways. If bioenergy is going to be used in a sustainable
... the markets for food, energy, surplus biomass and food waste
are becoming ever more linked to general economic trends
hand, are more short term in the way in which they allocate resource via price but have the advantage of being much more flexible to change. It is this flexibility that is behind the fall in usage in 2011 but could see demand levels increase again in 2012. The market for bioethanol has doubled in size
72 June 2012
way the market needs to be flexible and adapt to changes in circumstances. One of the great debates that has emerged, following the expansion of fuel ethanol consumption, has been around the correct allocation of agricultural resources – and the impact of the energy market on food prices. The debate has become highly emotive and, as a result, often veered away from rational argument around the impact of development, change and price behaviour. What is clear to us is that the markets for food, energy, surplus biomass and food waste are becoming ever more linked to general economic trends. Agricultural prices will be pushed higher, due to rising costs, as well as growing demand. Greater demand on land as well as greater demands on people, coupled with greater environmental responsibility, are forces that affect all levels of the economy. In fact, placing agriculture closer to the centre of mainstream economic activity is perhaps
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