EU renewable energy law to drive demand for ethanol contracts

24 November 2009 03:03  [Source: ICIS news]

SAO PAOLO (ICIS news)--A renewable energy law in Europe should drive the proliferation of long-term contracts for ethanol starting 2011, said an official at the Brazilian sugarcane industry association UNICA on Monday.

“The EU’s Renewable Energy Directive could motivate a change in the way trade in ethanol is done,” said Geraldine Kutas, senior advisor to the president for international affairs at UNICA, citing that the commodity is currently traded mostly on spot basis.

“We hope to see many more long-term [ethanol] contracts in 2011 as companies need to demonstrate and certify that they comply with the directive,” said Kutas.

The EU Renewable Energy directive mandates that by 2020, renewable fuels must account for 10% of all transportation fuels.

Long-term contracts on ethanol supplies would help certify that the fuels are renewable on a lifecycle basis, Kutas said. Ethanol bought on the spot market would not have such certifications required, she added.

“Previously buyers had no interest in setting up long-term contracts, but we believe this EU directive and other policies will change the way business is conducted,” she said.

The EU’s Fuel Quality Directive, which requires a reduction in fuel emissions by 6% by 2020, could also drive the securing of ethanol supplies via long-term contracts, said Kutas.

UNICA, which represents over 120 sugarcane producers and mills in South-Central Brazil, also supports the removal of tariffs on ethanol imposed by many countries, including the US.

“Oil trades freely on the markets, but not ethanol, which is still considered an agricultural commodity,” said Kutas.

“But companies will have to rethink their policies if they seek to meet certain climate change standards,” she added.

UNICA's member companies accounted for around 60% of all sugarcane ethanol production in Brazil.

The association projects Brazil to boost its sugarcane ethanol production from 27.5bn litres in the 2008/2009 harvest year to 46.9bn litres by 2015/2016. About 26% or 12.3bn litres of the forecast production in 2015/2016 would be exported, UNICA said.

Brazil can plan for higher production depending on actual global demand, said Adhemar Altieri, corporate communications director at UNICA.

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By: Joseph Chang
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