Before delving into the issues signalled above, it will be necessary to devote some attention to definitions. For example, the various types of biofuel will need to be explained, together with the crops normally employed in their respective production, for this has significant impacts on their sustainability credentials. Attention also needs to be paid to what sort of biomass is optimal for the produc­tions of both fuel types. The production processes, however, will be discussed later under ‘Lifecycle Analysis’ (i. e. Sect. 4).

In the recent years, extensive research on biofuels production from second — and third-generation feedstocks has demonstrated remarkable achievements in terms of efficient enzyme system, microorganisms, innovative conversion technologies, and newer strategies of process integration. Table 5 shows the state of the development of biofuels from second — and third-generation feedstocks. As evident from Table 5, each of the individual processes is at a different stage of development and unless all these processes reach the commercial stage, it is not possible to anticipate a full-scale commercial plant for liquid biofuels production that can be established in all parts of the world. However, recent advances in biofuels research and subsi­dies from government can make it possible in the coming years.

It should be noted that to make biofuels enter into the market and compete with gasoline, it is important that cost is significantly reduced and liquid biofuels should be able to sustain without any government subsidies. Moreover, both private and public sectors should participate actively to realize the liquid biofuels industry to supply the demand of fuels for the future world and upcoming generations. The IEA projects that sugarcane ethanol and advanced biofuels could provide up to 9.3 % of total transportation fuels by 2030 and up to 27 % by 2050. But to achieve these pro­jections, at least a threefold to fivefold increase in land use for energy crops cultiva­tion and significant yield improvement in developing countries is needed.

Pery Francisco Assis Shikida, Adele Finco, Barbara Fran^oise Cardoso, Valdir Antonio Galante, Daliane Rahmeier, Deborah Bentivoglio and Michele Rasetti

Abstract Industrialized countries’ dependence on fossil fuels has been distressing for a long time for countries that do not have self-sufficiency, whether for environ­mental, economic, geopolitical, or other reasons. In this context, it is understood that the burning of fossil fuels contributes to greenhouse gas emissions (GHG) increasing the risk of intensifying climatic disturbances that can deteriorate the processes of production, consumption, and welfare in the world. Therefore, the development of alternative energy sources can provide solutions for the gaps, since reducing exposure to the vulnerability of supply and price volatility, environmental issues, and even the development of new investment opportunities in these coun­tries. This is due to the possibility of developing innovations in the production and processing industry, which would contribute to the economic activity. Thus, increasing the use of bioenergy is one of the existing ways to reconcile the need to [7] [8]

expand the supply of energy with the slowdown in global warming, i. e., the most important and disseminated use would be the biomass power generated by the consumption of biofuels, once it reduces GGE emissions.

1 Introduction

Global ethanol and biodiesel production are projected to expand at a slower pace than in the past. Ethanol markets are dominated by the USA, Brazil, and, to a smaller extent, the European Union. Biodiesel markets will likely remain domi­nated by the European Union and followed by the USA, Argentina, and Brazil.

The world biofuels production reached almost 124 billion liters in 2011; 80 % of that global production of liquid biofuels consists of ethanol and 20 % consists of biodiesel. The European Union produced in 2011 about 9.5 million metric tons of biodiesel, but in 2011, the production decreased about 10 % compared to 2010. However, the share of biodiesel is rapidly increasing due to emergence of new pro­ducing countries in Southeast Asia. The USA and Brazil are the largest ethanol producers, with 54 and 34 % of global ethanol output in 2009, respectively; while the European Union accounts for 57 % of global biodiesel production.

Brazil is the world’s second biggest producer of fuel ethanol (about 23 billion liters in 2011) and the world’s biggest exporter of fuel ethanol. The production started in the early 1970s by a program which led to the development caused by local automobile companies with flex-fuel engine technology. Presently, around half of all Brazilian cars use these hybrid engines, which can run with any mixture of pure ethanol and gasohol (around 80 % gasoline and 20 % ethanol). In 2010, cars used nearly equal volumes of gasoline and ethanol.

The chapter aims at revisiting the recent developments in biofuels markets and their economic and environmental impacts. The analysis compares the perfor­mance of ethanol versus biodiesel produced in Brazil and Europe, respectively.

This chapter is organized as it follows: Sects. 2 and 3 discuss the scenario of Brazilian ethanol and European biodiesel in terms of policies, production, sup­ply, and demand. Section 4 examines the environmental impacts of both biofuels. Finally, we draw key conclusion.

The prices for feedstocks are critical for the economically viable production of bio­fuels. In addition to raw material prices, crude oil as key competitor product also influences the profitability of biofuels. Prices for both are interrelated. Increasing oil prices tend to fuel demand for alternative sources of energy and thus the prices for raw materials. A positive correlation between the prices for crude oil and global grain commodities has been demonstrated in a model by Chen et al. (2010).

In order to project raw material prices for biofuels, we analyse the relation between the price of biofuel raw materials (pB) of type k (maize, wheat, rapes oil, palm oil and wood) and past crude oil prices (pO) while also considering other major drivers of raw material prices, including a price index for agricultural prod­ucts (pA), growth in world population (POP), growth in wealth (per capita income: GDP/POP), change in energy consumption per capita (EN/POP) and global infla­tion (pGDP). The linear regression model to be estimated reads as follows:

pBk, t = a + ei, kpOt + P2,kPAt + e3,kpGDPt + xi, k POPt + X2,k GDP/POPt

+ X3,kEN/P°Pt + &k, t > (1)

with t being a time index for months, a being a constant, в and x being parameters to be estimated and є being a time and k-specific error term. We take the following monthly price data for five different biofuel raw materials k.

• Maize: US No. 2 Yellow, FOB Gulf of Mexico ($/t)

• Wheat: No. 1 Hard Red Winter, ordinary protein, FOB Gulf of Mexico ($/t)

• Rapes oil: Crude, fob Rotterdam ($/t)

• Palm oil: Malaysia Palm Oil Futures (first contract forward) 4-5 % FFA ($/t)

• Wood: average price ($/m3) for softwood (average export price of Douglas Fir, U. S. Price) and hardwood (Dark Red Meranti, select and better quality, C&F UK port)

The data for crude oil prices were obtained as an average of Dated Brent, West Texas Intermediate and Dubai Fateh (Euro/barrel). Raw material prices were taken

All prices are average prices per year Ein barrel Rohol sind 159 L

Die Dichte von Rohol schwankt zwischen 0.8 bis 1 kg/l—beim Vergleich mit Rohol rechnet man

im Allgemeinen mit einer Dichte von 0.883 kg/l

Als mittlere Dichet von Holz wurde 600 kg/m3 angenommen from www. indexmundi. com. Table 1 shows average annual prices for the five biofuel feedstocks as well as for crude oil, based on monthly data from April 1982 to April 2010. The historical price overview shows significant differences in price developments for the different types of raw material. For example, the palm oil price has doubled between 2006 and 2010, while during the same time prices for wood remained almost stable.

Annual data on population, GDP, energy consumption, inflation and agri­cultural prices were taken from the ‘World Development’ and converted into monthly data through linear interpolation. We measured all prices, GDP and

energy consumption in US Dollars and converted them into Euros using monthly exchange rate averages.

An ARMAX (Harvey 1993) modelling approach with a one month autoregres­sive term of the structural model disturbance and additive annual effects was used (see the results in Table 2). It is obvious that the price of crude oil is significantly correlated to prices for biofuel feedstock. Crude oil has the weakest impact on prices for wheat and maize, while rapes oil and palm oil prices are heavily influ­enced. The influence on wood is in between these two groups. The results indi­cate that both rapes and palm oil have been used as energy inputs to a significant degree in the past and are therefore more closely related to oil price changes than wheat and maize. These are still predominantly used as input for food production.

Future prices for biofuel feedstock in 2015 and 2020 are based on the estimation results in Table 2. For the calculation, projected values for all independent vari­ables are necessary. In regard to prices for crude oil, we refer to oil price scenarios that have been published by IEA (2007) and the International Energy Outlook. We then investigate the effects of crude oil prices per barrel of Euro 50, Euro 100, Euro 150 and Euro 200 in 2020. For 2015, crude oil prices are calculated through linear interpolation of the 2011 value and the 2020 scenario. In regard to the other vari­ables, we assume a 1 % p. a. increase in world population, a 2.5 % p. a. increase in GDP per capita, a 1.25 % p. a. increase in energy consumption per capita, a 5 % p. a. increase in agricultural prices and a global inflation of 6 % p. a. These assump­tions are close to the average rate of change of each variable during 1982 and 2010. For simplicity reasons, business cycle effects are not taken into consideration.

Dependent on different crude oil price developments, biofuel raw material prices for 2015 and 2020 are determined. Table 3 reports projected prices for 2015 and 2020 as well as actual and predicted prices in 2010. Prices are expressed in Euros per tonne, as production cost scenarios use tonne units for all material inputs. For crude oil, we assume a mass density factor of 0.883 kg/L and for wood a mass density factor of 0.6 kg/dm3. Except for palm oil, predicted 2010 prices are higher than they really were. This indicates that the price level in 2010 was lower than one would have expected if prices had followed the typical development of the past three decades. A calming effect on commodity due to the economic crisis may be one of the main reasons for that. The 2010 price level for all raw materials, except palm oil, was below the peak of the pre-crisis level in 2006 and 2008, while crude oil prices in 2010 were close to the pre-crisis peak. As mentioned before, we refrain from considering any type of business cycle effects on prices but focus on longer term trends in raw material prices. For this reason, we do not adjust projected prices for 2015 and 2020 to the ‘prediction error’ in 2010 but consider the higher predicted prices for 2010 (and consequently for 2015 and 2020) as reflecting an upcoming upwards trend of commodity prices in case the world economy recovers.

Wheat, rapes oil and maize prices are expected to undergo the largest rise until 2020. In the Euro 50 scenario, prices for these three types of biomass will increase by 89, 85 and 66 %, respectively, compared with the actual prices in 2010, which were rather low. In the Euro 200 scenario, price advances will be significantly higher. Changes are all above 100 %. In regard to palm oil, prices are expected to

Table 2 Results of ARMAX model estimations

remain stable in the Euro 50 scenario but increase substantially in the Euro 200 scenario. This reflects the stronger link between crude oil and palm oil prices. As for wood, all scenarios except the Euro 200 scenario expect tumbling prices. The latter estimates constant prices for the time period between 2010 and 2020.

Waste material is another important group of raw material for biofuels. However, there are no world market prices available, due to waste rarely being traded internationally, because of high transport costs per unit and small unit val­ues. In our scenario analysis, we assume that the prices for waste lignocellulosic material are constantly 1/4 of the price of maize and the price for waste oil is 1/2 of the price of palm oil. At this point, we assume that producers are price takers and that production functions are linear homogenous.

It is important not to lose sight of the impact that climate change itself will have on biofuels into the future, together with determining the most appropriate place for biofuels in the long-term battle to reduce global GHG emissions. This section deals with these two issues.

4.2 Effects of Climate Change

It is uncertain whether existing current climatic conditions will prevail, with many scientists contending that anthropogenic climate change is already taking effect across the globe (Cook et al. 2013). There are a number of critical factors associ­ated with climate change that need to be taken into account. First, and as intro­duced above, there may be increased uncertainty with regard to rainfall patterns. This will problematize when to plant with annual crops (such as those used for first-generation biofuels), and will also place increased pressure on water use, with potential social repercussions outside the agricultural arena. Second, there may be increased and more severe meteorological phenomena, with floods wip­ing out entire fields, and storms damaging or destroying entire harvests (Charles et al. 2009). Uncontrolled fires resulting from drought, thunderstorm activity or human action could also have similar effects. Third, there may be an increased severity and incidence of pestilence, with changed climatic conditions making crops destined for biofuel production more susceptible to pest outbreaks (Malcolm et al. 2012). This would have the added environmental implication that there could potentially be an increased need to employ pesticides, herbicides or fungicides, with all the negative outcomes associated with the use of these materials signalled above compounded by increased chemical usage.

Taken together, these issues suggest that it will be more difficult to plan for weather — and climate-related phenomena into the future. Nations will clearly be unable to rely solely on domestic biomass cultivation for their biofuel needs (Larson 2008). It follows that increased energy security associated with biofuel production will need to be tempered with the understanding that existing agri­cultural techniques certainly do not guarantee constant and predictable harvests in the face of regular climatic uncertainty. Yet climate change, as is generally expected, will exacerbate this high level of uncertainty, regardless of whether it is anthropogenic or otherwise, or indeed a combination of both man-made and natu­ral processes. Regardless of these issues, it is essential that biofuel policy takes a path that does as much as possible to ensure that it assists with anthropogenic cli­mate change mitigation, rather than exacerbating the problem.

Oil products account for approximately 95 % of the energy used for transportation in the world in their various modes. The technological standards for the use of this energy source, which has been strongly disseminated in the world, developed over more than a century.

However, several liabilities accompany its hegemonic use, since the reduction of available stocks of this essential non-renewable resource (petroleum), pollution, and GHG emissions (Seabra 2008: 83).

Therefore, the continuation of fossil fuel energy resources use provides strate­gic and environmental drawbacks, seeing that the use of non-renewable sources is revealed as a way of releasing elements captured in a remote past, which expose the modern lifestyle to a not properly dimensioned future risk.

On the other hand, the production and the consumption of biofuel obtained from agricultural biomass (renewable resources) entails a GHG balance (CO2 eq.) close to neutrality. Thus, unlike fossil fuels, the biomass has sustainable features, since human systems capitalize on energy use with little interference in the GHG balance (ANEEL 2008; Macedo et al. 2008; Garcia 2011).

According to Table 10, the sugarcane has the best energy efficiency (9.3) among the different sources of biomass available in Brazil and it has the highest reduction percentage of GHG emissions (89 %). These indicators are much higher than those obtained by corn (US option) or beet (an option used in Europe).

When the Life Cycle Assessment (LCA) of some biofuels was performed, ethanol was highlighted due to the high percentage of GHG reduction, as depicted in Fig. 9.

Even though the options of energy production are within the renewable status, they are not free of interfering negatively on the environment. One of the most important liabilities is the interference in the soil and the formation of monocul­tures over large areas. However, these problems can be mitigated by techniques and processes that increase biomass productivity per area. An example of this is that Brazil produces 6,800 l of ethanol per hectare of sugarcane, while the USA produces 3,100 l/ha of maize (ANEEL 2008).

In Brazil, several crops have the potential to produce bioenergy, among them soy, sugarcane, castor bean, and palm oil. The cultivation of sugarcane has been highlighted in the production of ethanol. With a focus on increasing productivity, the mills have opted for mechanical harvesting, including suitability for the cur­rent legislation which restricts fires of sugarcane straw for the crop.

Another element of this sustainable supply chain is the use of bagasse to pro­duce electricity through thermal power plants (ANEEL 2008).

The techniques and processes evolution and R&D also contribute to the increased efficiency in the various stages of the production process, such as har­vesting sugarcane in Brazil, which is abandoning the straw burning for the harvest and better studies about the emission levels in the various stages of production and processing of this biomass (Table 11).

The governance structure is related to the transaction characteristics of a given production chain. Table 1 illustrates the characteristics of each transaction accord­ing to the aforementioned theoretical attributes.

Table 1 Main transaction attributes of palm oil processing plants with family farmers

Transaction Transaction attributes Predominant

Buyer o Business Frequency Degree of governance

Seller specificity uncertainty

Biofuels that are produced from non-food feedstocks (second generation) are commonly known as advanced biofuels. They can be classified into four groups (generations) based on their production process and type of feedstock (Table 1). As summarized in Table 1, it is evident that each generation has its own advantages and disadvantages and it is difficult to choose one among them for large-scale produc­tion and application. For example, fourth-generation biofuels seem to be very attrac­tive and carry several advantages from carbon emission and environmental pollution point of view; however, its process of production is cumbersome and technically not proved and established as of now to make it commercially viable.

The Industrial Organization (that was also called Industrial Economy, in Great Britain and Europe) is not recent, where the central focuses of this study are as follows: (1) competition, as the engine of most modern markets, and (2) the power of monopolies that interfere with the good results of competition (De Jong and Shepherd 2007). The Industrial Organization also focuses on the study of public policies, where the first studies analyzed the governmental policies, in order to prevent the existence of monopolies, to eliminate, or at least restrict, the effects of the existing monopolies. The public policies studies mainly include as follows: antitrust policies, in order to prevent or reduce the power of monopoly; regulation, so as to contain the natural monopolies; deregulation, which removes restrictions, hoping that competition will grow, and the creation of estates that seek to support the public interest when competition does not work.

However, a growing research area, within the Industrial Organization, is iden­tifying the industrial concentration level, where one seeks understanding the rela­tionship between the concentration level and this industry’s price/profitability ratio, where much evidence point to a positive relationship between market con­centration and the sector’s profitability (Peltzman 1977). The basic assumption for this purpose is that high concentration enables collusion and, as a consequence, the manipulation of market prices.

Peltzman (1977) said that the relationship between the market structure and productions costs is long known, where a technological breakthrough in a not con­centrated industry can produce a natural monopoly, since there will be an increase of the operational efficiency through time, generating competitive advantages for a specific organization. On the other hand, according to the author, the pro­cess through which old technology becomes economically obsolete also implies a reduction (or at least no increase) of the offered goods. Whatever force is operat­ing this system, it is crucial to understand what the concentration level is, so as to control the excessive power of some firms within its industry.

Industrial structure and industrial concentration issues have concerned econo­mists and politicians for at least a century (Jacquemin and Slade 1986), while the industrial concentration level is tightly connected to the margins firms keep in the market, since competitiveness drops according to the increase of concentration level, creating opportunities for firms to price in a differentiated manner. The mar­ket concentration analysis, on the other hand, of a specific industry stems from the idea of how it is distributed in terms of production and participation of their firms, in a determined market. In this context, Bain and Qualls (1968) define industrial concentration according to property, considering the control of a great proportion of aggregates of economic resources or activities, by a small companies’ proportion.

George and Joll (1983) states that the industrial concentration regards the size distribution of firms that sell a specific product, with a significant dimension of the market structure, for having an important role regarding a company’s behavior and performance. Besides, the number and size distribution of these firms influence the expectations regarding the competitors’ behavior. In this context, Possas (1985) comments that the industrial concentration is closely linked to the internal profit accumulation and corporate technical progress.

According to Bain and Qualls (1968), the market structure regards the organiza­tional features that determine the relationships with the agents, being an important part of the competitive environment of firms, in order to influence the competitors’ pattern. For the author, this means that the market structure features have a strategic influence on the nature of competition and on determining prices in the market.

These are fuels that are produced from edible crops. Bioethanol is generally derived from commonly grown food crops such as sugar cane, sugar beet, maize (corn), sorghum and wheat. First-generation processes for bioethanol production, in the case of plants such as corn and wheat, rely on starch from plant kernels or, with respect to sugar cane and sugar beet, on the sucrose contained within parts of the plant (McCormick-Brennan et al. 2007). These starches and sugars are fer­mented and are then distilled, in much the same way as the production of alcohol destined for other purposes. The types of crops employed for first-generation bio­fuel production also have lower energy content than conventional petroleum prod­ucts per volume, something which exacerbates the issues surrounding the use of this technology (McCormick-Brennan et al. 2007). With regard to first-generation biodiesel, crops such as rapeseed, palm oil, Jatropha and soya beans are gener­ally used. The oil from these crops is then converted to biodiesel, together with a co-product called glycerol, which can be used for a variety of non-energy-related purposes. Waste vegetable oil (WVO), if cleaned up sufficiently, can also be used to produce biodiesel (Parida et al. 2011).