Brazilian Senate Approves Higher Ethanol Mandate as Demand Wanes

Sep 03, 2014 6:50 pm ET

Sept. 3 (Bloomberg) -- Senators in Brazil approved a bill increasing the mandatory amount of ethanol added to gasoline sold at service stations in the country as demand for the alternative fuel declines.

The minimum ethanol content in the country’s gasoline blend will be raised to 27.5 percent from 25 percent, the Senate said on its website yesterday. The bill still needs to be ratified by President Dilma Rousseff.

Ethanol producers have criticized government policies limiting gasoline price increases as drivers increasingly favor the fossil fuel over ethanol. Most cars in Brazil have so-called flex-fuel engines that can run just on ethanol or a mix of the alternative fuel and gasoline, giving drivers the ability to choose. Service stations typically have ethanol pumps standing next to the ones with the gasoline-ethanol blend.

“Marginal increases to the blend rate do not solve the fundamental pricing issue that results from having to sell ethanol cheaper due to subsidized gasoline,” Alejandro Zamorano Cadavid, an analyst at Bloomberg New Energy Finance in New York, said by e-mail. “From producers’ point of view, you are being given the opportunity to sell more ethanol at a price that has been too low for years.”

The government last boosted the proportion of ethanol in the gasoline mix in April of last year, to 25 percent from 20 percent.

The bill senators approved yesterday also increases a cap on the optional amount of biodiesel that can be mixed into fossil diesel to 6 percent from 5 percent.