Regulatory stability, greater business complexity, innovations and productive efficiency must guide the future of the sugar-energy industry. In the institutional sphere, it is evident that we have evolved substantially in recent years. A decade ago, the country counted mills closing due to the mistaken price and tax policy applied to derivatives to control inflation in the domestic market.

At that time, there was no public policy instrument to equate the choice between the higher present cost of renewable fuels and the future burden arising from the continued use of fossil fuels.

In this area, the advances observed in the last five years must be highlighted. On the one hand, the National Biofuels Policy (RenovaBio) was approved and implemented, which established a bold framework for recognizing and valuing the reduction in greenhouse gas emissions promoted by biofuels. The mentioned system also brought guidelines about the role of bioenergy in the national matrix, through the definition of ten-year decarbonization targets .

In addition to this structure created by RenovaBio, the approval of Constitutional Amendment 123 of 2022 also incorporated the need for a differentiated tax burden for biofuels that compete directly with fossil fuels into the environmental chapter of the Brazilian constitution.

Thus, currently the institutional framework in force in the country has two of the main instruments advocated worldwide for equating market failures present in the competition between fossil and renewable energies: the carbon tax and the emissions trading system.

In fact, the requirement imposed by Constitutional Amendment 123 of 2022 establishes a logic similar to that generated by carbon taxes in the fuel market (products with higher emissions of Greenhouse Gases must receive a higher tax burden). The presence of decarbonization credits, in turn, refer to a structure aligned with emissions trading systems, in which emission reduction targets are imposed with carbon pricing via the market.

The challenge now is to offer stability to the current rules, guaranteeing security for new investments in bioenergy. This is because, in recent months, these instruments have been distorted due to the unilateral alteration of the dates for meeting the RenovaBio targets , the numerous changes in the rates and system of taxes applied to fuels in the country.

These unforeseen changes in the current framework greatly hampered the functioning of the decarbonization credits market and the competitiveness of ethanol in the fuel sector.

Regulatory stability involves disciplining the guideline given by Constitutional Amendment 123 of 2022, preventing misinterpretations from distorting the device established by the National Congress. In the case of RenovaBio, it is necessary to improve governance for defining and changing decarbonization targets, in addition to improvements in the system for trading decarbonization credits. In addition, it is essential to preserve transparency and market alignment in the domestic pricing of derivatives in the country.

These changes include the tax reform debate, the discussion on the new carbon market and the next phase of the policy applied to the automotive sector in Brazil.

In addition to this need to minimize regulatory uncertainty, the future will require greater commitment from the sugar-energy chain in view of the growing complexity of business. The sugar and sugarcane ethanol sector in the past is now the sector of sugarcane ethanol, corn ethanol, second generation ethanol, bioelectricity, biogas and biomethane. In the future, it could also be the sector of bioenergy with carbon capture, renewable hydrogen and sustainable aviation fuel, for example.

The multiplicity of solutions in the world of energy and these differentiated alternatives offered by bioenergy in Brazil will establish sectoral interconnections not yet witnessed by the sugar-energy chain.

In the mobility of light vehicles, for example, the historic competition between ethanol and gasoline will gain new contours with automotive technologies, which will incorporate different sources of electrical energy (wind, photovoltaic, hydro, etc.) into this market in the medium term, and new products like hydrogen in the future, the latter could also be produced from different routes with fossil fuels and different renewable options.

The replacement of fossil kerosene by sustainable fuels in aviation will also establish a new dispute for the market between the different routes and raw materials that can be adopted for the production of biokerosene (ethanol, vegetable oil, biomass, among others). Additionally, the chain will witness the same pricing and regulation dilemmas observed between ethanol and gasoline in the case of natural gas and biomethane.

This same logic also applies when the analysis goes back to the production system. The interrelationship between the markets for sugar, ethanol, feed, grains, bran, oils and electricity, for example, should intensify in the future, as well as the agricultural competition between the different cultures used for the production of biofuels.

The fact is that the historic dispute between fossils and renewables, experienced by the sugar-energy sector in the case of ethanol and gasoline, must gain new contours with the incorporation of competition also between different renewable sources. This is a highly complex environment, which will require greater resilience and adaptability and anticipation from the sugar-energy industry.

Ultimately, this increased competition will increase the challenge of efficient production. The sugar-energy chain will need to produce more energy, at a lower cost and lower greenhouse gas emissions, in addition to expanding the portfolio of products manufactured from the energy captured by biomass in the field.

In this context, the environmental component, seen as a differential of biofuels compared to fossil fuels, will be just one more attribute in the dispute for market with other renewables.

It is imperative that the sugar-energy chain continues to seek gains in economic efficiency and energy-environmental efficiency in the coming years, with new technologies in the agricultural area and innovations in the industry.

If, on the one hand, humanity will need all available solutions to face the global climate emergency, on the other hand, it is certain that this potential demand will require double efforts from the sugar-energy chain to surf the wave of the low-carbon economy.