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Biofuel Mandates…

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June 13, 2022 by Jim Colburn Leave a Comment

David Fickling, Bloomberg, on biofuel mandates when farmland, crop production is scarce…

“As a result, an industry that always had questionable advantages is now starting to be an impediment to cleaner modes of transport. Worse, the pressure it’s putting on the planet’s limited farmland is hampering our ability to feed the world’s poorest. It’s time to start dismantling the pipeline connecting farms to gas tanks before it does any more harm.

Look across the largest vehicle markets, and biofuel blending mandates are everywhere. In the US, with the second-largest national fleet, ethanol derived mostly from corn comprises more than 10% of all gasoline sold. India, the next-largest market, blends in 7.5%, largely from sugarcane. Indonesia and Brazil, which come next, now require mixes of 30% and 27%, respectively. Only China, the largest national market of all, has a lower rate of around 2.1%. The European Union, bigger even than China, requires a 10% blending mandate across the bloc.

There’s a problem with such mandates. If supply-demand imbalances push up the cost of corn, sugar or vegetable oils too much, most industrial and household consumers will work hard to find alternatives that better suit their budgets. That demand destruction helps rebalance the market and bring costs back to affordable levels. Fuel blenders rarely have so much discretion: If they’re below the mandated target, they must buy additional bioenergy at any price to make up the shortfall.

 

There’s a problem with such mandates. If supply-demand imbalances push up the cost of corn, sugar or vegetable oils too much, most industrial and household consumers will work hard to find alternatives that better suit their budgets. That demand destruction helps rebalance the market and bring costs back to affordable levels. Fuel blenders rarely have so much discretion: If they’re below the mandated target, they must buy additional bioenergy at any price to make up the shortfall.””

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Commodity Research Group (CRG), founded by veteran analyst Edward Meir, is an independent research consultancy specializing in base and precious metals, as well energy products. The Group provides research and general price analysis for these markets, along with advice to companies seeking to construct commodity hedging strategies.

Our associates bring decades of experience to the table, as they seek to help our clients understand the markets. CRG will distill the myriad of pricing variables mentioned above into coherent research that is to-the-point and tailored to a clients hedging or pricing needs. In addition, CRG is available for consulting assignments and speaking engagements. CRG does not manage money or trade for itself.

 


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