Mercosur's hidden energy story

Most coverage of the EU-Mercosur agreement focuses on beef quotas, soy, and farmer protests. Buried inside the same text is a smaller provision on ethanol that has little to do with food and a lot to do with how aviation and shipping plan to cut emissions. As Brazil's ethanol industry scales up and IMO rules and CORSIA certification begin to shape which fuels can count, that clause may end up mattering more than the headline disputes around it.

Beef, soy, tariffs, and deforestation have dominated public debate over the EU-Mercosur agreement for years, and for good reason: agriculture is where the political fights are loudest. A quieter provision sits inside the same text. It is built around ethanol, and it points to a role for the agreement that goes well beyond food and farming.

An ethanol quota with outsized reach

Under the agreement, Mercosur countries gain duty-free access to 450,000 tonnes of ethanol for industrial use, plus a separate quota of 200,000 tonnes phased in at reduced tariffs for other uses, including fuel. That second figure matters more than it sounds. Fuel is the largest single use of ethanol in Europe, accounting for roughly 4 million of the 6 million tonnes the EU consumes each year. A trade clause framed around chemical-industry feedstock also opens a door into Europe's fuel market. That door is opening just as the fuel market comes under pressure to decarbonise.

Why liquid fuels still matter

For most of the past two decades, the energy transition has meant electricity: solar, wind, batteries, grid investment. Transport is a harder case. Aircraft cannot run long-haul routes on batteries, and large ocean-going vessels need fuel dense enough to power weeks of continuous operation. Alternatives are advancing, but liquid fuels are likely to stay part of the solution for years yet. Fuel producers, airlines, and shipping companies are all working through the same question: which lower-carbon liquid fuels can work within infrastructure that already exists.

Brazil's ethanol scale-up

Brazil has been one of the world's largest ethanol producers for decades, built on a mature sugarcane industry. What has changed recently is scale and composition. In the 2025/26 season, Brazil produced 33.7 billion litres of ethanol in total, and corn ethanol, a newer and fast-growing segment, reached 9.2 billion litres, more than a quarter of national output. That is no longer a pilot industry; it is industrial capacity built for sustained demand.

Scale alone does not create a market. The real test is whether sectors with few alternatives start looking for fuels that cut emissions without requiring entirely new equipment. Shipping and aviation increasingly fit that description. The question now is not whether Brazil can produce more ethanol. It is whether rising demand for lower-carbon liquid fuels can turn that production capacity into a real export opportunity.

Shipping's test case

Maritime transport faces the same pressure to decarbonise, with no agreed single solution. Methanol, ammonia, biofuels, and synthetic fuels are all being tested in parallel. Brazilian ethanol has recently entered that conversation directly. The International Maritime Organization assigned a carbon intensity value of 20.8 gCO2e/MJ to Brazilian second-crop corn ethanol. Conventional marine fuel carries a reference value of 93.3 gCO2e/MJ. That doesn't mean ethanol will replace bunker fuel any time soon. It does give shipping companies an official number to plan around, and that matters in a sector that rarely commits capital without one.

The clearest real-world test so far is Maersk's. The Laura Mærsk, the company's first methanol-fuelled container vessel, ran trials blending 10% ethanol with 90% e-methanol. Engine performance held up, and Maersk is now moving toward a 50/50 blend, with higher ethanol blends being explored after that. The result itself is modest, but the signal is not. A major carrier is actively testing whether ethanol can widen its fuel sourcing options, not just whether the chemistry works.

Aviation's faster pathway

Aviation has a head start that shipping does not. IMO fuel rules and CORSIA's certification framework are shaping which fuels qualify, while binding mandates like the EU's ReFuelEU Aviation are what actually create demand on the ground. Brazil has started positioning itself accordingly. In June 2026, Petrobras, Bunge, and Vibra announced the country's first commercial sale of SAF made from soy oil certified under low-ILUC-risk criteria. Petrobras produced the fuel through coprocessing at the Duque de Caxias refinery, using oil sourced and certified by Bunge. Vibra's aviation unit handled distribution.

The volumes are small relative to global jet fuel demand. But the pieces behind them are now in place and working: certified feedstock, refining capacity, and distribution.

Beyond Brazil

Argentina is earlier in this process, but it is not absent from it. The country already has extensive agricultural processing infrastructure and is a major producer of biodiesel feedstocks. Most of that processing capacity is concentrated around the Rosario corridor. Large-scale sustainable aviation fuel production there is still a future prospect, not a current one. But it is part of how a regional fuel ecosystem could grow alongside Brazil's.

The infrastructure and sustainability tradeoffs

None of this works without infrastructure that rarely gets discussed alongside it. Fuel has to be stored, transported, certified, blended, and verified. Producing more fuel is the easy part. The harder part is building systems that let markets trust where that fuel came from, how it was made, and whether it meets sustainability rules that keep getting stricter. The infrastructure behind the fuel may become just as important as the fuel itself. Producers also have to meet sustainability reporting requirements that get tougher as volumes grow. As with most trade transitions, the product gets the attention while the infrastructure behind it does the work.

The sustainability case has real tension in it too. Expanding ethanol and biodiesel production raises real concerns about land use, water consumption, and indirect land-use change. Critics are right to ask whether fuel demand could end up competing with food production. Supporters point to certification and traceability systems as a way to manage that risk. But certification only works if it is enforced consistently as volumes scale, not just on the first few certified batches.

Mercosur's other test

The EU-Mercosur agreement is usually framed as a test of trade policy, agricultural competitiveness, or environmental governance. Increasingly, it is also a test of whether two regions can build a workable energy relationship inside a deal negotiated mainly around food. Trade corridors that once moved raw materials and manufactured goods are starting to carry fuel feedstocks tied to climate targets as well.

Mercosur will likely still be remembered first for beef quotas and soybean exports. But if demand for lower-carbon liquid fuels keeps growing the way current data suggests, the ethanol clause buried in the agreement's technical annex could end up shaping aviation and shipping decarbonisation more than anyone expected when the deal was signed.

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