Ethanol and oil firms – the beginning of a new role for alternative fuels?

Firms are facing increasingly stringent environmental quality specifications for their products, including an increase of biofuel mandates, as a means of reducing emissions of CO2 and air pollutants. These environmentally related ‘new conditions’ affect oil firms’ fuel production, prompting them, in particular, to integrate biofuels into their operations and, at least in certain cases, to change their overall strategies towards biofuels. This paper seeks to make an empirical contribution to the literature on path-dependency by examining how the introduction of biofuels generates a shift in an oil firm’s established technical and production patterns. It analyses in detail the effects of implementing ethanol production in two contrasting oil companies, Petrobras and BP, and draws four main conclusions about the experience.

First, oil companies have become leading players in the development of alternative fuels such as biofuels. Second, there are evident differences among oil majors in their involvement in different biofuels; these arise from the scope and continuity of government policies, from contrasts in the influence of different national ethanol lobbying groups, and from variable levels of proactivity of companies in particular energy options. The third finding is that what seems to be a ‘shift in technological paradigm’ has begun among the dominant firms in the blending markets, locking the present technical conditions into a pattern of transition which draws alternative non-fossil fuels into the mix. Fourthly, a high demand for flex-fuel cars will further favour the transition to biofuels.

By: Nelson Mojarro