Biofuels: where the market goes as the law raises the blend

≈ 4 min read · updated Jul 2026

Paraguay imports every liter of diesel and gasoline it burns, yet biofuel demand is already written into law: 30% ethanol in force and biodiesel on the rise. The study we propose projects how much import gives way, what farmland it takes, and when to enter.

Outlook · import substitution
Substitution: how much imported fuel biofuels can cover
How to read it: the purple line is total demand for liquid fuels · each band is what biofuels substitute under that scenario · the grey area on top keeps getting imported
volume of liquid fuels · qualitative scheme, no units grey keeps getting imported today +5 years +10 years +15 years total demand for liquid fuels remaining fossil imports each liter is currency that leaves current blend (a) E30 + current B rising blend (b) path set by law flex fleet + electrification scenario (c) hardest to shift: heavy diesel, machinery What the MILP decides: given a blend, how many hectares and which plant feedstock how many hectares industrial capacity what scale and where the blend at the pump how far to raise it the model's shadow prices show which leg falls short first and which one to move before the others
Biofuel · current blend Biofuel · rising blend Flex fleet + electrification Remaining fossil imports Total liquid fuel demand
  • Qualitative scenarios
  • MILP · optimal blend and match
  • No invented percentages
In simple terms: today biofuels cover a thin slice of the national tank (the current blend). Each lever opens a wider band: raise the blend, add a flex fleet, electrify light transport with domestic power. Electrification works differently: instead of putting biofuel in the tank, it removes liters from fossil demand, and it's counted here alongside flex fuel because the result is the same: fewer imports. The scenarios are conceptual: the study we propose sizes them using fuel consumption series, farmland area, and industrial capacity.

Ethanol from sugarcane and corn blends into gasoline by law: that ratio is the blend, set by the MIC and produced and sold by Petropar. The minimum blend in force is 30% ethanol (MIC, Decree 3.241, 2025). Since 2026 biodiesel no longer trails behind: Law 7.635 (2026) is in force with a range the MIC adjusts by resolution, the old cap gone.

The rise by law: demand written by a rule

With the new law the biodiesel blend runs higher: it stands at 7% through the end of the year, with the adjustment the transport sector requested, and rises to 8% from January 2027 (MIC, Resolution 565, 2026). The ministry calls the increase irreversible, and the industry chamber says installed capacity can supply higher blends (ABC, 2026). The month’s figure matters less than the mechanism: ethanol and biodiesel demand are already tied to public rules, and what a rule writes can be forecast. What remains to settle is the pace: how much market the rule opens and who arrives with liters to supply it.

Imports start giving up ground

The tank in dispute is not small: diesel imports from January through April 2026 add up to 701.9 million liters (MIC Observatory, 2026). Every blend point that rises is new demand for local biofuel, and every substituted liter is foreign currency that no longer leaves the country. The bands in the chart above show that split, with heavy diesel and farm machinery as the hardest pieces to substitute.

The regional mirror helps read the pace. In Brazil ethanol is state policy: E30 in gasoline and B15 in diesel are in force over a massive flex fleet (CNPE, 2025; Lei 14.993, 2024), the same lever the chart above takes as scenario (c). Argentina operates with a base blend of E12 and B7.5 that Law 27.640 (2021) keeps in force, with installed crushing capacity that also exports biodiesel. Colombia blends E10 with cane and B10 with palm (Laws 693, 2001 and 939, 2004). On the economic side import parity rules: the local liter competes against the price of the liter arriving from abroad. As that transition advances, the region will demand more biofuel, and that neighboring market is room to grow for the Paraguayan liter.

What the study is designed to answer

Three outputs, chained:

  • Biofuel demand per year: the liters each scenario of the path requires, plus growth of the vehicle fleet.
  • Substituted and remaining imports: which part of the diesel and gasoline bill gives way and which stays, year by year.
  • The feedstock and industry the path demands: hectares of cane, corn and oilseed, and the plant scale it takes to avoid ending up importing the biofuel itself.

There is one more layer, theoretical for now, that would add a market read to the forecast: options on futures listed on NYMEX and CME (diesel via heating oil, gasoline, corn, soybean oil and ethanol where a listed market exists) trade at many strikes, and from that curve the Breeden and Litzenberger (1978) method extracts the risk-neutral density: the probability the market assigns today to each future price, with its lean toward a rise or a fall and its uncertainty.

The data: monthly diesel and gasoline consumption and import series, the blend calendar, farm yields by zone and industrial costs by scale.

The technique: time series forecasting for fuel demand, scenarios of the normative path (the blend faster, slower or stalled), the risk-neutral density extracted from listed options to read the expected price of the imported liter, and on top the matching MILP: given each blend, how many hectares and which plant close the system at the lowest cost per liter.

The decision: when to enter. A plant decided today takes years: the forecast would tell you whether it arrives just as the blend rises or after supply got there first.

Who it’s for: the investor timing the plant, the agroindustrial producer weighing integration into the finished liter, the fleet budgeting its cost per kilometer, and policy design that needs to know how fast production can respond.

How to measure it: the path dashboard: blend in force, ethanol and biodiesel demand, and diesel and gasoline imports, month by month against the forecast, with the options density recalculated at each expiry to see whether the market moves its bet.

This analysis is meant to be argued with: if you expect the blend to rise faster or slower, you run cane, a plant or a fleet already in this market, or you are weighing when to enter, write to us and we will test the scenarios against your numbers.

Let's run the numbers on your scenario →

Initial diagnosis at no cost · we reply within 24 business hours