Ethanol: remaining challenges of the recent Brazilian experience

Virginia Parente, University of Sao Paulo IEE/USP, Phone +55 11 9972 8711, sé Roberto Moreira, University of Sao Paulo IEE/USP, Phone +55 11 3091-2617,

Overview

Brazil has become a reference in the use of ethanol fuel. The country has the largest automobile fleet based mainly on ethanol, although it is the second largest producer, after United States of America. According to the Brazilian regulatory authority for the industry –the National Agency for Oil, Natural Gas and Biofuels (ANP) – the ethanol volume sold outreached the gasoline one. In fact, in February 2008 an amount of 1,409 cubic meters of gasoline and 1,434 cubic meters of ethanol were consumed by the Brazilian fleet.

One of the reasons for change in this chess table was the launch of what was locally nicknamed as the flex-car. The project of such a car, which could use any percentage of ethanol and gasoline, was ready, in technological terms, much before it was actually launched by automakers. The delay resulted from the lack of sufficient information by the local branch of world class manufactures regarding the acceptance of the new model by the potential consumers.

This uncertainty had its roots far in the past, during the mid 1980’s, when consumers had suffered a bad experience with non flexible models, facing an ethanol shortage. The shift by suppliers to selling sugar instead of ethanol, due to the recovery of sugar prices in the international markets, associated with other factors,had made it hard to find enough fuel supply. The impossibility to fuel those models, exclusively based on ethanol, left a bitter memory as car owners assisted the devaluation of their ethanol models. Multinational companies in the auto industry were uneasy to make the decision to produce flex models due to the uncertainty surrounding the demand. These worries were overcome with the acceptance of the flex-car but other challenges still remain.

Methods

After selecting important steps of the recent Brazilian experience with ethanol, this paper analysis the facts that made a difference in this journey.

Resultsand Conclusions

By balancing pros and cons involving sugar cane production and ethanol supplying, it is shown that subsidies are not required to make Brazilian ethanol competitive within Brazilian boundaries. Nevertheless other issues remain to be tackled: (a) the externalities caused by a monoculture based on large properties; (b) the increasing social needs of field workers that will have to be met and (c) the logistics of ethanol concentrated production versus its disperse distribution, either within the Brazilian territory that is larger than Continental US, as well as outside Brazil, reaching world wide markets.

References

ANP - Agência Nacional do Petróleo, Gás Natural e Biocombustíveis(2008): Accessed on 07/Jul./2008.

Gonçalves, D. B. (2002):A regulamentação das queimadas e mudanças nos canaviais paulistas. Ed. Rima, São Paulo (Portuguese Language).

Moreira, J. R., L. A. H. Nogueira and V. Parente(2005): Biofuels for transport, development and climate change: Lessons from Brazil. In: Robert Bradley; Kevin A. Baumert (Org.). Growing in the greenhouse: Protecting the climate by putting development first. Washington -DC:World Resources Institute, p. 24-47.

Parente, V. (2007):O bom e o ruim do Plano Decenal. Rev. Brasil Energia, Aug./2007. (Portuguese Language).