ENERGY - INFORMATION ON BIOFUELS

INFORMATION ON BIOFUELS

The growing demand for energy in the emerging economies has been exerting great pressure on the world’s existing petroleum extraction installed capacity. Therefore, the high costs of fossil fuels in international markets are not expected to return to much lower levels any time soon. Thus, the concern over energy issues is the order of the day and the search for alternatives to fossil fuels has taken on a prominent role both in countries’ decision-making processes and in their public policies in the energy area.

Brazil has a great deal to contribute to this discussion, since it has accumulated important know-how in the biofuels area, particularly regarding the use of ethanol as an automotive fuel. The Brazilian energy mix is one of the cleanest in the world and currently more than 45 percent of all energy consumed in Brazil comes from renewable sources, whereas the average share of renewable sources in the energy mix of all developed countries is about 10 percent. This constitutes a clear advantage in terms of where Brazil stands in the current situation, in which concerns over energy security and the environment have led various countries to seek alternatives to fossil fuels while making efforts to implement initiatives to reduce their greenhouse gas emissions.
II. The Use of Ethanol Fuel in Brazil

The Brazilian experience with the use of ethanol fuel as a gasoline additive dates back to the 1920s. However, it was only in 1931 that fuel produced from sugar cane began to be officially blended with gasoline, which at that time was imported. Despite these early initiatives, however, it was only in 1975, with the launching of the National Ethanol Program (ProAlcool), that the Brazilian government created the necessary conditions for the sugar and ethanol industry to become, three decades later, one of the most modern in the world, having achieved significant results from both environmental and economic perspectives. Over the last 30 years, the use of ethanol as a substitute for gasoline has accounted for savings of over one billion barrels of oil equivalent, which corresponds to about 22 months of Brazil’s current oil production. Over the last eight years, the use of ethanol produced savings in oil imports of US$ 61 billion, which is currently the total amount of the Brazilian external public debt.

The main goals of ProAlcool were to introduce into the market a mixture of gasoline and anhydrous ethanol and to provide incentives for the development of vehicles that were fueled exclusively with hydrated ethanol. In chronological terms, one can describe four separate stages in the large-scale production and use of ethanol fuel in Brazil.

In the first, from 1975 to 1979, facing the first oil crisis, in 1973, and, with the drop in sugar prices in the international market, the Brazilian government decided to offer incentives to increase the production of ethanol for use as a gasoline additive. Thus, in addition to preventing the sugar and ethanol industry from having idle capacity, the aim was to reduce Brazil’s dependence on fossil fuels.

The second stage, from 1979 to 1989, is viewed as the peak of the ProAlcool program. During that period, a series of tax and financial public incentives were created, benefiting everyone from ethanol producers to final consumers. It began with the second oil crisis, in 1979, when the prices of this international commodity once again rose sharply in the global market. However, due to the drop in oil prices and an increase in the price of sugar in the international market over the next ten years, the end of the 1980s were characterized by a scarcity of hydrated ethanol in Brazilian gas stations, which seriously undermined consumer confidence and had serious repercussions on sales of cars fueled with ethanol in Brazil.

The third stage, from 1989 to 2000, was characterized by the dismantling of the set of government economic incentives for the program, as part of a broader deregulation that affected Brazil’s entire fuel supply system. In 1990, the Sugar and Ethanol Institute (IAA), which had regulated the Brazilian sugar and ethanol industry for over six decades, was closed. Thus, as a result of lower oil prices in international markets, the government gradually transferred to the private sector the ability to make decisions regarding the planning and carrying out of the industry’s production, distribution and sales activities. In addition, with the end of the subsidies, the use of hydrated ethanol as a fuel diminished drastically. On the other hand, however, the mixture of anhydrous ethanol with gasoline was boosted by the government, which in 1993 established the requirement that 22 percent anhydrous ethanol must be added to all gasoline distributed at retail gas stations in Brazil. In reality, this governmental requirement generated an expansion in the anhydrous ethanol market that is still in effect today, with the Inter-Ministerial Board for Sugar and Ethanol (CIAA) establishing the required percentage, which can range from 20 to 25 percent.

Finally, the fourth stage, since 2000, began with the revitalization of ethanol fuel and was marked by the liberalization of price for the products in this industry in 2002, by the introduction of flex-fuel vehicles in 2003, which run on any mixture of hydrated ethanol and gasoline, by opportunities for increases in ethanol exports, and by high oil prices in world markets. During this stage, the dynamics of the sugar and ethanol industry began to depend much more on market mechanisms, particularly in the international market, than on government incentives. The industry made investments, expanded its production, underwent technological modernizations, and today sugar-cane ethanol is efficiently produced in Brazil at prices that are internationally competitive.

Over the last few decades, productivity gains have surpassed 30 percent, reducing the need to expand the cultivated farmland. The production of sugar cane uses low levels of pesticides, has the largest program of biological pest control in Brazil, has the lowest level of soil erosion, recycles all its wastes, does not undermine the quality of water resources, and accounts for the largest area of organic production in the country.

An analysis of the growth sustained by the industry provides evidence to challenge the argument that growing sugar cane for the purpose of producing ethanol is harmful to the environment. On the contrary, biofuels have had positive social and environmental impacts, by recovering previously deforested areas, providing crop rotation and aeration of farmlands used for food production, in addition to employing almost one million workers, including through a system of family cooperatives. Moreover, the significant increase that has been seen in sugar-cane agriculture in Brazil, which is concentrated mainly in the state of São Paulo, distant from the Amazon region, and occupies only 0.6 % of Brazil’s land area, is primarily the result of productivity gains and research efforts.

The sugar and ethanol industry is among the productive sectors that employ the most workers in Brazil. It creates about one million direct jobs (including in family companies and cooperatives) and six million indirect jobs. Working conditions on sugar cane farms are, on average, better than in other industries of the Brazilian economy. The average family income of such workers is higher than that of 50 percent of Brazilian families. The Brazilian government monitors the industry to ensure that labor laws and regulations are being complied with. The occurrence of forced labor in sugar plantations is residual and the government has intensified its inspections, thereby curbing abuses. In 2006, inspections in the state of São Paulo alone, which accounts for 80 percent of the overall Brazilian ethanol production, reached 745,000 workers. Of this total, only 298 workers (i.e. about 0.04%) were found to be in conditions similar to forced labor.

Brazilian ethanol plants, which have traditionally been seen as backwards, are currently a factor for social and economic development in Brazil and are at the core of a change in the energy paradigm that involves the entire planet.

Research and development of biofuels have been added, as high priority topics, to the cooperation agendas of various countries and regions, including China, the European Union, France, Germany, Japan, Spain, Sweden, Switzerland, the United Kingdom and the United States. International organizations and fora such as UNIDO, the OAS, the Ibero-American Conference and IBSA (India, Brazil and South Africa) have also been emphasizing this issue in their respective programs and initiatives. The growing international demand for cooperation with Brazil is a result of the cutting edge technology that the country succeeded in developing in this field, based on a domestic Brazilian effort led by the National Technology Institute (INT). On the other hand, this increase in demand requires careful selection of partnerships, so as to ensure that cooperation contributes to improving technological processes, under balanced conditions and through appropriate rules for the equitable sharing of benefits resulting from the research efforts. The ongoing technological modernization, by means of research and development, is an element that is essential to ensure that the expansion in the use of biofuels is accompanied by an increase in both energy efficiency and the rational use of resources employed in the production cycle.


III. The National Biodiesel Program

Biodiesel is a biodegradable fuel derived from renewable sources, such as vegetable oils and animal fats. Brazil is home to several species of oilseeds, with which one can produce biodiesel, among them castor beans, African oil palm, sunflowers, babaçú coconut oilseeds, soybeans and cotton. This fuel completely or partially replaces fossil diesel fuel in the engines of trucks, tractors, light trucks, automobiles and can also be used to generate power and heat. In addition, it can be used as a fuel, or added to diesel in various proportions. Using biodiesel brings environmental benefits and contributes to improving the air quality in major urban centers as a result of the decrease in polluting emissions.

As in the case of producing ethanol from sugar cane, Brazil has all the necessary conditions to become a major global producer of biodiesel, given that it has vast cultivable areas with soil and climate that favor the cultivation of oilseeds. Since the 1970s, various research projects on the use of vegetable oils as fuels have been developed and carried out in Brazil. Such projects included tests that demonstrated the technical viability of using biodiesel—both as a fuel and mixed with diesel oil—as a fuel, even though there remain technological and economic challenges to be overcome in order for its large scale use to become viable.

In 2004, the government officially launched the National Program for the Production and Use of Biodiesel (PNPB), which is tied to social inclusion and regional development programs. In 2005, with the aim of encouraging the use of biodiesel, it was established that, beginning in 2008, the diesel oil sold in Brazil must contain two percent biodiesel. In addition, it was decided that beginning in 2013, all the diesel oil produced and sold in Brazil will be required to contain at least five percent biodiesel. Similarly, a system of tax incentives and subsidies was established for the production of the raw materials for biodiesel on small family farms in the North and Northeast regions of Brazil, especially in the semi-arid areas.

Some specialists with more pessimistic views, however, insist that the emphasis on production in small farms makes biodiesel less attractive for private investments and causes delays or even prevents the expansion of cultivation to the extent that is necessary to meet the targets established by the government, which would threaten the program’s very sustainability. In order to effectively be able to add two percent biodiesel to the diesel produced and sold in Brazil, the annual production will have to reach 820 million liters, beginning in 2008. Early results, however, allow to forecast that it will be possible to achieve that target and maybe even surpass it.


IV. Prospects for Biofuels

Biofuels is a priority issue on the agenda of the principal actors in the international arena. The topic has gained strategic significance, driven by the rise in oil prices, by the prospect that those prices will remain high, due to the demand from major countries, such as China, India and the United States, and by concern over ensuring supply, due to political instability in the main fossil-fuel-producing regions of the world.

From an environmental perspective, using biofuels offers significant benefits. Studies reveal, for example, that using ethanol fuel allows important reductions in greenhouse gas emissions (especially CO2), which constitutes an incentive for countries that have commitments to reduce emissions, made under the Kyoto Protocol to the United Nations Framework Convention on Climate Change. In Brazil, the use of ethanol fuel during the period from 1970 to 2005 avoided the emission of 644 million metric tons of CO2.

For all these reasons, it has become essential that the international community increasingly improve and expand the use of renewable sources of energy in their most varied applications. In the transportation sector, the development of liquid biofuels—primarily biodiesel and ethanol—is of fundamental importance to reduce dependence on petroleum, which currently account for about 98 percent of the global demand for fuels, the price level of which can impose undesirable constraints on the growth of the world economy. Furthermore, the prospect of the world’s oil reserves running out makes it urgent, especially for the developing countries, to provide incentives for alternative sources of energy, because otherwise those countries could see an impact on their development processes.

Even though the technology and know-how that are necessary for ethanol to be adopted internationally are already available, it is essential that governments adopt measures to include biofuels in the energy mix of their respective countries. Therefore, coordinated efforts are necessary to spread the production and use of biofuels around the world. This is the right time for Brazil to play a leading role in the process of transforming biofuels into global energy commodities, building on Brazil’s success with public policies to introduce biofuels into its energy mix, which today serve as models for the rest of the world.

The Brazilian biofuels strategy is associated with concerns over energy security and sustainability, factors that have encouraged various countries to seek alternatives to fossil fuels and adopt measures to reduce greenhouse gas emissions. In the case of Brazil, this strategy consists of a variety of actions, organized under three approaches, global, regional and bilateral.

In its global approach, Brazil has advocated the adoption of international standards and technical requirements that would facilitate the establishment of a global market for such products. In order to create a coordinating mechanism among the largest producers and consumers of biofuels, the International Biofuels Forum was created in March 2007, in New York. Additionally, Brazil’s goal is to stimulate scientific studies and technological innovations that ensure both the long-term sustainability of biofuels production and ways of preventing the production of biofuels from interfering with food production.

Regionally, Brazil has advocated the energy integration of South America by promoting diversification of the energy mix in the countries of the region and by providing incentives for renewable sources of energy. Also, a Mercosul Memorandum of Understanding was signed to expand cooperation in this area. By integrating the chains of production, distribution and sale of ethanol and biodiesel in the region, including applicable regulations and inspections, the aim is to promote a more effective use of the South American countries’ important competitive advantages in the biofuels field, acknowledging that the region presently has an opportunity to produce wealth and development in a sustainable manner.

The third aspect of Brazil’s engagement, working bilaterally, covers technical cooperation initiatives, including research on alternative sources for producing biofuels, as well as promoting scientific and academic exchanges. Making such exchanges operational has been achieved by signing memoranda with Brazil, India, South Africa (i.e. IBSA), Chile, Denmark, Ecuador, Paraguay, Sweden, Uruguay, and other countries. The recent Memorandum of Understanding signed with the United States also provides for Brazil-U.S. cooperation in third countries to foster the development of biofuels.

Written by Embassy Publisher
Last Updated ( Friday, 22 February 2008 )