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Building the Blend: How Brazil Grew its Ethanol Industry
by Jonathan Eisenthal

When you walk in to a car showroom in São Paulo, Rio de Janeiro, or anywhere else in Brazil – whether Volkswagen, GM, Toyota, Ford, Honda, Fiat – nearly every single vehicle you see will have flexible fuel engine and fuel system as standard equipment.

“In Brazil they don’t even try to sell you a car that isn’t flex,” said Joel Velasco. “It would be like trying to sell a car here without airbags. It’s a no-brainer.”

Velasco is a Washington lobbyist on behalf of UNICA, the largest Brazilian trade association for sugarcane and ethanol producers. He is actively working to persuade Washington to drop tariffs that block Brazilian ethanol from being marketed here in the United States. As a dual citizen of Brazil and the U.S., Velasco feels he has a perch from which to take a balanced view of ethanol in both countries.

Brazil has taken its ethanol push to the point where in 2008, more than 87 percent of all new car sales there were for flexible fuel vehicles. Since the requirement for every gallon of gasoline there to contain between 20 and 25 percent ethanol, begun in 1993, the country’s ethanol production has risen to 6 billion gallons per year – 5.5 billion of which is used in its own market.

Since 2003, Brazilians have purchased more than seven million flex-fuel vehicles, and according to Velasco, 80 to 90 percent of these motorists use pure ethanol – E100 – in their vehicles, all the time. E100 sales rose from 4.5 billion liters (1.2 billion gallons) to 13 billion liters (3.5 billion gallons) in the space of five years.

 

Building ethanol consumption in Brazil

1970s:

- The Proalcool program began, blends of 10% to 20% ethanol already in place

- E100 was also offered, car companies incentivized to produce autos to run on pure ethanol

1993:

- Base blend for every gallon of gas set at between 20-25% ethanol

2003:

- The sale of flex-fuel vehicles begins

2008:

- 87% of all new car sales were for flex-fuel vehicles

- 80-90% of motorists use E100 in their cars all the time

 

One of the keenest observers of the Brazilian agricultural and energy situations is Kroll’s InfoAmericas.com, where agribusiness consultant Mike Smith works closely with Associate Managing Director Thomas Rideg.

Smith noted recent polls show these statistics about owners of flex-fuel cars in Brazil: 52 percent prefer ethanol, 29 percent calculate price/efficiency, 11 percent use the cheapest, and 8 percent prefer the gasoline blend.

 

 

Brazil’s flex-fuel drivers

52% prefer ethanol

29% calculate price / efficiency

11% use the cheapest fuel

8% prefer gasoline

 

“In 2007, the domestic market for ethanol (in Brazil) was 15 billion liters. The export market is 3.4 billion liters. In the case of all cars being flex and they used only ethanol, the domestic market would almost double,” Smith said. “For 2013, we estimate that the domestic market will reach 27 billion liters and 12 billion liters will be exported.”

Infrastructure compatibility with higher blends

Smith notes that the fuel pumps are the same for gasoline / E10 and for the higher ethanol blends, except the type of metal pipe used inside the pump is a slightly more resistant metal for use with E100.

A report released by Underwriters Laboratories in May 2007 detailed a trip made by UL technical staff to five fuel stations in Brazil to obtain information on ethanol dispensing. The report, “Ethanol Fuel Dispensing Operations in Brazil,” stated: “Station operators did not report any significant problems in dispensing ethanol fuel.” UL notes that two of the three major fuel dispenser equipment manufacturers for the Brazilian market as the same as in the U.S. – Wayne/Dresser and Gilbarco.

UL found some of the dispenser components on the E100 pumps (strainer, pump, meter, etc.) to be identical to those used for dispensing the standard Brazilian gasoline blend of E25.

“The hydraulic components used in the Brazilian dispensers are reported to be the same as those used in dispensers manufactured for use in the U.S. market by those manufacturers that sell in both markets,” UL stated.

“In the service stations that UL staff visited there appeared to be no visual signs that ethanol (E100) dispensing components degraded significantly more compared with the same components used in dispensers for the gasoline / ethanol blend (E25),” UL stated in its report summary.

Achieving energy independence through domestic ethanol production and use

Given the Brazilian public’s favorable attitude towards ethanol, especially when it is less expensive than gasoline, it may come as no surprise that Brazil has recently achieved total energy independence. However, the role of state ownership of the petroleum companies, which have aggressively explored offshore drilling options, cannot be underestimated, according to Smith.

UNICA provided the 2008 figures from Brazil’s Ministry of Mines and Energy: 16 percent of the country’s energy comes from sugar cane, 36.7 percent from petroleum, and 9.6 percent from natural gas.

Experts and advocates agree that Brazil arrived at this enviable position of self-sufficiency through circumstances and strategies that allow private enterprise to offer ethanol fuel at a substantial discount to state-owned, produced, and retailed gasoline.

“Initially, the Brazilian government subsidized the Pro-Alcool through a variety of mechanisms, particularly `soft' loans to the sugarcane growers, which built ethanol distilleries and incentives to encourage people to purchase pure ethanol-driven cars. This meant that large savings were made by importing less oil,” Smith said.

In the 1970s, after Brazil ended its military government, the country was broke, and though the government owned the oil industry, it imported 80 to 90 percent of its oil from elsewhere, according to Velasco. This, however, created a very positive dynamic for ethanol, because it meant that investments in ethanol yielded an immediate savings to the government – the more ethanol it produced, the fewer barrels of oil it had to buy from the OPEC cartel at extortionate prices.

Brazil launched what it called the Pro-Alcool program, offering two levels of ethanol fuel, according to Smith. There was a universal base blend of ethanol in every gallon of gasoline, and the government also offered a pure alcohol fuel, 100 percent hydrous ethanol. General Motors and a number of other companies offered vehicles with modified spark ignition engines.

This dual approach of offering the base blend of between E10 and E20, along with E100 proved to be fairly easy to accommodate, according to Smith, because “most petrol stations sold two types of petrol, regular and super, and had two pumps for each type. This way, one or two pumps would go to ethanol.”

Velasco, who grew up in Brazil, had early experience with E100. His family, living in the Goias state, was one many families that eagerly took advantage of the E100 program. In order to entice the car companies to produce a car that could run on pure alcohol, the government waived typical auto sales taxes, reducing the cost between 30 and 40 percent. The little Chevy Chevette was a very economical choice.

But finding stations that offered E100 in Goias was catch-as-catch can in those early years in the 1980s. So the trip to grandma’s house, a five-hour drive, involved carrying a forty liter plastic jug of ethanol in the back seat, and pulling to the side of road at a certain point in the journey to siphon its contents into the car’s fuel tanks.

“I like to say I have ‘first tongue’ experience with E100,” Velasco said. “Driving around Washington, DC I try to imagine people here pulling to the side of the road to siphon fuel.”

A slide in a PowerPoint presentation Velasco often uses shows a Brazilian Shell station offering E25 for 2.219 reais per liter, or .60 per gallon. The E100 is going for 1.299 reais per liter, or about .12 per gallon.

“The economic decision (about how to price the fuel) has to factor BTUs,” Velasco said, noting that ethanol contains less energy per unit volume compared to gasoline. “You can put people in flex-fuel cars all you want, but unless you forbid the use of gas, then they will use what is cheaper. You have to make it the economical choice. Sure, some will do it for environmental reasons or because they don’t want to give money to Hugo Chavez, but the bottom line is what drives the choice for most people.”

Productivity increases in agriculture and ethanol production

Leaps in productivity are a big part of how Brazil has achieved 18.5 billion liter ethanol production level, according to Smith.

“In recent years, economies of scale and competition led to a reduction in production costs,” said Smith regarding both sugarcane and ethanol production in Brazil. “(The cost reductions) were due mainly to a significant increase in agricultural yield, which is a function of soil quality, weather conditions, and agricultural practices, and is also strongly influenced by agricultural management. Productivity gains and cost reductions were also achieved as a result of the introduction of operation research techniques in agricultural management and the use of satellite images for species identification in cultivated areas. Similar decision-making tools have been applied in relation to harvesting, planting and application rates for herbicides and fertilizers. “

In the 30 years since Brazil embarked on its modern ethanol program it has increased yield dramatically. Smith stated that on the agricultural side, sugarcane yields have increased from 50 tons per hectare to 90 tons per hectare today. Better varieties, better agronomic practices, and more efficient harvesting all play a role.

U.S. corn production has a similar story of dramatic yield increases, thanks to a whole spectrum of agronomic advances. In 1978, the average corn yield per acre was 101 bushels. In 2008, U.S. farmers averaged 153.9 bushels of corn per acre. The growing use of onboard GPS technology and computer has allowed many farmers to place inputs at just the right levels, at just the location they’ll be most effective. U.S. ethanol production is continuing its path of innovation as well, guaranteeing that ethanol – already an abundant and economic fuel choice in America – will only become more so in the future.

According to Velasco, the economic lesson is that price is the key – by producing at high volumes, ethanol makers can out-compete gasoline prices by enough to make ethanol the natural choice of consumers.

“In the U.S. we definitely need to get beyond the blending wall,” Velasco said. “You have to bring along all the players to make sure the solution is sustainable. Just like production of the feedstock has to be sustainable.”

The Brazil ethanol story, though quite divergent from ethanol production here, offers intriguing insights for the way forward. The idea that ethanol can break through and achieve a much broader market, based on making ethanol the economical choice for the consumer, holds great promise.

 
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The American Coalition for Ethanol publishes Ethanol Today magazine each month to cover the biofuels industry’s hot topics, including cellulosic ethanol, E85, corn ethanol, food versus fuel, ethanol’s carbon footprint, E10, E15, and mid-range ethanol blends.
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