Ethanol
Division for New and Renewable Energy Resources (DRN)
Biofuels in Brazil: Challenges and Opportunities March 2nd, 2009 BACKGROUND •
Brazil has accumulated important expertise in the biofuels area, particularly regarding the
use of ethanol as automotive fuel. 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. The National Petroleum Council (CNP) was created in 1938 and played the role of a regulatory agency for fuels determining the directives for the market and regulating the use of the ethanol as a fuel. 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 contributed to
the reduction of domestic oil consumption in nearly one billion barrels of oil equivalent, which represents 8 years of present gasoline consumption in the domestic market or 22 months of Brazil’s current oil production. 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, following on 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 (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 price of this international commodity once again rose sharply in the global market. However, due to the drop in oil prices and, among other factors, an increase in the price of sugar in the international market over the next ten years, the late 1980s were characterized by episodes of 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.
DRN/MRE
Page 1
Last updated: 18/3/2009, 15:30h
Division for New and Renewable Energy Resources (DRN)
•
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. The new economic order brought by the Constitution of 1988 explicited limits for State intervention in economic matters. In this context, in 1990, the Sugar and Ethanol Institute (IAA) and the National Petroleum Council (CNP), which had regulated the Brazilian sugar and ethanol industry for over six decades, were extinct. Thus, as a result of lower oil prices in international markets, the government gradually eliminated subsidies and price controls. The first price to be liberated was sugar. Then, in 1996, as oil price recovered, the anhydrous ethanol price was liberated and finally, in 1999, the prices of sugarcane and hydrated ethanol were free. The planning and implementation of the industry’s production, distribution and sales decisions, once oriented by the Government, became activities of the private sector. With the growing obsolencence of the ethanol-based vehicles fleet, the use of hydrated ethanol as fuel declined year after year. On the other hand, however, the mixture of anhydrous ethanol with gasoline was again written into law 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 practice, this governmental requirement generated a firm and predictable anhydrous ethanol market that is still in effect today, with the Inter-Ministerial Board for Sugar and Ethanol (CIMA) establishing the required percentage, which can range, after law revisions in 2001 and 2003, from 20 to 25 percent. •
The fourth stage began in 2000 with the revitalization of ethanol fuel, and was marked by
the liberalization of prices for the products in the whole chain of commercialization in 2002. Ethanol exports increased further due to high oil prices in world markets and the introduction of flex-fuel vehicles in 2003 (powered by any mixture of hydrated ethanol and gasoline). 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 sugarcane ethanol is efficiently produced in Brazil at prices that are internationally competitive. CURRENT OUTLOOK AND FUTURE CHALLENGES •
See Powerpoint Presentation: DE at JH v7.ppt.
•
On the same subject also recommend UNICA’s President attached presentation: “An
Overview of the Brazilian Sugarcane Industry”.
DRN/MRE
Page 2
Last updated: 18/3/2009, 15:30h
Biofuels in Brazil: Outlook and Challenges
André Corrêa do Lago Department of Energy Ministry of External Relations
Washington, D.C. - March 2nd, 2009
Brazil´s Energy Profile
Brazil’s Energy Mix Share of Total Primary Energy Supply (2007) Sugarcane 15,9%
Other renewables 3,2% Oil 37,4%
Wood and Residues 12,0%
Hydro 14,9%
Nuclear 1,4%
Mineral Coal 6,0%
Natural Gas 9,3%
Renewable sources: 46% Source: Brazilian Energy Balance 2008 – EPE.
3
Global Energy Mix Share of Total Primary Energy Supply (2005) Nuclear 6,3%
Gas 20,7%
Hydro 2,2%
Comb. Renewable and Waste 10,0%
Other Renewables 0,5%
Oil 35,0%
Coal 25,3%
Renewable Sources: < 13% Source: International Energy Agency (IEA) / OECD
4
The Brazilian energy mix will be even more diversified in the future Brazilian Energy Mix Trends 100% Other renewables
Sugarcane 80% Combustible renewables and waste Hydro
60%
Nuclear Coal 40%
Gas
20% Oil
0% 1970
1975
1980
1985
Source: Brazilian Energy Plan 2030, EPE.
1990
1995
2000
2005
2010
2015
2020
2025
2030
ESTIMATE 6
Biofuels in Brazil
Brazilian ethanol stands high productivity... Ethanol and Biodiesel Productivity
Brazil
EU
India
USA
Thailand
EU
Indonesia
EU
(liters per ha)
Sugarcane Ethanol
Beet Ethanol
Sugarcane Ethanol
Corn Ethanol
Cassava Ethanol
Wheat Ethanol
Palm Biodiesel
Rapeseed Biodiesel
Source: FGV / GV Agro, IEA (2005)
8
... besides boasting high energy efficiency Energy Balance of Different Raw Materials (energy content / fossil energy consumed) 10
ETHANOL
BIODIESEL
8
6
4
2
0 Sugarcane
Wheat
Source: FGV / GV Agro, World Watch Institute.
Beet
Corn
Palm Oil
Waste Oil
Soybeans
Rapeseed
9
... and mitigating climate change effects Average GHG Lyfe-Cycle Emissions (avoided emissions through gasoline displacement)
0%
- 20%
- 40%
- 60%
- 80%
- 100% Corn Ethanol (USA / EU)
Source: AIE (2004); ICONE and UNICA.
Beet Ethanol (EU)
Sugarcane Ethanol (Brazil)
10
... reducing urban centers air pollution Reduction / Increase x Transport Fuel (considering that 100% of the auto fleet runs on one of the options listed)
Carbon Monoxide (CO) Hydrocarbons (HC) Nitrous Oxides (NOx)
Gasoline “A” (pure)
Gasoline “C” (blend)
Ethanol
Source: CNI, Veículos Automotores (1990) apud Szwarc, A. Impactos do uso do etanol nas emissões veiculares em áreas urbanas. In: Macedo, I. de C. (org). A energia da cana-de-açúcar, São Paulo. 2005.
11
Food x Fuel: a fake dilemma Availability of Land for Agriculture (millions of ha)
Land for Agriculture Cultivated land
Brazil Source: FGV / GV Agro, ING
USA
Russia
EU
India
China
Canada
Argentina 12
Brazil’s potential for agriculture expansion Land Use in Brazil 851
(millions of ha)
400
20
62 220
43 106
National Territory
Amazon forest and other protected areas
Cities, Watercourses and roads
Source: FGV / GV Agro, MAPA, IBGE and CONAB.
Cultivated land
Pasture
Other
Available land
13
Ethanol poses no threat to the Amazon Sugarcane producing regions
Amazon forest
Sugarcane
Source: MAPA, NIPE-Unicamp, IBGE and CTC.
14
Oil and commodities’ price correlation Long-term Trends (Prices without inflation) Rice
Indexed Prices (2001 = 1)
Palm Oil
Soybean
Corn
Wheat
Oil
Source: Historical data from International Monetary Fund, International Financial Statistics, http://ifs.apdi.net/imf/. Futures data from Chicago Board of Trade, http://cbot.com; and http://tradingcharts.com.
15
Flex-fuel technology boosts domestic ethanol demand Number of light motor vehicles (millions) 40 8,3% 35 Gasoline
Ethanol
Flex-fuel
Diesel
30
25
71,6%
20
15
10 1,2% 5 18,9% 0 1990 Source: Petrobrás / ANP.
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020 16
Biodiesel: a market that experiences steady growth Biodiesel Blending Goals 2008
2005 to
(2º sem.)
2010
(1º sem.)
to 2009
and beyond
2008
2007
Blend
B2 authorized
B2 mandatory
B3 mandatory
B5 mandatory
Market Size
840 million liters/year (potential)
870 million liters/year
1,4 billion liters/year
2,5 billion liters/year
Source: MDA / ANP
17
Challenges and Opportunities for Biofuels
Biofuels in Brazil: Challenges and Opportunities March 2nd, 2009 BACKGROUND •
Brazil has accumulated important expertise in the biofuels area, particularly regarding the
use of ethanol as automotive fuel. 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. The National Petroleum Council (CNP) was created in 1938 and played the role of a regulatory agency for fuels determining the directives for the market and regulating the use of the ethanol as a fuel. 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 contributed to
the reduction of domestic oil consumption in nearly one billion barrels of oil equivalent, which represents 8 years of present gasoline consumption in the domestic market or 22 months of Brazil’s current oil production. 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, following on 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 (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 price of this international commodity once again rose sharply in the global market. However, due to the drop in oil prices and, among other factors, an increase in the price of sugar in the international market over the next ten years, the late 1980s were characterized by episodes of 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.
DRN/MRE
Page 1
Last updated: 18/3/2009, 15:30h
Division for New and Renewable Energy Resources (DRN)
•
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. The new economic order brought by the Constitution of 1988 explicited limits for State intervention in economic matters. In this context, in 1990, the Sugar and Ethanol Institute (IAA) and the National Petroleum Council (CNP), which had regulated the Brazilian sugar and ethanol industry for over six decades, were extinct. Thus, as a result of lower oil prices in international markets, the government gradually eliminated subsidies and price controls. The first price to be liberated was sugar. Then, in 1996, as oil price recovered, the anhydrous ethanol price was liberated and finally, in 1999, the prices of sugarcane and hydrated ethanol were free. The planning and implementation of the industry’s production, distribution and sales decisions, once oriented by the Government, became activities of the private sector. With the growing obsolencence of the ethanol-based vehicles fleet, the use of hydrated ethanol as fuel declined year after year. On the other hand, however, the mixture of anhydrous ethanol with gasoline was again written into law 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 practice, this governmental requirement generated a firm and predictable anhydrous ethanol market that is still in effect today, with the Inter-Ministerial Board for Sugar and Ethanol (CIMA) establishing the required percentage, which can range, after law revisions in 2001 and 2003, from 20 to 25 percent. •
The fourth stage began in 2000 with the revitalization of ethanol fuel, and was marked by
the liberalization of prices for the products in the whole chain of commercialization in 2002. Ethanol exports increased further due to high oil prices in world markets and the introduction of flex-fuel vehicles in 2003 (powered by any mixture of hydrated ethanol and gasoline). 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 sugarcane ethanol is efficiently produced in Brazil at prices that are internationally competitive. CURRENT OUTLOOK AND FUTURE CHALLENGES •
See Powerpoint Presentation: DE at JH v7.ppt.
•
On the same subject also recommend UNICA’s President attached presentation: “An
Overview of the Brazilian Sugarcane Industry”.
DRN/MRE
Page 2
Last updated: 18/3/2009, 15:30h
Biofuels in Brazil: Outlook and Challenges
André Corrêa do Lago Department of Energy Ministry of External Relations
Washington, D.C. - March 2nd, 2009
Brazil´s Energy Profile
Brazil’s Energy Mix Share of Total Primary Energy Supply (2007) Sugarcane 15,9%
Other renewables 3,2% Oil 37,4%
Wood and Residues 12,0%
Hydro 14,9%
Nuclear 1,4%
Mineral Coal 6,0%
Natural Gas 9,3%
Renewable sources: 46% Source: Brazilian Energy Balance 2008 – EPE.
3
Global Energy Mix Share of Total Primary Energy Supply (2005) Nuclear 6,3%
Gas 20,7%
Hydro 2,2%
Comb. Renewable and Waste 10,0%
Other Renewables 0,5%
Oil 35,0%
Coal 25,3%
Renewable Sources: < 13% Source: International Energy Agency (IEA) / OECD
4
The Brazilian energy mix will be even more diversified in the future Brazilian Energy Mix Trends 100% Other renewables
Sugarcane 80% Combustible renewables and waste Hydro
60%
Nuclear Coal 40%
Gas
20% Oil
0% 1970
1975
1980
1985
Source: Brazilian Energy Plan 2030, EPE.
1990
1995
2000
2005
2010
2015
2020
2025
2030
ESTIMATE 6
Biofuels in Brazil
Brazilian ethanol stands high productivity... Ethanol and Biodiesel Productivity
Brazil
EU
India
USA
Thailand
EU
Indonesia
EU
(liters per ha)
Sugarcane Ethanol
Beet Ethanol
Sugarcane Ethanol
Corn Ethanol
Cassava Ethanol
Wheat Ethanol
Palm Biodiesel
Rapeseed Biodiesel
Source: FGV / GV Agro, IEA (2005)
8
... besides boasting high energy efficiency Energy Balance of Different Raw Materials (energy content / fossil energy consumed) 10
ETHANOL
BIODIESEL
8
6
4
2
0 Sugarcane
Wheat
Source: FGV / GV Agro, World Watch Institute.
Beet
Corn
Palm Oil
Waste Oil
Soybeans
Rapeseed
9
... and mitigating climate change effects Average GHG Lyfe-Cycle Emissions (avoided emissions through gasoline displacement)
0%
- 20%
- 40%
- 60%
- 80%
- 100% Corn Ethanol (USA / EU)
Source: AIE (2004); ICONE and UNICA.
Beet Ethanol (EU)
Sugarcane Ethanol (Brazil)
10
... reducing urban centers air pollution Reduction / Increase x Transport Fuel (considering that 100% of the auto fleet runs on one of the options listed)
Carbon Monoxide (CO) Hydrocarbons (HC) Nitrous Oxides (NOx)
Gasoline “A” (pure)
Gasoline “C” (blend)
Ethanol
Source: CNI, Veículos Automotores (1990) apud Szwarc, A. Impactos do uso do etanol nas emissões veiculares em áreas urbanas. In: Macedo, I. de C. (org). A energia da cana-de-açúcar, São Paulo. 2005.
11
Food x Fuel: a fake dilemma Availability of Land for Agriculture (millions of ha)
Land for Agriculture Cultivated land
Brazil Source: FGV / GV Agro, ING
USA
Russia
EU
India
China
Canada
Argentina 12
Brazil’s potential for agriculture expansion Land Use in Brazil 851
(millions of ha)
400
20
62 220
43 106
National Territory
Amazon forest and other protected areas
Cities, Watercourses and roads
Source: FGV / GV Agro, MAPA, IBGE and CONAB.
Cultivated land
Pasture
Other
Available land
13
Ethanol poses no threat to the Amazon Sugarcane producing regions
Amazon forest
Sugarcane
Source: MAPA, NIPE-Unicamp, IBGE and CTC.
14
Oil and commodities’ price correlation Long-term Trends (Prices without inflation) Rice
Indexed Prices (2001 = 1)
Palm Oil
Soybean
Corn
Wheat
Oil
Source: Historical data from International Monetary Fund, International Financial Statistics, http://ifs.apdi.net/imf/. Futures data from Chicago Board of Trade, http://cbot.com; and http://tradingcharts.com.
15
Flex-fuel technology boosts domestic ethanol demand Number of light motor vehicles (millions) 40 8,3% 35 Gasoline
Ethanol
Flex-fuel
Diesel
30
25
71,6%
20
15
10 1,2% 5 18,9% 0 1990 Source: Petrobrás / ANP.
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020 16
Biodiesel: a market that experiences steady growth Biodiesel Blending Goals 2008
2005 to
(2º sem.)
2010
(1º sem.)
to 2009
and beyond
2008
2007
Blend
B2 authorized
B2 mandatory
B3 mandatory
B5 mandatory
Market Size
840 million liters/year (potential)
870 million liters/year
1,4 billion liters/year
2,5 billion liters/year
Source: MDA / ANP
17
Challenges and Opportunities for Biofuels
