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The role of biofuels in the energy future: Lessons from Brazil

David Zilberman, professor, agriculture and resource economics | September 22, 2011

To further understand biofuels, I decided to travel to Brazil, where the modern biofuel industry has started and flourished. I believe that before you develop a model, you need to speak with the people that know what is going on to have a realistic perspective. Therefore I went with Madhu Khanna for a 10 day visit to Sao Paulo, Rio de Janeiro, Piracicaba, Campinas and Brasilia and spoke with government officials, investors, environmentalists and obtained what I believe to be a well-rounded perspective. In the process, we learned to appreciate Brazil’s vast resources, their hard-working, fun-loving people (in Brazil, it is not a contradiction) and enjoyed the country’s beauty, weather and food.

The Brazilians are proud of their biofuel industry, which is one of the main sectors that is putting the country on the move to becoming one of the major player in the future. The industrial effort to produce ethanol for vehicle transportation started in 1975, and in the 1980’s the Brazilians introduced cars that only ran on alcohol. However after some crop failures, the experiment with the ‘alcohol car’ ended and the industry had to rebound and rebound it did. The government introduced a standard that required use of 25% alcohol with gasoline, and in 2003 flex cars were introduced. These are cars that can run on any mix of gasoline and ethanol and currently 90% of the new, light cars in Brazil are flex vehicles.

We discovered that the ethanol industry in Brazil has huge potential to grow. A conservative estimate based on different sources suggests that the area of sugarcane dedicated to biofuel can grow six-fold (from 5 million hectares to 30 million hectares) without adding to deforestation. Brazil has more than 140 million hectares available for expansion outside the forest. Actually, out of 330 million hectares of arable land, only about 75 million hectares are used for crops. So the 30 million hectares that I mention is a very conservative estimate. Furthermore the productivity of the sugarcane industry in Brazil have been expanding and can expand much further, both by improved practices in the field and use of some of the cellulosic residues from sugarcane production to produce more ethanol. So by 2030, it is plausible that yield of ethanol per hectare will double (probably will grow even further) so the total production of ethanol can grow twelve-fold compared to the present. That can satisfy the Brazilian need, leaving a large volume for export. Of course, this potential will only realize if the high prices of oil (above 80.00/barrel) continue or if countries introduce stricter greenhouse gas emission standards (or preferably a meaningful carbon tax) that will add to the relative profitability of sugar ethanol, production of which emits relatively very small amounts of greenhouse gas emissions.

While the potential of Brazilian ethanol is vast, during the last several years the industry has been stagnant. There are several reasons for the current situation. First, ethanol is competing with gasoline and the price of gasoline in Brazil has been capped, thus the price received by ethanol producers is significantly below the world price. Secondly, the value of the Brazilian currency, the real, is appreciating which adds extra cost of production and marketing. Thirdly, because of the financial crisis, growers were unable to obtain financing to replant sugarcane and thus the plants got older and less productive. Furthermore, the interest rates in Brazil are exorbitantly high in real terms, 10%, and this increases the cost of investment. Finally, ethanol competes with sugar and the price of sugar increased so the share of sugarcane juice allocated for ethanol declined. These tough conditions of the industry have lead to significant restructuring, whereby major multinational corporations have become the major players in the industry. However, the resulting inflow of resources and knowledge is likely to increase productivity of existing resources in the short-run and result in further expansion down the line. While growth of the industry may be stalled by uncertainty about domestic ethanol pricing and constraints on foreign ownership of assets, we believe that if global high gasoline prices are sustained and clean fuels are rewarded, then the Brazilian ethanol industry will reach its potential by 2030.

The visit to Brazil increased my appreciation of the biofuel industry in the United States. The US corn ethanol production has exceeded the Brazilian production, even though it has been relying on an inferior feedstock. Furthermore, Brazil is now importing US corn ethanol to meet its growing domestic needs in the short-run. The US corn ethanol industry has reduced its greenhouse gas emission and cost of production significantly during the last 6 years (still it emits much more than sugarcane). The US biofuel industry has benefited from a subsidy and now that it is mature and competitive, subsidies should be stopped.

The negative impact of corn ethanol on food prices can be reduced, if not eliminated, by reducing the unreasonable restrictions on the application of agricultural biotechnology on food crops especially in Europe, Asia and Africa. Increased productivity of farm production from existing and emerging transgenic varieties will reduce acreage required for food production and probably will reduce food prices and may even expand area available for biofuels. Nevertheless the potential for expansion of corn biofuel in the US is very limited compared to Brazil, but when cellulosic ethanol becomes profitable, that would lead to a new expansion of biofuel production and expand the capability of biofuel to replace fossil fuels for cars. It is not unreasonable to expect that more than 30% of the car fuels globally will be replaced by biofuels within 25 years.

Comments to “The role of biofuels in the energy future: Lessons from Brazil

  1. If Ms. Rosenoer wishes to become expert in the field of biofuels and ethanol in particular, she needs to read David Blume’s book, “Alcohol Can Be A Gas”. I don’t know where UC gets their reading list for the study of biofuels, but if this book isn’t on it, then there is a very, very, big hole in their course work. David knows more about ethanol production and use than probably anyone on this planet. This has been his life work for 30 years

  2. In answer to Chip Daigle’s questions:

    “If nearly half of the ethanol in the World is advanced, why … doesn’t Stephen Chu embrace the Brazil model and move America towards sugar-based ethanol instead of dirty corn ethanol?”

    Half the ethanol in the world is “advanced”? Please define advanced. Virtually all of it is produced through the fermentation of simple sugars or starch. And it is Congress that sets import tariffs. If the $0.54 per gallon import tariff were allowed to expire at the end of this year, sugar-cane-based ethanol will be cheaper than it has been until now.


    “Why doesn’t Stephen Chu investigate why the Brazilian Cars hold up so well using hydrous ethanol that cost half as much as anhydrous ethanol like Corn?”

    Actually, cars running on hydrous ethanol are decreasingly popular in Brazil. For one, when ethanol runs short (as happened in Brazil in the late 1980s), the cars cannot run on gasoline. That is why flex-fuel cars have become the dominant vehicles of choice for Brazilians.


    “Why can’t the corn farmers grow sugar beets up north instead of corn to make ethanol?”

    They can, but corn is more profitable. Where sugar beets are turned into ethanol, as in France, they are heavily subsidized.


    “Why can’t we begin using the SW desert to grow sweet sorghum for ethanol?”

    Precisely where do you mean? Plants that can grow in deserts do not yield very much biomass without a massive input of water. That alone would make growing sorghum in the desert expensive. Also, to be used for ethanol production, sorghum has to be fermented soon after harvesting, unlike corn, which can be stored for long periods.


    “Why can’t we get rid of sugar supports and use the money to stimulate the production of American sugar and ethanol in the south and Hawaii?”

    The support of sugar in the United States is provided mainly through policies that raise sugar prices, not from taxpayers. So there is no large basket of money that can be redirected to sugarcane growers so that they can start producing for the biofuel market. In Florida, the long-term goal is to phase out sugarcane production and restore the Everglades. In Hawai’i the sugar-cane industry survives only on Maui, and locals are getting fed up with the amount of water the cane requires, especially during drought years. In short, forget it.

  3. rosenor’s opinion is marvellous. sugercane is an extraordinary crop that can grow effciently with organic inputs and minimum water if properly maneged

  4. What do the Auto makers do different to make their cars ready for Hydrous Ethanol? Does the Hydrous Ethanol cause any extra problems to the vehicles in Brazil and Europe??? Doesn’t Hydrous Ethanol cost much less to make?

    If nearly half of the Ethanol in the World is Advanced, why oh why doesn’t Stephen Chu embrace the Brazil model and move America towards Sugar-based Ethanol instead of Dirty Corn Ethanol? Why doesn’t Stephen Chu investigate why the Brazilian Cars hold up so well using Hydrous Ethanol that cost half as much as Anhydrous Ethanol like Corn?

    Why can’t the Corn Farmers grow Sugar Beets up North instead of Corn to make Ethanol? Why cant we begin using the SW Dessert to grow Sweet Sorghum for Ethanol? We cannot wait for Cellulosic and Algae for Clean Air when Sugar-based is here and now. Why cant we get rid of Sugar Supports and use the money to stimulate the production of American Sugarcand Ethanol in the South and Hawaii???

  5. Prof. Zimmerman writes, “The visit to Brazil increased my appreciation of the biofuel industry in the United States. … Brazil is now importing US corn ethanol to meet its growing domestic needs in the short-run. … The US biofuel industry has benefited from a subsidy and now that it is mature and competitive, subsidies should be stopped.”

    Well, I’m glad to see him advocating that the subsidies be stopped. (A little late to join that bandwagon, but better late than never.) But of course one reason subsidies are no longer needed to prop up the industry in the United States is that the blending of fuel ethanol is mandated by Congress, as well as by several states. When something is mandated, price no longer matters.

    Where the $0.45 per gallon Volumetric Ethanol Excise Tax Credit (VEETC) does make a difference, however, is on exports. Instead of trumpeting the “coals to Newcastle” example of U.S. ethanol being shipped to Brazil, the Professor might give pause and reflect on the sense of spending U.S. taxpayer’s money — the VEETC — on such exports.

    @ Michal Rosenoer: I’d be interested to hear more about your research.

  6. The Brazilian ethanol does not use petroleum inputs. The refineries in Brazil works with bioenergy produced by bagasse of sugar cane. This energy is used for the refineries and the surplus is used in the national grid.

  7. A clarify on Mr. Rosenoer’s comments:

    1. No Brazilian cane fields are irrigated and I can’t think of better use for the rain that falls out of the sky than letting it fall on one of the most impressive agricultural crops known to man today, cane.

    2. Cane is actually an exceedingly efficient crop in its use of fertilizers. The industry discovered 15 yrs ago that vinhaca – a byproduct of ethanol production, which was once a problem to dispose of, turned out to be an excellent fertilizer for the crop and is now reapplied. The only fertilizer that is petroleum-based in most modern agriculture including cane would be urea or ammoniun nitrate which come from natural gas mostly. Potash and potassium are mined and hence not petroleum-based. The crop is no more petroleum intensive than any other crop. The energy used to refine and distill cane juice into its end products comes from electricity and heat from the biomass thermoelectric plants that use cane bagasse as feedstock.

    3. Cane growing areas are thousands of miles from the Amazon and Brazil has very strict environmental laws restricted land usage. Cane, unlike grain crops is very dense. It currently occupies about 7-8 mln ha compared with soy that takes up 24 mln ha here. Brazil plants just over 60 mln ha to crops and has 220 mln ha of pasture and 101 mln ha of unutilized arable land that could be converted to agricultural use legally.

    4.The argument that cane ethanol production is driving up food prices is ill informed. Brazil is producing as much sugar as its industrial capacity currently allows due to attractive prices. Half of its cane crop goes to sugar and the rest to ethanol. If it could convert all its cane to sugar the world diabetes rates would likely skyrocket. Thankfully we have ethanol to keep mills from investing more in sugar capacity.

    5.Cane mills already remove biomass or bagasse from the fields which is used to generate electricity in biomass thermoelectric plants, except for the lower stubs of the cane plant and roots which is the source of the next crop. Erosion is not an issue in Brazilian cane fields.

    6. Mr. Rosenoer’s final wish is a sad example of the militancy that has hijacked the needed intelligent public debate on energy, food and the environment.

  8. Nice article, agreed re the fact that there is a lot of land that can be converted in Brazil but will that not increase emissions?

  9. As a recent Cal and CNR alumnus currently working on domestic biofuel subsidies in Washington DC, I applaud Prof. Zilberman for recognizing that ethanol subsidies in the USA are wasteful and unecessary; the ethanol industry benefits from tax credits, a mandate, and an import tariff, thus receiving benefits that are both wasting taxpayer dollars on a mature industry while also steering subsidies away from truly renewable sources of energy like wind and solar.
    However, Prof. Zilberman fails to recognize the dirty, polluting nature of corn and sugar biofuels. Both crops require hume amounts of petroleum-based inputs, are heavily water-intensive, and drive indirect land-use change abroad while driving up the prices of corn and food. His suggestion that we could strip the fields of stover is also misguided – removing biomass from the fields will only intensify the environmental degradation and erosion caused by ethanol production.
    I hope that in the coming years, UC Berkeley will live up to its reputation as a leader in the environmental and energy fields and call for an end to ethanol – from any source – domestically and abroad.

    Michal Rosenoer
    Honors BS, CRS 2010

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