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The Brazil Ethanol Experience

The Brazil Ethanol Experience. Rick Sellers RIO, Inc. Rick.Sellers@cegetel.net +33 6 1841 2676. Source: Luiz Carlos Corrêa Carvalho. ProAlcool - The Brazilian Alcohol Program. Key points: Started in 1975 by Federal Government.

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The Brazil Ethanol Experience

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  1. The Brazil Ethanol Experience Rick Sellers RIO, Inc. Rick.Sellers@cegetel.net +33 6 1841 2676

  2. Source: Luiz Carlos Corrêa Carvalho

  3. ProAlcool - The Brazilian Alcohol Program Key points: • Started in 1975 by Federal Government. • Objective was energy security: replacing petroleum imports with domestic resources. • Started as fuel additive in gasoline vehicles, replacing lead and/or MTBE <10%. • Stimulated production of ethanol only cars, more recently flex-fuel cars. • 4,000,000 cars running on pure (Hydrated) ethanol in Brazil • 680,000 flex-fuel vehicles (both ethanol and gasoline, any blend) • All gasoline now 20 to 26% of ethanol in volume basis – gasohol • Ethanol economically competitive to gasoline at >$30-35/bbl Source: Suani Teixeira Coelho

  4. Source: Sérgio Antônio MONTEIRO FONTES

  5. Over 70% of cars sold in 2006 are expected to be FFV

  6. Production Advances Productivity gains from improved species, advanced distilling technology, and increased use of waste (bagasse) in processing.

  7. Ethanol international competitiveness Source: Nastari, 2005

  8. Social benefits of biofuels • Significant increase in employment opportunities, mainly in rural areas. • 2004, Brazil: 700,000 direct jobs and about 3.5 million indirect jobs (production of 350 million tonnes of cane) • Ethanol: job rate in ethanol industry higher than in fossil industry • Different estimates at 20:1 up to 150:1

  9. Economic Cost/Benefit Total incentives for ProAlcool program: US$ 12 billion. Over the last 22 years, hard currency savings amounted to 1.8 billion US $/year or ~US $ 40 billion. Incentives now phased out; program is revenue positive for government through taxes.

  10. Positive Industry Environmental Impacts Source: Macedo, 1992

  11. Positive Urban Environmental Impacts • Lead: dropped from 1,4 ug/m3 in 1977 to less than 0,10 ug/m3 in 1991. • Sulfur: dropped from 50 ug/m3 in 1984 to 15 ug/m3in 2003. • Particulate Matter: dropped from 90 ug/m3 in 1986 to 50 ug/m3 in 2003.

  12. Negative Environmental Impacts Local air pollution during harvesting season (burning required for manual harvest) Burning sugar cane bagasse in the boilers not always best (low pollution) technology. Slightly higher NOx emissions with gasahol than either gasoline or ethanol-only.

  13. Lesson from Brazil – Think long term • Promote demand • Mandate targets (replacement of oxygenates at 5% to start) • Provide incentives to fuel companies to accomplish target • Promote imports if insufficient existing production • Mandate flex fuel auto sales to begin transforming fleet • Stimulate agro-industrial capacities (industry/private sector was responsible for recovery of Brazilian ethanol sector) • Establish “best practices” certification of production • Provide incentives for use of new technologies • Inform consumers (ethanol is compatible with current vehicles, environmental and social benefits, etc.) • Establish trading capabilities to improve liquidity of market • BE PATIENT!

  14. Oil and Biofuels Trade 2002 2030 Oil Trade Based on WEO 2004

  15. Conclusions Brazil showed patience, determination, and excellent timing. Energy security, employment, rural development, and environmental benefits are substantial and fundamental to success. Ethanol programs based on sugar cane probably economic at oil prices over US$ 35/barrel. At oil prices below ~ US$ 35/barrel, ethanol program may still be justified on energy security and social benefits basis, as well as a hedge against future price volatility.

  16. Thank you! Rick Sellers RIO, Inc. Rick.sellers@cegetel.net

  17. Additional Slides for Reference

  18. Brazil Alcohol Statistics* *Except where noted, data apply to the 2003/2004 season.

  19. 10 Myths about Ethanol • Brazilian experience is unique • incompatible with existing fleets; • low energy balances of biofuels • high pollutant emissions (cleaner fossil fuels preferable) • complex logistics • competition with food for land, unsustainable practices, deforestation • should only be produced domestically by developed countries • only subsidized production is possible • imports destroy local agriculture of developed countries • energy efficiency alone will preserve oil resources and fulfill Kyoto targets Source: Suani Teixeira Coelho

  20. Typical Ethanol Production Factors • economic cost of production: US$0.18–0.25 per liter of gasoline-equivalent • average export price of ethanol (2001-2003): US$ 0.23 per liter • Price paid per tonne of sugarcane: US$11.4 (UNICA, 2005) • plant lifetime of 25 years • feedstock cost of US$ 0.143 per liter of ethanol • investment cost around US$ 0.017 per liter of ethanol.

  21. Technological Advances Brazilian car production in 2002: 1.5 million  ethanol share  3.16% (48 thousand) 2002  5.5 billion liters used in a 22 to 25% blend with gasoline 2003  3 million vehicles powered by hydrated alcohol  4.9 billion liters/year 2003: Launching of “Flexfuel” cars in the market

  22. Technology Advances All energy needs in sugarcane mills are provided without any external energy source; Cogeneration process: production of steam and electric/mechanical energy to the process from sugarcane bagasse. Presently up to 80 kWh/tonnes of cane can be sold to the grid 1975 – 2000: low-pressure boilers (22 bar- 20 kWh/ tonnes of cane) Since 2000: high pressure ones (up to 80 bar). Outputs of 120kWh/tonne  better technology and recovery of sugarcane by-products (green cane harvesting). Gasification technology (under development): 300 kWh/tonne of cane.

  23. Ethanol Energy Balance Source: Macedo, I et alli, 2004

  24. Energy balances of feedstocks Sources: Macedo et alii, 2004; UK DTI, 2003 and USDA, 1995

  25. competition with land for food Source: Brazilian Statistics Bureau, several years

  26. Quality of Jobs and Other Socioeconomic Issues Source: Goldemberg, 2002

  27. North - Northeast Region 15% of the total production Crop: October to March Center -South Region 85% of the total production Crop: April to December São Paulo 62% of the total sugarcane 76 % of the C/S region (sugar) 71 % of the C/S region (ethanol) Brazil: Regions and Sugarcane Seasonality Source: Suani Teixeira Coelho

  28. Quality of Jobs and Other Socioeconomic Issues Every 300 million tones of sugarcane produced in Brazil: creation of approximately 700,000 jobs. Formal Jobs: • National average (Brazil): 55% • Sugarcane sector: 68.5% Sugarcane production is seasonal but many jobs are formal and annual (equipment maintenance during off season).

  29. Compatibility of Existing Fleets with Ethanol-gasoline Blend - - - - - - - - - - - -- - - - - For any vehicle NN - - - - - - - - - - - - - - - - - - - - - - - For relatively new fleets (10 ~ 15 years old) - - NN- - - - - - - - - - - Brazilian Application - PN - - - - - - - - - - - - NN - - - - - - - - - - - - - - - - - - - - - - - - USA Application PN - - -- - - - - - - - - - - - NN- - - - - - - - - - - - - - - - - - Brazilian Application PN- - - - - - - - - - - - - - Not Necessary - Probably Necessary Source: ANFAVEA, 2005

  30. GHG emissions from different types of ethanol Sources: Macedo et. alii, 2004, UK DTI, 2003 and USDA, 2004

  31. Environmental Impacts Comparative Raw Exhaust Emission Source: ANFAVEA, 2005

  32. Source: Luiz Carlos Corrêa Carvalho

  33. Source: Luiz Carlos Corrêa Carvalho

  34. International Opportunities

  35. Flex-fuel Vehicles in Brazil

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