Shortfalls and Workplan for Success of Brazilian Biodiesel Program

1. Identification of shortfalls and establishment of a workplan for the success of the Brazilian Biodiesel Program (BBP) • Mauricio Cintra do Prado de Salles Penteado • SAE World International Congress – Detroit USA • April 2008

2. General scenario of Biodiesel in theWorld and in Brazil: • USA: until 20% (“Clean Air Act Amendment of 1990” and S-517 Law); • Europe: 2%, in 2005,and 5,75% in 2010 (“2003/30/EC of the European Parliament and of the Council of 8th May 2003”); • Brazil: Law 11097/2005: compulsory addition of 2% Biodiesel in 2008 (ca. 800 millions of liters) and 5% (ca. 2400 millions of liters) in 2013 (Brazilian Biodiesel Program) => Important Question mark: expected available production capacity of over 1.3 billions liters, but what is the percentage which will really attend Biodiesel specifications?

3. Agro-economic aspects: Biodiesel Production Chain (ethanol x methanol / scale) Logistics Tributes Quality PURPOSE OF THIS PAPER (Besides simplified assumptions) • Oil or Fat + Methanol => Methylic Esther + Glycerol • Oil or Fat + Ethanol => Ethylic Esther + Glycerol

4. Agro-economic aspects:request, agricultural requirements and shortfalls Brazil B2 request: ca. 800 millions of liters in 2008 North (9%) B2: 70 millions Northeastern ( 14%) B2: 115 millions Centre-South (77%) B2: 615 millions • North: PALM(shortfall: 5-year availability => shortfall for 2008); • Centre-South (except for Mato Grosso do Sul state): CASTOR AND SUN FLOWER • (shortfall: manual process, not mechanized => ALTERNATIVE: SOYBEAN • Northeastern: CASTOR(shortfall: high viscosity => impact in application) • South-Western, South and Mato Grosso do Sul state: SOYBEAN • (shortfall: oxidation stability => impact in application)

5. Mass Flowchart of the Transestherification Process Oil or Fat + (M) Ethanol  (M) Ethylic Esther (Biodiesel) + Glycerol Basic Formula: BIODIESEL COST = (soybean oil price) + (ethylic alcohol price) + (sodium hydroxide price) + (steam cost) + (energy cost) - (glycerine price);

6. Ethylic versus Methylic routes of transestherification...reminding that...:Oil or Fat + (M) Ethanol  (M) Ethylic Esther (Biodiesel) + Glycerol Comparison of ethylic and methylic routes:

7. Ethylic versus Methylic routes of transestherification...reminding that...:Oil or Fat + (M) Ethanol  (M) Ethylic Esther (Biodiesel) + Glycerol Comparison of ethylic and methylic esthers:

8. Technological aspects of Biodiesel production: production costs: soybean, castor, palm, fried oil and cattle tallow • and how to totally supply the northern region for 2008? Answer: with Cattle Tallow; • fried oil: complementary alternative

9. Biodiesel Specifications :Quality and Performance Parameters • The most significant Quality Parameters of Biodiesel are as follows: • remotion of free glycerine (free glycerine content); • remotion of residual catalist (ashes content); • remotion of reacting alcohol (flash point); • lack of free grease acids (total acidity) • The most significant Performance Parameters in the injection systems, are as follows: • viscosity; • density (specific mass); • oxidation stability Oil or Fat + (M) Ethanol  (M) Ethylic Esther (Biodiesel) + Glycerol

10. Technological aspects of Biodiesel application: parameters, influence factors and technical alternatives • European engaged agreement: • attend B5 without changes; • Suggestion for BBP Brasil: parallel • controlled tests on B2 and B5: • => veicular (fleet tests): 2 years • => dynamometer (engines): 1 year • technical alternatives to supply • shortfalls (soyben and castor): • => additivation (2%) ; • => blend of 30% castor and 70% • soybean ; • => Question mark: are they • economically viable?

11. Technical-economic analysis of Biodiesel in Brazil: simplified hypothesis, scenarios and calculation steps • Criteria:Maximum Net IncomeandMaximum Employment Generation • Estimated scenarios(total of 27 different situations according to the region versus oilseeds): • scenario (A): substitution of brazilian importation of Diesel Oil by produced Biodiesel; • scenario (B): introduction of Diesel oil / Biodiesel in part of the brazilian light vehicles • (5% 2008 and 15% 2013) in Brazil (currently forbidden); • scenario (C): composition of scenarios (A) and (B) • Calculation steps: • (I) Sensitivity analysis of Biodiesel prices regarding scenarios (A) and (B): • Federal tribute “PIS/COFINS”: 23% ; State tribute “ICMS” + Distribution Margin + Logistics: 43% ; • Petrol / Gas Station Distribution: 13% => Total incidence of Tributes: 85% • (II) Application of progressive subsidy relating to the tributes above ; • (III) Impact of the total net income and of the employment generation to the government, • in the composition of scenarios (A) and (B), by region / oilseed [2008(B2) / 2013 (B5) ] • => Soybean + ethanol: 113 jobs / millions of liters • => Castor + methanol: 537 jobs / millions of liters • => Palm + ethanol: 43 jobs / millions of liters • => Cattle Tallow + ethanol: 15 jobs / millions of liters

12. Technical-economic analysis of Biodiesel in Brazil: calculation steps (continuation) e analysis of Results • Analysis of Results: • Fried Oil and Cattle Tallow economically viable to the customer under any tribute • conditions; • the Soybean is only economically viable to the customer by applying 13% to the patrol/gas • station, and by exempting all the other tributes; • Castor is economically unviable to the final customer, even by exempting all the tributes; • the only alternative to viabilize it would be by applying 67% of goverment subsidy; • Castor unviabilizes scenario (B), and, consequently, scenarios (A) and (B), but not (A); • it is only economically viable to apply 2% additivation, but not to make blend of oilseeds • (such as 30% castor + 70% Soybean) • the application of 67% of government subsidy in Castor, aiming at viabilizing it to the • customer, will result in negative unit (per liter) net income to the government, for the • northern region, even by destinating the transestherification investiment to the private • sector; • for the viable scenarios subsequently described, the Castornegative net income impact, • for the northern region, will be compensated by the positive net income of the the other • oilseeds, within the scenario (A).

13. Technical-economic analysis of Biodiesel in Brazil: Analysis of Results (continuation)

14. Technical-economic analysis of Biodiesel in Brazil: Results (continuation) Best obtained results with the oilseeds (number of oilseeds): • Scenario (A): substitution of Diesel • importation by Biodiesel => 2 ; • Scenario (B): introduction of Diesel / • Biodiesel in light vehicles • em veículos leves => 3 ; • Scenario (C):(A) + (B)=>2 • Inference of vehicle parallel comparative validation tests, with B2 and B5, via fleet tests, necessary to viabilize the Brazilian Biodiesel Program (BBP) in 2008 (B2) and 2013 (B5): • preliminary analysis of 2 types of fuel: • - so-called “new” (as per specification) for B2 and for B5 (based on B2) • - so-called “old” (similar to the new one, except for storage period of until 12 hours) • new vehicles with “new” fuel; new vehicles with “old” fuel”; • “old” vehicles (100 000 km) with “new” fuels; “old” vehicles with “old” fuels ; • estimated timing for test executions: 2 years

15. Brazilian Biodiesel Program (BBP) Action Plan: Vehicular tests • Inference of vehicle parallel comparative validation tests, with B2 and B5, via fleet tests, necessary to viabilize the Brazilian Biodiesel Program (BBP) in 2008 (B2) and 2013 (B5): • vehicle categories: • => light passenger vehicles, with injection systems of rotating pumps and electronic common rail systems; • => light commercial vehicles (pick-ups, minivans e mini-buses), with injection systems of rotating pumps and electronic common rail systems; • => medium and heavy commercial vehicles (trucks), with injection systems of alternate unit pumps and electronic common rail systems; • => medium and heavy commercial vehicles (buses and trucks), with injections systems of unit injection pumps and electronic common rail systems • Number of necessary vehicles for the following scenarios: • - Maximum Net Income: (1a+1b):64vehicles • [4 test conditions x 2 Biodiesel contents x 4 vehicle categories x 2oilseeds] • - Maximum Employment Generation: (2a):72vehicles • [4 test conditions x 2 Biodiesel contents x 3 vehicle categories x 3oilseeds]

16. Brazilian Biodiesel Program (BBP) Action Plan: Dynamometer Engine tests • Inference of vehicle parallel comparative validation tests, with B2 and B5, via fleet tests, necessary to viabilize the Brazilian Biodiesel Program (BBP) in 2008 (B2) and 2013 (B5): • preliminary analysis of 2 types of fuel: so-called“new” / “old” (similar to the previous item); • new engines with “new” fuel ; new engines with “old” fuel; • estimated timing for test execution: 1 year; • Number of necessary engines for the following scenarios: • - Maximum Net Income: (1a+1b): 32engines • [2 test conditions x 2 Biodiesel contents x 4 vehicle cathegories x 2 oilseeds] • - Maximum Employment Generation: (2a): 36engines • [2 test conditions x 2 Biodiesel contents x 3 vehicle cathegories x 3 oilseeds]

17. Vehicular comparative validation tests with B2 and B5 (pattern extract)

18. Engine Dynamometer comparative validation tests with B2 and B5 (pattern extract)

19. THE END THANK YOU !