THE BRAZILIAN EXPERIENCE WITH ETHANOL

1. International Seminar on Biofuels African Union-Brazil-UNIDO THE BRAZILIAN EXPERIENCE WITH ETHANOL Addis Ababa – Ethiopia – July, 2007. Ricardo de Gusmão Dornelles Director – Renewable Fuels Department Ministry of Mines and Energy José Nilton de Souza Vieira Deputy Director – Agro-Energy Department Ministry of Agriculture, Livestock and Food Supply

2. Brazilian Ethanol Experience: Summary • Introduction: A Brief Energy Outlook • The Brazilian Ethanol Experience • Ethanol and the “Fuel, Food, Feed”Debate • Final Remarks

3. A BRIEF ENERGY OUTLOOK

4. WORLD ENERGY CONSUMPTION Energy consumption - Per capita Tonnes oil equivalent (toe) Source: BP Statistical Review (June/2006)

5. WORLD ENERGY CONSUMPTION Tropical Area Biofuels The greater consumption per capita is outside the tropics! Consumo de energia per capita (em toneladas de óleo equivalente) Cancer Tropic Equator Capricorn Tropic Source: BP Statistical Review (June/2006)

6. WORLD ENERGY CONTEXT • World economy growth • Demand growth • High prices for energy • Refining capacity in the limit • Strong dependency on non-renewable energy sources • Climate change reality • Geopolitical instability and conflict at important energy supplier countries

7. THE CHALLENGE FOR ENERGY POLICY BIOFUELS • Long term energy supply security • Cheaper prices for energy sources • Keeping the local energy competitiveness • Dealing with climate change and environment

8. Biofuels Energy Policy: Main Objectives • To increase biofuels production and consumption • To protect the consumer best interests through regulation mechanisms and surveillance from Regulatory Agencies and to promote free competition • To promote a global market for biofuels • To protect the environment, regarding food security

9. Main Actions • Ethanol and Biodiesel Programs • Solid regulatory framework, considering biofuels in fact as fuels, not only as agriculture goods • Compatible international specifications and standards and promoting production in other countries • Social and Environmental Certificate • To increase biofuels production and consumption • To protect the consumer best interests through regulation mechanisms and surveillance from Regulatory Agencies and to promote free competition • To promote a global market for biofuels • To protect the environment, regarding food security

10. BRAZILIAN ENERGY MIX - 2006 % 100 80 86 60 55 40 14 45 RENEWABLE 20 NON-RENEWABLE 0 World Brazil RENEWABLE SOURCES 44.8 % 225.8 MILLIONTOE Source: Brazilian Energy Balance (BEN,2007) Ministry of Mines and Energy (MME)

11. CURRENT MATRIX OF VEHICLE FUELS - 2006 Diesel 48.9% B2 3.3% Gasoline A 27.2% VNG 3.2% 7.3% 9.9% *Pure Gasoline – Before blending with ethanol  Diesel blended with 2% of Biodiesel Diesel (Total) 48.9 + 3.3 = 52.2% 54.5% (2005) 54,5% (2005)  * 0% (2005) 25.6% (2005) Hydrated Ethanol 2.9% (2005) Anhydrous Ethanol 8.5% (2005) 8.4% (2005) Gasoline C 27.2 + 7.3 = 34.5% 34.1% (2005) Ethanol (Total) 7.3 + 9.9 = 17.2% 16.9% (2005)

12. Why ethanol? • It is easy to be produced in large scale; • It has competitive costs, compared to current oil prices; • It can be produced from different raw materials; • It is a way of promoting the economic development in rural areas; • It has promising perspectives in the world market.

13. Why sugar cane? • It allows the highest productivity (liters/hectare); • It has exceptional thermal and environmental balances; • It allows an increase in the competitiveness of the mills (flexibility, higher quality and lower costs of sugar); • It leads to an increase in agricultural yield (industrial residues transformed in fertilizers).

14. Economic Agents of Sugar Cane Industry Sugar Cane Agriculture Phase Sugar and Alcohol Industrial Phase • 1.000.000 jobs in the countryside • 367 Industrial Plants Regulatory Domain: Ministry of Agriculture Regulatory Domain: Ministry of Mines and Energy / ANP (National Petroleum Agency) Gas Stations • 92% of total gas stations in Brazil have an ethanol pump. • Free Prices Market Fuel Distributors Exporters • 160 Operating Distributors • Only distributors may blend ethanol with motor gasoline • 3,42 Billion liters exported in 2006 Source = MAPA – MME – MDIC - 2006

15. Operating Sugarcane Mills Sugarcane Mills under construction Ethanol in Brazil – Sugar Mills Location - 2007 • NORTHEAST REGION • 79 INDUSTRIAL UNITS: • SUGAR MILLS 8 • ETHANOL PLANTS 19 • ETHANOL AND SUGAR 52 9% of the ethanol production • SOUTH-CENTRE REGION • 288 INDUSTRIAL UNITS: • SUGAR MILLS 8 • ETHANOL PLANTS 59 • ETHANOL AND SUGAR 221 Production in 2006: 18 billion liters 91% of the ethanol production  11% (2005) Source: Ministry of Mines and Energy – Ministry of Agriculture, Livestock and Food Supply - 2007

16. Agricultural phase... • MAIN QUESTIONS: • Soil conservation • Soil chemistry • Agrochemical inputs • Expansion frontiers • Harvest practices • Labor

17. Vinasse Vinasse production in ethanol plants: 10 ~ 15 liters of vinasse per liter of ethanol • Aerobic treatment • New Technology: development of biodigestion of vinasse • Use of vinasse to yield ferti-irrigation

18. Ferti-irrigation Using Vinasse By Conventional Sprinklers or... Source: Centro de Tecnologcia Canavieira - CTC

19. Ferti-irrigation Using Vinasse By Canal & Hard Hose or... Trucks & Hard Hose Source: Centro de Tecnologcia Canavieira - CTC

20. The Industrial phase... • MAIN QUESTIONS: • The usage of the water; • Indirect usage of the residues; • Energy generation using crop residues; • New technologies; • Carbon market (Kyoto Protocol). BAGASSE (SOLID RESIDUE) VINASSES (LIQUID RESIDUE) FILTER RESIDUE

21. Water Uses in Ethanol Plants Estimated mean end use of 21 m3/tons of sugar cane (mills having annexed distillery) Source: Centro de Tecnologia Canavieira - CTC

22. Water Consumption in Ethanol Plants • In spite of the high mean end use, volumes of water collection has been decreasing, as a result of rationalizing of water consumption: reuses, circuit closing, reduction of sugar cane washing and other process changes. Source: Elia Neto, A. Captação e uso de água no processamento da cana-de-açúcar in: Macedo I.C.et al A Energia da Cana-de-Açúcar UNICA, SP, 2005

23. Water Consumption in Ethanol Plants TRADITIONAL PROCESS: SUGAR CANE WASHING NEW TECHNOLOGY: DRY CLEANING REDUCES WATER CONSUMPTION

24. Main Goals of Water Use in Ethanol Plants • Collection........................................1,0 m3/ton of sugar cane • Mean Consumption........................1,0 m3/ton of sugar cane • Effluent released (BOD, COD)....... zero • STRATEGIES: • Rational use (non treated water and water used in process) • Reuse of treated effluents and water used in process • Self-monitoring of quality and quantity of water collected, used and released • Prevent controls of pollution Source: Elia Neto, A. Captação e uso de água no processamento da cana-de-açúcar in: Macedo I.C.et al A Energia da Cana-de-Açúcar UNICA, SP, 2005

25. Energy Cogeneration Using Bagasse CANE BAGASSE + HIGH EFFICIENCY BOILER + TURBO GENERATOR ENERGY: AUTO SUFFICENCY AND EXCEDENTS TO EXPORT

26. Center-South Region Crops Location – 2005/2006 More than 1,300 miles farfrom the Amazon Forest boundaries Amazon Forest A Region that grows sugarcane crops for more than 30 years Pantanal Sugarcane Crops CANASAT Project Atlantic Forest of Brazil Source: IBGE (Preservation Areas) and CTC (Sugarcane Crops)

27. Potential areas for sugar cane in Brazil Without irrigation systems With irrigation systems Production potential with irrigation Production potential without irrigation AREA AREA POTENTIAL POTENTIAL Million hectares % Million hectares % HIGH 38 11 HIGH 8 2 MEDIUM 98 27 MEDIUM 114 32 LOW 168 46 LOW 149 41 IMPROPER 91 25 IMPROPER 58 16 TOTAL 362 100 TOTAL 362 100 Source: MCT - CGEE - Unicamp / initial results

28. Ethanol in Brazil: Oil economy and environmental benefits + US$ 61 billions FUEL DEMAND FOR LIGHT VEHICLES IN BRAZIL 6 10 BEP TOTAL DEMAND FOR LIGHT VEHICLES (GNV INCLUDED) TOTAL DEMAND FOR LIGHT VEHICLES (WITHOUT GNV) GASOLINE PRODUCTION 180 GASOLINE CONSUMPTION Accumulated economy of 8 years of pure gasoline national consumption. 160 140 120 100 80 60 40 20 0 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 YEAR Total economy of 813 millions boe or 16 months of the present Brazilian petroleum production. This curve shows how much gasoline would be necessary to satisfy the fuel demand for light vehicles. IN THIS PERIOD, WITH THE ETHANOL USAGE, THE EMISSION OF 675 MILLION TONNES OF CO2WAS AVOIDED Source: Ministry of Mines and Energy - Brazilian Energy Balance – 2006 and Laura Tetti – USP – 2002

29. Incentives established by the Pro-Alcohol in 1975 The only remaining incentive nowadays • Alcohol price lower than gasoline price • Guaranteed remuneration to the producer • Tax reduction for hydrous alcohol cars • Loans for alcohol producers to increase their capacity • Gas stations were obligated to sell alcohol • Maintenance of strategical alcohol stocks

30. 2006: Total FFV – a Brazilian reality • Any mixture of gasoline and ethanol can be used, from 0 to 100%; • In 2006: The domestic flex-fuel vehicle sales represented 78% of all 1,824,266 light vehicles sold in the same period (imports included); • Total domestic flex-fuel vehicle sales (2003-2006): 2.67 million units) 9 multinational automotive manufacturers settled in Brazil are producing nearly 100 different models of Total FFV Source: Ministry of Development, Industry and Foreign Trade; Brazilian Association of Automotive Vehicle Manufacturers - 2007

31. FINAL REMARKS

32. GLOBAL CHALLENGE ENERGY PRODUCTION X FOOD PRODUCTION AND

33. BRAZIL CHALLENGE Energy and Food Production In millions of hectares

34. EVOLUTION OF ETHANOL PRODUCTIVITY SUGARCANE PRODUCTIVITY ETHANOL PRODUCTIVITY (tonnes of sugarcane / ha) (liters / tonnes of sugarcane) 90 80 70 80 60 70 50 40 60 74 86 62 30 74 50 69 47 20 40 10 0 30 1975 1990 2005 1975 1990 2005 6 World Average = 69 t/ha Sugarcane Production 2006 = 457 10 t 33% of the world production ETHANOL PRODUCTIVITY (m³ / ha) 7 6 5 4 6,6 3 4,6 2 3,2 1 0 1975 1990 2005

35. Sugarcane: Cropped and Preserved Areas due to Technological Improvements productivity Productivity (tons/hectares) preserved area Area ( thousand hectares) cropped area 1 ton of sugarcane = 80 liters of alcohol 1 hectare of sugarcane = 6 m3 of alcohol Source: CIMA

36. Some basic statements: • Energy supply is a great challenge to all the Developing Countries and reducing the oil dependence is a need for most of them; • Biofuels can be important to address this problem and it can contribute to reduce food security problems; • Brazil is the lowest cost producer of sugar and ethanol from sugar cane, but we can observe high sugar cane yields in several other countries; • Other countries, which are able to grow sugar cane competitively, could also become low cost producers of sugar and ethanol; • It is possible to combine agricultural aptitude with high technology and management in other countries, besides Brazil.

37. How to start a program of ethanol production? • Identifying potential areas (available raw material); • Considering technical and economic questions; • Developing a local basic equipments industry (or having appropriate technical support); • Finding the technologies more appropriated to each case (specially in terms of scale); • Investing in the best projects;

38. CONCLUSION • Ethanol can be an excellent business for tropical countries, especially for the traditional sugar cane producers; • Producing and blending ethanol with gasoline are simple tasks, if all the process is carefully planned; • Brazil learned with its own mistakes. Other countries don’t have to do the same; • Brazil is interested in sharing its experience because it needs the help of other suppliers to organize the international market.

39. CONCLUSION How can we help? • Information on sugar cane breeding and varieties development: CTC, IAC and RIDESA; • Technical support for sugar cane production: ORPLANA, CANAOESTE and other consultants. • Technical packages for industrial production: APEX and FIESP; • Financing of equipment by Brazilian exporters by: BNDES – Brazilian development bank (Libor + 2%, 12-year loan).

40. CONCLUSION • Biofuels do contribute to: • Energy security; • Improvement of environment conditions in urban areas; • Creation of jobs and income in rural areas; • Economic development. • However, in order to achieve this reality, it is required: • Governmental decision with adequate public policies • Global efforts towards creation of biofuels international market • Governmental policies do exert strong influence on climate for investment because they can produce immediate impacts over costs, risks and barriers to competition.

41. THANK YOU!