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The Brazilian Ethanol Industry 1

The actual scenario of the Brazilian Ethanol Industry

Marcelo Sans Dodson

Graduate student in Project Management


Devry University
Tampa – Florida
March 4, 2011
The Brazilian Ethanol Industry 2

Abstract ...................................................................................................................................................... 3
Introduction ............................................................................................................................................... 4
Brazilian Ethanol Industry ........................................................................................................................ 5
Background ............................................................................................................................................. 5
Types of facilities ..................................................................................................................................... 6
Production System ................................................................................................................................... 8
Production & Demand .......................................................................................................................... 11
Logistics and storage ............................................................................................................................. 13
Road system ....................................................................................................................................... 14
Railroad system .................................................................................................................................. 14
Pipeline system ................................................................................................................................... 14
Storage............................................................................................................................................... 16
Principal players.................................................................................................................................... 17
Labor ..................................................................................................................................................... 18
Greenhouse Gas Emissions ................................................................................................................... 19
American Ethanol and Brazilian Ethanol ............................................................................................... 20
References ................................................................................................................................................. 23
The Brazilian Ethanol Industry 3

Abstract

The Brazilian ethanol industry is attracting attention from countries around the world not
only because its innumerous economic, social, technologic, and environmental advantage but also
its potentiality to help the progress of developing countries. The Brazilian sugarcane history began
with the discovery of Brazil in 1500. The 2nd World War and the petroleum crisis in the 70s
motivated the Brazilian government to initiate its investments on the national ethanol industry. The
governmet subsidy ended in late 80s. After the ethanol industry passed through a big recession in
the 90s, it raised again in early 2000 with the introduction of the Flex Fuel Vehicles (FFV).
Additionally, the Brazilian population has been increasing its consumption what is impacting direct
on the country energy demand. Externally, the world has been increasing its awareness in the risk of
their dependence on petroleum and the impact on the nation sovereign and on the Earth climate.
Consequently, many countries have been adopting rules to reduce the petroleum consumption by
adding biofuel in their energetic matrix. In this scenario, the Brazilian ethanol is, by far, the most
competitive biofuel available what is boast international investment on sugarcane facilities. Despite
these advantages, the Brazilian ethanol industry is suffering from the Brazilian poor logistics, labor
qualification, and international protectionism. Therefore, this paper analyses some important
components of the Brazilian ethanol industry and its efforts to open the international market, more
specific the U.S. market.
The Brazilian Ethanol Industry 4

The actual scenario of the Brazilian Ethanol Industry

Introduction

National energy security is one of the great challenges that countries around the world are
facing in this century. The world population growth rates, the constant increases in consumption,
the variation in crude oil prices, and the general concerns for climate change are the major issues
that support the global interests of using renewable sources for energy production.

Governs, research centers, and industries are investing a great amount of funds not only to
develop new technologies to use more efficiently the renewable resources but also to teach the
population to be more conscious on how their life style are impacting on the environment and
general welfare. In addition to grants, guaranteed loans and tax incentives for the production of
biofuels, many governments exempt biofuels from consumer excise taxes to help achieve targets on
biofuel use (GORTER & JUST, 2009)

The UN Foundation stated “biofuels have the potential to alleviate poverty, create
sustainable rural development opportunities, reduce reliance on imported oil, and increase access
to modern energy services” (United Nations Foundation, 2006). In this scenario Jank (2008) affirms
that “100 developing countries could supply biofuels to the world, instead of the 20 oil producing
countries that do so now, most of them located in troubled regions. Sugarcane can make a
significant contribution to development by turning many of these countries into producers and
exporters of ethanol.”

Unfortunately, in many countries the production of biofuels is not commercially viable as


costs are higher relative to the costs of extraction of fossil fuels. Therefore, government intervention
is essential in providing incentives to the industry and subsidies are necessary to ensure adequate
biofuels production. (BALCOMBE & RAPSOMANIKIS, 2008)

In energy terms, when prices per liter are converted into prices per energy unit, ethanol
production costs have been higher than those of petrol. However, the recent substantial increases in
the price of oil have enhanced ethanol’s competitiveness relative to petrol even in energy terms
(Hamelinck and Faaij 2006).
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Ethanol is the most visible of the biofuels benefiting from this recent surge in interest.
Cereals, sugarcane, and cellulosic material are examples of the variety of feedstock that can be used
to produce ethanol. The United States and Brazil are currently leading the way in the use of ethanol
as an alternative fuel, making them the two largest producers in the world, accounting for about
70% in 2006 of total world production in 2005. Brazil is the world’s second largest producer of
ethanol after the United States and the leading ethanol exporter, deriving its supply from sugarcane.
(ELOBEID & TOKGOZ, 2008)

From the last 10 years, the Brazilian Ethanol industry is facing its second wave of
investment as a result of both internal demand and external demand for this biofuel. Starting in
2000, the introduction of flex-fuel cars resulted in new expansion of the Brazilian ethanol
production in approximately 1.6 million m3 per year (2000/2005) (Brazil/MAPA, 2009).
Additionally, international biofuels regulations such as the Europe “2007 renewable energy road
map” (Europe, 2007) and the U.S. “2005 energy policy act”, and the increase of demand from Japan
and China, boost the Brazilian ethanol production in approximately 3.0 million m3 per year (2006-
2009) (Brazil/MAPA, 2009).

This actual global demand for ethanol is impacting on the Brazilian sectors such as
agriculture, industry, and public. As a result of the Brazilian ethanol competitiveness, other players
are taking actions to preserves their national industry. Therefore, this paper analyses the actual
scenario of the Brazilian Ethanol industry and how it is impacting on its major competitor: the
American Ethanol industry.

Brazilian Ethanol Industry


Background

In Brazil, sugarcane production started in the 16th Century; in 1931 a 5% (E5) blend of
ethanol and gasoline was compulsory. During the 2nd World War, the Northeast Region used a 40%
(E40) blend. In 1941, 44 distilleries were in operation in Brazil (Uniao da Agroindustria Canavieira
de Sao Paulo, 2006).

The energy crisis of the 1970s brought about high gas prices and limited supplies that
generated an intense interest in renewable fuels and weaning Brazil from foreign sources of oil.
The Brazilian Ethanol Industry 6

Brazil is one of the first countries to promote ethanol through its National Alcohol Program,
launched in 1975 to reduce Brazil’s dependence on foreign oil and to find alternative markets for
Brazilian sugar (Bolling and Suarez 2001). Despite the fact that gas prices dropped in the 1980s,
Brazil kept the program alive during the 1980s which gave to Brazil a head start in the ethanol
production (Hofstrand, 2009).

The growth of the Brazilian ethanol sector has been initially sustained by policies that
subsidized both the production and consumption of ethanol. However, the reduction of
governmental support caused by the debt crisis, together with the lack of vision of many cane
producers, led to serious ethanol shortages early 1990s. Sales of pure ethanol-fuelled cars dropped
from 92-96% during the eighties to about 1,000 new vehicles per year in 1997/1998 (Walter,
Rosillo-Calle, Dolzan, & Piacente, 2007). Consequently, the national ethanol program was
effectively eliminated during the 1990s and a transition to full liberalization took place between
1996 and 2000 (BALCOMBE & RAPSOMANIKIS, 2008).

Currently, although the government no longer exercises direct control over ethanol
production and exports, it sets an official blending ratio of anhydrous ethanol with petrol at 20–25%
and periodically provides support in the form of purchases and sales from ethanol strategic reserves.
In addition, differential tax rates are applied to petrol and ethanol in order to improve ethanol’s
competitiveness at the pump (International Energy Agency 2004).

Types of facilities

The Brazilian industry consists of a large number of large-scale firms that are characterized
by dual-processing structure, allowing the production of ethanol and sugar at variable proportions
(Tokgoz and Elobeid 2006). Jank (2009) describes the sector with some 400 processing mills, over
1,000 suppliers and support industries, more than 70,000 independent sugarcane growers and
almost 850,000 workers.

Hofstrand (2009) described three types of production facilities exist in Brazil. According to
the 2010 report from the Ministry of Agriculture, Livestock, and Supply (MAPA),

• Sugar mills (producing only sugar) - The sugarcane is washed, chopped,


shredded and crushed between rollers. The juice (grapa) contains 10 - 15% sucrose. The remaining
The Brazilian Ethanol Industry 7

material (by-product) is called bagasse. In 2010, Brazil had 15 mills in this category (Brazil/MAPA,
2010).

• Mills with distillery plants (sugar and ethanol production). In 2010, Brazil
had 248 mills in this category (Brazil/MAPA, 2010), and

• Independent distilleries (only ethanol production). In 2010, Brazil had 157


mills in this category (Brazil/MAPA, 2010).

However, Brazilian ethanol plants tend to be integrated with sugar plantations and sugar
mills. Depending on market forces, these plants have the capacity to shift some production from
sugar to ethanol, or vice-versa (Brazil/MAPA, 2010).

- Brazilian Mills

Distribution per type of industry

Distribution per region

Figure 1: Distribution of the sugarcane mills by region and by type. Source: (Brazil/MAPA, 2010)
The Brazilian Ethanol Industry 8

Following, figures show examples of different types and sizes of ethanol plants.

Sugar & Ethanol Ethanol

Sugar & Ethanol Ethanol

Production System

Brazil is one of the world’s largest sugarcane producers and processors. One of the
advantages Brazil enjoys is the fact that it has two distinct harvest periods: the North-Northeast
region harvests its crop between November and April, whilst the Center-South region harvests from
May to November. So Brazil enjoys not only important geographical diversification but also greater
harvest balance (Cosan, 2010).

Native from Asia, sugarcane is member of Poaceae family as well corn and sorghum.
Depending on the rate of the declining yields, the same stock can be used for 5 to 8 years. Yields
decline with approximately 15 percent after the first harvest and 6-8 percent in the years that follow.
Declining yields depend on treatment of the stock during maintenance and harvesting but are
mainly determined by the combination of applied type of soil, climate, and plant variety
(Braunbeck, 2005).

In 2009, the Brazilian government approved the Sugarcane Agro-ecological zoning


Sugarcane (ZAE Cana). This regulation considers environmental, economic, and social aspects to
The Brazilian Ethanol Industry 9

guide both sustainable expansion of sugarcane production and investments in the biofuel sector
(Rudorff, Aguiar, Silva, & Sugawara, 2010). Additionally, the ZAE Cana excludes areas with slope
bigger than 12%, forest (i.e. Amazon forest and Pantanal Swamp), and other areas. Based on the
ZAE Cana, Brazil has approximately 63.48 million hectares (151 million acres) for the expansion of
the sugarcane (Brazil/ Presidencia da Republica, 2009). Figures 2a,b show the area where it is
possible to cultivate sugarcane in Brazil.

Figure 2a: Agro ecological zoning for sugarcane. Source: (Brazil/ Presidencia da Republica, 2009)

Nowadays, the Center-South region produces approximately 85% of the Brazilian cane.
Within the region, the state of São Paulo is the leader, producing 60% of the national cane, and 60%
of the nation sugar and ethanol (Smeets, Junginger, Faaij, Walter, & Dolzan, 2007). Figure 3 shows
the actual distribution of sugarcane in the center – south region
The Brazilian Ethanol Industry 10

Figure 2b: Detailed view of Center – South ZAE Cane. Source: (Brazil/ Presidencia da Republica,
2009)

Figure 3: Actual area cultivated with sugarcane in the center – south region. (INPE - Instituto
Nacional de Pesquisas Espaciais, 2010)

In 2007, the Secretary of Environment of São Paulo State signed an agro-environmental


protocol with the ethanol agro-industry sector (Governo do Estado de Sao Paulo, 2007). This
The Brazilian Ethanol Industry 11

protocol establishes the gradual elimination of burning practices by 2014 for mechanized areas
(slope ≤ 12%) and by 2017 for non-mechanized areas (slope > 12%. Similar measures have also
been adopted by other states in the Center South region of Brazil; which, in addition to being the
largest sugarcane producers (Figure 3), have a great availability of pasture land with smooth relief
(slope ≤ 12%). Such characteristic may prevent areas designated for food production from being
replaced by sugarcane, plus to promoting harvest mechanization in order to eliminate the practice of
straw burning (Rudorff, Aguiar, Silva, & Sugawara, 2010).

Production & Demand

The estimates obtained for the Brazilian production of sugar indicate an annual average
growth rate of 3.53% in the period 2009/2010 to 2019/2020. This rate must conduct to a production
of 46.70 million tons of the product in 2019/2020. This production corresponds to an increase of
15.2 million tons in relation to the observed in 2008/2009. (Brazil/MAPA, 2010)

Figure 4: Brazilian Center South sugarcane Productivity Evolution.


The Brazilian Ethanol Industry 12

The ethanol production projected for 2019/2020 is of 62.91 billion liters, more than two
times the production of 2008/09, of 27.67 billion liters (figure 5). The domestic consumption for
2020 is projected at 47.79 billion liters and the exports at 15.12 billion liters. The Energy Research
Company – EPE (2008), projects for 2017 that 73.6% of the vehicles sold in Brazil will be of the
type flex fuel. The expansion of the vehicle sector, and the increasing use of the flex fuel cars are
currently the main factors responsible for the ethanol production growth in Brazil. (Brazil/MAPA,
2010)

Ethanol (Billion of liters)

(Production)

(Consumption) (Export)

Figure 5: Ethanol production, consumption, and export. (Brazil/MAPA, 2009)

Recently, increased demand for ethanol in Brazil has been driven by the popularity of flex-
fuel vehicles (FFVs) that can run on gasoline, ethanol, or a combination of the two. As with ethanol
vehicles, FFVs enjoy some tax incentives not offered to gasohol cars that run only on gasoline
blended with ethanol at the mandate set by legislation. These FFVs are expected to be the
predominant vehicle type in Brazil within the next decade (F.O. Licht 2006b). FFV sales represent
roughly 90% of new vehicle sales by end of year. (Seelke & Yacobucci, 2007)

By the year 2013 more than half of the Brazilian fleet will be FFV. Today, they are
responsible for more than 12% of the total 10 million cars. At the pump, ethanol costs less than
70% of gasoline, what makes the renewable fuel attractive to the end-user. Thanks to the modern
The Brazilian Ethanol Industry 13

vehicle technology, ethanol used in vehicles pollutes less than gasoline today. (Governo do Estado
de Sao Paulo, 2007)

On the market for less than a year, flex-fuel motorcycles are already repeating the success
of flex automobiles in Brazil. Although overall motorcycle sales were down in 2009, sales of flex-
fuel models in the 150 cc category made by Honda reached 183 thousand units for the year, a total
that is 70% higher than sales for conventional units in the same category (UNICA, 2010).

Additionally, ethanol mills have sub products that either help to increase the overall net
income such as selling bagasse as a cattle feedstock, energy, and yeast or reduce production costs
by generating their on energy from burning bagasse and producing organic fertilizers. In the near
future, it will be possible to use bagasse and sugar cane leafs as feedstock to cellulosic process and
it will be feasible to produce biodiesel, plastics, and jet fuel from sugar cane.

Logistics and storage


In the last 20 years, the Brazilian government did not invest too many resources on the
national infrastructure. As a result of this short term vision, the country suffers transport its goods.
The figure 6 shows the Ethanol Transport Matrix. Almost ethanol produced at the mills is
transported by trucks (90.2%) which increase overall cost and reduces its competitiveness
(BRAZIL, 2010).

Figure 6: Brazilian ethanol matrix. Source: (BRAZIL, 2010)


The Brazilian Ethanol Industry 14

The Brazilian logistics and infra structure are two big problems to Ethanol industry
expansion. Not only are railroad and waterways inefficient and precarious but also are ports and
storage tanks inadequate to absorb all production (Zanao, 2009). Fleury (2005) described that 100%
of the ethanol produced are delivery from the mill to centers of storage and distribution through
highways. The ethanol transportation between center of distributions is almost performed by train*
(61%), followed by roads (31%) and waterways (8%).

Road system

The predominant mode of ethanol transport is road system because its competitiveness on short
routes and low load conditions. In general, the plants are located, in agricultural areas away from
major transportation routes and, individually, have no scales of production that enable the use and
investment in other modes of transport. As a result, almost all ethanol plants use roads to deliver
their production to retailers and ports (Milanez, Nyko, Garcia, & Xavier, 2009).

Railroad system

In 2008, the Center South region concentrated 68.3% of the national ethanol railroad system
and seven from 10 main railroads terminals are destined to receive the fuel. The average railway
distance in the region were 900 km (between 500 and 2,300 km), and the annual volume transported
is approximately 1.6 million cubic meters (moving between 50 thousand and 400 thousand cubic
meters in the main section) (Milanez, Nyko, Garcia, & Xavier, 2009).

Increasing of distances between production fields and consumption centers and volumes can
contribute to improve investments on projects, creating an ethanol distribution system more
competitive and efficient. These investments seeks minimize problems such as the actual lack of
tank-wagons, the lack of traction of locomotives, the low line capacity caused by lack of
maintenance, and difficulties to integrate different railroads.

Pipeline system

Brazil has approximately 5,700 miles of pipelines for transport combustive. But, further
gains in competitiveness can be achieved with the initial operation of the "ethanol pipelines." There
are companies planning to build ethanol pipelines to improve the transport of the ethanol from the
The Brazilian Ethanol Industry 15

production fields to final customers. Following, it is described two projects proposed by Petrobras
and Uniduto (Milanez, Nyko, Garcia, & Xavier, 2009).

Petrobras intends to amplify existents olio ducts by 2012 and increases its delivery capacity
up to 12 million cubic per year. The company aims to implement a system for selling ethanol from
central Brazil to the port of San Sebastian (Figure 7). This project has cost an estimated investment
of U.S. $ 1.2 billion Petrobras expects reduce its logistics costs by 10% which will improve the
product competitiveness in the international market (Transpetro, 2010)

Figure 7: Petrobras’ pipeline project (Transpetro, 2010)

Created in 2008 by a group of ethanol producers (78 ethanol mills) representing one third of
the national production, Uniduto’s project estimates approximately 612 kilometers of pipelines,
from collection centers located in Serrana, Botucatu, Anhembi, and Santa Bárbara d’Oeste, two
distribution centers, in Paulínia and in the Metropolitan Region of São Paulo, and two own harbors,
one on the waterway Tietê-Paraná, and the other off shore, in Santos region, seaside of São Paulo,
that will allow the docking of ships of many sizes (Figure 8).
The Brazilian Ethanol Industry 16

Figure 8: Uniduto’s pipeline project (UNIDUTO, 2010).

The loading of the ships will be carried through monobuoys, very safe and efficiency in
handling large volumes of liquids. It will be able to transport up to 16 billion liters of ethanol a
month. The project is expected to invest U.S. $ 1 billion to begin construction in the 2011-2012
seasons (UNIDUTO, 2010).

Storage & Shipment

According to the National company of supply (CONAB), the domestic market is responsible
for consume 80% of the national ethanol production and it has been growing at a rate of 10% per
year.

The Center South region concentrates 75% of the Brazilian ethanol storages capacity. The
State of Sao Paulo detains 56.2% of the national storage capacity, followed by the state of Minas
Gerais 8.1%, Parana 7.7%, Alagoas 5.3%, Goias 5.0%, Mato grosso 4.2%, Mato Grosso do Sul
3.0%, and the rest of the country 10.4% (graph 2).

Graph 2: Storage capacity by States, 2007-2008. (CONAB, 2008)

Brazil has 8 ports that can store 588,330 m3. The port of Santos, in the State of Sao Paulo, is
the biggest port in the country and it has the capacity to store 245,000 m3 and a flow rate of 250/400
m3 (figure9). The Port of Paranagua, in the state of Parana, has the capacity to store 115,000 m3
(Figure 10).
The Brazilian Ethanol Industry 17

Figure 9: The port of Santos’ ethanol sector (http://www.portodesantos.com.br/).

Figure 10: The port of Paranagua’s ethanol sector (http://www.portosdoparana.pr.gov.br).

Brazil is the world's largest ethanol exporter, but shipments have been erratic in recent years
as key international markets remain skeptical of adopting cane-ethanol as a fuel on a wide scale.
(Riveras, Reuters, 2010).Additionally, the Brazilians ports do not have structure to support actual
and future shipments. Pavan (2007) alerted that Brazilian ports are not ready to attend the demand.

Principal players
In Brazil, the ethanol marketing is become more concentrated. Seven major groups already
dominate 67% of the ethanol sales in Brazil. In the last years, the concentration increased rapidly –
it was 25% in 2000. The principal players in the Brazilian ethanol industry are Coopersucar, Cosan,
ETH bioenergy, and LDC-SEV.
Copersucar S.A. is the largest Brazilian sugar, ethanol and Bioenergy Company and a
significant player in the major world markets. With 39 associated mills, it has a unique business
model that integrates every link of the sugar, ethanol and bioenergy production, commercialization
The Brazilian Ethanol Industry 18

and logistics chain, from operational planning to direct delivery to the end customer in Brazil and
abroad. In 2009, the company sold 5.2 million metric tons of sugar, an increase of 40%, and 3.9
billion liters of ethanol (Copersucar S.A. , 2010).
Cosan was founded in 1936, when it built the Costa Pinto mill in Piracicaba (São Paulo
State). Cosan is a leading sugar and ethanol producer, trader and exporter, as well as the largest
global sugarcane-bagasse-based electric energy generator, with a crushing capacity of 60 million
tons of sugarcane for the 2009/2010 harvest, the company has a market share of approximately 10%
in Brazil. Operations with sugar and ethanol are carried out in 23 mills, four refineries and two port
terminals, one being for sugar and the other for ethanol (Cosan, 2010).
Recently, Royal Dutch Shell Plc and sugar and ethanol giant Cosan signed a binding
agreement that will create Brazil's No. 3 fuel distributor, as well as explore international ethanol
and sugar opportunities. The joint venture, with estimated annual sales of $21 billion, Cosan has all
of its sugar and ethanol mills in the venture, as well as fuel distribution assets it bought from Exxon
Mobil Corp in 2008 (Barreto & Ewing, 2010).
LDC-SEV is the result of a merger, in October 2009, of two important companies: LDC
Bioenergia, of the Louis Dreyfus Commodities and Santelisa Vale. Today, less than a year after its
inception, LDC-SEV has established itself as second largest sugarcane processor in the world and
second largest producer of renewable energy worldwide, crushing capacity of 40 million tons of
sugarcane per year and 1.5 million cubic meters of ethanol, with 13 units located in the top
producing regions of Brazil (LDC-SEV, 2010)
Started in 2007, ETH Bioenergia works with the production, sales and logistics of ethanol,
electric energy and sugar. ETH is a company of Organização Odebrecht, with 33% shares held by
the Japanese company Sojitz Corporation, a multinational that sells commodities. With 9 mills,
ETH´s production and processing capacity in 2012 will be 40.000.000 tons of sugarcane. 3 billion
liters of ethanol will be produced by ETH in 2012. (ETH Bioenergia, 2010)

Labor

The sugarcane industry is the biggest jobs generator of the Brazilian agriculture sector.
According to the 2008 National household sampling survey (PnaD), the sugarcane industry had
employed 629 thousand people, which is almost what soybean, corn, rice, citrus, and cassava
combined had employed in the same period (Reynol, 2010). Also, it is estimated that the industry
will generate others 170 thousand jobs in the following years.
The Brazilian Ethanol Industry 19

The ethanol industry has been improving its labor relationships resulting in a progressive
improvement on rights and safety measures for all employees. Also, the number of child labor
(below 16 years of age) is very low in the industry as results of coordinate actions between
government and industry. In 2005, the Brazilian Labor Ministry published the regulation 31 (NR
31) which defines labor rules and accident prevention for those involved with agriculture, livestock,
forest, and fishing (Ministerio do Trabalho, 2005). This regulation provides additional procedures
that are not specified in the Brazilian Labor Law.

Additionally, many sugarcane facilities have been adopting the “National Commitment for
the Improvement of Labor Conditions in Sugarcane Production” which involves the adoption of the
best labor practices that exist in the Brazilian sugarcane industry. Procedures covered in the
Commitment involve the areas of health, safety, transportation, and transparency in the
measurement and payment of production (Jank M. S., 2009).

The result of these actions reduced the child labor in the sugarcane industry in 86% (from
14.7% to 3.3%) of temporary workers and almost to 100% of permanent workers, from 1992 and
2005 (Balsadi, 2007).

This author believes that the ethanol is promoting a silence revolution in the labor sector.
Sugarcane mills are investing on training, paying better salaries, requiring formal education for
rural workers, investing in social projects, and providing health plans for its employees. This author
has direct contact with two sugarcane mills, Viralcool mill in the State of Sao Paulo and ETH mill
in the State of Mato Grosso do Sul. These companies not only pay better wages for rural workers
when compared with their former salaries but also invest on qualification of its workforce.

Greenhouse Gas Emissions

Recent studies on energy consumption and greenhouse gas emissions have concluded that
corn-based ethanol results in 13% to 22% lower greenhouse gas emissions relative to gasoline. But,
net greenhouse gas emissions from sugarcane-based ethanol could be as much as 56% lower than
gasoline, and cellulosic ethanol could reduce emissions by 90% relative to gasoline. (Arasu, 2007),
(Farrell, 2007).
The Brazilian Ethanol Industry 20

American Ethanol and Brazilian Ethanol

Considering sugarcane is five to seven times more efficient per hectare at producing ethanol
than corn, and that U.S. taxpayers pay $6 billion annually for the federal ethanol subsidy
(Renewable Fuels Association, 2010),
2010), Brazilians may have a pretty good argument for letting the
support expire - at least from an economic standpoint.
st

According to Hurst (2010),


(2010) inn addition to being more efficient per unit of arable land, by
most accounts, sugarcane-derived
derived ethanol is more sustainable than corn
corn-based
based ethanol because
sugarcane is a semi-perennial
perennial crop, requiring replanting every six years, as opposed to corn's one.
And in terms of carbon emissions, as compared to gasoline, sugarcane ethanol cuts greenhouse
gases by more than 60 percent, better than any other liquid biofuel (Figure 12
2).

Figure 11: Comparison of Brazil and the U.S. Ethanol Industries


Industries.

A final environmental issue that has merited attention in the past is whether Brazilian
sugarcane production is driving deforestation. But a recent study shows the impact is only indirect
as it is more common for land previously used for cattle grazing to be converted to sugarcane
cultivation, which,, in turn, drives more forest to be cleared for grazing. While sugarcane ethanol is
no panacea, as long as the U.S. has a renewable fuels requirement, fulfilling the requirement with
biofuels other than the inefficient corn-based
corn ethanol will likely be cheaper
aper and less
environmentally taxing (Hurst, 2010).
2010)

Based on US, EU and UN sustainability government policy standards, Brazil’s sugarcane


ethanol is environmentally, economically, and politically achievable today. Paradoxically, using the
same sustainability criteria, cellulosic biofuels in the US and the EU are not yet economically
achievable in substantial volumes. (Schroeder, 2010)
The Brazilian Ethanol Industry 21

Figure 12: Comparison of Brazil and the U.S. Ethanol Industries. (Hofstrand, 2009)

Many analysts maintain that the United States would benefit from having more energy
producers in the region, while Brazil stands to further its goal of developing ethanol into a globally
traded commodity. In addition to these economic benefits, some analysts think that an ethanol
partnership with Brazil could help improve the U.S. image in Latin America and lessen the
influence of oil-rich Venezuela under Hugo Chávez. However, obstacles to increased U.S.-Brazil
cooperation on biofuels exist, including current U.S. tariffs on most Brazilian ethanol imports.
(Seelke & Yacobucci, 2007)
The Brazilian Ethanol Industry 22

On March 9, 2007, the two countries signed an agreement to (1) advance research and
development bilaterally, (2) help build domestic biofuels industries in third countries, and (3) work
multilaterally to advance the global development of biofuels. Increasing biofuels cooperation with
Brazil and other countries in Latin America may prompt challenges to existing U.S. trade, energy,
and agriculture policies (Seelke & Yacobucci, 2007)

In this author opinion, the international ethanol trade will migrate from a protective market
in the U.S. and Europe to an open market, in the next 15 years. The reasons to support estimative
are based on:

1. Americans and Europeans will not support this kind of fiscal incentive for long period
2. The social, environmental, and economic appeals for promote ethanol production in
developing countries as the way to improve their conditions
3. The simple answer of the question: Why should Americans and Europeans prefer doing
business with petroleum countries and keep their energetic dependence on it than to
open their markets for other countries to provide to us renewable fuels? and
4. The antagonism between the U.S. strong politics to promote free market around the
world and the American powerful ethanol protectionism.

Instead renewable fuels organizations from the U.S. and Europe keep investing thousands of
dollars every year to protect their market (Renewable Fuels Association, 2010), at least, they should
be work on a long term project that opens progressively their market as well establishing
importation quotas for renewable fuels that allows not only developing countries to trade ethanol
with these countries but also maintain the domestic industry.
The Brazilian Ethanol Industry 23

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