That year, Brazil’s First National Congress of Industrial Applications of Alcohol recommended large-scale investment to produce “motor alcohol,” now known as ethanol.
Americans may have been at the forefront of the early aviation and automobile industries, but the Brazilians were the true pioneers of biofuel. In the first decades of the 20th century, various inventors tested cars that could run on ethanol. Way back in 1931, the Brazilian government mandated that all gasoline contain at least 5 percent water-free ethanol.
After the first oil shock in 1973 left Brazil reeling from a mounting foreign debt and soaring inflation rate, the government took steps to reduce the dependence on imported oil by creating incentives to produce sugarcane ethanol. The country’s new target in the ’70s: a minimum level of 25 percent ethanol in every gallon of gasoline.
By 2014, as millions of people around the world watched the World Cup soccer matches held in Rio and other Brazilian cities, Brazil had replaced more than 40 percent of its gasoline needs with sugarcane ethanol, and 50 percent of its cars and trucks are flex-fuel vehicles – that is, they are equipped to burn either gasoline or ethanol.
In many respects, Brazil was the ideal place for a biofuel revolution. As far back as the 16th century, the warm, wet climate has supported fields of sugarcane. Since that time, ethanol from residual molasses was a regular byproduct of sugar production. The fields of sugarcane are still there, but the hopes of turning still more of that sugar into a booming ethanol industry have taken a big hit in recent years.
Thanks partly to the discovery of vast offshore oil reserves in 2007, the country has taken a sharp turn toward fossil fuels. At the same time, sugar mills are shutting down and new investment in ethanol production has dwindled. Like much of the rest of the world, Brazil still has a chance to fully embrace biofuel, but the path forward isn’t as straightforward as it used to be. When it comes to bioenergy, Brazil is at the crossroads.
Brazil is still the world’s second leading producer of ethanol, after only the U.S. The country produced 23.5 billion liters of the fuel in 2013—an impressive number, but significantly less than the 26.1 billion liters produced in 2010 and still less than that produced in 2008. Demand for ethanol has fallen sharply in recent years, and the industry is feeling the sting. More than 40 sugar mills have shut their doors since 2009, and another dozen or so may close before 2014 is over.
“The crisis in Brazil is deep,” says Marcia Moraes, Ph.D., professor in the department of economics, business, and sociology at the University of Sao Paulo. “It’s a big disappointment. We’re losing big investments in ethanol plants, losing jobs, and failing to contribute to the reduction of carbon emissions.”
The situation is troubling to advocates of renewable energy, but with just a few policy changes and shifts in the market, Brazil could be on the verge of an ethanol-fueled comeback, says Marcelo Galdos, researcher at the Bioethanol Science and Technology Laboratory (CTBE) in Sao Paulo. “It’s not the end of ethanol,” he says. “Growers are concerned, but they see it as a bump in the road. They are very resilient.”
Brazil’s long-standing commitment to biofuel was rattled by the discovery of the Pre-Salt oil reserve, a deposit that rivals the oil beds of the North Sea. Since that discovery, Brazil has invested $250 billion to develop the oil resource. By way of comparison, the state oil company Petrobras is expected to invest about $2.9 billion in biofuel development between 2013 and 2017, about 1 percent of the company’s total investments.
As the great financial crisis of the late 2000s gripped the world, Brazil fought to control inflation by lowering the cost of gasoline – something that led to a drop in demand for ethanol.
Brazil is a pioneer in producing sugarcane ethanol,” Moraes says. “The challenge we are facing now is competition from fossil fuels."
"Government policies currently do not incentivize biofuels," Moraes adds. "There is not an attraction for private investment.”
However, as University of São Paulo professor Jose Goldemberg, Ph.D., has pointed out, the new source of oil is not to blame for the ethanol program’s woes. “It is not the discovery of the PRESALT that has hurt the ethanol program in Brazil; oil production from this source will only be available in a few years in significant amounts,” says Goldemberg, who is also secretary for the environment of the state of São Paulo, Brazil.
“What hurts is the fact that gasoline prices were kept constant since 2007 and are sold today in Brazil at prices below the international cost in order to control inflation. Brazil is importing gasoline at international prices and selling it to consumers at prices approximately 20 percent lower. Since the selling cost of ethanol is pegged to the gasoline price, it has been kept constant since 2000, which is entirely unrealistic.”
The balance could once again tip in favor of ethanol, but some key factors would have to change, says Kenny Bell, a researcher and Ph.D. student at the University of California at Berkeley. The government would have to let the price of gasoline drift closer to its natural levels, ethanol producers would have to find ways to streamline their process and cut costs, and, perhaps most important, increasing global demand would have to make ethanol more profitable. As governments around the world take serious steps to reduce carbon emissions, Brazilian ethanol will likely become a more valuable commodity.
“The biggest thing that would spur more investment in Brazil is higher prices for ethanol,” Bell says. “When that comes, the infrastructure will come.”
Moraes believes elections next year could lead to a new, more supportive approach to the biofuel industry. “The current fuel policies are not sustainable,” she says. “Ethanol is an important component to address the increased demand for fuel. After the elections, whoever is president will have to put Brazil on the path to sustainable growth again.”
Even in the current climate, the infrastructure for biofuel continues to build. A 206 km- long, 24-inch-wide ethanol pipeline northwest of Sao Paulo was completed in 2013, just one step in a future pipeline system that could greatly change the economics of ethanol delivery. “A pipeline creates certainty,” Bell says. “The cost of trucks can vary quite a bit. But with a pipeline, you know how much transport is going to cost.” Despite a downturn in the ethanol market, the just-completed pipeline is already economically viable, Bell says. And if ethanol prices increase, there will be plenty of capacity for profits. “The pipeline is oversized at the moment,” he says. “But that’s what you want.”
Technological innovation will play a key role in any revival of Brazilian ethanol, Galdos says. The first step: Improving the yield per hectare. To do that, ethanol producers will have to go beyond sugar and extract more second-generation fuel from dry leaves and other lignocellulosic material such as sugarcane bagasse. “Right now we’re only using a third of the biomass for fuel,” he says. “There is a lot of room for improvement.”
Estimates from Brazil’s CTBE suggest that advances in second-generation technology could increase typical production from about 7,100 liters of ethanol per hectare of land to about 10,000 liters. Further improvements in breeding and agricultural practices could increase the yield by another 40 percent.
Increased productivity means that the supply of ethanol could ramp up without converting more land to sugarcane. As Galdos explains, land surveys and satellite images suggest that very little native vegetation has been converted to sugarcane in recent years, and everyone involved would like to keep it that way. “People are thinking about sustainability,” says Galdos.
Sustainability isn’t just a buzzword: It’s a goal. And as long as that goal is in sight and incentives are in place, the biofuel industry of Brazil isn’t likely to be stuck at the crossroads for long.
--Additional reporting was contributed by Horta Nogueira, Ph.D., and José Goldemberg of the University of Sao Paulo, Brazil.